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	Red Square? A strong Russian economy and growing trade with the U.S. mean Virginia exporters will see plenty of green in Russian markets! In 2004, Russia experienced its sixth consecutive year of robust economic growth. Driven by the energy sector and strong domestic consumer demand, the economy grew an average 6.5% annually since 1998. While much of the world has suffered as a result of high world oil and commodity prices, Russia's abundant natural resources have shielded its economy from the recent global economic slowdown, resulting in foreign reserves of $120 billion. Russia currently enjoys relatively low inflation, a stable currency, and an administration that is actively seeking foreign investment. Manufacturing & Energy Sector Opportunities The price for Russian oil, the country's mainstay export, increased 20% from January through May 2005 over the same period last year. Reports indicate that high crude oil prices trigger a multiplier leading to increased production in other industries, with manufacturing growth outpacing resource industries for the first time since 2001. Russia's technologies are quite outdated however, making production costs very high. Therefore, the modernization requirement of the Russian industry is gigantic. As the country's reserves continue to rise, and Russia seeks to export more goods and resources, the technological upgrades in the manufacturing and energy sectors will continue to rise. The analysis of a Russian institute for economic trends research indicates that almost 45% of the machines and equipment in Russian industries are older than 20 years. This creates huge opportunities for Virginia's cutting edge manufacturing and energy technology companies. High-Tech Sector Opportunities The Russian economy continues to diversify and focus on sectors such as hi-tech and information technology (IT) development. "Technoparks" are being created in the Moscow region that will feature tax incentives and other measures to spur investment and encourage IT infrastructure. Russia also plans to invest around $650 million in the IT sector over the next five years. The IT market has grown 40% in the last three years. The main areas of growth have been in security, shareware, telemedicine, and engineering. According to the Outsourcing-Russia.com website, the country's software exports sales stood at $600 million last year. The telecom space in Russia is seeing a tremendous boom, while mobile phone subscriber base-jumped from 36.5 million in 2003 to 60 million in September 2004. Recent IDC research shows that IT security is one of the fastest growing IT sectors in Russia, and interest from both end users and resellers continues to expand as Russian organizations rush to modernize and begin to trade online. Currently, Russia ranks number three in the number of scientists and engineers per capita worldwide. According to a World Bank report, Russia has one million specialists who are capable of joining its IT sector. Russian computer programmers are famed for their strength in mathematical skills and strong computer science and engineering backgrounds. The highly educated workforce has attracted many world class technology companies to Russia, including Raytheon and Hewlett Packard. There are more than 250 Russia-based IT companies that are active in offshore software development. Boeing has its largest development center outside of the U.S. in Russia. Companies like Motorola, Dell, Intel, Siemens and Sun Microsystems have their R&D centers in the country. Due to sound fiscal policies, Russia is now rated as investment grade by the three major global rating agencies. This upgrade greatly expands the range of international firms that can invest in Russian companies, either through foreign direct investment (FDI) or joint ventures. Retail's Resurgence - The Urge to Splurge Industrial development and economic stability buoyed by abundant natural resources, have boosted consumer incomes and spending. According to Merrill Lynch, in 2004 Russia saw the "birth" of 4,000 new millionaires which brought the total number to 88,000. Rising personal incomes and strong consumer demand have generated a retail boom across Russia. According to one estimate, people in Moscow and St. Petersburg spend upwards of 90% of their monthly official income. Russia was ranked number one by A.T. Kearney in its 2004 Global Retail Development Index, stating "Retailers continue to be attracted by not only the size of the Russian market -which is home to 143 million people and an estimated $280 billion in annual consumer spending- but also by its potential growth." Moscow accounts for 27% of total domestic retail turnover, making it the country's largest and most developed market, according to the Russian statistics agency Goskomstat. Almost all major domestic retailers are present in Moscow, and most have only recently started expanding into the regions. Pharmaceuticals and Cosmetics These two sectors have demonstrated impressive growth over the past three years. The retail pharmaceutical market's overall value increased by 62% from 2000 to 2003; and the cosmetics and toiletries market grew by 40.2% during the same period. In 2003, the entire retail market for these two consumer categories comprised $8.8 million, representing an increase of 48% from 2000. Pharmacy Chain 36.6 is symbolic of Russia's fast-growing retail sector. In 2003, 36.6 became the first Russian retail company to go public, raising $14.4 million, and recently became the first Russian company to become a member of the U.S.