Northwest Russia, with a population of roughly 14.3 million people, has attracted a high percentage of total direct foreign investment in Russia, and has distinguished itself by the progressive outlook of many of its political and business leaders. U.S. companies have been active investors in the Northwest since the establishment of a free market economy in the early 1990s.

The Northwest of Russia covers a vast area of 1 679 sq. km, equivalent in size to all of Eastern Europe. In addition to the city of St. Petersburg (the 4th largest in Europe), It includes the Arkhangel’sk, Kaliningrad, Karelia, Komi, Leningrad, Murmansk, Novgorod, Pskov, and Vologda regions. Presented below is a brief overview of the city and each region.

St. Petersburg

Located on the Gulf of Finland, St. Petersburg is the second largest city in Russia and the fourth largest in Europe. With a population of about five million, St. Petersburg is a major intellectual, cultural, financial, commercial, and industrial center of the Russian Federation, a role it also played in the former Soviet Union. The city has an administrative status equal to that of a region in the federal government structure and is therefore also able to formulate its own foreign investment legislation.

St. Petersburg and the surrounding Leningrad region offer a combined population of approximately 6.3 million and constitute the second largest regional market in Russia, as well as a base for operations throughout the NW. The city, founded by Peter the Great as a window to the west in 1703, maintains a western atmosphere and is an important international marketplace due to its close proximity to the Baltic countries, Scandinavia, and the rest of Europe.

St. Petersburg has the largest concentration of U.S. investment in Northwest Russia, and is home to Coca-Cola, Wrigley, Otis, Gillette, Pepsi Cola, Lucent Technologies, Corning, and Motorola. There has been considerable competition lately between St. Petersburg and Leningrad region to attract foreign investment, and the city has shown signs it must adopt a more competitive approach to stimulate additional investment.

St. Petersburg is still influenced by its history as a military-industrial center in the former Soviet Union, and technology plays an important role in the city’s economy today. Combined with the city’s large consumer base, opportunities for U.S. exporters exist in telecommunications equipment and services, computers, construction and building products, food processing and packaging equipment, medical and dental equipment, pollution controls, textiles and textile machinery, as well as automotive goods. St. Petersburg also serves as the natural transportation center for the entire Northwest, and the St. Petersburg seaport is Russia’s largest commercial port by volume, handling over a third of all of Russia’s imports. The city also has an extensive rail network connecting it to Europe, Moscow and key regions in the country.

Arkhangel’sk region

Arkhangel’sk region is one of the largest regions in Russia. Larger than France, it embraces a vast area of 587 000 sq. km, including several large islands and archipelagos in the Arctic seas. The population of the region is approximately 1.5 million people, three-fourths of whom live in towns and villages. The administrative center and the largest city is Arkhangel’sk, founded at the mouth of the Northern Dvina River in the 16th century. It is situated in the far northwest region of Russia, bordering on the White Sea, the republic of Karelia, the Nenets Autonomous region, the Vologda region and the Komi republic.

The forestry industry and pulp and paper mills are the major economic force in the region and account for close to 70% of the region’s economy. The two other major industries are shipbuilding and repair, as well as agriculture. However, these three industry sectors have experienced decline in recent years and have stymied the region’s economic development. Arkhangel’sk also has commercial sea and river ports, and the Plesetsk cosmodrome is the location where almost three-fourths of all Russian scientific, military, and commercial space vehicles are launched. The economic future of the region lies in the vast oil and natural gas reserves that are currently the focus of considerable activity by major western companies. The region has significant mineral resources of coal, peat, bauxite, gypsum, semi-precious stones and manganese. High-quality diamonds have also been unearthed. Livestock and fur-animal breeding are important industries, as is seaweed processing for use in the microbiology and pharmaceutical industries.

Portland, Maine has a sister city agreement with Arkhangel’sk, and a small number of U.S. firms have temporary offices in the region. While the U.S. presence is not strong in the Arkhangel’sk market, other western countries are openly proactive in the region. The most visible are Nordic firms, partly due to their geographic proximity and prior trade relationships, as well as Germany, Italy, and Korea. Despite the relatively insignificant volume of trade compared with Western European countries, the U.S. accounts for one of the largest shares of foreign investment in Arkhangel’sk.

