Summit May Unlock Russia Trade

Reuters reports that summit may unlock Russia trade.

(emphasis mine) [my comment]

Summit may unlock Russia trade: U.S. business leader
Mon Jul 6, 2009 6:10am EDT

MOSCOW (Reuters) - U.S. businesses are ready to up investment in Russia if the Russia-U.S. summit this week makes progress on geopolitical issues, and if Russia continues to improve its rule of law, the American Chamber of Commerce in Moscow said on Monday.

"If we have success on the geopolitical side of the summit we are going to see much more investment by U.S. companies," Andrew Somers, president of the American Chamber of Commerce in Russia, told Reuters financial television.

U.S. President Barack Obama is visiting Russia for the first time since his election to meet Russian leader Dmitry Medvedev for two days of talks on a number of issues, including a framework deal on arms cuts.

Business leaders traveling with Obama want to use the visit to boost trade and investment. Russian trade with the United States was just $36 billion in 2008, the same amount as with Poland.
[Russia's lack of trade with the US is reassuring. It means they are less dependent US demand, which might disappear with the dollar's collapse.]

"There are significant investments that are continuing in Russia by U.S. companies," Somers said.

Three major deals will be announced during the summit by U.S. companies, Somers said without specifying which deals.

U.S. agricultural machinery maker John Deere will invest $500 million in the next six years in Russia, while soft drink giant PepsiCo will boost investment to $4 billion from $3 billion in the next three years. Aircraft maker Boeing plans to announce a joint venture with the world's largest titanium producer, Russia's VSMPO-Avisma, on Tuesday, industry sources told Reuters on Monday without giving further details.

However, weak rule of law and some non-Russian companies' battles in Russian courts against local opponents are also of concern for U.S. businessmen. They expect to use the summit to press Moscow for better operating conditions for Western companies..

"We hope that president Medvedev will be able to follow through on his continuous campaign to improve the rule of law. I think this is a single biggest inhibitor to investment by U.S. companies their concern about the rule of law," he said.


Somers noted that strategic investors have not fled the Russia, whose economy is facing its first contraction in a decade and are staying despite zig-zags on the stock market.

"I think that is a sign people who understand the market have faith in the long term," Somers said.

The lobbyist said there are a lot of opportunities for U.S. business to enhance activities in Russia, particularly in energy sector, automobiles, consumer goods and retail.

"There is a large opportunity in the energy sector and I think this opportunity will be enhanced if this is geopolitical success of the summit," Somers said, adding U.S. technology could be applied to develop Russia's oil reserves.

The latest survey made by American Chamber of Commerce in Russia has shown the situation is still very bleak but there are signs of recovery in different sectors, Somers said.
[This will change very rapidly. A dollar will boost investment in commodities, greatly benefiting Russia.]

"There are many of the companies here particularly in the consumer sector, with their gross sales in roubles up 15-20 percent. It is a good sign," Somers said.
[Like China, Russia's consumer sector is underdeveloped.]

My reaction: While Obama's visit to Russia may have acted as a catalyst for certain deals, increasing investments are more due to the attractiveness of Russian Markets than the results of any particular summit.

1) Russian trade with the United States was just $36 billion in 2008, the same amount as with Poland.

2) There are significant investments that are continuing in Russia by U.S. companies:

A) U.S. agricultural machinery maker John Deere will invest $500 million in the next six years
B) Soft drink giant PepsiCo will boost investment to $4 billion from $3 billion in the next three years
C) Aircraft maker Boeing plans to announce a joint venture with the world's largest titanium producer, Russia's VSMPO-Avisma

3) Strategic investors have not fled the Russia. people who understand the market have faith in the long term

4) There are many of the companies in Russia's consumer sector with gross sales up 15-20 percent.

Conclusion:

1) Despite the "dangers" often repeated by a bias, anti-Russian western media, US companies and strategic investors continue to be attracted to and are increasing their investment in Russia.

2) Russia's lack of trade with the US is reassuring, as it means it is less dependent US demand, which might disappear with the dollar's collapse.

