BISNIS/Commercercial Service Event
on Business Opportunities in Russia & Ukraine

December 11, 2007

 

As prepared

Thanks to all of you for joining us this morning for what is certain to be a very interesting seminar.

I’m honored to participate on a panel with such an extensive list of distinguished speakers. I thank them for taking part this morning in what I am sure will be an interesting exchange.

To begin, I would like to share with you a few thoughts about opportunities in two very important markets that offer significant opportunities for U.S. business – Russia and Ukraine.

The attendance this morning is a good sign that the opportunity is recognized.

Russia

I’ll begin with Russia.

Over the last several years, Russia has undergone an impressive economic transformation with nine consecutive years of GDP growth, averaging seven percent annually. By any measure, this is an impressive record of growth.

Of course, an important factor is Russia’s good fortune of having some of the world's largest hydrocarbon reserves.

There are those who have questioned whether Russia's oil and gas boom would sustain the economy enough, in order to allow for the necessary diversification of the country’s economy.

However, Russia has not only continued to enjoy the good fortune of high prices for its energy, but also has managed the revenue inflow quite well.

With good fiscal policy management, the Russian government has paid down its external debt and begun to reinvest in physical infrastructure, such as in bridges, roads, and healthcare.

This investment in physical and social infrastructure is crucial to help ensure more sustainable growth over the long term.

Russia’s energy boom is also having a positive multiplier effect on the rest of its economy.

Although the effect is not felt evenly throughout the country, real disposable income is up significantly, and the consumer market is growing rapidly.

Among U.S. companies active in the market, those with whom our team in Russia has spoken are mostly pleased, and even surprised, by how well their businesses are doing in Russia.

American exports to Russia were up 20 percent in 2006 over 2005, and through the first three quarters of 2007, were 52 percent ahead of last year's levels.

On the FDI front, although Russia still trails China and other countries in terms of its accumulated foreign direct investment, in 2006 for the first time, Russia attracted an inflow that was on par with those levels into Brazil and India.

The bulk of this investment into Russia is not going into the energy sector, but rather into consumer goods, automobiles and other manufacturing areas, such as food-production, and information technology.

Despite this good economic news for Russia, significant risks and challenges remain.

Many Russian leaders support so-called "national champion" companies, that are nurtured by or even owned by the government.

A re-emergence of “statism” that could spread from so-called "strategic" sectors like energy extraction into other areas of the economy poses the risk that state control or single-company domination could stifle innovation and competition within Russia.

The limiting of checks-and-balances, in the form of a free media or latitude for political opposition, could negatively impact the business environment, by reducing accountability that enforces the rules under which business is done, and by fostering a lack of transparency and corruption.

Recent surveys of businesses in Russia, such as one undertaken by Transparency International this past summer, confirm that this is something Russians themselves are concerned about, despite the economic progress their country has made.

The United States welcomes a prosperous Russia that is engaged and integrated into the global economy and a transparent, global, rules-based trade system.

Russia’s joining the World Trade Organization is a very important part of this, and the Government continues to make progress in amending its laws and regulations, as well as in applying and enforcing them.

We all stand to gain from Russia's accession to the WTO and adherence to its requirements. For this reason, we hope that Russia can take the remaining legal and regulatory steps expeditiously.

By joining the WTO, Russia will realize many benefits, among which is the opportunity to be a leader in the region in support of free trade and greater competitiveness. This would help stimulate not only the Russian economy, but also the others of the area, such as in Ukraine.

Ukraine

I would now like to turn my attention to Russia’s neighbor and our good friend, Ukraine.

U.S. support for Ukraine centers on strengthening a democratic, prosperous, and secure Ukraine, closely integrated into European and Euro-Atlantic institutions while maintaining goods relations with its neighbors.

During the past two years, we have seen important steps forward in our bilateral commercial relationship, such as:

• Restoration of Generalized Systems of Preferences;
• The Commerce Department’s decision to grant Ukraine market economy status;
• The signing of a bilateral WTO market access agreement;
• A Congressional vote to graduate Ukraine from the Jackson-Vanik Amendment;
• The signing of a $45 million Millennium Challenge Corporation’s Threshold Program to reduce corruption in Ukraine; and
• An announcement of Ukraine’s eligibility for MCC Compact funding.

We strongly support Ukraine’s accession to the WTO as soon as possible and commend the country’s government for the brisk progress it has made in the accession process.

WTO accession will help Ukraine integrate into the world economy, help improve the country’s competitiveness, and support efforts to improve its business environment.

With its strong economic growth, Ukraine is emerging as a promising new market for American companies.

U.S. exports to Ukraine increased by 72 percent in the first nine months of this year, and are expected to top $1 billion by the end of 2007.

U.S. firms have invested over $1 billion in Ukraine – electricity generation, electronics, agricultural processing and consumer goods.

While Ukraine has begun to attract significant foreign investment, for that trend to continue, the government will need to work on creating a business climate that is attractive to investment.

Important steps that Ukraine can take are:

• Increasing transparency,
• Simplifying its regulatory regime,
• Reducing government interference in economic and business matters,
• Improving legislation and enforcement on intellectual property rights, and
• Creating a reliable, independent, and transparent judicial system.

We are eager to begin working with the new Government on a broad agenda that includes the completion of Ukraine’s WTO accession, the continued development of the rule of law, an improved investment climate, and a more transparent energy policy.

In conclusion, we believe that there are significant commercial opportunities for American companies in both Ukraine and Russia and we hope that our Commercial Service officers can help you to realize success.

Before passing on the floor to our speakers, I would like to have Keith Silver, our Principal Commercial Officer in St. Petersburg, Russia, tell you about some of what our Commercial Service offices can do to help you make the most of these rewarding markets.

Thank you for your interest and attention.