Russia - Market Opportunities Russia - Market Opportunities
With a vast landmass, extensive natural resources, more than 142 million consumers, and pressing infrastructure needs, Russia remains a major potential market for U.S. exporters. Russia is the world’s eleventh largest economy by nominal gross domestic product (GDP) and the sixth largest by purchasing power parity (PPP), as cited by the International Monetary Fund (IMF). According to the IMF, 2018 GDP per capita (PPP based) was $29,032. Russia is a high-income country, with an educated, trained workforce and sophisticated, discerning consumers.
A combination of low oil prices, structural limitations, and sanctions pushed Russia into a recession in 2015, with the economy contracting by 4 percent, follwed by a 0.6 percent drop in 2016. The Economist estimates that structural weaknesses, low investment and fiscal tightening will keep GDP growth at about 1-2% a year in the medium term. In 2017, the real GDP growth rate was 1.5% and according to IMF estimates, the real GDP growth rate in 2018 was 1.8%. The IMF has forecast 2019 GDP growth at 1.4 percent.
In terms of trade in goods, Russia was the United States’ 36th-largest export market and the 23rd-largest exporter to the United States in 2018. Russia was the United States’ 28th-largest trading-partner overall. U.S. exports to Russia in 2018 were $6.7 billion, a decrease of 5% from 2017 (although U.S. exports of products other than commercial aircraft actually rose modestly in 2018).
Russian exports to the United States in 2018 were $20.7 billion, an increase of 22% from 2017. In 2018 Russia’s leading individual trading partners were China, the Netherlands, Germany, Belarus, Turkey, South Korea, Poland, Italy, Kazakhstan, and the United States.
In 2018, the latest available data showed that the U.S. direct investment position in Russia was $14.8 billion, an increase of 6.5% from 2017. The direct investment position of Russia in the United States was $3.9 billion, a decrease of 7.1% from 2017. Given the prevalence of third-country trade and investment channels, official figures for U.S.-Russian trade and investment likely understate U.S. companies’ levels of business with Russia. Many American firms view the Russian market as a long-term, strategic play given its large population, natural resources, growing consumer class, and access to a relatively low-cost yet well-skilled labor force.
Russia joined the World Trade Organization (WTO) in August 2012. In the same year, Congress also enacted legislation to establish permanent normal trade relations with Russia. Russia’s commitment to not raise tariffs on any product above the negotiated rate meant that U.S. manufacturers and exporters experienced more certain and predictable access to the Russian market.
For American businesses, Russia’s accession to the WTO also provided the following benefits, although Russia has been slow to fulfill or has backtracked on certain of its WTO obligations:
• Stronger commitments for protection and enforcement of IPR;
• Rules-based treatment of agricultural exports;
• Market access under country-specific tariff-rate quotas;
• Improved transparency in trade-related rule-making; and
• More effective WTO dispute resolution mechanisms.
In some areas, subsequent Russian government actions, such as prohibitions it has placed on imports of U.S. and European agricultural products since August 2014, have effectively negated market-opening measures that resulted from Russia’s entry into the WTO.