I.

MACRO
ECONOMIC
PRESPECTIVE
 Economic reforms and growth

History of economic reforms

The economic reform in Russia that started in 1991 aimed to bring about
macroeconomic stability. The drive for industrialization was initiated and a consumer
market started to develop slowly. However, the history of Russian economic reforms
can be depicted through several periods after 1990.

A. Credit Expansion:

In the year 1991-92, the Russian government tried to usurp the credit expansion by
building arrears between the different enterprises. The domestic credit was increased a
lot by the end of 1992. The state enterprises faced a financial crisis, for the price control
was not there, which lowered the demand of their products.

The government also stopped financing the state enterprises. Therefore, these
enterprises then had to take loans from other enterprises to run. In the middle of 1992,
the outstanding amount of loan taken by those enterprises were 3.2 trillion rubles. Then
the government helped them by giving 181 billion rubles but in the form of credit.
.

B. Monetary Policy Reform and Macroeconomic Stabilization :

In 1993, macroeconomic stability was the main aim of the economic policies. So some
macroeconomic measures were taken such as, reduction of subsidy and increasing the
revenue. Monetary policies were set in such a way to control inflation.

The government started to control the credit and money emissions by issuing several
government bonds and terminating the incompetent state enterprises. Wages for the
state enterprises had also been decreased to control the budget deficit. Therefore the
rate of unemployment increased.
Reform in the Mid Nineties:

The main focus of the economic policies didn't change in the mid nineties, that is,
macroeconomic stability again got the same focus. But the Central bank did not help to
accelerate the stabilization process, for they allowed credit at a subsidized rate to the
enterprises

Economic Reform in Russia: was started to achieve macroeconomic stability

and to restructure the country's economy. So the effects of economic reform in Russia
can be described by focusing on those areas.

Macroeconomic Stability:

In the early nineties the Russian economic structure was very poor and the output was
decreasing. The main reasons for that were:
A huge amount of productions that was not able to fulfill the demands of real market.
Therefore, the rate of inflation increased. Usages of market instruments went low for the
dominance of the communist regime.,The number of skilled labors decreased.

After the currency crisis in 1994, the Russian government applied some new method for
macroeconomic stabilization. As a result, like the other post communist countries, the
contribution to the gross domestic product by the Russia's service sectors increased. It
can be depicted through a table given below.

Years Industry's Agriculture's Service Sectors'

 contribution(%) to GDP contribution(%) to GDP contribution(%) to GDP
1989 50.2 16.8 33
1992 41.3 7.1 51.6
1995 39.2 7.9 52.9
1998 36.2 5.4 58.4

From the above table it is very clear that the contribution by the industries and
agricultural sectors get decreased over the years while the service sectors' contribution
to GDP increased. Therefore it can be understood that Russia was inching towards a
developed economy from the developing one and that is only because of the economic
reform.

The net capital outflow of the non financial private sectors was substantial due to the
corruptions in reporting the payments of the imported and exported goods and transfer
of illegal assets. But through economic reform the net capital outflow had decreased
over the years. This is shown in the table below.

In this table the year wise amount of net capital outflow is given.

1994 1997 2000 2003

$12.4 billions $25.9 billions $22.8 billions $12.2 billions

Moreover, the macroeconomic stability helped Russia to go for further reform both in
terms of economic and political.

Social Effects:Before economic reform, Russia's social conditions were not good
because of the decreasing real registered incomes and as well as the inequality in
incomes of the citizens. After the crisis in 1998, the real disposable income also
decreased a lot. In addition to that, wages and incomes decreased continually because
the government was not paying for wages, social transfers and pensions regularly. After
the economic reform, expenditures for social policies, like social transfer, pension etc,
were increased by 7% of the Federal Budget. So the living standard of the Russian
citizens improved.

Through economic reform the rate of unemployment decreased as well. It is depicted

here in a tabular form.

Year 1992 1994 1996 1998 2000 2002

Unemployment Rate (%) 4.8 7.8 9.6 13.3 9.3 8.0

So from the above table it was clear that the employment issues had been improved,
which helped to build a good society. Not only that, but also the income policies were
improved which lowered the inequality in incomes.

Other Effects:
The economic reform in Russia summoned the structural and institutional reforms.
Privatization was done rapidly. In 1999, the private sector's total production was 70% of
GDP in comparison with the pre-reform period which was only 5%. The small private
businesses grew rapidly through the period of economic reform and their share
increased by 13%. The new private enterprises' share in employment was 40% in 2002.

But in Russia, the government continued to intervene into the production, consumption
and distribution of goods and services which was a hindrance for economic freedom.
The need for civil society, electoral process, independent media and economic
liberalization was still there, for without these things economic freedom can't be
achieved. However, corruption had been restricted to some extent

Key Economic indicator

1.GDP (Constant Prices, National Currency) for russia in year 2010 is RUB
39,669.17 Billion. Real GDP is expressed in billions of national currency units; the base
year is country-specific.
2.GDP Growth (Constant Prices, National Currency) for russia in year 2010 is
3.966 %. Annual percentages of constant price GDP are year-on-year changes; the
base year is country-specific.
3.GDP (Current Prices, National Currency) for russia in year 2010 is RUB 45,014.03
Billion. GDP is expressed in billions of national currency units.
4. GDP (Current Prices, US Dollars) for Russia in year 2010 is US$ 1,476.91 Billion.
Values are based upon GDP in national currency and the exchange rate projections
provided by country economists for the group of other emerging market and developing
countries. Exchanges rates for advanced economies are established in the WEO
assumptions.
5. GDP Deflator for Russia in year 2010 is 113.474 (Index, Base Year as per
country's accounts = 100). The GDP deflator is derived by dividing current price GDP by
constant price GDP and is considered to be an alternate measure of inflation. Please
note: Data are expressed in the base year of each country's national accounts.
6. GDP Per Capita (Constant Prices, National Currency) for Russia in year 2010 is
RUB 282,610.35 . GDP is expressed in constant national currency per person. Data are
derived by dividing constant price GDP by total population.
7.GDP Per Capita (Current Prices, National Currency) for Russia in year 2010 is
RUB 320,688.13 . GDP is expressed in current national currency per person. Data are
derived by dividing current price GDP by total population.
8. GDP Per Capita (Current Prices, US Dollars) for Russia in year 2010 is US$
10,521.79 . GDP is expressed in current U.S. dollars per person. Data are derived by
first converting GDP in national currency to U.S. dollars and then dividing it by total
population.
9. GDP (PPP), US Dollars for Russia in year 2010 is US$ 2,218.76 Billion. Gross
domestic product based on purchasing-power-parity (PPP) valuation of country GDP.
These data form the basis for the country weights used to generate the World Economic
Outlook country group composites for the domestic economy. Please note: The IMF is
not a primary source for purchasing power parity (PPP) data. WEO weights have been
created from primary sources and are used solely for purposes of generating country
group composites.
10. GDP Per Capita (PPP), US Dollars for Russia in year 2010 is US$ 15,806.88 .
Gross domestic product based on purchasing-power-parity (PPP) per capita GDP.
These data form the basis for the country weights used to generate the World Economic
Outlook country group composites for the domestic economy. Please note: The IMF is
not a primary source for purchasing power parity (PPP) data. WEO weights have been
created from primary sources and are used solely for purposes of generating country
group composites.
11.GDP Share of World Total (PPP) for Russia in year 2010 is 3.018 %. Gross
domestic product based on purchasing-power-parity (PPP) share of world total. These
data form the basis for the country weights used to generate the World Economic
Outlook country group composites for the domestic economy. Please note: The IMF is
not a primary source for purchasing power parity (PPP) data. WEO weights have been
created from primary sources and are used solely for purposes of generating country
group composites.
12. Implied PPP Conversion Rate for Russia in year 2010 is 20.288 . These data
form the basis for the country weights used to generate the World Economic Outlook
country group composites for the domestic economy. Please note: The IMF is not a
primary source for purchasing power parity (PPP) data. WEO weights have been
created from primary sources and are used solely for purposes of generating country
group composites.

Economic Indicator Listing

  For russia in year 2010 Indicator Value
GDP Growth (Constant Prices, National Currency) 3.966 %
GDP (Current Prices, National Currency) RUB 45,014.03 Billion.
 GDP (Current Prices, US Dollars) US$ 1,476.91 Billion
GDP Deflator 113.474 (Index, Base Year as
per country's accounts = 100)
GDP Per Capita (Constant Prices, National Currency) RUB 282,610.35 .
GDP Per Capita (Current Prices, National Currency) RUB 320,688.13 .
GDP Per Capita (Current Prices, US Dollars) US$ 10,521.79
GDP (PPP), US Dollars US$ 2,218.76 Billion
GDP Per Capita (PPP), US Dollars US$ 15,806.88
GDP Share of World Total (PPP) 3.018 %
Implied PPP Conversion Rate 20.288
Inflation, Average Consumer Prices (Indexed to Year 2000) 928.555 (Index, Base Year
2000 = 100)
Inflation (Average Consumer Price Change %) 6.559 %
Inflation, End of Year (Indexed to Year 2000) 926.157 (Index, Base Year
2000 = 100)
Inflation (End of Year Change %) 7.5 %
Unemployment Rate (% of Labour Force) 7.5 %
Population 140.367 Million
General government revenue (National Currency) RUB 15,556.91 Billions.
General government revenue (% of GDP) 34.56 %
General government total expenditure (National Currency) RUB 17,710.35 Billions.
General government total expenditure (% of GDP) 39.344 %
Total Government Net Lending/ Borrowing (National Currency) RUB -2,153.44 Billions.
Total Government Net Lending/ Borrowing (% of GDP) -4.784 %
General Government Balance (National Currency) RUB -1,923.17 Billion.
General Government Balance (% of GDP) -4.272 %
Total Government Gross Debt (National Currency) RUB 4,985.34 Billion.
Total Government Gross Debt (% of GDP) 11.075 %
Fiscal Year Gross Domestic Product, Current Prices RUB 45,014.03 Billions.
Current Account Balance (US Dollars) US$ 69.828 Billion

Investment Synario

Foreign investment is the second major element of Russia's reform strategy to

strengthen international economic links. From the late 1920s to the late 1980s, the
Soviet government prohibited foreign investment because it would have undermined the
state's decision-making prerogatives on investment, production, and consumption.

Since the beginning of the 1990s, following the collapse of the USSR and the
transitionto the open market economy, Russia became a new ground for foreign direct
investment.The transformation from a government-centralized economy to a market-
oriented one,the privatization of the state-owned enterprises and the rapid development
of the privatesector opened many opportunities for foreign investors as well as for
Russian entrepreneurs. “After a decade of a spectacular retreat, Russia is re-emerging
as an active player on the world scene, and for the first time in its modern history is
becoming a serious factor in the global economy.

1994 2000 2004 2005 2006 2007 2008 Q1

2009
FDI Inward $690 $2,714 $15,444 $12,886 $29,701 $55,073
$73,053 $9,993
FDI Outward -$281 -$3,177 -$13,782 -$12,767 -$23,151 -$45,916 -
$52,629 $12,893

Russia looms on the horizon as an immense opportunity for investors, domestic and
foreign alike - but for actual investments to flow and capital flight to be reversed, much
will have to change. There are increasingly positive signals in this direction. Russia is a
vast country stretching across Europe and Asia, possessing spectacular wealth in the
form of exploitable natural resources, technology, a large, skilled workforce, and nearly
150 million consumers whose needs are endless. It is a country whose goals are to
move towards a market system based on private capital investment and enterprise and
to integrate rapidly into the world economy

Total inward investments come from few partner countries

2010 Us $
Cyprus $ 77,254
Netherlands $56,902
Luxemburg $46,346
United Kingdom $34,402
 Germany $30,811
Ireland $17,425
France $9,662
USA $9,542
Virgin islands(UK) $8.2
Japan $1.6

Russia is an active outward investor. Russia’s international outward investment

position has been fast growing since the 2000s

RUSSIA INVESTMENT 100%

Netherlands 51.9
Cyprus 13.5
United States 8.1
United Kingdom 4.7
Belarus 1.9
Germany 0.9
Ukraine 0.6
Switzerland 0.6
Virgin Island 0.3
Others 13.4

Composition of economy
This composition of economy gives the percentage contribution in agriculture, industry,
and services to total GDP.

GDP - composition by sector (2010): 

agriculture: 4.2% 
industry: 33.8% 
services: 62%

Agriculture sector

The Russian agricultural sector is struggling to rebuild as it transforms itself from a

command economy to a more market-oriented system.  Following the breakup of the
Soviet Union in 1991, large State farms had to contend with the sudden loss of heavy
government subsidies. 

 Livestock inventories declined, pulling down demand for feed grains, and the area
planted to grains dropped by 25 percent in less than ten years. The use of mineral
fertilizer and other costly inputs plummeted, driving yields downward.  Most farms could
no longer afford to purchase new machinery and other capital investments. After about
ten years of decline, Russian agriculture began to show signs of modest improvement.

