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Russia: Prosperity: Looking Back and Forward – February 2013

13.02.2013

Foreign & Commonwealth Office

Increasing momentum on prosperity in 2012. We can build on this in 2013 by taking advantage of the Olympic connection and the UK G8 and Russian G20 Presidencies, followed by Russian chairmanship of the G8 in 2014.There is much to do in 2013.

 

Progress in 2012

In 2012, Russia – on the basis of the latest available figures (to October) – became the UK’s 10th largest export market. UK exports grew by 22% Jan-Oct on the same period last year. Demand from businesses for UKTI services in Russia is buoyant. The UKTI team has already exceeded its 2012-13 targets for Service Deliveries and for OMIS revenue.

The Intergovernmental Steering Committee (ISC) in October, co-chaired by Dr Cable together with First Deputy Prime Minister Igor Shuvalov, helped conclude the process – initiated by the PM’s visit to Russia in 2011 – of lifting Russia’s 16-year ban on exports from the UK of beef and lamb, potentially worth £80 million over the next 3 years. Our Russia Science & Innovation (SIN) team helped deliver a customs waiver on the import of UK space equipment into Russia – a £50 million pa saving for the UK space industry – and over £15 million in space partnerships.

Lord Green’s visit to Moscow and St Petersburg with the CBI Director General in November gave a delegation of 25 MEs access to heads of major Russian companies and potential investors as well as to senior Government Ministers. Lobbying led by Lord Green included High Value Opportunities on infrastructure, R&D (Skolkovo), rail and market access issues. This was a particularly well-targeted visit as the absence of UK SMEs is a major factor in why we lag behind our European competitors. The Russians are keen too to see more engagement from this sector of UK industry.

London 2012 helped secure commercial benefit for the UK including for companies working on the Sochi Winter Olympics 2014. We are told that there are more UK companies in Sochi than any other country. Sports and Tourism Minister Hugh Robertson has visited Russia twice to pass the torch – meeting key Ministers and officials on both Sochi and the FIFA World Cup 2018. We ensured that best practice in Carbon management was taken from London 2012 and adopted into planning for Sochi 2014. And as part of a Paralympics in Engineering Global Partnership Fund (GPF) project, SIN Russia forged links on training and equipment between four top UK trauma hospitals in the UK and two in Russia.

London retained its position as the most popular overseas listing destination for Russian companies. Russia’s largest privatisation sale of 2012, the release of a further 7.58% stake in Sberbank, raised $5.2 billion in what was the LSE’s largest listing of 2012.

Looking ahead to 2013

The Russian G20 presidency and UK G8 presidency in 2013 (followed by the Russian G8 presidency in 2014) will frame much of our wider bilateral engagement with Russia this year. We will ensure that our visitors on multilateral business also have specific concrete bilateral commercial messages to carry. Co-chairing with Russia the G20 Energy Sustainability Working Group will strengthen official level co-operation on energy, energy efficiency and green growth.

Our priorities for 2013 include:

  • UK market access. Apart from issues relating to bilateral air services, we aim to make progress securing protection of the IPR of the UK’s Whisky industry.
  • Financial services: supporting TheCityUK with the Moscow as an International Financial Centre initiative, and supporting the Russian Government in its plan to create a single financial regulator, by sharing UK experience of merging the FSA with the Bank of England.
  • Energy efficiency: Russia’s target of increasing efficiency by 40% by 2020 (from 2007 levels) offers commercial opportunities for the leading UK businesses with expertise in green building and carbon management.
  • High Value Opportunities: Sport is one, and the Olympic legacy is a unique selling point for us. UK companies are well-placed with regard to the Sochi Olympics. And the FIFA WC 2018 will be an even bigger opportunity, with eleven host cities. There are also opportunities for UK businesses in sectors where their engagement is already extensive, notably rail and energy.
  • The GREAT campaign: building on London 2012 and preparing for the UK-Russia Year of Culture 2014 – widely defined to include creative industries and education, language and science links.

Economic Background

The Russian economy continued to perform relatively well in 2012 with GDP growth of around 3.5%. But it started to slow in the second half of the year and capital outflows persisted. Estimates of growth in 2013 range between 2.5% and 4%. The economy remains highly vulnerable to a sustained fall in commodity prices, prompted either by a global economic downturn or new unconventional fuel supplies.

The major challenge for businesses continues to be the business environment. President Putin issued a decree that Russia should improve its then 120th position in the World Bank “Doing Business” survey ranking to 50th position by 2015 and to 20th position by 2018. Some positive measures have been taken, including the appointment of a Business Ombudsman. Russia rose from 143rd to 133rd place in Transparency International’s 2012 Corruption Perceptions Index. But these are still low rankings, which understandably affect UK business perceptions of Russia and deter our businesses, especially SMEs, from operating here.

Comment

In 2012, thanks to the Olympics, the Jubilee and Prime Ministerial and Ministerial engagement, pushed Brand UK to the fore. The Russian government and industry want both our tradition and our innovation, our creativity and expertise, including in the City but also engineering, architecture etc. Russian consumers (who have a lot of disposable income) want our brands and design. 2012 was another good year for bilateral trade but we start a long way behind our competitors. There is much to do in 2013. 

Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report

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