U.S. Commercial Service Your Key To Russia

The U.S-Russia Chamber of Commerce of New England

May 3, 2007

The “R” in BRIC – Russia as a Strategic Emerging Market

U.S. Commercial ServiceRussia

“Russia is a riddle, wrapped in a mystery inside an enigma.” Winston Churchill, 1939.

“Russia is an engine of growth for American companies” Andrew Somers, President of AmCham Russia, 2007

PERCEPTION:PERCEPTION:

U.S. Commercial ServiceRussia

Russia in the Western Russia in the Western Press:Press:

Politkovskaya/Litvinenko Cases

Backtracking on Democracy

Beslan/Chechnya

Yukos/Khordikovsky

U.S. Commercial ServiceRussia

Reality:Reality:

Russia is a Developing Country.

Significant progress over past 15 years.

Impressive economic growth since 1998.

Substantial structural, administrative,

and economic reforms implemented.

Strategic market with significant assets.

8 Consecutive Years of Economic Growth

2002 2003 2004 2005 2006

GDP (US$ bn) 345.1 431.5 588.8 763.6 986.6Real GDP growth (% ) 4.7 7.3 7.2 6.4 6.6

Consumer price inflation (av; % )

15.8 13.7 10.9 12.7 9.7

Exports of goods fob (US$ m)

107,302 135,930 183,207 243,570 309,856

Imports of goods fob (US$ m)

-60,965 -76,069 -97,383 -125,303 -161,104

Current-account balance (US$ m)

29,116 35,410 58,592 83,185 108,177

Foreign-exchange reserves excl gold (US$

m)

44,054 73,175 120,809 175,891 296,131

U.S. Commercial ServiceRussia

Macroeconomic Snapshot:Macroeconomic Snapshot:Average GDP growth: 6.7% per yr. since ’98

GDP 2006: $987 Billion

PC GDP 2006: $6929 ($1,339 only 6 years ago)

Inflation: 9-10%

Unemployment: 6.6%

U.S. exports 2006: $4.7B to Russia (+20%)

U.S. imports 2006: $19.8B from Russia (+29.5%)

AmCham Survey Results

Did you know that . . .

• Half of American companies surveyed report sales increases of 200%+ in Russia from 2001 to 2005

• 97% of U.S. companies in Russia project continued growth in sales during the next 3 years.

• 92% of U.S. companies in Russia believe that continued engagement with Russia is positive for American Business and 86% believe Russia’s membership in WTO will bring new opportunities.

What Executives of American Businesses are

saying about Russia

• Our sales grew 80% in 2006 – Johnson & Johnson• During 2006 our sales have increased by 70% with a strong

trend for future growth – Delta Airlines• Russia now ranks in the top 5 among 180 countries in which

we do business. – Wrigley• Ford became the #1 selling foreign brand in Russia in 2006.• We have exceeded $1B in sales w/ latest annual growth

rates of 20-30%. – P&G• Russia represents the largest subsidiary in the Europe

Region for Mary Kay w/53% of 2006 net sales for the region.

What Executives of American Businesses are

saying about Russia

• Our business is now growing at a yearly average of about 40%. – Dow Chemical

• Since our office opened in 2002 we have grown at over 70% annually and growth in increasing. 80% of our products sold in Russia come from U.S. factories in Illinois and Iowa. – John Deere

• 3M Russia is a very important subsidiary for 3M Worldwide. Our business results, growth and profitability have been outstanding over recent years and have been some of the highest in 3M subsidiaries.

Commercial Ties Critical to Bilateral Relationship

“While political issues between our nations tend to garner the most headlines, economic interests should not be ignored. U.S.-Russia commercial ties are stronger and more dynamic than ever before, providing stability to our overall relationship.” - Secretary of Commerce Carlos Gutierrez, Moscow April 2007

U.S. Commercial ServiceRussia

Oil and Gas Economy:Oil and Gas Economy: Moscow awash with money; record oil/gas

prices driving economy. Trickling down to regions.

Russia will continue to be major player in the global energy market:

World’s largest natural gas reserves and largest gas exporter.

Neck-in-neck with Saudi Arabia for oil production; 2nd biggest oil exporter.

World’s 3rd largest energy consumer.

U.S. Commercial ServiceRussia

Oil and Gas Economy Oil and Gas Economy (cont’d):(cont’d):

Putin wants to bring greater share of energy sector under state control.

Simultaneously trying to diversify economy away from reliance on petrodollars.

Energy remains strategic focus of bilateral dialogue and Presidential initiatives.

Putin’s Last Year(State of the Nation Address)

• Call to spend hundreds of billions of dollars on new power stations, roads, other infrastructure over next 12 years.

• Russia needs 2/3 more electricity by 2020 to ensure sustainable economic growth. 26 nuclear + hydro,coal plants

• Start using “stabilization fund” now at $108 billion.• Improve housing – “It is inadmissible for a country with such

reserves accumulated from its oil and gas revenues to be at peace with the fact that millions of its citizens live in slums”.

• Pensions to increase 65% by 2010

Russia’s Automotive Market

• Russia fastest growing market for new car sales in Europe and one of most dynamic markets in the world.

• $33 billion car sales in Russia in 2006 (6 times 2001 figure)

• Russian car models cannot compete with foreign models.

• Consumer preference shifting to more expensive cars. Access to Credit.

• High end niche 70% growth 2005-06.

Car Sales in Russia (thousands of vehicles)

Over 2 million vehicles sold in 2006, a 20% increase from 2005

0

500

1000

1500

2000

2500

2003 2004 2005 2006

Domestic assembly of foreignmakes

Domestic

Used imports

New imports

Manufactured near St. Petersburg since 2002

72,000 Ford Focus produced in 2006

6 month waitlist for new Focus.