Wheat accounts for over half of Russia's grain production with average annual output of
about 40 million tons. Planted area typically ranges from 23 to 26 million hectares. 
Winter wheat comprises about one-third of total wheat area but half of total production
because of higher yield.  Roughly 70 percent of Russia’s wheat is classified as food-
grade, or milling quality, and 30 percent as feed-grade. 

The combination of reduced feed demand and several bumper crops since 2001 has
led to sharply increased wheat exports and lower imports.  Barley is Russia's second
major grain with average production of about 16 million tons from 10 million hectares. 
Spring barley accounts for 95 percent of barley area and 90 percent of production. 
Barley is used chiefly as a feed grain, although an expanding brewing industry has
boosted the demand for malting barley.   Russia produces roughly 500,000 tons of
malting barley against brewers' demand of about 1.2 million tons per year.  

Russia plants millions of hectares of corn, but less than 20 percent is harvested for
grain.  The remainder is chopped for silage, usually in August.  The area of silage corn
declined by about 60 percent during the 1990's, from around 10 million hectares to less
than 4 million.  Corn-for-grain area can fluctuate from year to year depending on the
weather, with lower area during dry years, but typically ranges between 0.6 and 0.8
million hectares.   (The USDA does not estimate area and production of silage corn. 
Official USDA estimates corn are for corn-for-grain only.)  Minor grains include rye, oats,
buckwheat, and millet.  

Sunflowerseed is Russia's chief oilseed crop, and Russia is one of the world's top
producers.  Because of a combination of high price, low cost of production relative to
wheat, and growing demand, sunflowers have become one of the most consistently
profitable crops. (See Sunflowerseed Production in Ukraine and Russia.)  Few
soybeans are grown in Russia, with planted area of roughly 0.5 million hectares and
production of 0.4 million tons.  About half of Russian soybeans are grown in Amur
oblast in the Far Eastern district.  Russia produces 0.3 to 0.4 million tons of soybean
meal and imports an additional 0.3 million tons. 
 Industry sector

Russian industry sectors encompass a wide range of sectors, such as mining, energy,
automotive, defense, construction, communication, consumer durables, construction
equipment and textiles. Russia’s industrial production growth rate was estimated at
8.3% in 2010, having drop -11% in 2009. By the start of 2011, the Russian economy
was showing reasonable to strong resilience in all of its sectors.

Russia will account for 50.92% of the Central and Eastern European (CEE) regional oil
demand by 2014, while providing 69.17% of supply. Russia’s share of gas consumption
was 70.43% in 2009, while its production was 76.96%. By 2014, its share of demand is
forecast at 67.33%, with the country accounting for 73.32% of supply. Gas output in
Russia is expected to rise from 590bcm in 2009 to an estimated 685bcm by 2014.
Russia will witness a surge in oil production of 8.8% between 2009 and 2019, with
output rising steadily from 10.01 million b/d in 2009 to 10.89 million b/d by 2019. Exports
are expected to peak at 7.89 million b/d in 2016. Gas consumption is expected to be up
from 415bcm to 503bcm by 2019, with exports peaking at 262 bcm in 2018.

Russia’s auto production fell drastically to 597,000 units in 2009 from 1.45 million units
in year 2008. Flash estimates for 2010 show that it is flatlining against 2009. The drop
has stopped, but growth is yet to kick in.

The output of foreign-branded cars dropped 51% to 281,100 and the production of
domestic-brand cars plummeted by 64% to 316,900. Truck and bus assembly fell by
64% to 91,400 and 46% to 35,500 units, respectively. Car sales in Russia fell by 49% to
1.5 million units from 2.9 million units in year 2008.

 the Russian government has planned to infuse $6 billion cash into its auto industry, as
part of a 10 year plan whose total worth is $40.3 billion. Domestic automakers are
expected to provide $19.6 billion as investments spread over 10 years, while the
government plans to invest $6.04 in the sector. Government funding is expected to
cover research and development initiatives to modernize the industrial base. The
investment program is also expected to launch the projects of major auto alliances such
as Renault and AvtoVAZ, Fiat and Sollers, and Daimler and Kamaz. It has also
introduced a scrappage scheme to encourage Russian owners of older cars to upgrade,
but that program appears to have had little impact.

Defense industry
Russia's defense industry employs 2.5 – 3 million people, accounting for 20% of all
manufacturing jobs. Russia is the world's second largest conventional arms exporter
after the United States. The most popular types of weaponry bought from Russia
are Sukhoi andMiG fighters, air defense systems, helicopters, battle tanks, armored
personnel carriers and infantry fighting vehicles. The research organization Centre for
Analysis of Strategies and Technologies ranked the air defense system
producer Almaz-Antey as the industry's most successful company in 2007, followed by
aircraft-maker Sukhoi. Almaz-Antey's revenue that year was $3.122 billion, and it had a
work force of 81,857 people.

Aircraft industry
Aircraft manufacturing is an important industry sector in Russia, employing around
355,300 people. The Russian aircraft industry offers a portfolio of internationally
competitive military aircraft such as MiG-29 and Su-30, while new projects such as
the Sukhoi Superjet 100are hoped to revive the fortunes of the civilian aircraft segment.
In 2009, companies belonging to the United Aircraft Corporationdelivered 95 new fixed-
wing aircraft to its customers, including 15 civilian models. In addition, the industry
produced over 141 helicopters. It is one of the most science-intensive hi-tech sectors
and employs the largest number of skilled personnel. The production and value of the
military aircraft branch far outstrips other defense industry sectors, and aircraft products
make up more than half of the country's arms exports.

INDUSTRIAL GROWTH IN RUSSIA

SERVICE SECTOR
TOURISM SECTOR

Russia's previously underdeveloped services sector has played an important role in

containing the social calamity of the collapse of the USSR, manufacturing and industrial
sectors. The service sector employed 55 percent of the workforce and contributed 59
percent of GDP in 1999, according to the CIA World Fact book. Important service
industries include financial services; advertising, marketing, and sales; tourism;
and retail trade TOURISM.

Foreign and domestic tourism was centrally managed during the Soviet Union. In 1991
the tourism industry was reorganized and today is one of the most important branches
of the service sector, both in terms of total revenue and numbers of employees. The
number of tourist companies has grown from several state tourist organizations in 1991
to several hundred in the larger Russian cities today. Most tourist firms are small,
employing fewer than 15 people, and function as both operators and agencies.
Operators are those firms that develop their own tourist routes. Tourist agencies market
the existing routes established by operators. Most travel transactions involve the
domestic market, offering travel services within Russia either for foreigners or for
domestic travelers. Providing services for Russians traveling abroad is a smaller but
more lucrative market.

The August 1998 financial crisis in Russia had a major impact upon the tourist industry.
The number of Russian tourists traveling to foreign countries dropped off sharply and
the number of foreign tourists visiting Russia also declined. According to the Russian
Statistical Committee, the number of Russians visiting the United States in 1999 fell by
nearly half between 1998 (175,660) and 1999 (95,280). The number of Americans
visiting Russia also fell considerably between 1998 (216,976) and 1999 (177,120).

In the old USSR domestic tourism was one of the largest industries. There were many
resorts, recreational centers, tourist bases, and summer camps for children. Large
enterprise and labor unions provided people with inexpensive package tours. During the
first years after the breakup of the Soviet Union, domestic tourism declined sharply, but
has regained ground since then. Russian tourists travel abroad to Europe, the countries
of the Mediterranean, and the United States—a popular tourist destination for young
people. Local foreign language schools often offer English language training in the
United States to teenagers and young people. Obtaining visas to travel to the United
States, however, involves complicated regulations and is often a hindrance.

Russia is a popular destination for foreign tourists, primarily because of its cultural
attractions. Over 80 percent of foreign tourists come to Russia with the intention of
visiting Moscow and/or St. Petersburg. However, in recent years the country's natural
environment has attracted a growing proportion of foreign travelers. Russia may one
day become a popular destination for eco-travel, attracting adventure travelers and
tourists looking for something out of the ordinary. Travel to Russia is particularly well-
represented by travelers from Germany, China, the United States, Japan, Italy, Poland,
Turkey, and Israel.

A legacy of Soviet-era infrastructure neglect, oppressive paperwork, high costs, and

lack of local marketing know-how has limited attractiveness of travel to Russia for many
foreigners. Despite improvements in the first decade since the Soviet breakup, the
Russian travel industry continues to be hindered by the lack of accommodations and
travel-related services that are in accordance with international standards. Recent years
have witnessed improvements in the quality of services. In addition, new programs have
been instituted that provide training in hotel and restaurant management services. At
the same time, new hotel, restaurant, and recreational equipment and expertise have
become more widely available.

FINANCIAL SERVICES

The Russian government has put considerable emphasis in recent years on

restructuring and stabilizing the banking system and the financial services industry. A
legal framework was adopted, establishing procedures for forming statutory capital,
specifying procedures for starting and terminating commercial bank activities,
procedures of issuing and recalling licenses for bank audits, establishing procedures for
bank bankruptcies, and establishing procedures for the operation of non-banking
financial organizations that offer financial services and were licensed and regulated by
the National Bank.

But the Russian banking system is still in a state of transition. Banks do not have the
resources, capability, or the population's trust to attract substantial savings and channel
them to productive investments. While ruble lending doubled in the 2 years following the
August 1998 financial crisis, loans remained at the pre-crisis level of 30 percent of total
bank assets. The Russian Central Bank reduced its refinancing rate 3 times in 2000, to
33 percent, signaling an attempt to lower lending rates. However, banks still perceived
commercial lending as risky, and some banks were inexperienced at assessing credit
risk. The Russian Central Bank announced that it was developing a procedure to
finance banks for promissory notes, rights of claim under credit agreements, and
mortgages.

INTERNATIONAL TRADE AND MAJOR TRADE PATNERS

Russia's foreign trade consisted of US$75 billion in exports and imports of US$48.2
billion in 1999 and then to US$105.1 billion in exports and US$44.2 billion in imports by
2000. Russia sells a broad range of commodities and manufactures including petroleum
and petroleum products, natural gas, wood and wood products, metals, chemicals, and
a wide variety of civilian and military manufactures. Russia's largest trading partners for
exports are Ukraine, Germany, United States, Belarus, the Netherlands, and China.
Russia imports machinery and equipment, consumer goods, medicines, meat, grain,
sugar, and semi-finished metal products. Russia's largest trading partners for imports
are Germany, Belarus, Ukraine, the United States, Kazakhstan, and Italy.

Real GDP growth in Russia in 1999 was over 3 percent. The main contributing factors
were the devaluation of the ruble, which made Russian products competitive abroad
and at home; high commodity prices on international markets, particularly oil (while
domestic costs were substantially lower); low inflation and a consensus that inflation
must be controlled; and a relatively healthy fiscal situation based on strict government
budget discipline. The major contributor to growth was trade performance.

Exports rose to US$74.3 billion while imports slumped by 30 percent to US$41.1 billion.
As a result, net exports ballooned to US$33.2 billion, more than double the previous
year's level. Higher oil prices had a major effect on export performance, particularly in
the latter half of the year. Even though volumes of crude oil exports (to non-CIS
countries) were down by 3 percent, prices jumped 46 percent. Fuels and energy
comprise 42 percent of Russian exports. Other exports performed better in 1999;
fertilizer exports were up 16.7 percent, forestry products up 38 percent, copper up 17.6
percent, and aluminum up 10 percent.
The chief imports of Russia are: Machinery and equipment, consumer goods, medicines,
meat, grain, sugar, semi-finished metal products.

The chief export of Russia are: Petroleum and petroleum products, natural gas, wood and
wood products, metals, chemicals, and a wide variety of civilian and military manufactures.

Russian oil companies have been rushing to export their oil (resulting in a windfall of hard
currency coming into the country) to such an extent that Russian officials have set export quotas
in order to maintain an adequate domestic supply of oil. In 2000, Russian net oil exports totaled
4.3 million metric barrels a day (MMBD). In addition to export quotas and higher taxes levied on
oil exports, a serious problem facing exporters is the lack of export routes. Russia is
maneuvering to become a major player in the exploration, development, and export of oil from
the Caspian Sea. Transneft is the parastatal responsible for Russia's extensive oil pipeline
system. Many of these pipelines are in a poor state of repair. The Russian Fuel and Energy
Ministry notes that almost 5 percent of crude oil produced in Russia is lost through pipeline
leaks. Transneft lacks the funding to repair or upgrade many of these malfunctioning pipes. The
company's focus has been on building new pipelines rather than repairing the old. In addition to
those in the Caspian Sea Region, Russia has a number of new oil and gas pipelines planned or
already under construction.
Russia Trade: Exports and Imports

Russia’s primary export commodities include petroleum and petroleum-based products,

natural gas, wood, wood products, metals, chemicals, and defense equipment. Although
exports dropped during the Financial Crisis, growth was once again registered in 2010.
Initial flash estimates put the exports figure at $395.6 billion less than the $476 billion
recorded in 2008 but more than the $295.6 billion exported in 2009.

