Russia

Originally published: Apr-25-2007

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Official Name: Russian Federation

Internet Domain: .ru
International Dialing Code: +7

Table of Contents

Government

Federation established August 24, 1991. The government is divided into three branches: Executive -- president, prime minister (chairman of the government); Legislative -- Federal Assembly (Federation Council, State Duma); Judicial -- Constitutional Court, Supreme Court, Supreme Court of Arbitration, Office of Procurator General. The country consists of 21 autonomous republics and 68 autonomous territories and regions.

Legal System

Based on civil law system with judicial review of legislative acts.

People

• Population: 141,377,752 (July 2007 forecast)
• Population growth rate: -0.484% (2007 forecast)
• Languages: Russian (official); more than 140 other languages and dialects

Most Russians derive from the Eastern Slavic family of peoples, whose original homeland was probably present-day Poland.

Economy

The Russian economy underwent tremendous stress in the 1990s as it moved from a centrally planned (communist) economy to a free market system. Difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998. Lower prices for Russia's major export earners (oil and minerals) and a loss of investor confidence due to the Asian financial crisis exacerbated financial problems. The result was a rapid and steep decline (60%) in the value of the ruble, flight of foreign investment, delayed payments on sovereign and private debts, a breakdown of commercial transactions through the banking system, and the threat of runaway inflation.

Russia managed, however, to weather the crisis, and ended 2006 with its eighth straight year of growth. Russia has run a budget surplus since 2003.

Currency: Russian ruble (RUR)

• RUB per USD: 25.8 (4/23/07)
• RUB per EUR: 35.0 (4/23/07)

Leading Markets (2005): Netherlands 10.3%, Germany 8.3%, Italy 7.9%, China 5.5%, Ukraine 5.2%, Turkey 4.5%, Switzerland 4.4%

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

Leading Suppliers (2005): Germany 13.6%, Ukraine 8%, China 7.4%, Japan 6%, Belarus 4.7%, US 4.7%, Italy 4.6%, South Korea 4.1%

Leading Imports-commodities: machinery and equipment, consumer goods, medicines, meat, sugar, semifinished metal products

Top Industries: complete range of mining and extractive industries producing coal, oil, gas, chemicals, and metals; all forms of 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

Economic Indicators

(e) estimate (f) forecast

Comparative Economic Indicators - 2006

Population = Estimate forecast for July 2007
China's unemployment rate is understated

Credit and Collections

• Collection Experience: Fair-Good
• Exchange Delays: 3 months
• Preferred Credit Terms: Unconfirmed letter of credit
• Minimum Credit Terms: Sight draft

Note that the above information is somewhat inconsistent with the assessment of Coface below.

Dispute Resolution (information from the U.S. Department of State)

Russia has a body of conflicting, overlapping and rapidly changing laws, decrees and regulations, which has resulted in an ad hoc and unpredictable approach to doing business. Independent dispute resolution in Russia can be difficult to obtain since the judicial system is still developing. Regional and local courts are often subject to political pressure. In addition, court decisions are at times not executed and the bailiffs, who are charged with enforcing court judgments, are administratively not part of the court system and sometimes opt not to enforce those judgments.

Many Western attorneys refer their Western clients who have investment or trade disputes in Russia to international arbitration in Stockholm or to courts abroad. A 1997 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 made. 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. However, the enforcement of international arbitral awards still ultimately requires action from Russian courts and follow-up by court officers through a new system of bailiffs that, due to legal restrictions and limited trained personnel, has yet to become a consistently effective enforcer of court judgments.

Risk Assessment

Coface Country Risk Rating: B -- An unsteady political and economic environment is likely to affect further an already poor payment record.

Ducroire Delcredere Political Risk Rating: 2 – low risk
Ducroire Delcredere Commercial Risk Rating: C – highest risk

Business Climate

Russia boasts vast natural resources and educated and skill labor, which, unfortunately, is largely mismatched to the rapidly changing needs of the Russian economy. Official unemployment has dropped in recent years to 7.6%, but millions of Russian workers are underemployed.

