U.S. companies will find growing opportunities in '93 - Russia - 1993 World Trade Outlook

Business America, April 19, 1993 by Timothy J. Smith

U.S. companies will find growing opportunities in Russia during 1993. Russia is looking to the United States for technology and equipment to reverse falling production, as well as for health care and consumer goods. In the long term, successful economic reforms could make Russia the leading export growth market of the next century.

U.S. exports 1992--$2.1 billion U.S. imports 1992--$480.1 million

President Yeltsin continues to push Russia forward along a course of radical market-oriented reform. Privatization will extend to large enterprises this year, building upon last year's sale of almost 47,000 small and medium state-owned enterprises. Other significant developments include removal of wholesale and retail price controls on 80-90 percent of all goods, large defense spending cuts, and elimination of the centralized supply and distribution system.

Russian economic performance will continue to decline, but at a more moderate pace than last year's 19 percent drop in industrial production. Inflation, which reached 2000 percent in 1992, will be a major concern until monetary policy is tightened. Prospects for continued reform will be determined largely by the ability of the government and Parliament to agree on a strategy.

Despite positive developments in some areas, including new laws, which if properly enforced will provide greater protection for intellectual property, companies will need to operate in an uncertain and changing environment. Foreign trade and investment laws and regulations, including taxes and tariffs, are subject to constant and unpredictable change; infrastructure, both physical and financial, is underdeveloped; and jurisdiction and ownership are unclear and in many cases contested. Russia recently announced new value-added and excise taxes for imports, although most foods, pharmaceuticals, and medical equipment remain duty-free. Companies will need to exercise care when arranging payment terms.

U.S. manufactured goods exports to Russia could grow and surpass $1 billion in 1993. Enterprises, particularly those with hard currency exports, now control much of the purchasing power in Russia and will look to U.S. equipment and consumer goods. Enterprises without hard currency will be able to make purchases with dollars obtained through exchanges, such as the Moscow Interbank Currency Exchange. Growth of private trading activity opens new opportunities for sales of U.S. goods to retail and other organizations.

Entry into force of Bilateral Investment and Tax Treaties, awaiting ratification by the U.S. Congress and Russian Supreme Soviet, respectively, will improve the commercial climate for U.S. firms by providing Most Favored Nation treatment for investments and relief from double taxation.

Last year, a number of exports dramatically increased: cars and vehicles rose 366 percent to $56 million, engines and motors 1281 percent to $15 million, prefabricated housing 375 percent to $19 million, womens' coats 114 percent to $8 million, footwear 55 percent to $21 million, and household appliances 54 percent to $4 million. Total U.S. exports will drop from the 1992 level as a result of falling agricultural exports.

U.S. loan, guarantee, and other programs, including those offered by Eximbank, the Overseas Private Investment Corporation, and the Trade and Development Agency, will be available to support U.S. projects in Russia. Project financing will be crucial to large projects. An oil and gas equipment financing facility, proposed by Eximbank, could become available this year to support as much as $2 billion in exports.

Companies will find promising opportunities in key commercial centers and resource-rich regions away from traditional markets, such as Moscow. The U.S. and Foreign Commercial Service will add staff in 1993 to its office in St. Petersburg, as well as Moscow, which now offers standard worldwide Commerce services, including the "Gold Key" Service, Agent/Distributor Service, and World Traders Data Reports. During 1993, Commerce will open new offices in Vladivostok and Khabarovsk, and American Business Centers in Vladivostok, St. Petersburg, Tyumen, and Nizhny Novgorod. These offices will collect important trade leads and commercial information for distribution to U.S. firms through Commerce district offices and the BISNIS Information Center.

New Commerce programs will assist companies pursuing the Russian market. A visit of leading Russian energy officials for a gas and petroleum conference and visits with U.S. companies at the Offshore Technology Conference in Houston will be among the events sponsored by the Intergovernmental U.S.-Russia Business Development Committee. Commerce will also sponsor an Aerospace Products Information Center at the Moscow Aerospace '93 Show in September.