RUSSIA: COUNTRY COMMERCIAL GUIDE

V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT

Best Prospects for Non-Agricultural Goods and Services

(figures are US$ millions, unless otherwise noted)

1 - General Consumer Goods (GCG)

Russia has become a fabulous market for U.S. consumer goods. Russian consumers, accustomed to Soviet era shoddy goods and shortages, have had a long pent-up demand for Western luxuries. As Western consumer goods reached Moscow and St. Petersburg markets, well-to-do and middle class Russian consumers responded with non-stop purchasing. Now, U.S. consumer goods companies can turn to supplying the 150 million plus Russian consumers outside Russia's two leading cities, Moscow and St. Petersburg, who are still unable to purchase most Western consumer goods. Best prospects include cosmetics, perfumes, cleaning products, videotapes, books, pet supplies, and others.

Data Table

1994 1995 1996
Total Market Size 2000 3000 4000
Total Local Production 1200 1000 800
Total Exports 50 50 50
Total Imports 850 2050 3250
Total Imports from U.S. 30 34 100

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

2 - Building Products (BLD)

Though the quality of Russian produced building products is substantially lower than Western products, their price is just as high. As a result, Russian firms generally prefer to buy Western products. Building products are sold through wholesale and retail shops. European suppliers are developing an increasing share of this market. Demand is especially high in major industrial cities, where many offices, shops, and hotels are being refurbished and built. The most promising subsectors are building materials and products for interior finishing.

Data Table

1994 1995 1996
Total Market Size 620 600 650
Total Local Production 445 400 400
Total Exports 81 80 100
Total Imports 256 280 350
Total Imports from U.S. 27 24 104

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

3 - Computers and Peripherals (CPT)

The computer market is one of the most dynamic in Russia. While other industries are slowing down, computer production and trade continue to gain momentum. Buyers are moving from mediocre computers produced in Hong Kong, Taiwan, Singapore, and Russia to high quality computers and peripherals from the U.S., Europe, and Japan. The March 1994 lifting of COCOM restrictions on importing technology into Russia has greatly expanded U.S. export potential in this market. While the demand for 286-based machines is lower, 386 and even 486 machines are winning the market. Hundreds of computer trading companies have been established recently, and most want to distribute U.S. products. The most promising subsectors are 386 machines, local area network equipment, laser printers, and scanners.

Data Table

1994 1995 1996
Total Market Size 1158 1140 1160
Total Local Production 821 800 800
Total Exports 3 10 10
Total Imports 340 350 370
Total Imports from U.S. 114 130 205

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

4 - Telecommunications Equipment (TEL)

The present Russian telecommunications system has little capacity, low penetration and call completion rates, and lack of modern communications services. It has weak and erratic local, inter-city, and international connections. Telecommunications is one of the most rapidly developing sectors in Russia. Currently, Russia is developing several telecommunications projects: international fiber optic and microwave networks, nation-wide long distance networks, and mobile (cellular or paging) networks. Most promising subsectors include: fiber optic cable, switching equipment, telecommunications software, cellular phones.

Data Table

1994 1995 1996
Total Market Size 901 940 1040
Total Local Production 301 300 300
Total Exports 9 10 10
Total Imports 609 650 750
Total Imports from U.S. 55 88 158

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

5 - Aircraft and Parts (AIR)

Russia's airline fleet is faced with massive obsolescence. More than 1,000 aircraft (four-fifths for domestic, the rest for international) must be replaced by the end of the decade, and many older planes require replacement parts and extensive maintenance. Russian aviation companies seek U.S.-made jet engines and avionics to produce low-cost aircraft for domestic markets. Dozens of independent regional and private airlines seek to lease new or used U.S. aircraft in order to fly both international and domestic routes. Russia's new rich, and its new private companies, are beginning to U.S. light aircraft for recreation and business transport. Most promising subsectors are large passenger aircraft, light aircraft, and jet engines.

