Russia

Originally published: Jan-23-2012

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Official Name: Russian Federation

Internet Domain: .ru
International Dialing Code: +7

Table of Contents

Location and Size

Russia is located in Northern Asia bordering the Arctic Ocean, between Europe and the North Pacific Ocean. The area west of the Urals is considered part of Europe. It is the largest country in the world with a total land area of 16,377,742 sq. km. As a comparison, the land area of the United States is 9,161,966 sq. km. approximately 56% of the land area of Russia.

Government

Russia's government is a democratic federation with 83 federal administrative units.

Branches of the Government:

• Executive Branch - chief of state President Dmitriy Anatolyevich MEDVEDEV; head of government Premier Vladimir Vladimirovich PUTIN; cabinet – composed of the Premier and his deputies and ministers.
• Legislative Branch - bicameral Federal Assembly consisting of an upper house (166 seats with members appointed by the top executive and legislative officials in each of the 83 federal administrative units, and a lower house (the State Duma) (with 450 seats for party members elected by popular vote to serve four-year terms).
• Judicial Branch - Constitutional Court, Supreme Court, Supreme Arbitration Court; judges for all court are appointed for life by the Federation Council on the recommendation of the president.

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Legal System

Russia has a civil law system with judicial review of legislative acts.

Unfortunately, Russia's legal framework in general is not up to the needs of a modern market economy. The rule of law is not strongly maintained, and the judiciary is neither independent of political pressure nor consistent in applying the law.

Russia has not submitted an International Court of Justice (ICJ) jurisdiction declaration and it's a non-party state to the International Criminal Court (ICCt).

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Ten Interesting Facts About Russia

1. Russia, the largest country in the world, constitutes one-seventh of the world’s landmass, spans eight time zones, and covers one-half of the Northern Hemisphere.
2. Moscow is the largest city in Europe.
3. Russia is the world’s leading producer of energy and military technologies.
4. Russia is home to more than 100 ethnic groups and indigenous people. Slavs account for about 75% of the total population.
5. 10% of the government’s income comes from the sale of vodka.
6. The lakes in Russia contain approximately one-quarter of the world’s fresh water.
7. Russia is home to the world’s largest active volcano, Klyuchevskaya Sopka.
8. The Russian tundra is melting for the first time since the ice age.
9. A benefit of 3 years of paid time off is required of Russian corporations for female employees who give birth.
10. The closest point between Russia and the United States is just 4 km.

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Economy

Russia has undergone significant changes since the collapse of the Soviet Union, moving from a globally-isolated, centrally-planned economy to a more market-based and globally-integrated economy. Many state-controlled firms have been privatized and sectors of the economy are liberalized. Russia has become a member of the Eurasian Economic Community (EAEC), Asian Pacific Economic Cooperation (APEC), and Black Sea Economic Cooperation (BSEC).

Badly affected by the 2008 global financial crisis, Russia's GDP contracted by 7.9% in 2009. The economy began to grow again in 2010, and high oil prices buoyed growth in 2011. Economic forecasters anticipate Russian GDP will grow approximately 4% in 2012

Leading Markets (2010): Germany 8.2%, Netherlands 6%, US 5.6%, China 5.4%, Turkey 4.6%

Leading Exports-commodities: petroleum and petroleum products, natural gas, metals, wood and wood products, chemicals, and a wide variety of civilian and military manufactures

Leading Suppliers (2010): Germany 14.7%, China 13.5%, Ukraine 5.5%, Italy 4.7%, Belarus 4.5%

Leading Imports-commodities: machinery, vehicles, pharmaceutical products, plastic, semi-finished metal products, meat, fruits and nuts, optical and medical instruments, iron, steel

Top Industries: mining and extractive industries producing coal, oil, gas, chemicals and metals; machine building from rolling mills to high-performance aircraft and space vehicles; defense industries including radar, missile production, and advanced electronic components, shipbuilding; road and rail transportation equipment; communications equipment; agricultural machinery, tractors, and construction equipment; electric power generating and transmitting equipment; medical and scientific instruments; consumer durables, textiles, foodstuffs, handicrafts

Top Agricultural Products: grain, sugar beets, sunflower seed, vegetables, fruits; beef, milk

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Comparative Economic Indicators - 2010

* July, 2011 estimates
** PPP – Purchasing Power Parity
*** 2010 Corruption Index: 10=Very Clean; 0=Highly Corrupt
**** 2011 Index of Economic Freedom: 100-80=Free; 49.9-0-Repressed

Economic Data from CIA World Factbook
2011 Corruption Perceptions Index, Transparency International
2012 Index of Economic Freedom, Heritage Foundation

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Credit and Collections

Dispute Resolution

Russia has a body of conflicting, overlapping, and rapidly changing laws, decrees and regulations. These have resulted in an ad hoc and unpredictable approach to doing business.