Since the majority of Russia's exports are energy-related, energy prices determine, to a
large extent, the state of Russia's balance of trade. With rising prices in 2010, there
should be robust growthRussia boats the largest natural gas reserves in the world, the
second largest coal reserves and the eighth largest oil reserves. All these resources
constitute a major portion of Russia’s exports. In fact, 80% of Russia’s exports
constitute oil, natural gas, metals and timber. Russia uses these reserves to secure
both its economic and political interests.

The next chart shows a breakdown of Russia’s primary export partners. All data are in
percentages
Meanwhile, Russia’s trade with India reached $10 billion in 2010, up from $8.4 billion in
2009. According to Russian trade experts, bilateral trade with India has risen over the
past couple of years due to large volume of high-tech exports. Manufacturing, energy,
steel production, construction and agriculture are expected to be the prime trading
sectors for 2010 and beyond.

Russia’s trade relationship with Australia improved in 2010 after a rocky 2008 and 2009.
Commodities like beef are expected to be the prime trading component between the two
countries. Agricultural products also are expected to dominate much of Russia’s imports
from Australia.

Russia’s primary import commodities include vehicles, industrial machinery, plastics,

medicines, iron and steel, consumer goods, and meat.

Its primary import partners are Germany (13.5% of imports), China (13.2%), Japan
(6.5%), Ukraine (6%), US (4.5%) and Italy 4.3%

Russia’s currency is Ruble (RUB). The strength of the Ruble is influenced by energy
prices.
 2. MARKET
CHALLENGES
POWER, TRANSPORT AND TELECOMMUNICATION

The transportation infrastructure in Russia is underdeveloped. The transport system is

heavily Moscow-centered, with virtually all transportation channels of economic
significance emanating from Moscow. Commercial transportation relies heavily on rail.
Roughly 90 percent of commercial haulage is rail-based and insufficiently integrated into
world transport systems. The Russian trucking industry is only minimally developed, and
roads are not designed to carry heavy and long-distance truck traffic.

The Russian railway system includes a total of 150,000 kilometers (93,210 miles) of
broad gauge rail, making it one of the most extensive railway systems in the world.
However, of this total only 87,000 kilometers (54,061 miles) is in "common carrier"
service. The remaining 63,000 kilometers (39,148 miles) serve specific industries or are
dedicated railways lines and are not available for common carrier use. Following
decades of insufficient investment in maintenance and capital improvement, the railway
infrastructure has badly deteriorated. About 30 percent of freight cars, 40 percent of
passenger cars, and nearly half the locomotives are of such poor quality that they
should be replaced immediately.

The Russian highway system includes a total of 948,000 kilometers (589,087 miles) of
road including 416,000 kilometers (258,502 miles) that serve specific industries or farms
and are not maintained by governmental highway maintenance departments. Of

the total road system, only 336,000 kilometers (208,790 miles) are paved. Russia's
great territorial expanses and rugged terrain have hindered the development of a
nation-wide highway .

The Russian waterways system is an important component of the transportation

infrastructure. Total navigable routes in general use by the Russian River Fleet amount
to 101,000 kilometers (62,761 miles). Among Russia's most important ports are
Arkhangelsk, Kaliningrad, Kazan, Krasnoyarsk, Moscow, Murmansk, Novorossiysk, St.
Petersburg, Rostov, Sochi, Vladivostok, Volgograd, and Vyborg. The Russian merchant
marine includes some 700 ocean-going vessels, but its fleet is twice as old as the global
average.

Russia has some 630 improved airport facilities, 50 of which are capable of
accommodating international flights. The country also has an extensive oil and gas
pipeline system, with some 48,000 kilometers (29,827 miles) of pipelines for crude
petroleum, 15,000 kilometers (9,321 miles) designed for shipment of refined petroleum
products, and 140,000 kilometers (86,996 miles) designed for shipment of natural gas.

There are serious capital and operating inefficiencies and poor financial performance in
what should be cost-recovery sectors, that is, sectors that should be able to pay their
own way through user fees rather than through central government subsidies or direct
administration. These include public utilities (called "natural monopolies" in Russia)
such as public transportation, water, gas, and electricity, as well as some commercial
transportation systems such as river and lake navigation. Transportation tariffs (user
fees) have not kept pace with inflation.

Russia's overall electricity production (1998) was 771.94 billion kilowatt hours (kWh). Of
this amount, some 69 percent was produced through burning fossil fuel, 20 percent
resulted from hydroelectric generation, and roughly 13 percent was produced at
commercial atomic generating stations. Electricity consumption amounted to 702.71
billion kWh, while 21 billion kWh was exported and 5.8 billion kWh was imported.

Effective wholesale gas and electricity tariffs have been at only around one-tenth of the
Western European level for the past decade, with the ratio even worse in distribution to
households. The problem has been exacerbated by low rates of cash collection. In the
power sector, cash collection rates stood at less than 20 percent in 2000. Due to its
financial unattractiveness but also due to the lack of an appropriate legal and regulatory
framework to facilitate private sector participation, infrastructure services are generally
provided by state and local government-owned entities. Progress in the corporatization
(turning utility systems into corporate entities) and commercialization of infrastructure
has been poor. There has been some separation of publicly-owned service providers
from government, transforming them into legally autonomous corporate entities.
However, there continues to be a high degree of government (federal, regional, and
local) interference in their management and financial operations.

Russia's telecommunications system is in the midst of the global telecommunications

revolution. The country's phone system has undergone significant changes since the
breakup of the state phone monopoly in 1990. By 2000, there were over 1,000
companies licensed to offer communication services. During this period access to digital
lines has improved, particularly in urban centers. Internet and e-mail services are now
widespread and rapidly improving. In a few short years, Russia made significant
progress toward building the telecommunications infrastructure necessary for a market
economy.

LEGAL,JUDICIAL AND REGULATORY FRAMEWORK

The Russian judicial system consists of: the RF Supreme Court, republic supreme courts, okrug
courts, regional courts, Moscow and St.Petersburg city courts, autonomous region courts,
autonomous okrug courts, district (city) courts and military courts. The RF Supreme Court is a
higher judicial body dealing with civil, criminal, administrative and other cases considered to be
within their authority by general jurisdiction courts supervising their activity.

The judicial system in Russia is structured according to two basic principles, implying that
decisions and sentences which did not come into force can be appealed only once and only at
the immediately superior court. Higher courts’ decisions and sentences cannot be appealed or
protested. In civil and criminal cases there are courts of primary jurisdiction, courts of appeal
and higher courts, which arbitrate lower courts sentences and decisions already in force.

Special courts — the Constitutional Court, whose authorities are defined by the Constitution,
and the Higher Court of Arbitration — play a particular role in the exercising of judicial power in
Russia.

98—99% of all civil and criminal cases are judged by general courts at the lowest levels, called
people’s (district and city) courts. They also judge administrative offenses, complaints about
unlawfulness and unfounded arrests and implement courts’ decisions concerning property
confiscation etc. There are 2,454 public (district or city) courts in Russia with 13,000 judges. 85
courts of the RF (region, krai, and republic) with a staff of 2,800 judges constitute the next link of
general courts. They judge the most difficult cases, taken on at their own initiative, cases where
death sentences may be given. They also regulate the lawfulness and validity of sentences and
other public court decisions which did not come into force.

The Judicial System

The judiciary in Russia is not a single whole; it is split into three branches: the regular court
system with the Supreme Court at the top, the arbitration co urt system with the High Court of
Arbitration on top, and the Constitutional Co urt as a single body with no courts under it. (The
Supreme Court and Constituti onal Court were discussed above.)

Whenever there is a dispute between business entities, the case is taken for tr ial by the courts
of arbitration (business or economic courts in fact). The sys tem of these courts is on two levels
topped by the High Court of Arbitration. T here are eighty-two courts of arbitration with some
two-thousand judges handlin g about three hundred thousand disputes annually. But if a party to
a civil cas e is a private citizen, not involved in business activities, the dispute has to be handled
by a court of general jurisdiction.

Throughout Russia there are about fourteen thousand judges in some two thousand five
hundred courts of general jurisdiction on various levels. The vast majori ty of litigation in Russia
is heard by these regular courts. In 1993 these cour ts handled, for instance, one million eight
hundred thousand civil cases.

The major link in the regular court system is the people's court. It serves eac h city district or
rural district. Apart from the arbitration court system, the re are no courts of special jurisdiction in
Russia like those handling domestic relations or probate disputes. As trial courts of general
jurisdiction, the pe ople's district courts handle over ninety percent of all civil and criminal cas
es. Only a limited category of cases involving the most serious crimes fails di rectly under the
original jurisdiction of the next level of courts--the oblast (region, province) courts. Cases are
tried by one of several methods: a case ca n be tried by a presiding, professional judge and two
lay judges called "people 's assessors," or by a panel of three professional judges, or by a single
judge . In 1993 Russia started to experiment with jury trials (panels of twelve juror s). A jury trial
is only available in serious crimes--those where jurisdiction originates in the oblast courts.
Decisions of the lower trial courts can be appealed through intermediate courts up to the
Supreme Court of Russia. It should also be noted that all higher cou rts have discretionary trial
jurisdiction.

Direct appeal to a higher court (in the Russian legal system the appellate proc edure is called
"cassational review") is not the only way for a party to compla in against a trial court decision.
Law provides the right of citizens to appeal to higher courts even when the time limits prescribed
for cassational review h ave expired. This right can be exercised not only by a person
duly convicted an d serving the sentence, but by anyone who wants to proceed on
behalf of such pe rson. Acting upon this appeal the chairperson of a higher court or the
procurat or of the corresponding level exercise their supervisory powers and bring their
own complaint (called "protest") against the lower court's decision.

The Legal Profession

Lawyers in private practice in Russia work mostly within colleges of advocates--self-

managed, cooperative-type organizations There are about nineteen thousand
advocates in more than one hundred colleges. The highest body of advocates' self-
management is the general meeting of a college. The presidium headed by the
chairperson is the executive board of each college. The presidium is elected by the
general meeting for a term of three years.

Colleges of advocates are formed in accordance with territorial subdivisions--in the

cities, regions (oblasts), Republics or autonomous entities. In its territory any college is
represented by law firms or legal aid offices, which render all regular legal assistance to
citizens: advocates counsel people, draft legal documents, represent plaintiffs or
defendants in civil litigation, and provide defense in criminal proceedings.

There are now more and more American-type law firms in Russia functioning separately
from colleges of advocates, and especially involved in representing private businesses.

Many lawyers are employed by the law offices of enterprises, ministries and agencies
as in-house counsel (juriconsult). These lawyers have all powers of an attorney, but
they represent their single and permanent "client"--their respective organization. Th ere
are about twenty thousand of them in Russia, and in view of the economic reform this
body is growing.

Of course, many in the legal profession teach or do academic research work. In Russia
there are forty institutions of higher education in law (either a law school attached to a
university or a separate entity called a "juridical institute"). New private l aw schools are
popping up. There are also separate research centers in law, the most prominent of
which is the Institute of State and Law under the Academy of Sciences of Russia.

Legal Agencies of the Executive Branch

The Ministry of Justice of Russia exercises important coordinating functions in the legal
field, but it is not a law enforcement agency like the US Department of Justice. It is an
executive agency that provides administrative support for the courts with t he formally
stated purpose of improving the administration of justice and making judicial
administration more efficient. In this respect, its functions are similar to those of the
Federal Judicial Center and the Administrative Office of the US Courts.

There is now a move afoot from the courts to make themselves more independent from
the executive branch, and henceforth from the Ministry. The Ministry is directly involved
in systemization and codification of the laws. It directs the activities of notari al and
official registry offices, forensic centers and laboratories. The Ministry promotes the
development of legal science. The Ministry trains legal personnel for courts and runs
courses of continuing legal education for judges.

In occasional competition with the Ministry is an extra-constitutional body established

approximately three years ago that functions as advisor to the President on legal policy.
It is called the State Legal Department of the President, abbreviated in Russ ian GPU.
This organization promulgates draft legislation and reviews the drafts of other
organizations in order to make recommendations to the President. Since its formation it
has become very active in issues involving reform of the judiciary and crimina l law. It
was an instrumental player in the reintroduction of jury trials that was discussed earlier
in this memo.

Law enforcement functions are performed by the Procurator General's Office

(procuratura) with subordinate agencies in cities and provinces, by the Ministry of
Internal Affairs with subordinate agencies, and by the Federal Counterintelligence
Service (form er sized down counterintelligence department of the dismembered KGB).
The Procurator's office supervises the legality in the activities of all law enforcement
agencies, investigates crimes and prosecutes criminals.