Data Table

1994 1995 1996
Total Market Size 960 805 660
Total Local Production 715 650 600
Total Exports 100 100 100
Total Imports 345 85 160
Total Imports from U.S. 343 80 150

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

6 - Food Processing and Packaging (FPP)

Consumer demand for high quality, attractively packaged foodstuffs will make this sector one of the top prospects for the next several years. Major U.S. food companies (Pepsico, Coca-Cola, Baskin-Robbins, and others) are investing heavily in Russia, and will require U.S. equipment to establish new production sites. Also, the Russian government's International Agroindustrial Fund and an OPIC food processing investment fund will help Russian food processors to modernize with Western equipment. Most promising subsectors are baby food making machinery, ready-to-eat food production lines, soft drink and beer production machinery, and dairy products packaging equipment.

Data Table

1994 1995 1996
Total Market Size 705 690 890
Total Local Production 422 400 400
Total Exports 5 10 10
Total Imports 288 300 500
Total Imports from U.S. 11 10 80

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

7 - Forestry and Woodworking Machinery (FOR)

Timber is one of Russia's top potential exports, and the Russian woodworking industry needs Western-made equipment to improve production efficiency. This year, the Russian government plans to sell shares in 50 top timber holding companies to raise money for modernization. An expected U.S. Export-Import Bank framework agreement on forestry and wood processing will provide financial support for this modernization effort. Last December, the Russian government established a U.S. subsidiary, the Russian Timber Investment Corporation, to encourage U.S. companies to invest in the Russian timber industry. Best prospects include machinery to make both narrow and wide boards, conveyer belts, and papermaking machinery.

Data Table

1994 1995 1996
Total Market Size 500 600 800
Total Local Production 400 350 300
Total Exports 20 20 20
Total Imports 120 270 520
Total Imports from U.S. 8 4 64

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

8 - Information Services (INF)

Russian government agencies, financing organizations and banks, Western companies with offices in Russia, and increasing numbers of private Russian firms seek integrated information systems for their operations. The Russian government holds numerous tenders to supply hardware, software, and services to government agencies. Increasingly regional authorities are also now installing information systems. Most often, these organizations seek a reliable Western or Russian information services firm/systems integrator to design and install an integrated information system. The 1994 removal of COCOM restrictions on the import of advanced computers into Russia has accelerated the growth of this market. Most major U.S. computer companies are now active in the Russian market. USAID, World Bank, and U.S. Export-Import Bank financing supports many of these purchases. Best subsectors include general management information consulting and systems integration.

Data Table

1994 1995 1996
Total Market Size 500 600 700
Total Local Production 2400 400 500
Total Exports 10 30 60
Total Imports 310 230 260
Total Imports from U.S. 30 40 90

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

9 - Business Equipment (BUS)

As new Russian firms and government agencies modernize their offices, U.S. producers can expect continued demand for Western business equipment. U.S. producers will face strong challenges from Japanese, Taiwanese, and Korean producers, and weak competition from domestic suppliers. Aggressive U.S. marketing, especially in major cities outside Moscow, will lead to strong growth in sale. Best subsectors include facsimile, copying, and answering machines.

Data Table

1994 1995 1996
Total Market Size 540 599 649
Total Local Production 300 300 300
Total Exports 1 1 1
Total Imports 241 300 350
Total Imports from U.S. 21 16 66

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

10 - Architectural/Construction/Engineering Services (ACE)

Russia is a good market for U.S. construction and engineering services. In Russia's major cities, old buildings are being renovated, and new ones built. Outside Russia's major cities, the newly rich and even the not-so-rich are building or renovating dachas. Many of Russia's large factories are seeking foreign engineering firms to help them modernize. For example, Hunter Engineering is close to a $185 million deal to renovate one of Russia's largest aluminum plants. U.S. firms will need to be aggressive to gain market share, since Turkish and other European construction firms are also active in the market. The most promising subsectors are civil design/architectural services, non-industrial development services, and hotel/commercial construction and renovation.

Data Table

1994 1995 1996
Total Market Size 700 1100 1100
Total Local Production 410 710 710
Total Exports 10 10 10
Total Imports 300 400 400
Total Imports from U.S. 50 200 250

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

11 - Apparel (APP)

Russian clothing production has plummeted in the last three years. By the end of 1994, net output of apparel and knitwear was 40% of what it was in 1991. Russian-made apparel retains its generally poor quality and unattractive design, while producers increasing prices sharply. While production of expensive goods remained at the same level, the output of cheap knitwear, clothes, and underwear declined markedly. Up to 80 of the population prefer foreign-made apparel. While inexpensive Chinese, Turkish, and Korean productshave much market share, better quality European and American women's clothing is in demand. Most promising subsectors are pants and jeans, jackets and suits, shirts, coats, and skirts and dresses.