In an attempt to address these challenges, in 2010 First Deputy Prime Minister Shuvalov was tasked with coordinating and overseeing efforts to improve the business and investment climate, including the protection of foreign and domestic investors. The government has also encouraged international business leaders to participate in the discussion of dispute resolution mechanisms. While these steps offer some promise, overall the country’s investment dispute mechanisms remain underdeveloped and non-transparent.

The heavy caseload of Russian judges, and their lack of training, adversely effects timely and effective recourse in business disputes. Many lawyers report that, in complex business disputes, judges often make poorly reasoned or simply incorrect decisions. Adding to this, the court decisions that are made are not always executed by the bailiffs.

International Arbitration

Attorneys often refer Western clients with investment or trade disputes in Russia to international arbitration in Stockholm or to courts abroad. A 1997 Russian law allows foreign arbitration awards to be enforced in Russia, even if there is no reciprocal treaty between Russia and the country where the order was issued. In addition, The International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry will hear claims if both parties agree to refer disputes there.

However, enforcement of international arbitral awards still requires action from Russian courts and follow-up by bailiffs. As with legal actions, court judgments regarding arbitration awards are not consistently executed.

Russia is a member of the International Center for the Settlement of Investment Disputes and accepts binding international arbitration. Russia is also a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

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Risk Assessment

Coface Country Rating: B -- Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable.
Coface Business Climate Rating: B – see Country Rating

Ducroire Delcredere Political Risk Rating: 2 – very low
Ducroire Delcredere Commercial Risk Rating: C – very high

ONDD* Political Risk Rating for Exports: 2-3 – low
ONDD* Commercial Risk Rating for Exports: C – very high
*The Belgian Export Credit Agency

Other Country Risk Ratings:

• Fitch: BBB
• Moody’s: Baa1
• S&P: BBB

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Business Climate

Economic Freedom: Russia’s 2012 Index of Economic Freedom Score is 50.5, making its economy the 144th freest (out of 150). Russia is ranked 41st out of 43 countries in the European region, and its overall score is below world and regional averages.
http://www.heritage.org/index/Country/

Market Access: Extensive state interference in the economy diminishes private-sector vitality. Layers of complex non-tariff barriers significantly increase the cost of trade. Deterrents to foreign direct investment include bureaucratic inconsistency and regulatory ambiguity.

Regulatory System: The legal system in Russia is in a state of flux with various parts of the government constantly implementing new regulations on a broad array of topics. Negotiations and contracts for commercial transactions, as well as due diligence processes, are complex and protracted. Keeping up with legislative changes, presidential decrees, and government resolutions is a challenging task. Further complications are created by officials, government branches and jurisdictions that overrule or interpret and apply regulations inconsistently.

Intellectual Property Rights: In 2010, Russia made significant progress in improving the legislative environment and legal framework for IPR protection. Concerns remain over enforcement 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.

Exchange Control: Companies and individuals generally face no significant difficulty in obtaining foreign exchange. Russia has no capital controls and there are no barriers to remitting investment returns abroad, including dividends, interest, and returns of capital.

Corruption: Corruption continues to grow in Russia and its pervasiveness is acknowledged regularly both by Russia’s highest officials and society at large.

Political Violence: Although the use of strong-arm tactics is not unknown in Russian commercial disputes, the U.S. Embassy is not aware of cases where foreign investments have been attacked or damaged for purely political reasons. The insurgency in Chechnya, Ingushetiya, Dagestan and neighboring regions in the northern Caucasus create a high risk of violence and kidnapping in those areas.

For more detailed information on these topics, visit the 2011 Investment Climate Statement – Russia, of the U.S. Department of State.

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Business Protocol in Russia

Russians are transactional and do not need to establish long-standing personal relationships before they do business with people. It is still a good idea to develop a network of people whom you know and trust. “Having friends in high places” is often required to cut through red tape.

• Ensure that you learn the titles of everyone you plan to encounter, as these distinctions are extremely important in this culture.
• Be prepared to be kept waiting as typical Russian schedules are constantly changing and everything takes longer than expected. Meetings may also be cancelled on short notice.
• Expect a long period of socializing and getting-to-know-you conversation before business is discussed. Russians do not like being rushed, so meetings and negotiations will likely be slow.
• Have all printed material available in both English and Russian. Russians expect long and detailed presentations that include a history of the subject and a review of existing precedents.
• Business dress is formal and conservative. Men should wear business suits. Women should wear subdued colored business suits with skirts that cover the knees. Shoes should be highly polished.

More information on Business Protocol:

• Kwintessential
• Executive Planet

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Sources for further information on doing business in Russia

American Chamber of Commerce in Russia

Doing business and investing in the Russian Federation-2010, PWC-Russia

Doing Business in Russia-2011, Baker & McKenzie

Embassy of the Russian Federation to the United States of America

Embassy of the United States in Moscow

Russian American Chamber of Commerce in the USA

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Russia. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources.

Comparative Economic Indicators: CIA World Factbook

Risk Assessment information: Coface Country Rating and Ducroire/Delcredere.

Exchange Rates: OANDA.com The Currency Site.