U.S. energy and technology businesses seeking new global markets should prepare to take advantage of new opportunities in Russia. A fresh start in U.S.-Russian political relations is dramatically improving the business climate. Russian economic reforms and the stabilization of the Russian economy has reduced the risk of doing business in Russia. Another factor is that Russia has become a nation of significant wealth because of oil and gas exports. Most importantly, Russia is about to invest in major new energy infrastructure that is a great opportunity for U.S energy and technology business.
A Fresh Start in US-Russian Relations
President of Russia Dmitry Medvedev issued a statement on March 31, 2009 about building the bond between Russia and the United States. President Medvedev made a strong statement about the need need for more investment projects, joint research and development by companies and increased trade in high tech products between America and Russia. President Obama has made clear that he is also interested in strengthening the bonds and trade between Russia and the United States.
President Medvedev and President Barack Obama met in London on April 1, 2009. A Joint Statement by President Obama and President Medvedev on April 1, 2009 stated that they had discussed ways to strengthen the international monetary and financial system and promote global economic stability and prosperity. The statement also emphasized the steps that both countries will take to improve international security, rule of law, and peaceful resolution of differences. This establishes a very good climate for American-Russia business.
Russian Economic Reforms
Key economic reforms have been implemented in the Russian tax, banking, labor and land codes. Russia has passed a new Foreign Investment Law that defines procedures for participation of foreign investors in the capital of Russian strategic sector companies. This new law will create a transparent and predictable business climate for foreign investors. Another significant measure to improve the business climate is that the Russian tariff rate has been set at zero % for the import of some types of technological equipment.
Past problems of doing business in Russia have been reduced for two significant reasons, according to the U.S. State Department. First, Russia has been preparing to join the World Trade Organization by bringing regulations and laws into compliance with internationally accepted business practices. America and Russia concluded a bilateral WTO accession agreement in late 2006. The second factor that has facilitated business transactions in Russia is the growth of small and medium sized businesses. As with most countries, businesses that are small and medium sized are often more innovative and less bureaucratic than big corporations.
Stability of Russian Economy
The Russian economy has greatly improved since the difficult times in the 1990s during the transition to a free market system. Inflation and exchange rates have stabilized due to good fiscal policy, according to the U.S. State Department. In the past nine years, the Russian GDP growth has averaged 7%. Since 2003, Russia has had a budget surplus and has established a large stabilization/rainy day fund ($156 billion in 2007). This kind of economic stability is very inviting for international business.
Russian Oil Exports
Russia is becoming a wealthy nation because of oil and gas exports, which have become the engine that drives the Russian economy. Russia is the world’s largest energy exporter now. Although America is the world’s largest importer of energy, only about 3% of US oil imports were from Russia in February 2009. With improved US-Russian relations, there is a more opportunity an increase in oil exports from Russia to America. The US government has been striving to reduce its dependence on the Middle East for oil and importing oil from Russia would support that goal.
U.S. businesses that want to import Russian oil can look online for Russian partners. The Russian firm OOOLIGA, founded In 2004, has an online ad stating that the company is agent of Gasprom, Rosfneft, Lukoil and other oil companies in Russia. OOLIGA sells rebco (Russian Export Blend Crude Oil), d-2, mazut, as well as numerous other products. Another Russian company is Sakhalin Energy, which promises to deliver oil and gas “profitably and in environmentally and socially responsible ways.” Sakhalin Energy sells d-2, mazut, rebco, lng, jetfuel, lpg, gasoline, m-100, and diesel oil. The Oao Yandgaz Group is another Russian company that is selling oil internationally. Oao Yandgaz states in its an ad that it is a major oil extracting Company that is looking build “strong and long-term business relationships with buyers of petroleum products in accordance with Russian law.” The Oaa Yandgaz Group sells base oil, bitumen, diesel, jet fuel, lng, lpg, mazut100, rebco, other petroleum products. These are just a few examples of the many Russian companies looking for business partners.
Energy Efficiency and Clean Energy Technologies
In the April 1, 2009 Joint Statement, President Obama and President Medvedev pledged to cooperate in improving energy efficiency and development of clean energy technologies. This cooperation will be based on the Global Energy Security Principles adopted at the G-8 Summit held in 2006 in St. Petersburg, Russia.
Russia’s 2008 plan for implementing the St. Petersburg principles shows Russia’s commitment to expand electrical generation and distribution facilities in the next 10 years. They plan to double the total capacity of nuclear power plants and coal-fired plants. Hydroelectric power plant capacity will increase by 60% and gas generation plant capacity will increase by 40%. These massive infrastructure projects will be opportunities for American energy businesses. The projects will also be opportunities for U.S. companies that specialize in technology and products for energy efficiency and clean energy technology.
U.S.-Russian Energy and Technology Trade
These new developments in the Russian marketplace represent huge opportunities for American energy and technology businesses. Russia’s new wealth and economic stability provide an excellent environment for investment and trade. Russia has opened the doors for foreign technology businesses with new laws and zero tariff programs. Russia’s plan to make big investments in energy infrastructure will be significant opportunities for U.S. energy companies. All of these signs are extremely promising, and U.S. companies should be ready to take advantage of these opportunities.