Kaliningrad region

Kaliningrad (formerly Germany’s Ko-enigsberg) is uniquely situated between Poland and Lithuania along the Baltic Sea. Geographically separated from mainland Russia, it was primarily a Soviet military port from 1945 until the dissolution of the former Soviet Union in 1991. The regions’ capital is the city of Kaliningrad, with a population of around 500 000. Prior to World War II, the region was the capital of Prussia but became a Russian city and Russia’s most Western outpost following the war. The region has a territory of 15 000 sq. km. Situated on the coast of the Baltic sea, Kaliningrad is the closest Russian city to Western Europe, and its seaport is the only port in Russia that is open 365 days a year.

The most developed industries are machine building, paper– and food-processing industries. The region also has natural resources, which include various forests and natural health resorts. Almost 90% of the world’s amber is mined in the Kaliningrad region.

A Special Economic Zone (SEZ) was created by a decree in June 1991, around the time travel restrictions against foreigners were lifted in Kaliningrad. The purpose of the custom’s break is to attract foreign investors’ interested in Kaliningrad’s lumber and fishing industries and to boost the growth of small and medium size enterprises in the region. However, the details of the zone and its implementation have not fully been realized, pending legislation from Moscow. Regional authorities continue to push for some semblance of a Free Economic Zone, but the scope of this proposal and its potential effect on foreign entities is undetermined.

The commercial seaport of Kaliningrad is one of three commercial ports in the city (the other two are a fishing port and a river port). Located on the southern Baltic coast at the mouth of the Pregolya River, the seaport is joined with the Baltic Sea by a 22-mile-long navigational canal. It offers year-round navigation with port facilities in two harbors. The dissolution and subsequent independence of the Baltic states has resulted in Kaliningrad’s becoming one of Russia’s few remaining warm-water ports. The combination of the port facilities and free economic zone has attracted companies like BMW to establish a small automobile assembly facility in Kaliningrad.

Republic of Karelia

The republic of Karelia occupies a territory of 172 400 sq. km and has a population of about 800 000. Karelia borders Finland in the west, Murmansk region in the north, Arkhangel’sk region in the east and Vologda and Leningrad regions to the south. The region also has a 630-kilometer shoreline on the White Sea. The capital of Karelia is the city of Petrozavodsk with a population of 280 000.

Karelia has a predominantly industrial economy that is closely tied to its natural resource base – forestry, wood processing, pulp and paper, building materials, metallurgy, as well as machine-building for those industries. 85% of the republic’s territory (about 148 000 sq. km) is covered with state forest stock, which contains 807 million cubic meters of timber resources. Mature and over-mature tree stocks total 411.8 million cubic meters, of which 375.2 million cubic meters are coniferous. One third of the newsprint in Russia is produced at the pulp and paper mill in Kondopoga, while a factory located in Segezh produces 70% of all paper bag containers for loose materials made in Russia. Karelia is the leading republic in the Russian Federation in terms of concentration and diversity of mineral resources, including iron, titanium, talc, kyanite, gold, and diamonds. Over the past two decades, new sites have been identified with potentially large deposits of industrial minerals, including chromites, noble metals, vanadium, molybdenum, apatite-carbonate ores, alkaline asbestos and graphite.

The Karelian government has set as a priority the attraction of foreign investment and the creation of a favorable investment climate. According to government officials, with the exception of neighboring Finland, Karelia’s current Nordic/Barents/Baltic relationships have produced little foreign investment. The Karelian government has identified the following as economic priorities for the region’s development: mining; timber and woodworking; fur farming; domestic and international tourism; and transportation/infrastructure.

Komi republic

Komi republic is located in Russia’s European North and borders Arkhangel’sk, Kirovsk, Perm, Sverdlovsk, and Tyumen regions. Komi covers 416 800 sq. km, representing 2.4% of Russia’s territory. The republic stretches 695 kilometers from east to west and almost

1 300 kilometers from north to south. A low yearly average temperature, +1C in the south and -6.3C in the north is typical for Komi. The population is 1.15 million, and the density of population is 2.7 per sq. km. The capital is Syktyvkar, a city of 250 000 people. Other large cities in the republic are Vorkuta (170 000), Ukhta (125 000), and Pechora (80 000). The distance from Syktyvkar to Moscow is 1 000 km, to St. Petersburg 1 124 km, to Berlin 2 444 km and to New York 7 624 km.