The Ministry of Internal Affairs is the headquarters of all police agencies (called "militia"
in Russia), but this ministry also runs correctional institutions and fire forces, and
performs some administrative functions. The Federal Counterintelligence Se rvice is
responsible for counterintelligence work, and it also investigates (jointly with other
agencies or separately) organized crime and terrorist acts.

COMMERCIAL BANKING SYSTEM

History

Prior to 1861, the growth of private savings was limited by the fact that the majority of
Russia's population was composed of serfs, agricultural laborers who were tied to the
land and had few personal freedoms. The only people likely to take advantage of
personal savings accounts came from a small class of urban merchants and craftsmen.
In 1862, there were only 140,000 deposit accounts totaling 8.5 million rubles in a
country of 70 million people. After the abolition of serfdom in 1861, savings accounts
became more widespread. Growth was particularly rapid in the 1880s, when the central
offices at the Central Bank were supplemented by regional offices at local treasuries
and telegraph stations. Savings offices opened in rural villages as well as urban
centers, leading to a total of 4,000 branches and two million individual accounts in 1895.
In Vladimir Lenin's view, banks were an important framework for the building of a
socialist society. He believed the ready-made big banks of capitalism could be
converted into an effective apparatus for state control of the economy. However,
banking activities ground to a halt in the chaos of the years immediately following the
revolution. All commercial banks closed down in October 1917. Their staff received
salaries but were instructed not to perform any banking functions in the hope that
economic paralysis would bring down the Bolshevik regime. Nevertheless, by the end of
the year, the Bolsheviks had succeeded in nationalizing all commercial banks, sending
armed detachments to occupy their offices in Petrograd. While business accounts were
confiscated, private savings accounts were respected. Commissar of Finance V.
Menzhinsky ordered the re-establishment of the Department of Savings Offices.
However, his efforts to maintain the private savings system failed during the period of
Revolution from 1918 to 1921. Throughout those years, farm and consumer goods were
requisitioned, nearly all money was withdrawn from the economy, and the exchange of
goods operated on a barter system.

On March 22, 1991, the Central Bank of Russia established the procedure for the issue
of securities by commercial banks. From that time, Russian banks gained an outlet to
the stock market. On April 2, 1991 the "Regulations for Buying and Selling
(Transferring) Currency Exports Abroad through Citizens' Personal Funds" approved by
the State Bank of the USSR entered into force. In this way, the creation of the Russian
foreign exchange market began. And on April 9, the first auctions on the State Bank's
currency exchange were held. Ten commercial banks and one financial organization
took part.

By the end of 1995, Russia had nearly 3,000 commercial banks. However, most of
these banks were small and had little capitalization. A large portion of them are
financially linked to companies and act exclusively as conduits of subsidized credits to
these enterprises. The financial health of such institutions is highly questionable, and
experts forecast that many of them will merge into larger, more viable institutions or go
bankrupt as the RCB continues to tighten its requirements and as the role of cheap
credits diminishes.
The commercial banking system has a core of large, viable banks that have attained
financial credibility and that experts expect to remain in operation under any foreseeable
economic conditions. The former state-controlled specialized banks of the Soviet
system form the foundation of the current commercial banking system, including the six
largest commercial banks in Russia. In 1991 three of the banks--the Agroprombank
(subsequently renamed Rossel'bank), the Promstroybank, and the Zhilsotsbank
(reorganized into Mosbusinessbank)--were reorganized into joint-stock companies and
became independent commercial operations, forming the foundation of the commercial
banking system.

The Soviet-era Savings Bank (Sberbank) was reorganized as the Sberbank of Russia,
with the RCB holding controlling shares. In 1996 the Sberbank held between 60 and 70
percent of Russians' total household savings; that figure decreased from 90 percent in
1991 as other commercial banks began to provide competition. The Foreign Trade Bank
(Rosvneshtorgbank) also remains state-controlled, and it continues to handle most
foreign transactions, although by the mid-1990s it received competition from newer,
privately owned banks. The Moscow International Bank handles business between the
large Russian banks and Western banks. Sberbank and Rossel'bank have systems of
nationwide branches.

The types and quality of services that the Russian banking system offers to the public
are still rudimentary according to the standards of Western industrialized countries.
They are unable to offer diverse and efficient customer services because the Soviet
Union had no retail banking tradition and because Russia lacks the sophisticated
infrastructure, especially high-speed telecommunications and trained staffs, on which
modern Western financial institutions depend.

Most of the commercial banks offer their customers savings deposit accounts, and the
more established banks provide foreign-exchange services, investment services, and
corporate services. Bank checks are still rarely used in Russia because check
clearance is a long process. Some banks offer debit cards that allow customers to have
payments for goods and services deducted directly from their bank balances. Some
banks also offer credit cards to customers with impeccable credit ratings. The continued
predominance of cash transactions has slowed the rate of Russia's commerce.

Although foreign banks have played a larger role in the Russian economy in the mid-
1990s, that role has met substantial resistance from nationalist factions. In early 1996,
the State Duma passed a statute prohibiting the RCB from licensing foreign banks that
did not have operations in Russia before November 1993. However, opponents of such
a policy have pointed out that efforts to protect the fledgling domestic banking sector
from foreign competition also deny access to Western financial techniques that
eventually would improve the competitiveness of Russian banks.

Other Financial Institutions

A Russian securities market has evolved with the rest of the economy. When the first
Russian stock market was established in 1991, few private companies existed to offer
shares, so trading activity was quite low. The securities market got a large boost from
the Russian government's privatization campaign. Shares in privatized firms were
issued, and then a secondary market emerged for the privatization vouchers that the
government issued to each citizen (see Privatization, this ch.). As the first phase of the
privatization program ended and companies' capital requirements rose, an efficient
securities market became increasingly important.

Russian laws and regulations of the stock market and other elements of the securities
market have not kept pace with the growth in the industry, fostering irregularities in the
market. Among the most infamous was the operation of the MMM investment company,
which developed into a pyramid scheme guaranteeing investors very high returns on
their investments. A number of Russian small investors, whose savings had been
eroded severely by inflation, were attracted to the scheme and eventually lost large
sums of money. The head of MMM, Sergey Mavrodi, was arrested and jailed on tax
fraud, but the MMM case underlined the lack of Western-style commercial laws in the
Russian legal system. The Russian securities market also lacks a modern
communications infrastructure, so registration and reporting of financial transactions are
very slow.

In 1993 the Government added a new element to the securities market by issuing
treasury bonds to help finance its budget deficits. In addition, Russian citizens are able
to buy and sell rubles for foreign currency at selected banks. The exchange rate is
established through weekly auctions on the Moscow International Currency Exchange
(MICEX).

Insurance remains a small part of the Russian financial market. In 1996 approximately
200 insurance companies were operating in Russia, including the privatized versions of
former Soviet state insurance companies. According to experts, Russia's relatively new
financial institutions are likely to face a long period of adjustment as weaker banks close
or merge with stronger banks, and a regulatory framework must be developed to ensure
public confidence in the banking system and enable banks to offer reliable support in
the development of private enterprise--a role that has expanded rapidly in the first five
post-Soviet years. Other aspects of the financial system, such as securities markets,
also lack the degree of standardized regulation required for large-scale domestic
participation. However, as the private sector's role in the national economy grows and
as Russia develops needed regulations and infrastructure, the securities markets and
other nonbank financial institutions are expected to follow the banks as important
elements of the economy.
 3. MARKET
OPPORTUNITIES

DEMAND FOR PRODUCT AND SERVICES

Russia

A Global Commerce Strategy Priority Market

Moscow, Russia

In the span of 17 years, Russia has gone from a state-controlled command economy to
a stable, growing and rapidly maturing market-oriented economy. Today, it is one of the
world’s largest economies with a GDP of $1.4 trillion. In 2009, however because of the
financial crisis Russia’s GDP decreased by 7.9%. During the 6 previous years, due to
buoyant household demand and business investment driving output in the construction,
manufacturing and services sectors, the country enjoyed strong economic growth
(ranging from 5.6 to 8.1 percent annually). During this growth period per capita incomes
were rising and its middle class has become a more significant force in the national
economy. Russia's future accession to the WTO, which Russia has declared it is now
seeking as a single customs bloc with Belarus and Kazakhstan, should provide better
access for Canadian products and services as well as improved rules-based and
transparent business climate. European and East Asian countries are increasingly
viewing Russia as a key economic partner. Russia's economy is expected to rebound
with the global economic recovery, in line with outlooks in commodity prices. Russia's
newly strong private sector will be a contributing factor, with the government playing an
assertive role through regulation and public corporations. Moving forward, the country
will need foreign capital, partnerships and technology to reach its full potential. As
Russia proceeds with the modernization of its industrial and agricultural infrastructure,
opportunities will abound in transportation, infrastructure development and industrial
equipment. There are also excellent export and investment opportunities in agriculture
and agri-food, mining, forestry, housing, and information and communication
technologies. Canadian companies wishing to capitalize on the opportunities Russia
presents face a number of challenges, however, including competition from other
foreign companies and differences in cultural and business practices.

Commercial Relations, 2009

 Canada’s merchandise trade with Russia reached $2.5 billion in 2009. Since
2002, bilateral trade has more than quadrupled.
 Canadian exports to Russia delined by 40.7 percent to $888 million in 2009.
Canadian merchandise exports have increased by 56.9 percent in the past five
years.
 Canadian services exports to Russia were $281 million in 2007, while services
imports were $487 million the same year.
 Canadian direct investment in Russia reached $725 million, while direct
investment in Canada from Russia reached $358 million.

Market Opportunities
The Government of Canada has identified Russia as a GCS priority market—based
on extensive consultation with government, academic and Canadian business and
industry representatives—and has developed a comprehensive Market Plan that
identifies the following key sectors as offering clear market opportunities well suited to
Canadian capabilities and interests in Russia:

 Oil and Gas Equipment and Services: Russia is one of the world’s leading
producers of oil and gas. Canadian oil services companies are experiencing
substantial growth in Russia and there is considerable potential for further growth
in the development of offshore deposits off Russia’s Arctic Shelf and in the
Sakhalin region.
 Metals, Minerals and Related Equipment and Services: Canadian equipment
and services providers have established an excellent reputation for providing
 reliable, leading-edge technologies and equipment. With a number of major
Russian mining companies looking to expand and diversify, opportunities are
arising in mining services (e.g. surveying and extraction plans for mineral
deposits).
 Agriculture, Food and Beverages: Increasing per capita consumption of fish
and seafood products and growing demand for greater variety and quality of food
products including meat represent excellent opportunities for Canadian suppliers.
A priority is to secure predictable market access for Canadian suppliers.
 Agriculture, Technology and Equipment: Russian demand for agricultural
machinery and equipment is expected to increase sharply over the next few
years. While Canadian machinery is frequently more expensive than Russian
alternatives, Canada’s strong reputation for high quality and reliability, comfort,
labour-saving features and high productivity bodes well.
 Building Products and Construction: With demand for new housing expected
to resume its growth with the economic recovery and to outstrip supply and
growing interest in high-quality, less expensive wood frame alternatives to
traditional brick and cement, growth opportunities for Canadian suppliers are
tremendous. Opportunities are also emerging in large-scale construction projects
related to the APEC 2012 Summit in Vladivostok and the 2014 Olympic Winter
Games in Sochi.

Canada-Russia Commercial Relations, 2005-2009 ($ Millions).

Canada-Russia Commercial Relations, 2005-2009 ($ Millions)

 Government Leadership and Support
Recognizing the increased predictability, transparency and stability that WTO
membership would bring to Russia, the Government of Canada has been supportive of
its efforts to become a member and will continue to work closely with Russia and other
members of the WTO to secure Russia’s accession. As Russia offers huge and largely
untapped scientific expertise and considerable procurement, investment and partnering
opportunities, Canada is seeking to upgrade its Foreign Investment Promotion and
Protection Agreement (FIPA) with the country to better reflect current investment
conditions and lend assurances to Canadian investors pursuing projects in Russia.
Trade commissioners in Moscow will continue to advance Canadian exporter, investor
and innovation interests by reaching out to Russian officials and business community
leaders to promote Canada as a “top of mind” partner, by helping to address market
access barriers and by providing Canadian businesses with timely and relevant
information about commercial opportunities and conditions in Russia. Trade
Commissioners in Canada will continue to bolster Canadian company awareness of the
considerable commercial opportunities that exist in Russia and its increasing global
value chain role as a strategic bridge between the large markets of East Asia and
Europe.
Market Access
Canada has the following Trade Agreements with Russia:

1991-FIPA

1992-Trade and Commerce

1992-Capital Goods and Services Deliveries

1993-Economic Cooperation

1995-Double Taxation

2000-Air Services

Recently, we have enhanced our bilateral relations with Russia through:

2006-Canada-Russia Business Summit (Ottawa)

- Joint Leaders’ Statement on Canada-Russia Economic Cooperation

2007

 Canada-Russia Joint Statement on Economic Cooperation

 Canada-Russia Memorandum of Understanding on Fisheries Cooperation
 Canada-Russia Joint Statement on Agricultural Cooperation
 Declaration of Intent to Cooperate on Food Safety, Animal and Plant Health
 Memorandum of Understanding on Arctic Cooperation
 Memorandum of Understanding on Nuclear Cooperation

2009

 Canada-Russia Business Summit (Moscow)

 4. LEADING
TRADE SECTORS

CONSTRUCTION MATERIAL & OPPORTUNITIES IN CONSTRUCTION SECTOR

Construction spending in Russia is expected to double over the next five years with the
hotel, retail and commercial building sectors leading the way.

