Guidance

Overseas Business Risk - Russia

Updated 10 May 2017

Please read the latest information for UK businesses on Russia and Ukraine, including the Crimea.

1. Political and Economic Context

Russia’s interventions in Ukraine and illegal annexation of Crimea, pose a challenging backdrop for British businesses operating in Russia. There are limitations on pursuing some activities in Russia but outside these areas, business can still be done and British exports are beginning to recover after the falls in 2015, especially in services.

The Department for International Trade (DIT) (formerly known as UK Trade & Investment) continues to support British companies in the market with targeted events and trade missions.

Russia was the world’s 13th largest economy by GDP according to the IMF’s 2014 figures. However, the combined impact of the fall in the oil price since late 2014, Ukraine related sanctions and existing structural weaknesses in the economy led to a GDP fall of 3.7% in 2015, and to an estimated contraction of 0.6% in 2016. The IMF does however expect Russia to return to limited growth in 2017 and 2018, predicting growth rates of 1.1 and 1.2% respectively – driven mainly by global growth in oil prices.

Although Russia has the smallest population of the BRIC economies, it has the wealthiest in per capita terms by a considerable margin. This means that it has a large and growing middle class; discerning consumers who seek out quality and innovation, and a growing retail sector. Russia’s domestic supply of consumer goods and services is still underdeveloped – so there are opportunities to develop new business e.g. e-commerce. Russian business – especially those with export incomes in sectors such as metals and chemicals – continue to invest. There are also higher rates of growth in certain sectors e.g. agriculture.

The heightened political tensions and Russian Government’s focus on import substitution have made some companies more wary of buying foreign goods and services but Russians understand that British exports provide some of the highest quality, most innovative goods and services available. Significant opportunities remain in, for example, consumer goods, luxury, education and machine tools.

Russia’s investment climate is mixed. It has made significant headway in meeting President Putin’s target of reaching 20th position in the World Bank’s Doing Business rating by 2018; it currently ranks 40th higher than China, India and Brazil However, there are concerns about the rule of law, transparency and access to credit. These concerns pose challenges for domestic and international investment but major Western companies continue to have a large presence in Russia in a range of sectors including energy, finance, business services, consumer goods, automobile and engineering. Despite the sanctions and the economic downturn, a number of companies are continuing to invest.

In 2011, Russia Kazakhstan and Belarus entered into a Customs Union. In 2015 the union evolved into the Eurasian Economic Union, which consists of a Customs Union and a Single Economic Space. Armenia and Kyrgyzstan has since joined the Union. The organisation is still developing, but regulation of various different sectors and technical regulations are now being set centrally by the Eurasian Economic Commission. Eventually within the Eurasian Economic Union, there will be free movement of goods, services, capital and labour.

2. EU Sanctions

The UK Government and our international partners, including the EU, have condemned Russia’s interventions in Ukraine and the illegal annexation of Crimea. We are working hard to bring about full implementation of the Minsk agreements and shall continue to bring to bear appropriate diplomatic, economic and other pressures in order to make that point. We are committed to working with our international partners to assure future stability and prosperity in the region and we are therefore keeping under close review our overall, including economic, engagement with Russia. Some bilateral cooperation is being affected.

Information about the restrictive measures that have been implemented can be found on the Gov.uk site. If in doubt, businesses should consult the DIT helpline on 0300 456 3565. UK businesses should be mindful of the potential risks created by the crisis and by sanctions. Business should continue to pay close attention to the Russia sections of the DIT and FCO websites websites. Companies may also need to be aware of sanctions regimes imposed by other countries, for example, the US.

The EU’s restrictive measures are targeted, and outside of those specific areas, there remain significant opportunities for UK companies, including in some sectors where there are sanctions e.g. in oil and gas. Companies should consult the information about sanctions on the Gov.uk site and if in doubt contact DIT Russia at tradeinvestmentmoscow@fco.gov.uk.

It is important that companies research sanctions thoroughly and take advantage of the advice offered by DIT. We expect UK companies to stay strictly within the law. But there are also examples of companies missing out on genuine business opportunities because they are wrongly assuming that sanctions cover a much wider area of UK business.

3. Human Rights

Russia is a country of concern for human rights issues. See the FCO Annual Human Rights Report on Russia for more details.

4. Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Corruption is endemic in Russia and is a major concern for businesses operating there. The Russian authorities are making some efforts to curb corruption and bribery, but Russia fell in Transparency International’s Corruption Perceptions Index in to 136 out of 177 countries.

Visit the Business Anti-Corruption portal which provides advice and guidance about corruption in Russia.

Read the information provided on our Bribery and corruption page.

5. Terrorism Threat

There is a high threat from terrorism. Although there is no indication that British nationals or interests have been specific targets, attacks could be indiscriminate, including in places frequented by foreigners. You should remain vigilant in all public places, including tourist sites and crowded places, particularly where access is not controlled (eg open-air events and markets) and in major transport hubs. Previous attacks have targeted transport infrastructure, including airports, buses, trains and Metro systems. Further attacks are likely, and could take place anywhere in Russia.

See the FCO Travel Advice for more information.

Read the information provided on our Terrorism threat page

6. Protective Security Advice

There are protective security issues attached to doing business in Russia; business people need to be conscious of the following activities of the local security service (FSB):

• IT attack against office computers, laptops, PDAs and other electronic devices.
• Physical, audio and video surveillance.
• Approaches to staff.
• Interception of telephone calls (landline and mobile), texts, emails, fax and post.
• Searches of offices, homes, vehicles and (especially) hotel rooms (including safes).

For specific advice email MoscowBusinessSecurity

Read the information provided on our Protective security advice page.

7. Intellectual Property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets.

Read the information provided on our Intellectual Property page.

8. Organised Crime

Read the information provided on our organised crime page.

9. Department for International Trade contact

Contact us on: tradeinvestmentmoscow@fco.gov.uk