While strained U.S.-Russian relations concerning Crimea, the Ukraine and Syria, dominate today’s headlines, the state of Georgia‘s trade with Russia is on the rise again, retaining its rank among U.S. states as the fifth largest exporter to the country.
Against this favorable economic backdrop for the state, Leonid Zubarev, senior partner who heads the commercial and insurance accounts of the Moscow-based law firm CMS, gave a seminar on Sept. 13 at the Atlanta offices of Miller & Martin PLLC, its World Law Group partner, for the general counsels and directors of international development of Georgia companies.
He said that Georgia is the fifth largest exporter to Russia in the U.S. behind Texas, Washington, California and Illinois with the leading industry sectors: transportation equipment, machinery, paper and chemicals.
The state’s exports to Russia grew rapidly at an annual rate of almost 20 percent from 2010 to 2013 but
after the Ukraine/economic crisis, fell 46 percent from 2013 to 2015. In 2015, Georgia businesses exported $244 million worth of goods to Russia.
On the upside, there has been a rebound with exports growing 28 percent in the first six months of 2016. If this continues, state exports will be on track to reach nearly $300 million by the end of the year.
Despite the good news concerning trade for the state, U.S.-Russian political relations remain strained, and Mr. Zubarov didn’t shy away from questions concerning his views about internal Russian politics or his perceptions of other politicians around the world.
Uncertainty is in the air for the 146.5 million Russian people, business and government, he said, due to upcoming local elections and a national election slated for 2018.
He declined to say whether Russian President Vladimir Putin will run again, but noted that the more important question was whether the elections would be held at all.
“I’m not sure that most care about the elections but it is important that they happen,” he said.“Most believe that (Mr. Putin’s party) United Russia will stay in power, however, and that few changes in policies will take place.”
A disparate income gap exists in Russia between the rich and the middle to lower classes, he said, which in Russia is helping a right wing element gain traction, a situation he called “unfortunate and a growing concern.”
He acknowledged that similar wage gaps have occurred in the United States as well but that they are even wider in his country. “We will definitely see taxes go up in 2018, especially for those with higher incomes; we need the money,” he added.
Mr. Zubarev only briefly mentioned the protagonists of the U.S. election. Concerning Donald Trump, he said that Mr. Putin and the presidential candidate “never met,”as Mr. Trump has suggested.
Concerning Hillary Clinton, he repeated the often cited “illustrative mistake” she made when she presented a symbolic red button to Russian leaders to mark the relaunch or rebooting of U.S.-Russian relations. The button, mistakenly thought of by the Americans to say “Reboot,” actually said “Overcharge.”
Relations with China are a “difficult partnership with a lot of bowing but not real stuff behind the friendship. China knows what it wants and they will get it,” he observed.
With Bashar Hafez al-Assad, president of Syria, he said that he and Mr. Putin have a relationship “but are not close. I think he was closer with his father [former Syrian president Hafez al-Assad].”
On the subject of Turkey and its president, Recep Tayyip Erdogan, he said that the two countries had a good partnership until Turkey shot down a Russian plane in 2015, which was “hell on the relationship.” Currently things between the two countries are fine but could go south at any time. “It frightens me,” he added.
In terms of business, he said Russia’s economy is recovering from the recession as well as sanctions imposed by the European Union in 2015 when it annexed Crimea.
“We used to get cheese from Europe but after the sanctions there wasn’t a lot of cheese. Russian small firms are filling the gap, he said, and cheese shops have slowly started opening up despite the sanctions.
“This type of entrepreneurship is growing and the sanctions opened up some opportunities,” he added. Although a positive development, he didn’t see it as an automatic answer to the economy’s problems.
“It takes a long time for these small businesses to grow, certainly not in two years, maybe 20.”
He also said that he is concerned with a government initiative to limit the use of foreign software.
“It’s a bad thing,” he added. “If we are prohibited from using foreign software are we supposed to develop our own version of Word and Outlook?” He is also concerned about possible checks on foreign hardware as well as some want to erect “IT fences like they have in China.”
In response to a question about start-up funding, he said that there is nothing as sophisticated or developed as angel funding or venture capitalism and the usual practice is to ask friends for money.
“You don’t go to banks but there are funds that are starting to develop, mainly by rich investors like the Smirnoff family, (which founded the Smirnoff vodka distillery in the mid-19th century), or they develop a product and hope it gets noticed by others who may want to invest.”
On the economic side he pointed out that the country’s main exports are fuels and energy products, metals, machinery and equipment, chemical products and food and agriculture with China, Germany, the Netherlands, Italy and Belarus being its top five export partners.
In terms of Russian exports to the U.S., the top five are oil ($3.1 billion); fertilizers ($1.1 billion); aluminum ($1.1 billion); iron and steel ($1 billion); and gems, precious metals ($421.8 million).
The country’s main imports are machinery, chemical products and food and agricultural with China (12 percent); Germany (11percent); U.S. (6 percent) and Belarus (5 percent) the leading countries that send their exports to Russia.
The largest foreign direct investments in Russia, he said, are from the United Kingdom, Luxembourg, Ireland, the British Virgin Islands, Cyprus and the Netherlands.
He listed the top U.S. companies doing business in Russia and the dates that they arrived: Pepsi Co., 1974; Procter & Gamble Co., 1991; Mars Inc., 1991; Apple Inc., 2007; McDonald’s Corp., 1990; Mondelez International Inc., 2012; Ford Motor Co., 2001; General Motors Co., 1992; Johnson & Johnson Services Inc., 1992 and Cargill Inc., 1991.
Georgia companies also are doing business in Russia including AGCO Corp. through a 50-50 joint venture with Russia’s Concern Tractor Plants (CTP). AGCO supplies engines to industrial and agricultural machinery manufacturing plants throughout the country. In early 2014, AGCO also initiated a $100 million joint venture with Russian Machines to manufacture and distribute agricultural replacement parts in Russia.
The Coca-Cola Co. has a major presence in Russia, holding a 21 percent share in the Russian non-alcoholic drink market as of 2015. The company’s sales grew rapidly in the pre-crisis period, with Russians’ per capita annual consumption of Coca-Cola rising from 24 servings in 2002 to 79 servings in 2012. Through its Moscow subsidiary United Card Service, Coca-Cola is one of the largest payment processing companies in Russia, servicing around 20 percent of transactions by international and local payment card holders in Russia in 2016.
And Global Payments Inc. is the largest indirect payment processor in Russia providing card database management and ATM processing services to over 140 financial institutions there.
In other notes of interest, he pointed out that nearly half the country are users of social media and the internet with 97 percent of the users being ages 16 to 29.
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