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U.S. President Barack Obama's visit to Russia has seen over $1.5 billion of company deals unveiled, but a longer term step-change in business between the nations will depend on Moscow boosting the rule of law.
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Photo by: Pete Souza President Barack Obama |
"We need the confidence that things are going to remain stable, that the ground rules are going to remain stable," Samuel Allen, chairman of U.S. farm machinery maker John Deere [DE
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] , told reporters while announcing an investment of $500 million into Russia within the next five to seven years.
"I believe in the long run that is what the (Russian) government will try to do but at this point in time things aren't as stable as we would like to see. It makes us hesitant at times," he said on Monday.
The summit between Obama and Russia's president, Dmitry Medvedev, will focus on talks about cutting nuclear weapons stores, the supply of weapons to NATO forces in Afghanistan, and on creating a joint commission to improve trade relations.
A breakthrough at these talks would serve as evidence both sides want to "press the reset button" -- to use the U.S. government's phrase -- on U.S.-Russia relations and help boost bilateral trade, which stood at $36 billion last year.
Joining Deere's new investments in Russia are U.S. soft drink company PepsiCo [PEP
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] and aircraft maker Boeing. The Kremlin said Russian oil major LUKOIL wanted to invest in a new refinery on the eastern U.S. coast with ConocoPhillips [COP
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].
"If we have success on the geopolitical side of the summit we are going to see much more investments by U.S. companies," Andrew Somers, president of the American Chamber of Commerce in Russia, told Reuters in an interview on Monday.
"We hope that President Medvedev will be able to follow through on his continuous campaign to improve the rule of law. I think this is a single biggest inhibitor to investment by U.S. companies, their concern about the rule of law," he said.
Investor Hopes
U.S. executives regularly name the weak rule of law, high level of red tape, and corruption as key obstacles for doing business in Russia, and are likely to raise these issues when they meet both presidents on Tuesday at a parallel business summit.
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CNBC.com |
U.S. Commerce Secretary Gary Locke will attend the business summit along with Obama and Medvedev, and hold a dinner meeting with American business leaders.
PepsiCo said on Monday it would boost investment in Russia to $4 billion from $3 billion in the next three years. "This investment reflects very clearly our great confidence in Russia and our long-term commitment to this very important market," PepsiCo chairman and chief executive Indra Nooyi said.
Boeing [BA
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] will launch a venture with the world's largest titanium producer, Russia's VSMPO-Avisma, on Tuesday, industry sources said on Monday. The venture will produce $700-$900 million of titanium for Boeing's planned 787 Dreamliner.
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In addition to Boeing, John Deere, and PepsiCo, executives from U.S. oil majors ExxonMobil[XOM
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] , Chevron [CVX
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] , ConocoPhillips and aluminum major Alcoa [AA
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] are travelling with Obama.
"There are a few issues about which investors hope to hear some positive comments; the start of a process that "clears the air" on a number of investment issues, as well as those in the political sphere," said Chris Weafer from UralSib brokerage.
"That being the case, the benefits will be longer term and, currently, more concentrated in private equity and venture capital deals in areas such as technology, agriculture, pharmaceutical and medicare," he said.
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