Data Table

1994 1995 1996
Total Market Size 780 850 950
Total Local Production 840 850 950
Total Exports 151 150 150
Total Imports 91 360 460
Total Imports from U.S. 27 12 52

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

12 - Oil and Gas Field Machinery (OGM)

Oil and gas field machinery and services remains a promising sector in Russia. The U.S. Export-Import Bank Oil and Gas Framework Agreement, World Bank, and European Bank for Reconstruction and Development (EBRD) loans have greatly improved the market potential. U.S. firms are active in several large projects to develop oil and gas reserves in Timan Pechora, Western Siberia, and Sakhalin Island. Gazprom plans significant pipeline construction and renovation. These projects, involving billions of dollars invested by Texaco, Exxon, Amoco, Conoco, Marathon, and others, will require large procurements for oil and gas field machinery and services. Promising subsectors include hydrofracturing equipment, pumps, and design and construction management services.

Data Table

1994 1995 1996
Total Market Size 646 650 660
Total Local Production 452 450 450
Total Exports 17 20 20
Total Imports 211 220 230
Total Imports from U.S. 131 98 128

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

13 - Medical Equipment (MED)

Like other sectors in the economy, the medical equipment sector is changing. The Russian government is moving from purchasing foreign medical equipment to buying it from Russian manufacturers. Government purchases of foreign equipment were usually linked to foreign loans, foreign credit lines, and international development projects. The Russian government is now more willing to buy industrial equipment to manufacture medical equipment and pharmaceuticals. At the same time, regional health officials and private hospitals are becoming medical equipment buyers. Also, large industrial enterprises and associations have become active buyers of medical equipment for their own hospitals, clinics and medical units. The most promising subsectors are radiology equipment, diagnostic equipment, dental equipment, and laboratory equipment.

Data Table

1994 1995 1996
Total Market Size 920 960 1010
Total Local Production 75 70 70
Total Exports 7 10 10
Total Imports 852 900 950
Total Imports from U.S. 61 64 89

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

14 - Electric Power Systems (ELP)

The Russian electric power sector is in disarray. Output of electricity has been falling since 1991. In 1994, output was 8 percent lower than in 1993. As a result, more and more demand for power is unsatisfied. The industry requires equipment, technical assistance, and investment to modernize its production facilities. More than one third of Russian power plant capacity is badly outdated. Many foreign firms -- including General Electric, Babcock and Wilcox, and others -- are involved in joint ventures and projects with Russian power equipment and power transmission companies. Best subsectors are gas turbines, steam turbines, and boilers.

Data Table

1994 1995 1996
Total Market Size 117 130 140
Total Local Production 100 100 100
Total Exports 74 70 70
Total Imports 91 100 110
Total Imports from U.S. 10 13 28

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

15 - Pollution Control Equipment (POL)

Most older Russian industrial enterprises lack adequate pollution control equipment. Lack of money still prevents Russian enterprises from purchasing necessary pollution control equipment on a major scale. A good approach to the market is for U.S. producers to participate in major Russian industrial modernization projects with secured financing. Russian end-users have little experience or familiarity with state-of-the-art Western pollution control equipment, yet should be receptive to U.S.-made equipment. Most promising subsectors are gas, water and air emission control equipment and filters, emission control equipment, and water sanitation and treatment equipment.

Data Table

1994 1995 1996
Total Market Size 75 85 95
Total Local Production 75 75 75
Total Exports 50 50 50
Total Imports 50 60 70
Total Imports from U.S. 8 10 15

The above statistics, except for 1994 imports from
the U.S., are unofficial estimates.

Note: Data on 1994 exports and imports come from the Russian government, and should be considered relatively reliable. Definitions of products and data gathering techniques may differ slightly. In general, because of data collection problems, Russian estimates of imports and exports will underestimate actual figures. Data on imports from the United States come from the U.S. Department of Commerce, and are considered to be reliable. We have also checked this data against Russian data, and find basic confirmation. We were unable to secure reliable data about total market size or total local production.