-based National Retail Federation (NRF). Its CEO, Artem Bektemirov, is the first Russian member of the NRF Board of Directors - a clear indication that Russia is on the radar of retail leaders worldwide. Supermarkets and Hypermarkets Many leading retail companies are planning to go public in the near future and are seeking external investors. Supermarket chains first appeared in Moscow in 1994, when the first Sedmoy Kontinent (Seventh Continent) store was opened. By the end of 2002, there were 28 retail food chains comprising a total of 384 supermarkets; and by the end of 2003, the number of stores rose to 550, an annual increase of 45%. The accelerated pace of expansion in the retail food sector offers many export opportunities for Virginia companies involved in construction and infrastructure development. Vehicles Car ownership in Russia is already higher than in other developing giants like India and China. And, Russia may be the surprise consumer story in the developing world. In the next decade, if growth continues, the number of cars on the road in Russia could double and might become comparable to Japan. This creates many export opportunities for Virginia companies involved in automotive related industries. Why Russia? U.S. exports to Russia were valued at nearly $3 billion in 2004, a 17% increase over 2003. Industrial machinery was the top export, valued at over $868 million. Virginia's exports to Russia have been steadily growing since 2001. Valued at over $128 million in 2004, exports via Virginia were up 55% over 2003. Russia ended 2004 with its sixth straight year of economic growth, averaging 6.5% annually. Russia is part of a proud coalition of four developing giants including Brazil, Russia, India and China known as BRIC. They each have large population bases, large natural resources and unending technical talents as well as large consumer bases. Russia is a major importer of machinery and equipment, consumer goods, medicines, meat, sugar, and semi-finished metal products. Virginia's Top Exports to Russia From 2001-2004, tobacco was Virginia's strongest export commodity to Russia, valued at $66 million in 2004. Industrial machinery has recently replaced meat products as Virginia's second top export to Russia. Some examples of industrial machinery and equipment that have sold well in Russia include hand tools, machines with individual functions, and machine parts. Among Virginia's top 10 exports to Russia, the fastest growth in 2004 came from meat products (305%), electrical machinery (164%), and ceramic products (162%). Electrical machinery included parts for radios, telephones, and TV recorders, while ceramic products were mainly roof tiles and chimney pots. A Unique Trade Opportunity- Now is the Time! The current period of dynamic economic growth in Russia provides U.S. producers and suppliers with a unique opportunity to tap into a rapidly evolving market. The combination of the Russian population's relatively high percentage of disposable income and pent-up consumer demand provides U.S. companies with a window to develop brand awareness and loyalty. The key is to develop reliable working relationships with trustworthy Russian business partners. This requires due diligence and expert advice from reliable sources on the ground in the target market. So how can a Virginia business get in on the action in Russia? Business opportunities in Russia tend to be most successful when initiated through personal introductions from within the country, and then followed up by personal meetings. This fall, Virginia companies will have the opportunity to expand their business in Russia by joining a VEDP sponsored Trade Mission to Russia, October 31-November 1, 2005. The mission will start in Moscow and may target other regions, depending on the interest of companies participating in the mission. Trade mission participants will enjoy one-on-one meetings with targeted, pre-screened Russian companies that match their unique company and market objectives. Participants will travel with Patricia Codescu, Virginia's International Trade Manager who has led successful missions to the Czech Republic, Hungary, Romania, Poland, and Turkey. The VEDP will provide pre-arranged meeting rooms, translation assistance, market briefings and networking functions. The expanded investment and expansion in Russia's manufacturing, IT and retail sectors create significant sales opportunities for Virginia exporters. VEDP Trade Missions are a great way for Virginia manufacturers and service providers to enter new markets overseas. Virginia companies interested in pursuing new business in Russia are encouraged to join the VEDP's Trade Mission to Russia October 31 -November 4, 2005. (Click here to download the Mission Flyer) If you are interested in participating in the Russia Trade Mission click here to register online for this event. If you would like to learn more about the Russia Mission, please contact Patricia Codescu by phone at (703) 506-1031 or by e-mail at PCodescu@YesVirginia.org.