The coming elections have been dominating the political situation. Unable to run again in March 2008, Vladimir Putin has put forward two potential heirs. The prospective succession will proceed under tight Kremlin control. With governance still the country's main weakness, neither the growing presence of the state and state-run companies as shareholders in many sectors nor the recent tensions involving foreign oil operators has contributed much to improving the business climate. (According to Coface @rating Risk Assessment.)

Transparency of Regulatory System: The legal system in Russia is still in a state of flux, with various parts of government struggling to create new laws on a broad array of topics. In this environment, negotiations and contracts for commercial transactions are complex and protracted.

Intellectual Property Rights: Intellectual Property Rights (IPR) violations continue to be a serious problem in Russia. While Russia has made significant advances in its efforts to improve its IPR protection regime, many challenges remain. U.S. copyright industries estimate they lose in excess of $1.5 billion annually due to copyright piracy (films, videos, sound recordings, books and computer software).

Conversion and Transfer Policies: While the ruble is the only currency that is legal tender in Russia, in general companies and individuals face no significant difficulty in obtaining foreign exchange. Generally, any payment obligation that lasts longer than 180 days is a "capital" transaction. "Current" forex transactions include contracts in which settlements take place within 180 days. Currency controls exist on all transactions that require Customs clearance, meaning that in Russia they apply to both import and export transactions.

Corruption: A large and corrupt bureaucracy remains an obstacle to the reform implementation. Corruption remains a serious problem in Russia, with the country ranking 126th on Transparency International's (TI's) 2005 Index. U.S. firms have identified corruption as a pervasive problem, both in number of instances and in the size of bribes sought.

For more detailed information on these topics, visit the 2006 Investment Climate Statement – Russia, of the U.S. Department of State.

Business and Cultural Practices

Business Cards: The use of business cards is common, and often a necessity, since telephone books are not widely distributed in certain areas. It's an asset to have your business card translated into Russian [with Cyrillic text] on the reverse side. In addition to your full name and title, ensure that you include any university degrees you have earned. When handing out your translated card, present it so that the side printed in Russian is facing the recipient.

Business Attire: Russian businesspeople pay a lot of attention to how they are dressed. Men, wear a suit and tie (make sure not to wear the same thing every day).

Names and Titles: Only people who are very intimate friends or relations refer to one another by the first name. Ensure that you learn the titles of everyone you plan to encounter, as these distinctions are extremely important in this culture. Usually, Russians have three names. The first name is a given name, while the last name is the father's family name. The middle name is a version of the father's first name, known as a patronymic; for a man, it ends with the suffixes “vich” or “ovich” meaning “son of.” For a woman, the patronymic is also the father's first name but with suffixes “a” or “ovna” added, which means “daughter of.”

Gifts: Russians take pleasure in giving and receiving gifts. Be sure to bring an assortment of gifts, so that you will always have something appropriate.

Meetings and Negotiations: Always be punctual, but do not be surprised if your Russian contacts are not. It is not unusual for a Russian to be one or two hours late for an appointment. Generally, the more important the meeting is for your Russian counterparts, the more punctual they will be.

Unacceptable Public Conduct: Speaking or laughing loudly in public is discouraged. Whistling is considered uncultured. Do not sit with the legs apart or with one ankle resting upon the knee. It is insulting to summon someone with the forefinger. Instead, turn your hand so that the palm faces down and motion inward with all four fingers at once. Many common hand gestures popularly used in the West, such as the “O.K.” sign or shaking the fist, are considered very rude. However, “thumbs up” is acceptable.

For more detailed information on these topics, visit RUSSIA, on the Executive Planet web site.

Sources for further information on doing business in Russia

Cyberprofit Russian Business Connections

Doing Business in Russia, American Chamber of Commerce in Russia

Doing Business in Russia, KPMG (PDF)

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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 including: the U.S. Department of State, U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," March 2007.