Country Risk: Russia

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 Ural Mountains 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: Chief of state President Vladimir PUTIN; head of government Premier Dimitriy Medvedev; cabinet (composed of the Premier and his deputies and ministers).
• Legislative: 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: 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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Economy

Positive but weak Russian growth is expected in 2017. Activity in the hydrocarbon sector is unlikely to pick up much: production reached a record level in 2016, though the lack of investment and the maturity of several oilfields limit prospects for increased production capacity. Meanwhile, at the end of November 2016, Russia made a commitment to the OPEC countries to gradually reduce its output by 300,000 bpd over 6 months. The manufacturing sector could benefit from a slight upturn in domestic demand. Construction activity could be stimulated by various projects, in particular, in anticipation of the 2018 World Cup. Private investment is expected to remain hampered by the persistent lack of business confidence, and high interest rates. Private consumption, the main driver of activity, will be buoyed by the slow increase in household income, associated with a less restrictive fiscal policy, which authorizes an increase in retirement pensions. Real income could also benefit from the moderation in inflation.

Continuing the trend observed in late 2016, price growth could slow in 2017 because of the strengthening of the Rouble’s exchange rate, which limits imported inflation. Monetary policy (interest rate at 10% since September 2016) is expected to be eased very gradually so as not to threaten the Central Bank’s inflation target (4% in 2018).

In the absence of real progress in the conflict in East Ukraine, the sanctions imposed by the EU could be maintained beyond the end of June 2017, the date on which the member countries will be re-examining the matter. If the sanctions applied by the US are lifted or eased, as U.S. President Donald Trump has promised, improved access to international finance could help the country post stronger growth in 2017.

Leading Markets (2017): China 10.9%,  Netherlands 10%, Germany 7.1%, Belarus 5.1%, Turkey 4.9%

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 (2017): China 21.2%, Germany 10.7%, US 5.6%, Belarus 5%, Italy 4.5%, France 4.2%

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, 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 – 2016

Economic Data from CIA World Factbook
* 2018 Estimates
** GDP PPP
*** 2017 Estimates

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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 unpredictable approach to doing business.

In an attempt to address these challenges, the government has 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 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: C — Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable.
Coface Business Climate Rating: C ” see Country Rating

Credendo Political Risk Rating: 3.5
Credendo Commercial Risk Rating: C 

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Business Climate

Economic Freedom: Russia’s 2019 Index of Economic Freedom Score is 58.9, making its economy the 98th freest country in the World. Russia is ranked 41st out of 44 countries in the European region, and its overall score is below world and regional averages.

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: Russia has 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.

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

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.

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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.

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.

Sources for further information on doing business in Russia

American Chamber of Commerce in Russia

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 [email protected].

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.

Exchange Rates: OANDA.com The Currency Site.