Russia presents both significant challenges and opportunities for experienced American exporters. Russia’s 2014-2016 economic downturn, driven by low oil prices, Western sanctions, and compounded by a lack of structural economic reform, squeezed both Russian corporations and the average consumer. While targeted American and European economic sanctions remain in place and have gradually expanded, there is no overall trade embargo on Russia. On the back of a tight fiscal and monetary policy, coupled with higher oil prices, Russia returned to GDP growth of 1.7 percent in 2017, and the economy expanded at a comparable or slightly slower pace in 2018. Over 1,000 American firms of all sizes continued to do business in Russia, given its 142 million consumers, $27k+ GDP per capita (as measured in purchasing power parity), a growing middle class, and a highly educated and trained workforce.

There are two broad considerations when assessing business prospects in Russia: geopolitics and market dynamics. Russia’s continued involvement in Ukraine and Syria and interference in the 2016 U.S. elections have raised tensions with the United States and its allies and led to increased economic restrictions. U.S. and European economic sanctions instituted in 2014, and subsequently augmented, remain firmly in place and are not expected to be lifted in the near term. Restrictions on offshore, Arctic and shale oil and gas, the financial sector, and the defense industry continue. In addition, a number of Russian entities and individuals are subject to sanctions, requiring American firms to conduct careful due diligence on potential business partners. For the past three years, U.S. agricultural exporters have been hit with Russian countersanctions, among a number of protectionist, import-substitution policies designed to provide Russian firms implicit or explicit advantages over international competitors. In 2018, the Russian Duma passed legislation endorsing further restrictions on Western imports, and legislation is under consideration to make illegal any cooperation with Western sanctions. These laws may not be implemented, as potential damage to the Russian economy could be significant. Increasing state dominance of the economy, high costs of borrowing, and a lack of broad economic reform will likely continue to constrain growth and market potential. Both large, publicly-traded U.S. multinationals and small- and medium-sized enterprises continue to carefully monitor the overall business climate in Russia, balancing opportunity and risk.

As for market-based considerations, both Western and Russian firms approach 2019 eager to capitalize on opportunities but cognizant of the significant challenges facing Western market participants. Stable oil prices, a less volatile ruble and a return to growth in some sectors will likely keep the Russian economy growing in 2018, albeit slowly. Indeed, Western and Russian firms report year-on-year growth in large industrial equipment in the mining, energy, civil aviation, and heavy equipment sectors. However, retail and residential construction are examples of sectors that remain weak. Early in 2018, Standard & Poors and Moody’s assigned Russian debt ratings of “BBB-” (lower investment grade) and “Ba1” (a step below investment grade) respectively. The ratings have since been increased. A treaty on the avoidance of dual taxation and Russia’s WTO accession in 2012 helped create hope that new opportunities might emerge for American trade and investment through more certain and predictable access to the market across tariff, trade rules, and dispute resolution platforms. But, despite the need for deeper economic reform, most analysts doubt there will be any major policy changes that would serve as a catalyst for significant economic acceleration.

Two-way U.S.-Russia trade reached over USD24 billion in 2017, 18 percent higher than in 2016, but well off its peak of USD38 billion in 2013. American investment in Russia was about USD9 billion in 2015. These figures are conservative, as they do not include all third-country trade and investment flows of U.S. origin and reinvested earnings from subsidiaries of American parent corporations. Numbers aside, American firms view the Russian market as a long-term, strategic play, given its population, natural resources, a growing consumer class, and access to a low-cost labor force.