 Engineering construction,

 Non-residential construction

 Residential construction.

Residential and commercial construction in Russia was booming over much of

the past decade. Although the global economic crisis slowed construction in
Russia, growth in the construction sector is expected to rebound later in 20101,
creating opportunities for suppliers of construction equipment and materials.
 Nearly $50 billion in construction spending was carried out in Russia in 1H 2010,
following a volume of approximately $126 billion in full-year 2009.2 Although the
volume of construction in Russia still has not returned to pre-crisis levels, the
sector had previously grown an average of 14% per year between 2004 and
2008 to a high of $154 billion.

60 million square meters of residential space were built in Russia in 2009.

Although this is down from the peak of 64 million square meters in 2008, new
opportunities in residential construction are on the horizon as the Russian
government seeks to increase ownership of single-family homes

Major commercial construction projects across Russia are generating demand for
construction
equipment. Beyond the traditionally busy construction markets of Moscow and
St. Petersburg, large scale projects are underway in Vladivostok, which is
constructing and revamping buildings in preparation for the 2012 APEC Summit,
and in Sochi, where stadiums and hotels are being built for the 2014 Winter
Olympics.

Russia imports a variety of construction equipment, machine tools and parts from
the U.S and
accession will further strengthen market access for U.S. firms supplying these
goods

 U.S. construction equipment is recognized in Russia for its quality and

reliability.5 In 1H 2010, the U.S. exported more than $26 million worth of
bulldozers, mechanical shovels, excavators and other machinery to Russia,
marking growth of 290% over the same period in the previous year and
surpassing the full-year 2009 level of $15 million. Prior to the global recession,
 such U.S. exports to Russia had grown more than 20% in 2008 to nearly $90
million.
 Illinois-based Caterpillar, the world’s leading manufacturer of construction
machinery, saw its sales in Russia grow 550% between 2004 and 2008.7 The
company has invested more than $80 million in its machinery assembly plant
near St. Petersburg.
 In 1H 2010, U.S. exports to Russia of parts for construction machinery grew 25%
over the same period in 2009 to total nearly $28 million. Prior to the recession,
these exports to Russia totaled between $85 million and $89 million annually
before jumping 30% in 2009 to a high of $115 million.9
• As part of its WTO accession package, Russia has agreed to cut tariffs on U.S.
manufactured
Goods including power generation and construction equipment, to an average of
8%.
5. INVESTMENT
CLIMATE

OPENESS TO FOREIGN INVESTMENT

Russia has became the second largest foreign direct investor among
emerging markets and is leading among the BRIC countries. Russian
outward direct investment has expanded rapidly since the beginning of the
decade and Russian corporations are challenging well-established
multinationals. While Russian global corporate expansion is still limited to
some of the largest companies in the oil, gas and metals sector, the trend
to invest abroad is gradually spreading to other sectors.

The expansion of Russian corporations started in the “near abroad”

market due to
Linkages established in Soviet times and a lack of foreign investors from
Elsewhere. Russian ODI activities continued in developed markets and
have more
Recently also been carried forward to Africa.

Large resource-based corporations not only dominate the Russian

economy but
are also taking the lead in terms of outward investment. Gaining access to
new
markets and technologies, securing raw materials and obtaining a wider
range of
financing opportunities are among the key economic reasons for Russian
ODI. High oil prices and the booming domestic economy will continue to
boost Russian ODI in the coming years.

Russian outward investment in perspective against the background of high

commodity prices, Russia’s ODI stock increased nearly eightfold to USD
157 bn at the end of 2006
from only USD 20 bn in 2000. During the same period, Russia’s share in
emerging markets’ ODI stock increased to around 9% from 2.5%,
becoming the second largest ODI source in emerging markets. after Hong
Kong Its share in worldwide ODI stocks,
meanwhile, rose to 1.2% from 0.2% in 1999 For comparison, Russia’s
share in world GDP was around 2% in 2006. Regarding ODI flows, Russia
has outperformed the other BRIC countries since 2002, reaching an all-
 time high of USD 48 bn in 2007 The only exception was in 2006 when
Brazilian corporations invested larger sums abroad.
Russian ODI flows appear sizeable even when compared to flows from
industrialized
Countries. Overall, Russia’s ODI flows were placed in rank 30 out of 128
countries in UNCTAD’s most recent Outward FDI Performance Index,
which measures the share of a country’s outward FDI in world FDI as a
ratio of its share in world GDP.

Top Ten Investors - By Year (in USD million)

Country Jan-Sept. 2010 Jan-Sept. 2009

  Total FDI Total FDI
Germany 7,520 1,095 5,507 1,635
Netherlands 7,507 943 8,348 1,066
Cyprus 5,635 1,912 5,231 2,092
UK 4,240 430 4,231 317
France 2,098 735 1,600 537
China 1,494 N/A N/A N/A
Luxembourg 1,258 N/A 8,905 N/A

Ireland 1,229 N/A 595 N/A

USA 862 222 1,279 92

Japan 818 N/A 1,641 N/A

         

All Others 14,827 2,136 16,272 2,884

Total 47,488 8,196 54,738 9,975

PROTECTION OF PROPERTY RIGHT

The Constitution and a 1993 presidential decree give Russian citizens general rights to
own, inherit, lease, mortgage, and sell real property. Foreigners enjoy similar rights with
certain restrictions, notably the ownership of farmland and areas located near federal
borders. The rights of Russian citizens to own and sell residential, recreational, and
garden plots are clearly established, with over 40 million properties of this type under
private ownership. Mortgage legislation enacted in 2004 facilitates the process for
lenders to evict homeowners who do not stay current in their mortgage payments. Thus
far this law has been successfully implemented and generally effective. Mortgage
lending is in its initial stages, and after a sharp contraction in 2008-09, the total value of
mortgages in Russia is still under 3% of GDP. New mortgage issuances in 2010, both
by number and volume, were more than double that in 2009, totaling more than $11
billion.

In Russia, the protection of intellectual property rights (IPR) is enforced on the basis of
civil, administrative, criminal or customs legislation. The Civil Code sets up the level of
compensation for IPR infringement and/or incurred damages for copyright, trademarks
and geographical indications. The Code of Administrative Offenses concerns IPR
infractions which violate public or private interest or rights, but do not meet the criteria of
the Criminal Code. An administrative investigation may be initiated at the request of an
IPR owner or by law enforcement authorities (police or customs) suspecting possible
IPR infringement. Administrative cases are dealt with by general jurisdiction courts or
state commercial courts that have jurisdiction over economic disputes. The IPR
provisions of the Criminal Code apply to infringements of copyright, patent and
trademark rights committed on a large scale and causing gross damages as defined by
the Criminal Code.

In 2010, Russia made significant progress in improving the legislative environment and
legal framework for IPR protection. Russia passed amendments to Part IV of the Civil
Code for compliance with the Trade-Related Aspects of Intellectual Property (TRIPs)
agreement, amended its Customs Code to include ex-officio authority for Russian
Customs officials, and amended the Law on Circulation of Medicines to provide for 6
years of regulatory data protection upon WTO accession. Concerns remain, however,
over enforcement issues such as deterring piracy and counterfeiting through criminal
penalties, lowering the monetary damages threshold to initiate criminal penalties, the
lack of Internet-related IPR enforcement (including ISP liability and regulations for
takedown notices), and the need for a court system with greater expertise in IPR cases.

Copyright violations (films, videos, sound recordings, and computer software) remain a
serious problem. Legitimate DVD sales are on the rise, however, thanks in part to
cheaper legitimate products, a growing consumer preference for high quality goods, and
increased law enforcement action against pirates. The local business and entertainment
software industries have also reported declining levels of piracy. Russian police
continue to carry out end-user raids against businesses using pirated products. At
times, police have used IPR enforcement as a tactic to elicit bribes or harass NGOs.

Russia has acceded to the Universal Copyright Convention, the Paris Convention, the
Berne Convention, the Patent Cooperation Treaty, the Geneva Phonogram Convention,
and the Madrid Agreement. Topologies of integrated microcircuits are protected by
Russian law, whereas computer programs have the same level of protection as literary
works. The copyright term is “Life + 70.” In 2008, Russia applied to join the World
Intellectual Property Rights Organization (WIPO) Copyright Treaty and the Performance
and Phonograms Treaty, and ratified the two treaties in early 2009. Russia also ratified
the Singapore Treaty on the Law of Trademarks in 2009, and in 2010 completed steps
to implement the Treaty.

Russia has had a law providing for bankruptcy of enterprises since the early years after
the breakup of the Soviet Union. New legislation that would introduce a system of
individual (personal) bankruptcy or insolvency has been drafted, and is expected by
many observers to be enacted. Individual bankruptcy cases would be handled by the
commercial courts.

President Medvedev has repeatedly and publicly encouraged the more widespread
adoption of alternative dispute resolution (ADR) to help courts handle their caseloads
and to provide citizens with speedier and cheaper methods of resolving legal disputes.
In July 2010, he signed a law that authorizes the use of mediation in various kinds of
disputes, including commercial ones, and provides for the confidentiality of mediation
proceedings and for their enforceability in court. The law took effect on January 1, 2011.
Although there are still issues concerning how it will be applied, it represents an
important step towards further development of ADR in Russia.

TRANSPARENCY OF REGULATORY SYSTEM

The legal system in Russia remains in a state of flux, with various parts of the
government continuing to implement new regulations and decrees on a broad array of
topics, including the tax code and requirements of other regulatory and inspection
bodies. Negotiations and contracts for commercial transactions, as well as due diligence
processes, continue to be complex and protracted. Investors must do careful research
to ensure that each contract fully conforms to Russian law. Contracts must likewise
seek to protect the foreign partner against contingencies that often arise. Keeping up
with legislative changes, presidential decrees, and government resolutions is a
challenging task. Uneven implementation of laws creates further complications; various
officials, branches of government, and jurisdictions interpret and apply regulations
inconsistently and the decisions of one may be overruled or contested by another. As a
result, reaching final agreement with local political and economic authorities can be a
long and burdensome process. Companies should be prepared to allocate sufficient
funds to engage local legal counsel to set up their commercial operations in Russia.

Surveys have shown that many entrepreneurs complain about the complexity of the tax
code and requirements of other regulatory and inspection bodies. Well-intentioned small
and medium-sized enterprises (SMEs) often go out of their way to follow the law but are
then penalized for making mistakes in documentation. They complain that the tax police
make no distinction between overt tax-evaders and inexperienced SMEs who do not
fully understand the bookkeeping requirements. Companies often have little recourse
other than the courts to resolve tax disputes. While firms have successfully appealed to
the courts, tax authorities are often slow to implement judicial decisions. Penalties for
non-compliance include confiscation of property and freezing a company's bank
accounts. A 2010 law greatly increased the criminal threshold of tax underpayment,
forbade pre-trial detention for tax offences, and allowed first-time offenders to escape
criminal liability for a tax offence if they pay their arrears during the pre-trial
investigation.

All draft laws that go through the Russian Duma are published on the Duma’s website.
Sometimes, but not consistently, ministries and other Russian government bodies also
publish proposed legislation (including draft laws, government decrees and regulations)
on their websites. While there is opportunity for public comment, the general perception
is that this opportunity is limited and that it can have minimal impact.
POLITICAL STABILITY

General Political Environment: Political power in Russia is highly centralized in the

President and the Presidential Administration within the Kremlin which exert their
influence over all aspects of domestic and foreign policy. Following the election of
former President Vladimir Putin in early 2000, political stability and policy predictability
gradually increased. President Dmitry Medvedev, Mr. Putin’s protegé was elected with
70% of the popular vote in the March 2008 presidential election. Mr. Medvedev’s
election and his close partnership with Mr. Putin ensures policy stability and
predictability for the long-term. Mr. Medvedev benefited tremendously from being Mr.
Putin’s anointed successor and endorsement by the pro-Kremlin governing party,
United Russia, as its candidate.

