November 1997

By Laurel Henderson

Among Russia's regions, Novgorod oblast shows promise and potential for U.S. businesses. The oblast, which spans 55,300 square kilometers and is situated at one of the main transportation crossroads that connects Moscow, St. Petersburg, and the Baltic States, has abundant forest and other natural resources as well as significant heavy industry. The local administration, spearheaded by a governor with a reformist reputation, has been taking measures to encourage privatization and foreign investment by implementing legislation to ease and encourage growth. In addition, the U.S. Government has identified Novgorod as a pilot site for its Regional Investment Initiative under the Gore-Chernomyrdin Commission. More and more foreign companies are being drawn to the region, but U.S. activity remains relatively low.

Forestry and Natural Resources
Timber, primarily deciduous, covers 70 percent of Novgorod's territory, and timber products are a leading industry in the oblast. The region is currently producing far below its early 1990s peak of 4 million cubic meters per year and its estimated capacity of up to 12 million cubic meters per year. Local officials seek ecologically clean technology to develop the forestry industry, and report that with the use of advanced harvesting and processing techniques, the region could be a major supplier of veneer, matches, furniture, and pulp for export. The oblast also has significant reserves of various construction materials, peat, and fish.

Industry and Agriculture
Mechanical engineering and metalworking, timber-related production, chemical products, and construction materials are among Novgorod's important industrial sectors. The region has several specialized industries, including electronics and instrumentation, and power generation. Local chemical production -- particularly of ammonia, nitrogen and phosphate fertilizers, and plastic and synthetic resins -- is important to Northwest Russia's overall economy. Novgorod also produces small amounts of non-food consumer goods, primarily color TVs and furniture, as well as linen and knitwear.

Novgorod has extremely low agricultural yields. Livestock farming and a recovering poultry industry prevail over cultivation of crops, mainly due to shortages of farm machinery and equipment. Flax-growing is gaining importance, as demonstrated by the administration's flax industry initiative to develop high-yield crops and boost the flax-related textile industry.

Transportation and Logistics
Novgorod city, the administrative center of the oblast, is at a major Russian highway crossroads between Moscow and St. Petersburg and is also a link on the railway that connects these major Russian cities with Finland. The Volkov, Msta, and Lovat Rivers connect the oblast to the waterway system that runs throughout Northwest Russia. Novgorod has its own river port, but due to ice and freezing temperatures, the port is only operational six months a year.

Trade and Investment
The Novgorod administration has privatized 80 percent of state-owned enterprises and is taking steps to encourage and facilitate investment from abroad by creating incentives at a regional level. One example is the region's law exempting companies with foreign capital from local and regional taxes during the payback period of investment. Profit-based assessments using international accounting standards -- not the sales-based system used by Russia's federal government -- are used to determine tax holidays. The oblast government is playing an active role in supporting viable investment projects.

Foreign companies, mostly European, are attracted to the region's central location, its progressive administration, and reasonably reliable utility and communication systems. The United Kingdom, Germany, and Scandinavian countries are Novgorod's primary trading partners. U.S. products imported into Novgorod include soft drinks and appliances. Examples of foreign investment in Novgorod include a packing facility opened by Danish chewing gum company Dunsk Tyggegummi A/S in 1996, and a chocolate factory opened by the U.K.'s Cadbury-Schweppes in Chudovo, 30 miles north of Novgorod city. Industry sectors currently seeking investment include chemical fertilizers, wood processing, telecommunications, and construction. For more information on Novgorod, please see BISNIS Online at http://www.mac.doc.gov/bisnis/country/regions.html#Northern.

Laurel Henderson works for BISNIS in Washington, D.C.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)