The Northwest Federal District

Covering approximately 10 percent of the Russian Federation, the Northwest Federal District encompasses St. Petersburg; Archangelsk, Leningrad, Murmansk, Novgorod, Pskov and Volgograd Oblasts; and the Komi and Karelia Republics. Bordering Belarus, Estonia, Finland, Latvia and Norway, the region also boasts a number of international land trade routes, as well as access to the Barents, White and Baltic Seas. With its population of 14 million people – 4.62 million in St. Petersburg and 1.67 million in Leningrad Oblast – the region is home to one in every 10 citizens of the federation.

In 2004, industrial growth in Northwest Russia was 113 percent of the 2003 level, driven mainly by business expansion in St. Petersburg, and Arkhangelsk and Kaliningrad Oblasts. The most developed industries of the Northwest Federal District are:

• Metallurgy (Leningrad Oblast and Vologda)
• Chemical and petrochemical (Leningrad Oblast, Murmansk and Novgorod)
• Logging, wood processing, pulp and paper (Leningrad Oblast, the Komi and Karelia Republics, Pskov and Novgorod)
• Machine-tool building (St.Petersburg, Leningrad Oblast and Novgorod)
• Food processing (St.Petersburg, Leningrad Oblast, Novgorod and Pskov)
• Non-ferrous metallurgy (Murmansk and the Komi Republic)

St. Petersburg and Leningrad Oblast are both home to the diverse industries mentioned above, but are separate administrative units, each with its own government and legislative authorities. In addition to diversified economies, St. Petersburg and Leningrad Oblast enjoy a number of advantages not unnoticed by international business. Geographic location; developed land, air and maritime international transport infrastructure; a population second only to Moscow and Moscow Oblast; a highly educated workforce; a large diversified manufacturing base and world-class tourism potential are all competitive advantages for the region.

Obviously, the Northwest has suffered from some of the same problems that plagued Russia as a whole in the 1990s, including an industrial downturn, lack of infrastructure modernization and maintenance, legislative and regulatory obstacles to trade and investment, red tape and corruption. However, local authorities clearly understand these issues, and working together with the private sector, are undertaking the necessary steps to improve the situation by improving the legislative environment for attracting investments.

In 2004 these efforts, coupled with nationwide economic growth, have contributed greatly to increased trade and investment in the region. In 2004 the volume of investments in St. Petersburg exceeded $4.5 billion, including $985 million from foreign investors (of which the largest share, $236.5 million, was from the U.S.). 2004 foreign investment was a 42 percent increase over 2003.

Total investments in Leningrad Oblast amounted to or $2.4 billion in 2004. The figure represented a 20 percent jump in investment over 2003. The largest sources of foreign investment were the U.S. (with a 30 percent share) and Finland (with a 15.7 percent share).

Export-import deals with the U.S. focus on ferrous and non-ferrous metals, wood, aluminum and aluminum products, foodstuffs, tobacco, FMCGs, machinery, electrical equipment, chemical and organic products.

Investment projects with foreign capital also span many sectors, including FMCGs, IT and telecommunications, electronic equipment, foodstuffs, tobacco, tourism and hospitality. British-American Tobacco, Caterpillar, Citibank, Coca-Cola, Electrolux, Ford, Gillette, Heineken, Henkel, Hewlett-Packard, IKEA, Intel, International Paper, JTI, KFC, Lucent, Merloni, Motorola, Otis, Pepsi, Peterstar, Philip Morris, Pizza Hut, Subway, Sun Microsystems and Wrigley are only some of the AmCham members which are operating successfully and growing in the region.

Domestic investors are playing the leading role in developing the Northwest Federal District, with foreign capital accounting for only $2.4 billion and limited mainly to St. Petersburg.

Investment is primarily concentrated in industries with high local demand (the food industry). Other sectors attracting interest are: car manufacturing, consumer electronics, metalworking, oil and gas, pulp and paper, retail, telecommunications, transportation and wood processing. While St. Petersburg and Leningrad Oblast have successfully attracted foreign investment, other Northwest regions have had less success, although there are exceptions: Finnish investors in Novgorod’s wood working sector, U.S. investors in Arkhangelsk’s oil and gas sector and foreign investors in Vologda’s Severstal steel mill.