The 2008 election cannot be considered fair by accepted democratic standards:

opposition candidates were banned from standing and the broadcast and much of the
print media, which are effectively under the Kremlin’s control, favoured Mr. Medvedev’s
candidacy. Despite the lack of fairness, the few western observers present for the
elections conceded that Mr. Medvedev’s victory was assured given the genuine and
overwhelming popularity of his predecessor.

The State Duma is a body that is loyal to the Kremlin and has little autonomy. Given the
dominance of United Russia in the Duma and Mr. Putin’s position as PM, the legislative
and executive branches are for all intents and purposes now fused. There is little
effective opposition with only the Communist Party opposing the Kremlin within the
Duma; pro-Kremlin parties hold 393 of the 450 seats. In January 2009, President
Medvedev signed into law a constitutional reform that extends the presidential term from
4 to 6 years; it comes into effect after the next election in 2012. This reform would
benefit Mr. Putin should he decide to return to the Presidency in 2012, conceivably
giving him another 12 years in power under current conditions.
 FOREIGN TRADE ZONES/FREE PORTS

Nineteen Special Economic Zones (SEZs) have been established pursuant to legislation
passed in 2005. These SEZs fall in one of four categories: industrial and production
zones (Lipetsk Region, Republic of Tatarstan, Samara, Yekaterinburg Region);
technology and innovation zones (St. Petersburg, Moscow, Moscow Region, Tomsk);
tourist and recreation zones (Kaliningrad Region, North Caucasus Federal District,
Stavropol Region, Altai Region, Irkutsk Region, Russkiy Island, as well as in the
constituent republics of Altai and Buryatia); and port zones (Ulyanovsk airport and
Murmansk and Khabarovsk seaports). In December 2010, the GOR also issued a
decree establishing the new “Titanium Valley” industrial SEZ located near rich titanium
deposits in the Yekaterinburg Region.

Enterprises operating within SEZs enjoy a range of benefits that the Ministry of
Economic Development (MED) – which manages the SEZ program – estimates can
save investors up to 30%. Specifically, investors are subject to streamlined
administrative requirements and procedures, a more favorable customs regime
(including the waiver of import duties and refunds of the value-added-tax), and reduced
tax rates on income, property, land, and transport. SEZ investors also receive cut rates
on infrastructure expenses, including facilities and utilities costs.

The SEZs are developing gradually, with the majority of investments still listed as
“planned.” Detailed information about the benefits and results of Russia’s SEZs can be
found at the MED’s SEZ website:
http://www.economy.gov.ru/minec/activity/sections/sez/main/.

Independently of the SEZs, in 2010 President Medvedev launched an initiative to

establish an “innovation city” in the town of Skolkovo in the Moscow suburbs to promote
investment in high-technology startup businesses, research, and commercialization of
technological innovation. Inspired by the model of Silicon Valley, Skolkovo is projected
to be similar to an SEZ with a broad array of incentives for resident companies. Those
incentives include complete exemption from profit tax, value-added tax, property taxes,
and import duties, and partial exemption from social fund payments. Applicants for
residency are evaluated and selected by an international admission board. At the end of
September 2010, Russia enacted a set of laws to regulate Skolkovo, defining and
codifying the benefits associated with it. As of December 2010, several international
corporations have made public commitments to invest in Skolkovo, but no companies
are yet resident there. However, the government has extended benefits temporarily to
non-resident companies until at least 2014.

FOREIGN DIRECT INVESTMENT STATISTICS

The foreign investment by country for the first nine months of 2010, compared to the
same period in 2009. Total foreign investment declined by 13.2% in the first nine
months of 2010, compared to the same period in 2009. According to Russian statistical
practice, total foreign investment numbers include direct investment (FDI), portfolio
investment, and other investment (largely trade credits). This year, the largest share of
foreign investment came from Germany. FDI from the Netherlands and Cyprus is
consistently high because most FDI coming from these two countries is either returning
or reinvested Russian capital through subsidiaries or off-shore vehicles. (Note: The data
in the tables below are from the Russian State Statistical Service (RosStat) and may
differ from data maintained by the Central Bank of Russia and the U.S. Department of
Commerce.)
Top Ten Investors - By Year (in USD million)

Country Jan-Sept. 2010 Jan-Sept. 2009

  Total FDI Total FDI

Germany 7,520 1,095 5,507 1,635

Netherlands 7,507 943 8,348 1,066

Cyprus 5,635 1,912 5,231 2,092

UK 4,240 430 4,231 317

France 2,098 735 1,600 537

China 1,494 N/A N/A N/A

Luxembourg 1,258 N/A 8,905 N/A

Ireland 1,229 N/A 595 N/A

USA 862 222 1,279 92

Japan 818 N/A 1,641 N/A

         

All Others 14,827 2,136 16,272 2,884

Total 47,488 8,196 54,738 9,975

 6. TRADE
REGULATION
AND STANDARD
IMPORT TARIFFS

Russia continues to maintain a number of barriers with respect to imports, including

tariffs and tariff-rate quotas, discriminatory and prohibitive charges and fees, and
discriminatory licensing, registration and certification regimes. For more detailed
information concerning tariffs, please refer to the “Customs Regulations and Contact
Information” section below. The following is a selection of tariff ranges for popular U.S.
goods entering Russia.

 Changes in the Commodity Schedule were implemented in 2004 in accordance with

the international obligations of the Russian government to comply with HS codes and
Russia's intention to enter the WTO. The new customs tariff schedule changed rates for
140 categories of commodities, lowering the tariff ceiling for 90% of the categories.
Notable changes included lowering import tariffs for audio- and video- equipment and
components from 20% to 15%, for fruits and vegetables from 10% to 5% and for sewing
machines from 25% to 20%. Certain commodities continue to be regulated through
seasonal duties and quotas.

 In addition to tariffs, there are two other charges applied to imports: The ubiquitous
Value Added Tax (VAT) and selective excise taxes. The universal VAT rate was
reduced from 20% to 18% effective January 1, 2004 (with the exception of foodstuffs,
pharmaceuticals and medical supplies for which VAT is 10%) and is applied to the
import price, tariff, and excise tax combined. There are some exemptions from VAT. For
example, resolution No.19 of January 17, 2001 provides a list of vitally essential medical
equipment to which no VAT is applied. The excise tax applies to a number of luxury
goods, alcohol and cigarettes, and varies from 20% to 570%.

 From December 2008 through February 2009, the Russian government announced a
series of significant duty increases on cars, harvesters, certain steel products (including
pipes, tube and rebar), and certain agricultural products (including butter, milk and soy
meal). These duty increases, which will be in effect for a temporary period of nine
months, will likely be a hindrance to U.S. exports to Russia. After the initial nine-month
period, the Russian government will make a determination whether to maintain the duty
increases or to let them expire.

The duties on imported vehicles increased by as much as 20% for new cars, and
increased to a prohibitive level for used cars older than four years. U.S. automobile
makers already manufacturing in Russia will be less affected because the duty
increases will only impact their imported vehicles and will not apply to their cars
produced or assembled at Russian plants.

The duty rates for harvesters were increased dramatically by at least 200%. The duty
increases will likely contribute to sales declines in Russia for the major U.S. and EU
producers of agriculture equipment, as will other factors, including the strengthening of
the dollar and Euro against the ruble and the current difficulties in securing financing
within Russia for the purchase of foreign agricultural equipment. The duty increases for
butter and milk were also substantial, while the duty increase for soy meal (used as a
protein supplement in animal feed) was more modest.

 It appears that the Russian government imposed these measures mainly to protect
domestic producers from competing imports during the global economic crisis. The duty
increases for soy meal were also likely intended as a revenue collection measure. As
Russian companies continue to struggle with the crisis, it is possible that the Russian
government will impose additional duty increases on other imported goods.

In addition to duty increases, the Russian Ministry of Industry and Trade is currently
conducting global safeguards investigations of harvesters and of certain steel products.
Those trade investigations, which will likely conclude in February and March 2009,
could result in the imposition of additional duties or import quotas on those products..

TRADE BARRIER

In general, U.S. companies face a number of tariff and non-tariff trade barriers when
exporting to Russia. A complaint frequently voiced by U.S. companies is Russia’s
complex system of standardization. As explained in detail in the “Standards” section
below, Russia’s regime remains extremely complex due to its lack of clarity and
transparency, and overall redundancy. While the system has improved somewhat, U.S.
companies are encouraged to obtain appropriate legal advice or assistance from
experienced distributors or consultants, as well as the U.S. Commercial Service.

Discrimination against foreign providers of non-financial services is, in most cases, not
the result of federal law, but stems from abuse of power, sub-national regulations and
practices that may violate Russian law. For example, a few foreign service providers
have noted that they are forced to pay a range of fees to obtain licenses from local
authorities, fees that domestic companies allegedly bypass via bribes. 

The 1996 federal law “On Banks and Banking Activity” permits foreign banks to
establish subsidiaries in Russia. However, Russia does not allow foreign banks to
establish branches in Russia. In November 2006, Russia and the U.S. signed their
WTO (World Trade Organization) Bilateral Agreement, a major step in Russia’s
accession to the WTO. As part of this Agreement, Russia pledged to allow foreign
ownership to account for as much as 70% of the country’s total banking sector equity.
Previously, Russia had the prerogative to legislate the limit on foreign capital to 50% of
total equity. However, at the time the bilateral agreement was signed, foreign equity
accounted for 20% of the total. Russia’s pledge essentially “grandfathered” in that 20%
and provided new foreign equity the potential to absorb/account for an additional 50% of
total banking sector equity. 

The Central Bank has required new foreign bank subsidiaries to have a minimum of €5
million in capital (the same requirement is applied to domestic banks) and that at least
75% of the bank's employees and 50% of the bank's management board be of Russian
nationality if the chairman is not a Russian citizen. Heads of foreign banks' Russian
offices are required to be proficient in the Russian language.

 In the insurance sector, foreign insurance firms are subject to a 49% equity restriction.
Foreign firms that were active in Russia when this requirement came into effect,
however, were grandfathered and are not subject to the foreign equity limit. Russia also
has more generous operating provisions for insurance companies from the European
Union, and has been permitting multinational companies to benefit from this more
generous treatment provided they conduct their Russian investments via their EU-based
offices. Once Russia becomes a WTO member and the United States grants permanent
normal trade relations status, U.S. insurance companies will be allowed to operate
through subsidiaries, including 100% foreign-owned non-life insurance companies, and
will be able to open direct branches at the end of a nine-year transition period. However,
as in the banking sector, Russia maintains the discretion to limit foreign sourced charter
capital in the insurance sector and if the ratio of foreign sourced to total charter capital
in the insurance sector ever exceeds the 50% cap, Russia’s regulators will have the
discretion to take certain actions specified in Russia’s WTO commitments.

In July 2008, RAO UES, the electricity holding company that controlled all of Russia’s
power assets, with the exception of those connected to nuclear energy, completed its
corporate reorganization and ceased to exist. It has been succeeded by 24 companies:
six wholesale private generation companies (“OGK’s”) and 14 “territorial” generation
companies (“TGK’s”), the hydroelectric giant RusHydro; a Federal Grid; and a number
of distribution operators. Although the unbundling and privatization of RAO UES was
initially hailed as a huge success, concerns are growing.

 s a condition to the generating companies’ spinoffs, investors in the OGK’s and TGK’s
agreed to implement plans to modernize and expand their respective electricity
infrastructure. These plans were premised on the assumptions of robust economic
growth and demand, and access to affordable credit. In light of slowing Russian
economic growth and tight financial conditions, these investment obligations have
become very expensive. Consequently, a number of investors are backing out of
acquisition deals or seeking to renegotiate the terms of their acquisitions with the
Russian government. It seems unlikely that modernization and expansion of the sector’s
infrastructure – a major purpose of the reorganization – will occur in the near future.
Because the restructuring was only completed in July 2008, it is still unclear to what
degree the electricity generation market will ultimately be deregulated, and whether it
will operate in a transparent and non-discriminatory manner.

In aviation, many of the Russian-flagged carriers have aging fleets and use outmoded
avionics and engines, but several are seriously considering significant purchases or
wet-leases of foreign aircraft in an attempt to be more competitive with Western airlines.
Domestic aircraft manufacturers only produce ten planes per year on average and
therefore cannot keep up with Russian airlines’ projected demand for 1,500 additional
planes in the next twenty years. The airlines hope that Russia's commitment to reduce
aircraft tariffs as part of its WTO accession will help them purchase the modern, fuel-
efficient aircraft they need to remain competitive with foreign airlines. Current Russian
law stipulates preferential treatment (tax holidays, guarantees on investment) for
Russian and foreign investors in aviation-related research and manufacturing ventures.
However, it limits the share of foreign capital in aviation enterprises to less than 25%
and requires that board members and senior management staff be Russian citizens.
There is speculation that the 25% limit could be raised or eliminated to make way for
further investment. Some observers, however, doubt that recent proposals to raise the
limit to 49% would be sufficient to attract foreign capital for Russia’s aircraft industry. 

