Posted: January 15, 2012 |  AUTHOR: KEN FOX | CONTACT ME


We hear about the BRIC nations and their exciting growth and foreign investment, but the news typically focuses on China, India and Brazil, not Russia. Although Russia still suffers from blatant corruption and behind the scenes support of unsavory nations like Iran, it’s making headway in a number of ways. This includes the following:
• The 2014 winter Olympics will be held in Sochi, Russia, February 7-23, 2014
• After 18 years of discussions, Russia was formally admitted to the World Trade Organization on December 13, 2011
• It has a booming economy, largely driven by oil and natural gas
• Its population has increased discretionary spending, and does not have to worry about national debt and healthcare insurance costs

President Dimitry Medvedev was sworn in May 2008, a close ally of former president Vladimir Putin. President Medvedev has moved forward with a foreign policy of seeming accommodation and friendship. Russia has emerged as a major trading partner with the U.S. In 2010; Russia ranked as the U.S.’s 23rd largest trading partner. The major U.S. imports from Russia include: precious stones and metals, chemicals, mineral fuels, aluminum, iron, steel and fish and other seafood. Current major U.S. exports to Russia include: aircraft, machinery and meat.

As part of the WTO’s entry agreement, Russia’s import duties will fall. Some estimate the impact of Russia’s entry into the WTO could double U.S. exports to Russia in five years. Additionally, demand for U.S. goods and services is significant and growing. This demand can impact agriculture, services, capital equipment, machinery and advanced technology. There will be increased demand for U.S. computer software, hardware and related services. There were 66 million Russian internet users in 2010, which is expected to increase considerably.

The U.S. will need to repeal the 1974 Jackson Vanik amendment, a hold over from the cold war barring U.S. Trade with to Russia due to its past resistance to free emigration policies.

Over the long term, Russia’s entry into the WTO would likely attract increased foreign direct investment and expose more corrupt business practices. However, in the short term, U.S. consumer company investments in Russia are impressive:

• McDonald’s has 298 restaurants in Russia
• Wendy’s plans to open 180 restaurants by 2020
• Subway has opened 200 shops
• Yum Brands (Pizza Hut, KFC and Taco Bell) has 350 restaurants, 164 KFC units, with plans to expand the KFC chain to 350 units by 2015, opening 30-40 restaurants a year.
• Papa Johns (pizza) has 19 restaurants in Moscow and 6 elsewhere in Russia
• Coca-Cola plans to invest $3 billion between 2012 and 2016
• PEPSICO will invest an additional $1 billion over three years (which equates to a cumulative investment of $4 billion) in its food and beverage businesses

Russia has improved its infrastructure, including better roads, building more shopping malls with food courts and facilitating product distribution.

There are still serious complaints from entrepreneurs in Russia who face daunting challenges from corrupt government officials in having to get certificates, pass inspections and deal with bribes needed to start a business.

As China showcased their country with the 2008 summer Olympics maybe Russia can put its best foot forward with its 2014 winter Olympics. However, the country needs a public relations campaign to show its citizens aren’t suffering, the country’s corruption is somehow reduced and their doors are truly open for business without barriers or burdens.

Sources: Knowledge@Wharton (January 3, 2012), the Cato Institute, N.Y. Times (August 3 and December 16, 2011) and Reuters (September 6, 2011)

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