Analysis: U.S. manufacturers turn to Russia, with love

Thu Oct 18, 2012 1:44pm EDT
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By Nick Zieminski

NEW YORK (Reuters) - American manufacturing companies are marching on Moscow.

At a time when tepid growth at home, a slowing Chinese economy and recession in much of Western Europe is dogging Corporate America, Russia is getting newfound attention as a growth market for U.S. machinery, consumer goods and services.

Russia, a World Trade Organization member since August, accounts for only about 1 percent of total U.S. trade, compared to China's 12 percent. But in recent years, Russia has ramped up infrastructure spending and a growing middle class has snapped up consumer goods from soda to chicken to computer software.

U.S. exports to Russia were up about 29 percent in the first eight months this year from a year ago, and are forecast to top $10 billion in 2012, up five-fold from a decade ago.

Expecting increased Russian demand following its WTO entry, International Paper Co, Caterpillar Inc, Deere & Co and others are stepping up investment in Russia by expanding distribution networks, boosting capacity, or making acquisitions.

"Basically, we can sell all we can make in Russia," said John Faraci, Chief Executive of International Paper, which is developing a new paper machine for Russia and investing more than $1.2 billion to modernize plants there, including one in Bratsk, Siberia that will export to China.

Moves like these show companies are once again willing to place bets on Russia, a country known by business leaders as much for Kremlin-orchestrated corporate takeovers and corruption as for its natural resources wealth. The Russia moves also come as major U.S. companies have been growing less optimistic about the Chinese market - recently home improvement chain Home Depot Inc decided to close all of its big box stores in China.

"Endemic corruption, vested interests opposed to change, intrusive bureaucracy and unreliable rule of law are all well-known barriers to investment and growth," warned analysts at TroikaDialog in an August report. But the Russian investment bank nonetheless sees WTO membership boosting Russia's consumer, service and construction sectors.   Continued...