The signed bilateral agreement on Russia's accession to the WTO and the
corresponding side letter on leased aircraft could yield significant market access
opportunities. The side letter on leased aircraft has been in force since November 19,
2006, with narrow body leased aircraft enjoying immediate tariff reductions. Tariffs on
wide body aircraft will be reduced from 20% to 7.5% over four years following
accession. Tariffs on civil aircraft parts, including engines, will be reduced to an average
of 5%. As long as the lease is signed before January 1, 2011, aircraft with less than 50
seats will be charged only 8% and those with 115-160 seats will be charged 10%.  

IMPORT REQUIREMENT AND DOCUMENTATION

Importers are required to complete a Russian customs freight declaration for every item
imported. A declaration must be supported by the following documents: contracts,
commercial documents such as commercial invoices and packing lists, transport
documents, import licenses (if applicable), certificates of conformity and/or safety (see
"Product Standards" below) certificates of origin (if applicable), sanitary certificate (if
applicable) and documents confirming legitimacy of declarants/brokers/importers.

 As for all exports, exporting firms are required to complete a Shipper’s Export
Declaration (SED) but this document does not need to be presented to Russian
Customs, although they may ask for it. Exporters must present the appropriate export
license (see next section), if one had to be obtained, at customs. Customs officials may
seek other documentation to substantiate the declared value of any shipment.

In addition, currency control regulations require issuance of a "passport" for both

exports and imports to ensure that hard currency earnings are repatriated to Russia.
The regulations also ensure that transfers of hard currency payments for imports are for
goods actually received and properly valued.

Temporary entry of goods is allowed with full or partial relief from customs duties and
import VAT for a period of up to two years. The Customs Authority issues authorization
for temporary entry of goods based on a written application submitted by an importer.
The list of goods for temporary entry with full relief from customs duties and taxes as
well as terms of such relief is regulated by the Russian government.

 Full conditional relief from customs duties is allowed when it does not affect the
Russian economy, such as the temporary import of:

• Containers, pallets, and other types of containers and packages for repeated use

• Goods for the purposes of the development of international relations in the scientific,
cultural, sports, cinematography and tourism fields

• Products for international assistance

• Commercial samples, not for sale, used at trade shows and exhibitions.

 All goods falling outside of this list are subject to partial relief only, as established by
the Customs Code. Article 213 of the Customs Code provides for temporary import with
a partial exemption from customs duties for 34 months when goods are classified as
main production assets on the condition that such goods are not owned by the Russian
entities using them in the territory of the Russian Federation. When partial relief from
customs duties is applied, 3% of the amount of customs duties and taxes should be
paid on a monthly basis for the period when goods are located in the customs territory
of the Russia Federation.

LABLING AND MARKING REQUIREMENT

Labels on food items must feature the following information in the Russian language:
type and name of the product; legal address of the producer (which may be given in
Latin letters); weight or volume of the product (if a food item is preserved in liquid –
weight without the liquid mass); food contents (name of basic ingredients and additives
listed by weight in decreasing order); nutritional value (calories, vitamins if their content
is significant or if the product is intended for children or for medical or dietary use);
conditions of storage; expiration date (or production date and period of storage);
directions of preparation of semi-finished goods or children foodstuffs; warning
information on any restrictions and side effects; and terms and conditions of use.

Labels on nonfood items must include the name of the product, the country of origin and
the name of the manufacturer (which may be given in Latin letters), usage instructions,
the main characteristics, rules and conditions for effective and safe use of the product,
and other information determined by the state regulation body.
 

PROHIBITED AND RESTRICTIVE IMPORTS

The import and export of goods in Russia is carried out in accordance with the Federal
Law on “Government Regulation of International Trade Activities” of 2003, which
stipulates the application of quotas, licenses and other temporary restrictions on such
operations.

 Import licenses are issued by the Russian Ministry for Economic Development or its
regional branches, and controlled by the State Customs Committee. Licenses for
sporting weapons and self-defense articles are issued by the Interior Ministry. Licenses
are required for many items including:

• Alloys

• Carpets

• Color televisions (14, 21, and 25-inch)

• Combat and sporting weapons

• Ethyl alcohol
• Explosives

• Medicine

• Military and ciphering equipment

• Precious metals

• Radioactive materials and waste

• Self-defense articles

• Stones

• Strong poisons and narcotics

• Tobacco products Stones

• Vodka and many other types of alcoholic beverages

 MARKETING OF PRODUCT AND SERVICES

 7. MARKETING
OF PRODUCT
AND SERVICES

MODES TO ENTER IN RUSSIAN MARKET

1.AGENT AND DISTRIBUTOR:

In Russian marketing through agent and distributor is weak and inefficient, lack of
market middleman makes distribution expensive and inefficient. Therefore people or
entrepreneur in Russia uses small service contractors which initiate the marketing
activity.

Firms engage in training and development various middleman in basic marketing and
principles and practices.

2 FRANCHISING:
The Russian business community has developed a better understanding of franchising
as a way to do business and has a growing interest in it, as well. This has come about
as a result of three main factors. First, both the business community and consumers are
better educated about established brands, resulting in brand value and recognition.
Second, many Russian entrepreneurs have discovered that working with established
brands requires the utilization of modern business practices and technology, giving
them more efficiency and, therefore, an advantage over their competitors. Finally, being
associated with an established brand may offset certain risks characteristic of the
Russian economy. In order to take advantage of these favorable factors, many
entrepreneurs have turned their attention to franchising, and more and more private
Russian enterprises and entrepreneurs seek partnerships with recognized Western
companies.

Statistics on franchising in Russia are somewhat unreliable and figures vary widely, but
in general they tend to support several observations. Since 2000, the number of
franchising systems in Russia has grown from 54 to approximately 300, with some
sources estimating as many as 600. There are over 160 domestic franchising
businesses in Russia, with a total of 2,900 franchisees. On average, each franchisor
has six franchisees in Russia. The fast food and retail sectors represent the largest
shares, 22% and 46% respectively. Development of the service sector is slower, but
growing. About 43% of all franchisors are in the Moscow region (Central Federal
District), 15% in St. Petersburg and northwest Russia (North-Western Federal District),
and about 12% in the Urals (Urals Federal District).

Another large segment where franchise opportunities exist is retail trade. According to
recent statistics, Russian retail trade turnover in 2008 grew by 13% to approximately
$543 billion. Assuming that franchising development in retail segments will have some
correlation with the development of the total retail market, it is possible to predict a very
bright future for retail franchises.

3 DIRECT MARKETING
: Direct marketing is one of inexpensive means to start business of your company on
the new grocery markets, target segments and geographical zones. Also this tool can
be used as original studying of the market interesting you. 
As a rule, communications (representation of your company and its production) should
occur to target audience on its native language. Giving of the information and design,
and also advancement of your company should be adapted under features of national
perception and culture. For this reason the organization and carrying out direct -
marketing for your company will be carried out from studying of your target audience,
working out of design and a way of giving of the information, and with most effective
communication channels (information distribution management). 
There are a considerable quantity of means of direct-marketing and information
channels. Proceeding from your purposes and the budget the most effective decision
will be offered to you.

4 JOINT VENTURES

: There is no question that starting a joint venture in Russia is not for the faint of heart.
International joint ventures, or IJVs, in Russia must deal with a weak infrastructure, an
unstable environment, constantly changing legislation, corruption, and bureaucracy.
However, with more than 148 million people, a well-educated labor supply, and
excellent natural resources, Russia presents great opportunities for skillfully designed
joint ventures. Investing in Russia can be a bargain, but it is becoming more expensive
every day. Firms considering starting a Russian-foreign joint venture can substantially
improve their chances of success by learning from the experience of JVs already
operating in Russia.
International joint ventures are not a new phenomenon in Russia. In the 1920s, foreign
companies, including those from Western countries, were allowed to start joint ventures
with the USSR as part of Lenin's New Economic Policy. However, in the early 1930s
Stalin ended most joint venture activity in Russia. Between 1930 and 1987, joint
ventures were allowed only between Russia and Eastern European countries through
the Council for Mutual Economic Assistance, or CMEA.

In January 1987 a new wave of joint venture activity began when the USSR Council of
Ministers passed a decree, "The Establishment and Operation, on the Territory of the
USSR, of Joint Ventures with Participation of Soviet Organizations and Firms from
Capitalist and Developing Countries." This decree opened the door for all foreign firms
to open joint ventures with Russia.

Foreign investors.are now allowed to start wholly foreign-owned firms in Russia, and
IJVs no longer receive preferential treatment over other forms of business. In most
cases, however, IJVs still represent the optimal method of foreign direct investment in
Russia. From the foreign partners' perspective, several key factors make a joint venture
desirable:

5. SELLING TO GOVERNMENT

: selling the commodities to government in Russia follow the same step as in other
countries like tender, quotations, project ventures, bidding etc

6.DISTRIBUTION IN RUSSIA

: Despite many challenges, Russia remains one of the world's last great untapped
consumer markets. A number of U.S. consumer goods companies including M&M Mars,
Procter & Gamble, Coca-Cola, and Pepsi, to name a few have penetrated beyond the
major cities, and found the Russian consumer market to be lucrative, if challenging. It is
Russia's vast hinterlands, however, where the greatest opportunities lie.

Distribution is one of the greatest challenges facing U.S. consumer goods companies in
Russia. In the United States, distributors encounter well-defined distribution channels,
relentless competition, and million-dollar advertising budgets. In Russia, by contrast,
distributors face rudimentary, erratic distribution channels, sporadic competition, and
word-of-month advertising. To sell successfully outside Moscow and St. Petersburg
means working in a system where distribution takes place through relatively informal
channels. Penetrating these channels is often the key to success or failure.

Since Russia began its transition to a market economy, more and more Western
consumer goods have become available. These changes have pushed the informal
market channels to become more structured and sophisticated, though they do not yet
resemble product distribution systems found in Western countries. The present Russian
distribution system still incorporates the old Soviet-era gastronome (or food store),
Western joint-venture shops, and an emerging class of indigenous Russian

retailers.

Retail Distribution

Russian retail distribution is a fascinating combination of the old and the new. The
gastronome and other Soviet-era shops continue to be vital retail outlets in many
Russian cities. Many have privatized, though most are still run by their Soviet-era
managers. A growing number of these outlets now sporadically distribute Western
goods to supplement sales of local products. The first Western items to penetrate these
stores have been M&M Mars products ("Mars Bars," "Whiskas" pet foods, and "Uncle
Ben's" sauces, distributed by Mars Russian subsidiary Masterfoods); Coca Cola and
Pepsi beverages; East European juices; and European chocolates, wines, and spirits.
Many shops and gastronomes now have Kodak film processing facilities, as well.
8. AVALABILITY OF
LOCAL
PROFESSIONAL
SERVICE
Availability of professional services in Russia are satisfactory, being a developed
economy people uses expert consultancy and services for business, investment,
promotion, tax benefits etc

 Accountant :

An accountant is a practitioner of accountancy or accounting which is the

measurement, disclosure or provision of assurance about financial information
that helps managers, investors, tax authorities and others make decisions about
allocating resources. The Big Four auditors are the largest employers of
accountants worldwide.Everyone operating a business in Russia faces
the challenges of an unfamiliar accounting system and complicated legal
requirements. Business managers, busy enough running the company and
lacking the resources of larger corporations, often end up leaving the financial
operations and day-to-day bookkeeping to a local employee. But in this
environment, where laws and regulations are changing daily. Here accountant
are easily available.

 Attorneys:

A person admitted to practice law in at least one jurisdiction and authorized to

perform criminal and civil legal functions on behalf of clients. These functions
include providing legal counsel, drafting legal documents, and representing
clients before courts, administrative agencies, and other tribunals

 Advertisement firms: t

here are many advertisement firms in Russia , the leading agencies are:.

1. Young & Rubicam

2. Bates/S&S/Zenith
 3. McCann-Erickson Russia
4. Ogilvy & Mather
5. BBDO Marketing
6. Friedman & Rose
7. Bozell
8. GGK Moscow
9. Grey

 Logistics:
Russia is the world’s largest country in terms of area. It covers 11 time
zones that have completely different geographic, cultural and climatic
features. Bureaucratic hurdles and a poor infrastructure complicate
logistics processes in Russia just as a lack of competition, insufficient
transparency and limited logistics know-how do. Nonetheless, Russia
intends to become a hub between Asia and Europe. Example” TMBC, DHL,
Limco etc
9. BUSINESS
TRAVEL
Customs in Russia

Meeting Etiquette

. The typical greeting is a firm, almost bone-crushing handshake while maintaining

direct eye contact and giving the appropriate greeting for  the time of day. When men
shake hands with women, the handshake is less firm When female friends meet, they
kiss on the cheek three times, starting with the left and then alternating.When close
male friends meet, they may pat each other on the back and hug.