As is the case with Russia’s other northernmost regions, the economy of Komi is based on extraction of natural resources. Although Komi republic is a net donor to the federal budget, it is dependent on export revenues and the development of new deposits of raw materials. Currently the republic extracts oil, gas, and coal and develops huge forest resources. There is a great potential for growth of the mining industry; deposits of more than 100 minerals are confirmed in Komi. The most promising resources for development include a bauxite deposit (1/3 of Russia’s resources, the largest high-quality deposit in Russia), an oil-titanic field, a barite deposit, the Timan-Pechora oil and gas field, quartz, salt, basalt, gold, titanium (half of Russian resources), manganese, glass sand, lead, zinc, copper, chromium, diamonds and gold. Moreover, annual wood-cutting of approximately 7 million cubic meters was achieved in 2000, which is regarded as a very promising sector of the economy, since the calculated annual wood cutting capacity is over 25 million cubic meters.

Leningrad region

Leningrad region, with a population of 1.7 million, is another huge area covering 85 900 sq. km surrounding St. Petersburg. The region stretches from the Finnish border in the northwest to Estonia in the southwest, and has 330 kilometers of coastline, with several natural bays and ports. It is rich in natural resources and has a varied industrial and agricultural base closely linked to that of St. Petersburg.

U.S. investment totals several billion dollars, and major projects currently being planned could substantially increase that figure. In April 2002, Governor Serdyukov received the “region of the year” award from AmCham Russia. According to the Chamber, the region was recognized for sustained efforts attracting investments and stable political and social conditions. The region was the first region in Northwest Russia to adopt its own investment legislation. The law, adopted in 1997, attracted a number of foreign companies such as Caterpillar, Philip Morris, Standard Commercial Corp., International Paper, and Ford Motor Company to the region. In December 1999, Leningrad region amended the previous investment legislation, providing many new concessions that resulted from discussions with international companies operating in St. Petersburg and the region. Another strong advantage of the Leningrad region investment climate is the fact that the local government strongly supports investors’ rights in cases of disputes with federal government agencies.

The major industrial sectors in the region are metallurgy, electrical engineering, petrochemicals, the light industry, and food-processing. The economy of the region relies heavily on its natural resources of granite, sand, clay, limestone, combustible shale, bauxite, peat, and phosphates, which are used in the construction industry, chemical production and peat production. 20% of the region’s industrial production is derived from the forestry industry, wood processing and cellulose and paper industries. The local pulp and paper mills account for 8% of the paper and 14% of the cardboard produced in Russia. Nearly 80% of the region’s production is oriented towards regional and domestic needs.

Murmansk region

Murmansk region is the northern-most territory of Northwest Russia in the Kola Peninsula. It covers an area of 144 900 sq. km and borders Finland to the west, Norway to the north, and the republic of Karelia to the south. It has a population of approximately 1 million.

Natural resources in the Murmansk region include about 700 minerals, such as apatite-nepheline and copper-nickel ores, titanium, phosphate, rare metals and aluminum, and oil and gas reserves. The region is the largest producer of phosphate fertilizers in the world. The primary branches of industry in Murmansk include extensive oil and gas reserves; ferrous and non-ferrous metallurgy; forestry and timber; fish and fish-processing; mining and chemicals industry, building materials and machinery, and metalworking. Approximately one-third of the region’s exports are fish and fish products, another third is non-ferrous metal, with the remainder in timber, ores, and petroleum products.

As a result of its proximity to the Nordic countries, Murmansk attracts foreign investors and entrepreneurs and is one of Russia’s leading export regions. The greatest share of export-import operations are allocated to Finland, Norway, Germany, Sweden, and the U.K. In order to accelerate private-sector development and foreign investments in the Murmansk region, the Kola Business Development Center has been founded in Murmansk with support provided by the United States Agency for International Development. Their programs include investment and export promotion, trade-show representation and marketing, feasibility studies, business facilitation services for visiting executives, guidance with local laws, and providing access to regional databases.

Novgorod region

Novgorod region is located not far from the city of St. Petersburg in the direction of Moscow. Novgorod, which literally means “the new city,” is the oldest town in Russia (founded in 859). It served as a stop on the trade route that connected Scandinavian settlements with locations to the south. The region is still situated at the crossroads of automobile, rail, air, and waterways connecting St. Petersburg, Moscow and the Baltic states. It covers a territory of 55 300 sq. km and has a population of 750 000.