3) As I personally attest, Russia's consumer sector is underdeveloped. The amount of retail space in Moscow is around one fifth the retail space in New York or Los Angeles. Consumer debt to gdp is around 2% in Russia, compared to the nearly 100% household debt to gdp in the US. Like China, Russia's undersized consumer sector has a lot of potential for growth, which explains why gross sales are up 15-20 percent.

With Russia's relative lack of exposure to the US, its underdeveloped consumer sector, and the benefit its economy stands to gain from appreciating commodities, Russia looks set to come out of the dollar collapse as one of the "winners". Together with undervalued land prices, this is why I plan to move to Russia later this year and am moving forwards with setting up a fund to invest in Russian agriculture.

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3 Responses to Summit May Unlock Russia Trade

  1. Anonymous says:

    Obama's visit to Russia may have an impact on the fate of the Dollar. The Dollar can not collapse if all major creditor nations to the US continue to support the Dollar. Obama's "reset button" policy towards Russia might actually prolong the life of the Dollar as a reserve currency for a couple more years. The fate of the Dollar does not depend only on fundamentals. The fate depends to a large extent also on politics.

  2. Hi Eric, if you need any help in Russia, especcially Siberia feel free to ask, I am long time reader of your blog and professional economist. You may write to rinat.khasanov@gmail.com

  3. Anonymous says:

    Secretary of Commerce Gary Locke
    Remarks at U.S.-Russia Business Summit
    Moscow, Russia
    I want to congratulate the host organizations for bringing together such a distinguished group of business leaders from Russia and the United States.
    This Business Summit provides a wonderful opportunity for Minister Nabiullina and myself, since we will be co-chairing a Business Development and Economic Relations Working Group as part of the intergovernmental commission formed by President Obama and President Medvedev.
    I envision two purposes for the Working Group.
    One, to give members of the American and Russian business communities a platform to engage with both our governments. And two, to provide a government-to-government channel where we can consider and, where appropriate, implement your ideas and recommendations.
    I think this new Working Group can help advance a goal that’s in the interest of everyone here.
    Openness
    The United States and Russia should strive to maintain and increase the openness of our markets to trade and to investment.
    Especially, in this time of economic turmoil, it is important for us to remember the pledge that all G-20 countries made in April to “not repeat the historic mistakes of protectionism of previous eras.”
    Countries around the world, including the United States, have taken exceptional measures to stabilize their domestic economies. But sometimes the line between necessary domestic stimulus and outright protectionism can grow blurry. Our elected leaders rightly care deeply about stopping the job losses and dislocations that have characterized this global economic downturn. But we all must be sure not to cross to the wrong side.
    Now is the time to further United States and Russian integration with the world economy.
    I am proud to be able to say that the United States is more receptive to foreign investment than any other country in the world. No proposed Russian investment in the United States has been rejected and, in fact, Russian companies have made very significant investments in areas such as steel, mining and retail petroleum. These investments benefit the United States, as well as Russia.
    Likewise, we consider it very much in the interest of Russia to further integrate into the world economy. We support Russia's accession to the World Trade Organization and encourage Russia to pursue opportunities to increase its bilateral trade and investment with the United States as well as other countries.
    Early in this decade, Russia took steps to improve its business climate through tax and other reforms. As a result of these steps, and strong economic growth, Russia was successful in attracting significant amounts of foreign investment.
    These reforms helped to jumpstart bilateral trade and investment between the United States and Russia -- which although relatively modest—is already bringing significant benefits to our countries in jobs, goods and services.
    One of those benefits is innovation, which President Medvedev has identified as a key priority for the Russian economy.
    Today in Russia, American companies such as Boeing, Motorola and Microsoft, and their Russian partners, are advancing and developing new technologies.
    Russian workers and managers are producing new products in Russia by utilizing American investment and American partners such as Procter & Gamble and PepsiCo.
    Many of the executives who have played such a key role in joint U.S.-Russia ventures are here today, and I look forward to hearing your recommendations on how we can strengthen the ties that bind our countries together.
    I know that President Obama looks forward to hearing a summary of the results of this meeting, as well as of future business-to-business consultations. He and President Medvedev are planning to join us in about 90 minutes, and before their arrival I'd love to hear about the issues and possible solutions that are most on your minds.

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