Best Agricultural Prospects

Note: Data for agriculture "best prospects", especially PS&D data, are scarce. For some of the best products, value data have been used. U.S. agricultural export data for CY1994 come from USDOC's Bureau of Census. Russian data sources (i.e., the Russian State Statistical Committee and the Russian Customs Committee) are unreliable, and underestimate actual trade flows.

RED MEATS, FRESH/CHILLED/FROZEN


(Data in 1,000 metric tons except for imports from U.S.)


1994 1995 1996
Total Market Size 5980 5880 5700
Total Production 5510 5370 5250
Total Exports 0 0 0
Total Imports 470 510 450
Imports from the U.S. (USD$1 million) 30.9 32 28

The above statistics, except for 1994 imports from U.S.,
are unofficial estimates.

Red meat exports to the Russian Federation have been stimulated by the continuing decline in livestock inventories and stagnation in processed meat production. U.S. meat products are especially competitive given their price and quality. Niches exist for meat products which run the gamut from variety meats to prime, USDA portion-controlled cuts. Recently announced duty changes (the import duties on red meat are reportedly scheduled to increase from 8 to 15 percent on July 1, 1995), and the rescission of value-added tax (VAT) exemptions on imported foods (as of April 1995, the VAT amounts to 10 percent of landed value plus import duty) will make meat products more costly to Russians, and weaken demand. Nonetheless, because of the decline in the domestic industry, Russians will need to continue to source meat from overseas, and U.S. meats enjoy an excellent reputation. Competition for the Russian market comes chiefly from the European Union.

U.S. exporters should note that all raw pork shipped to Russia must go immediately into processing. Additionally, all U.S. exporters should ensure that they secure all necessary documentation demanded by the Russian Government, especially the bilingual veterinary protocol.

POULTRY


(All data in 1,000 metric tons except imports from the U.S.)


1994 1995 1996
Total Market Size 1595 1590 1550
Total Production 1235 1215 1200
Total Imports 360 375 350
Total Exports 0 0 0
Imports from the U.S. (USD$1 million) 310 280 270

The above statistics, except for 1994 imports from U.S.,
are unofficial estimates.

U.S. poultry exports boomed in 1994, turning the Russian Federation into the number one export market for U.S. poultry. Russians expressed special preference for U.S. chicken leg quarters, which were competitively priced. Market niches exist for other products such as chicken breasts, turkey, and processed poultry products. The Russian poultry industry continues to decline, and thus far, poultry has been a relatively cheap source of protein. Recently announced duty increases (from 20 to 25 percent, reportedly to take effect on July 1) and the rescission of VAT exemptions (10 percent of landed value and import duty as of April 1995) will reduce consumption. Competition is principally from the European Union.

APPLES


(Data are in 1,000 metric tons)


1994 1995 1996
Total Market Size 1864 1580 1530
Total Production 1544 1230 1200
Total Exports 0 0 0
Total Imports 320 350 330
Imports from the U.S. (Data unavailable) - - -

Given the inadequacies of the distribution system in Russian and the generally poor quality of Russian apples, Russia will continue to be obliged to import a significant quantity of apples. Opportunities for U.S. exporters exist in major cities of European Russia (e.g., Moscow, St. Petersburg, Nizhniy Novgorod), Eastern Siberia, and the Russian Far East (RFE). Washington State apples are already making some headway in the RFE, although New Zealand is also vying for this market. Newduties for apples have not been announced yet. The old duty structure is .2 ECU per kilo except for the period of January 1-July 31, when apples can be imported into Russia duty-free. A VAT of 10 percent on customs value and import duties is currently in effect.

TREE NUTS


 1994 1995 1996
Total Market Size (no data) - - -
Total Production (no data) - - -
Total Exports (no data) - - -
Total Imports (no data) - - -
Imports from the U.S. (USD$1 million) 4.39 4.60 4.90

The above statistics, except for 1994 imports from U.S.,
are unofficial estimates.

U.S. tree nut exports to the Russian Federation have been growing rapidly since 1993. The new import duty for tree nuts has not been announced (the current duty is 20 percent). A VAT of 10 percent of customs value and import duties is currently in effect. Markets exist for tree nuts as inputs (for confectionery and baked goods) and for direct consumption. Competition comes mainly from the European Union.

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