Naming Conventions

Russian names are comprised of:First name, which is the person's given name. Middle
name, which is a patronymic or a version of the father's first name formed by adding '-
vich' or '-ovich' for a male and '-avna' or '- ovna' for a female. The son of Ivan would
have a patronymic of Ivanovich while the daughter's patronymic would be Ivanovna.
Last name, which is the family or surname.

In formal situations, people use all three names. Friends and close acquaintances may
refer to each other by their first name and patronymic. Close friends and family
members call each other by their first name only.

Gift Giving Etiquette

Gift giving using takes place between family and close friends on birthdays, New Year,
and Orthodox Christmas. If you are invited to a Russian home for a meal, bring a small
gift.
. Male guests are expected to bring flowers. Do not give yellow flowers.  Do not give a
baby gift until after the baby is born. It is bad luck to do so sooner. Russians often
protest when they are offered a gift. Reply that it is a little something and offer the gift
again and it will generally be accepted.

Dining Etiquette
  If you are invited to a Russian's house Arrive on time or no more than 15 minutes later
than invited. Remove your outdoor shoes. You may be given slippers to wear. 
Dress in clothes you might wear to the office. Dressing well shows respect for your
hosts. Expect to be treated with honour and respect.Offer to help the hostess with the
preparation or clearing up after a meal is served. This may be turned down out of
politeness. Asking 'are you sure?' allows the hostess to accept your offer..

Dress Etiquette

. Business dress is formal and conservative. 

. Men should wear business suits. 
. Women should wear subdued coloured business suits with skirts that cover the knees. 
. Shoes should be highly polished. 

 Business Cards

. Business cards are exchanged after the initial introductions without formal ritual. 
. Have one side of your business card translated into Russian using Cyrillic text. 
. Include advanced university degrees on your business card. 
. Hand your business card so the Russian side is readable to the recipient. 
. If someone does not have a business card, note their pertinent information.
 VISA REQUIREMENT

All foreigners (except citizens of some former Soviet republics) visiting Russia need a
visa. In order to get one, travelers need an invitation from a Russian citizen or a
company, which is then taken to a Russian embassy or consulate, where the actual visa
is issued. Within three business days of arrival in Russia, the visa needs to be
registered by the person/organization that issued the invitation. If you don't make it
through this bureaucratic loop, you may have problems leaving the country.

Although it is possible to arrange your own Russian visa, most travelers choose to hire
a visa service to do the work. Russian consulates have many options for visa
processing, from a regular 2-week (cheapest) processing, to a very fast (and terribly
expensive) same-day processing. If you live in a city with a Russian consulate, you may
save some money by going and applying on your own. Beware, that most Russian
consulates only accept paperwork early in the morning.
 TELECOMMUNICATION

Russia was among the first countries to introduce radio and television. Due to the
enormous size of the country Russia leads in the number of TV broadcast stations and
repeaters. There were few channels in the Soviet time, but in the past two decades
many new state-run and private-owned radio stations and TV channels appeared. In
2005 a state-run English language Russia Today TV started broadcasting, and
its Arabic versionRusiya Al-Yaum was launched in 2007.

The telecommunications system in Russia have undergone significant changes since

the 1980s, resulting in more than 1,000 companies licensed to offer communication
services today. The foundation for liberalization of broadcasting was laid by the decree
signed by the President of the USSR in 1990. Communication is mainly regulated
through the Federal Law "On Communications" and the Federal Law "On Mass Media"
 InfoCom-2004 telecom exhibit in Moscow.

The "Ministry of press and information of the RSFSR" was in 1990s renamed to
"Ministry of Press, Broadcasting and Mass Communications Minpechati and in 2004 it
was turned into the "Federal Agency on Press and Mass Communications Rospechat
which was no longer a standalone ministry but a subdivision to the "Ministry of Culture
and Mass Communications" (originally "Ministry of culture of the RSFSR"). In 2008 it
was re-subordinated back to "Minvsyazi

TRANSPORTATION MODES:

The transportation system during the Soviet period was organized in the form of
vertically integrated monopolies controlled by the central government. Thus, for
example, the same administrative agency owned and operated the airports, airlines,
and enterprises that manufactured aircraft. The infrastructure eroded seriously in the
late Soviet period and requires much modernization and reform, for which Russia relies
heavily on foreign investment and aid.

Roads

Roads were one of the least-used forms of transportation in the Soviet Union, a
characteristic that has continued in the Russian Federation. Soviet industry placed little
emphasis on the production of automobiles and other modes of personal transport, and
the privately owned vehicle was a relatively rare phenomenon; therefore, the demand
for road construction was small. The dominance of the railroads for cargo transport also
constrained the demand for the construction of roads. In 1995 Russia had 934,000
kilometers of roads, compared with 6.3 million kilometers in the United States Of
Russia's total, 209,000 kilometers were unpaved, and 445,000 kilometers were not
available for public use because they served specific industries or farms.

The World Bank has estimated that in twenty years the demands of Russia's new
economy will increase the road system's share of transportation to 41 percent from its
1992 level of 13 percent. However, in 1992 some 38 percent of Russia's highway
system required rehabilitation or reconstruction, and another 25 percent required
repaving. Many major bridges also required large-scale repair in the mid-1990s.

Railroads

Railroads are the dominant mode of transportation. In 1995 Russia had some 154,000
kilometers of railroads, 26 percent of which were electrified, but 67,000 kilometers of
that total served specific industries and were not available for general use (see fig. 11).
The entire system is 1.52-meter gauge. In 1993 railroads accounted for 1,608 billion
ton-kilometers of cargo traffic, compared with the 26 billion ton-kilometers provided by
trucks. The prominence of railroads is the result of several factors: the vast distances
that need to be covered; the penchant of Soviet economic planners for locating
manufacturing facilities in politically expedient areas rather than where raw materials
and other inputs were available; and the conditions for granting state fuel subsidies,
which provided no incentives to break up cargo transportation into shorter-haul
operations that could be covered by road. Cargo traffic is the predominant use of
railroads, in contrast to the emphasis on passenger traffic in West European railroad
systems (see table 19; table 20, Appendix). This pattern is a product of the Soviet
emphasis on heavy industry and production rather than on consumers. In 1992 Russia's
railroads accounted for 253,000 passenger-kilometers, and by 1994 the total had
dropped to 227,000 passenger-kilometers

Air Transportation

Of the modest amount of passenger traffic in Russia, air service accounts for a relatively
large portion, although the volume of traffic declined in the first half of the 1990s. In
1990 the monopoly service of Aeroflot, the Soviet Union's state-owned airline,
accounted for 22 percent of the total distance passengers traveled, a proportion
comparable with the proportion of travel on the airlines of the United States and
Canada. However, the contribution of air service to total travel had dropped to 12.5
percent by 1993, and the number of passengers flying was less than half the 1990 total.
Subsidized air fares and long-distance flights between cities accounted for much of the
air activity in the early 1990s. In 1994 Russia had a total of 2,517 airports, of which fifty-
four had runways longer than 3,000 meters, 202 had runways between 2,400 and 3,000
meters, and another 108 had runways between 1,500 and 2,400 meters.

Water Transportation

Maritime transportation plays an important role in Russian transit, but the country's
geography and climate limit the capacity of shipping. Many Russian rivers run from
south to north rather than from east to west, constraining their use during the Russian
winters.

Russia's major ports providing access to the Baltic Sea are St. Petersburg and
Kaliningrad, and Novorossiysk and Sochi are the main Black Sea ports. Vladivostok,
Nakhodka, Magadan, and Petropavlovsk-Kamchatskiy account for the bulk of maritime
transportation on the Pacific coast. The largest Arctic port, Murmansk, maintains an ice-
free harbor despite its location on the northern shore of the Kola Peninsula. In 1995
Russia's merchant marine had about 800 ships with a gross tonnage of more than
1,000, of which half are standard cargo vessels, about 100 oil tankers, and eighty
container ships. Russia also owns 235 ships that are over 1,000 tons and sail under
foreign registry. In 1991 the merchant marine carried 464 million tons of cargo

Public Transportation

Although the high price and scarcity of passenger automobiles required Soviet citizens
to rely on public transportation, Soviet policy makers gave low priority to civilian
transportation. Only six Russian cities have underground systems--Moscow, St.
Petersburg, Yekaterinburg, Nizhniy Novgorod, Novosibirsk, and Samara. The extensive
and decorative Moscow subway system, built in the 1930s as a showpiece of Stalinist
engineering, remains the most reliable and inexpensive means of transportation in the
nation's capital.

LANGUAGES:
The Russian Language

Of Russia's estimated 150m population, it is thought that over 81% speak the official
language of Russian as their first and only language. Most speakers of a minority
language are also bilingual speakers of Russian. There are over 100 minority languages
spoken in Russia today, the most popular of which is Tartar, spoken by more than 3% of
the country's population. Other minority languages include Ukrainian, Chuvash, Bashir,
Mordvin and Chechen. Although few of these populations make up even 1% of the
Russian population, these languages are prominent in key regional areas.

Russian is a Slavic language in the Indo-European family. From the point of view of the
spoken language, its closest relatives are Ukrainian and Belarusian, the other two
national languages in the East Slavic group. In many places in eastern and southern
Ukraine and throughout Belarus, these languages are spoken interchangeably, and in
certain areas traditional bilingualism resulted in language mixture, e.g. Surzhyk in
eastern Ukraine and Trasianka in Belarus. An East Slavic Old Novgorod dialect,
although vanished during the 15th or 16th century, is sometimes considered to have
played a significant role in the formation of the modern Russian language. The next
closest relatives are the West Slavic languages, especially Polish and Slovak; next are
the South Slavic languages, although Bulgarian especially has somewhat different
grammar.

The vocabulary (mainly abstract and literary words), principles of word formations, and,
to some extent, inflections and literary style of Russian have been also influenced by
Church Slavonic, a developed and partly adopted form of the South Slavic Old Church
Slavonic language used by the Russian Orthodox Church. However, the East Slavic
forms have tended to be used exclusively in the various dialects that are experiencing a
rapid decline. In some cases, both the East Slavic and the Church Slavonic forms are in
use, with many different meanings. For details, see Russian phonology and History of
the Russian language.
HEALTH

 MEDICAL FACILITIES:

Despite the large number of hospitals and a huge army of medical doctors, they been
unable to provide people with an acceptable level of health care services. This is mainly
due to a continued lack of funds, medical and technical equipment and supplies, and,
finally, to the ineffective organization of health care delivery services. As a result, the
quality of services and their accessibility remains quite low.

The State cares for the health of its citizens," which in many ways defined the very
character of medical service organizations across the country, as well as people's
attitudes toward this sphere of policy. According to such an approach, every person is
under the umbrella of the State and its medical facilities, which undertake entire
responsibility for his or her health. In this way, a health care system was created which
found itself fully dependent on the state and its governing bodies

Under present conditions of economic crisis, most medical facilities have given the
highest priority to problems of lack of finances and financial instability. The initial
reforms liberalized economic relationships and placed the health care system in a
market environment. The entire health care system, being formerly financed by the
federal budget, found itself in a very difficult situation--immersed in a market
environment without the capacity to be an active member of that market.
Medical facilities at many different levels of the formerly hierarchical system have
become deeply involved in the problems of day-to-day financing of their activities and
have been frustrated by their inability to take the necessary steps towards achieving
financial stability. This makes their prospects rather uncertain:

MEDICAL INSURANCE:

The healthcare infrastructure throughout the country, is fairly limited in the services
that it can offer and typically is only able to provide emergency stabilizing care,
except major cities ( Moscow, St Petersburg, and Vladivostok ).
 Feeling comfortable in the knowledge that if something was to happen to a family
member their medical costs will be taken care of, is important to us all. Our expert
consultants can advise on the most suitable level of coverage for families,
individuals, groups, travelers, and teachers expatriate health insurance.

LOCAL TIME, BUSINESS HOURS NAD HOLIDAYS:

Standard time zone: UTC/GMT +5 hours
Summer time: +1 hour

Current time zone offset: UTC/GMT 6 hour

Time zone abbreviation: YEKT

 Average working hours: 40 per week.

 Holidays: typically 28 days per year

Temporary Entry AND PERSONAL BELONGINGS:

Temporary imports by foreign companies which are accredited with Russian

government authorities are exempt from customs duties. This applies to goods
imported only for company use and for one year only. Companies not accredited with
Russian government authorities are charged 3 percent of the total cost of the product
on a monthly basis. In this case, total cost equals original product price plus all import
taxes

There are no restrictions on the temporary entry of personal laptop computers or

other business materials and personal belongings into russia .