The region’s primary industrial sectors are mechanical engineering and metalworking; timber, woodworking and pulp and paper; chemicals; construction materials; and to a lesser extent, the light industry, and the food-processing sector. 70% of industry is in primary production, with the remainder in consumer goods production. In addition, the region has specialized industries, such as TV, radio electronics, instrument making, and power generation. With over 70% of its territory covered by forest, the region has the capacity to cut 12 million cubic meters of timber per year, although harvesting has been well short of this level over the last several years. The region’s industrial sectors also play an important role in Northwest Russia’s production of synthetic ammonia, mineral fertilizers, plastic and synthetic resins, chemical equipment, equipment for livestock farming and fodder production, industrial robots, automation instruments, linen, plywood, and hemp, and jute fabrics.

Many western legal and accounting firms view Novgorod as the most investor-friendly region in Russia. Substantial tax breaks have attracted several foreign investors in the recent years. Several western companies, including Cadbury, Owens Illinois, and Stimirol chewing gum, are already enjoying substantial tax breaks and assistance from the local government.

In 1997, the U.S. government opened a regional Initiative office in Novgorod. The region “graduated from the program in 2001, but close links continue. A program developed under the auspices of the U.S.-Russia Binational Commission, the regional initiative concentrated on promoting linkages between the United States and Russia’s regions, and employee assistance programs in areas where support for market reforms is strongest, and worked to develop best practices and effective programs that can benefit other regions.

Pskov region

Pskov region is located in the western most region of Russia and borders Estonia, Latvia, and Belarus. It covers a territory of 55 300 sq. km and has a population of 841 000. Over two-thirds of the industrial products of the region are manufactured in the main cities of Pskov and Velikiye Luky. The region’s geographic location on the western border of Russia plays a key factor in its economic activity. It serves as a transit route for Russian exports and imports with the Baltic and Eastern European states in particular. In addition, Pskov lies on the main transportation route linking St. Petersburg and Northwest Russia with Kiev and southern Russia. Railways connect Pskov region with the ports of St. Petersburg, Murmansk, Kaliningrad, Tallin, and Riga.

The primary natural resources of the region are timber (reserves of 250 million cu. meters); peat (proven reserves of 2 900 million tons) and raw materials used for the construction industry (ceramic clay, limestone, gypsum, molding sand, sand for glass-manufacture, non-ore construction materials). There is also considerable agricultural activity in the region, primarily in meat and milk production, as well as cultivation of flax, potatoes and other vegetables.

Industrial enterprises in the region are primarily focused on the following industries: electric power production; the light industry; machine-building and metal-working; timber, wood-processing, pulp and paper production; construction materials; and food-processing. Since  the Pskov region is close to St. Petersburg, there are many branches of St. Petersburg enterprises in the region, mostly manufacturing, electro-technical and radio-technical goods. The region is a major producer of low-power electric motors for household appliances as well as mechanization and automation devices. Articles produced in the region include electronic equipment for cars and trucks; settings for automatic welding of large diameter gas and petroleum lines; and household consumer goods such as irons, refrigerators, and audio equipment.

The Pskov administration does not expect to attract massive investment over the near term, especially foreign. Instead, its strategy is to support the development of a local market economy by building on the region’s strengths as a border and transit region, as well as the area’s tourism potential. Consequently, the administration lists the following as priority targets for attracting private investment (both Russian and foreign): creation of customs and border infrastructure; development of the transportation infrastructure, including bonded warehouses and a free-trade zone; expansion of the local airport and development of western quality business and tourism services.

Vologda region

Vologda region is located in the eastern portion of Northwest Russia, and borders on the republic of Karelia and the regions of Arkhangel’sk, Kirov, Kostroma, Yaroslavl, Tver, Novgorod, and Leningrad. It covers a territory of 145 700 sq. km and has a population of 1.36 million. The city of Vologda, which was briefly home to the U.S. Embassy in 1918, is one of the region’s largest cities with a population of about 320 000. It has a network of industrial enterprises and is an important transport center of Northern Russia, connecting central Russia with the Urals and Siberia. The city of Cherepovets, with

318 000 residents, is the region’s major industrial center. It is one of Russia’s major iron and steel producing areas and also has a significant chemical industry.

Vologda is an export-oriented region, and the region’s main exporting industries are steel; chemicals – sulfuric acid, mineral fertilizers, ammonia and nitric fertilizers; and wood products. The United States is the major importer of steel produced in the region. The priority of this sector is due to the location of two very large steel mills in Cherepovets.