Its not just Moscow anymore

Russia: 145 Million People

• Largest country in world but heavily urbanized• Moscow 11 million - St. Petersburg 5 million• 13 cities over 1 million people• 32 cities over 500,000 people• 100+ cities over 100,000 people• Outside of Moscow and St. Petersburg retail market

underdeveloped.• Enormous Scope for Retail Growth

Opportunities for Retail Expansion

Lenta’s Drive to the Regions

• Lenta founded in 1993. HQ in St. Petersburg, Russia. • Operates 14 hypermarkets - 15 sites under construction.• Ten of the existing retail complexes are in St Petersburg, two

in Novosibirsk and one each in Astrakhan and Tyumen. • First big-box Russian retailer to expand into Western Siberia

and the Volga regions. • Stores under construction in Barnaul, Nizhny Novgorod,

Novgorod, Novosibirsk, Omsk, Petrozavodsk, Rostov-on-Don, Ryazan, St. Petersburg, Togliatti, and Volgograd

• EBRD $50 million unsecured loan to finance new regional outlets

Retail Lending – Consumer Access to Credit

• Credit card business still in infancy in Russia• Increased 128% in 2006 to 5.7 million cards issued• Car loans doubled 2005-2006 to almost $10 billion• Mortgage lending increased almost 4 times 2005-

2006 from $3.8 billion to $13.5 billion

St. Petersburg

Northwest Russia

• Total Population – Approximately 15 million• St. Petersburg – 4.8 million • St. Petersburg and surrounding

Leningrad Region constitutes the second largest regional market in Russia, as well as a base for operations throughout the NW.

St. Petersburg

• Founded by Peter the Great in 1703 as a window to the west. Also known as the “Venice of the North”

• Maintains a western atmosphere and is an important international marketplace due to its close proximity to the Baltic countries, Scandinavia and the rest of Europe

• Major intellectual, cultural, financial, commercial, and industrial center of the Russian Federation

St. Petersburg

• Natural transportation center for the entire Northwest • St. Petersburg seaport is Russia's largest

commercial port by volume • Port handles over a third of all of Russia's imports • Extensive rail network connecting to Europe,

Moscow and key regions in the country

Foreign Investment in St. Petersburg

• Over $6 billion in new FDI announced in 2006• U.S. Largest Foreign Investor in NW Russia• U.S. Investors in St. Pete/LenOblast:• Ford, Gillette, Wrigley, Kraft, International Paper,

Philip Morris, Caterpillar, Motorola, Otis, Intel, HP, Sun Microsystems, General Motors

• Retail investment: IKEA, Shopping Malls, Franchises• Increase in business/tourist visitors = new hotels

St. PetersburgForeign Investment

0.70.9

1.4

5.3

0

1

2

3

4

5

6

Bill

ion

s of

Eu

ro

2003 2004 2005 2006

370,8370,8%%

143,9143,9%%

141,6141,6%%79,079,0%%

% of previous year

Source: AmCham, St. Petersburg Administration

St. Petersburg/Leningrad RegionSt. Petersburg/Leningrad RegionKey industrial investment projectsKey industrial investment projects

The city covers an area of 1,439 kм2

Saint-Saint-PetersburgPetersburg

Gulf of FinlandGulf of Finland

Bosch-Siemens (BSH)

JTI

ElcoteqToyota

Sea port

Severstal

BaltikaPepsi-Cola

Coca-Cola

Wrigley Gillette

Ring road

General Motors

Nissan

Ford

Kraft

Caterpillar, Roca, Henkel

International Paper

Best Prospects for U.S. Companies in NW Russia

Automotive Parts and Equipment

Building Materials and Construction Equipment

Oil and Gas Equipment and Services

Information Technology Franchising Port Equipment and

Services

Food Processing and Packaging

Forestry, Woodworking and Pulp and Paper Eq

Safety and Security Equipment

Tourism Medical Equipment Retail Equipment

U.S. Commercial ServiceRussia

Advice for Doing Business in Advice for Doing Business in Russia:Russia: Perform detailed market research; identify

specific sector opportunities.

Find a qualified local partner; conduct due diligence.

Be patient: maintain a long-term timeframe for plan implementation.

U.S. Commercial ServiceRussia

Advice for Doing Business in Russia Advice for Doing Business in Russia (cont’d):(cont’d): Know your trade financing options: make use of

TDA, EXIM, OPIC.

Consider regions – ground floor opportunities (13 cities w/populations > 1m).

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What Our Clients Say

“We would like to thank you very much for making our Gold Key visit to Moscow a success. Due to your excellent preparations, the meetings were meaningful and we are now hopeful to acquire some solid customers in Russia” Horner Discus International, Inc., Fort Lauderdale, FL

I am very grateful for your prompt and skillful efforts on my behalf. I did not realize that there was such good service -- and such fine people -- available from our government to help my business.J. Lyman Industries Inc., Chicago, IL

“The Gold Key Service was everything that was promised and more… I assure you we will use this fine service in the future and recommend it to all our business contacts…”J.D. Watkins Enterprises, Inc., St. Louis Park, MN

“You and your service are to be applauded for the efforts and dedication… I want to express my deepest appreciation for efforts with the various elements of the Russian bureaucracy.”Potomac International, Inc., Alexandria, VA

Contact UsKeith L. Silver

Principal Commercial OfficerU.S. Consulate GeneralSt. Petersburg, RussiaTel:+7(812)326-2560 Fax: +7(812)326-2561

Email: keith.silver@mail.doc.govhttp://www.buyusa.gov/russia/en