Italy is, by tradition, one of Russia's main trade partners, ranking second in Europe and fourth in the world.
The bilateral trade turnover is steadily rising, and reached US billion in 1997 against 5.2 in the preceding year, a 20% increase. Russian exports to Italy rose by 26% to US billion, while Russian imports from Italy grew by 13% to 2.6 billion, according to Russian statistics.
Italian figures, as provided by the ISTAT, Central Statistical Institute, are quite different: in value terms, the bilateral trade turnover grew by 6.6% in 1997 to 13,837 billion liras, though shrinking in the US dollar equivalent. The turnover was at US,125 million against 8,416 in 1996 (-3.5%), and exports 4,275 against 4,698 (-9%), and imports 3,850 against 3,717 (+3.6%).
Basic Russian exports for 1997:
Basic Russian imports:
The bilateral turnover will retain a similar pattern in the near future as Italy is interested in lasting imports from Russia, mainly concerning energy and raw materials (the country imports 80% of its energy). With forecasts of Italy's skyrocketing demand for natural gas, and proceeding from the current government economic policies, aimed to increase the share of electricity, coal and natural gas in the national energy consumption, Russia has a good chance to raise respective exports, mainly for natural gas, principal Russian export item.
Gazprom and ENI have long-term contracts for Russian natural gas exports to Italy: 14.3 billion cubic metres for 1997; 17.5 for 1998; 20.3 for 1999; 20.8 for 2000; and 28.8 for 2008. There are plans for an additional supply of 14 billion cu m to the Volta, a joint venture established by Gazprom and Edison Co. The implementation of all these understandings will bring Russian natural gas exports to Italy to an annual 35 billion cu m by 2008, which will account for over a half of Italy's import demands. More than that, there are expectations of further Russian gas price rises.
There are lucrative prospects for increasing exports of iron, steel, non-ferrous metals, chemicals and timber.
The first half of 1998 saw a progress of mutual trade, which followed last years' trend. The turnover increase was estimated at 35%, as compared to the same period of 1997, with imports rising quicker than exports, 16% and 12%, respectively.
Russian analysts pointed out the following leading articles of Russian exports to Italy for the first six months of 1998: fuel, 83% (US,591.6 million); iron, steel, non-ferrous metals, and finished articles, 9.4% (US million); machines and other equipment, 2.9% (US million); timber and wooden articles, 1.6% (US million); and chemicals, 1.2% (US million). The basic articles of Russian imports from Italy came as follows: machines and other equipment, 56.2% (US million); foodstuffs, 10.3% (US million); chemicals, 3.7% (US million); iron, steel and finished articles, 2.6% (US million); printed matter, 1.5% (US million), and garments, 1.3% (US million).
Russia is interested in increasing the share of machinery, equipment and finished articles--in particular, high-tech--in its exports. This change may be promoted by stepped-up military-technological cooperation, in particular, in aviation, radars and communications.
Russian machinery can account for a greater share of exports and become technically and financially more competitive in case of deeper-going production cooperation with Italian industrial and other companies. Non-market arrangements persisting in the Russian economy present one of the worst problems in Russia's bilateral economic contacts with European Union countries. Ten per cent of Russian industrial exports to the EU are liable to anti-dumping measures to bring to the exporter direct damages at a rough annual average of US million. These anti-dumping measures mainly concern items with a high degree of finishing. Exports provide for many Russian-based industrial companies the best source of revenues to keep up their production potential. Italy is taking part in the initiating and implementation of anti-dumping procedures in respect of Russian exports, in particular, seamless steel piping, cold-rolled strip, and potassium chloride—which Russia views as discriminatory.
The problem was not settled with the EU Council decision of 27 April 1998, which spread to Russian exporters anti-dumping regulations applied to market-economy countries. In this context, Italy, as one of the most influential European Union countries, can help Russia with the following issues:
Stepped-up trade and other Russo-Italian economic contacts are part and parcel of Russia's contacts with the European Union. As their partnership and cooperation agreement entered into force on 1 December 1997, a new and more effective arrangement appeared for Russia's relations with EU countries. As Russia signed—on 13 October 1997--a new agreement with the European Coal and Steel Community for trade in iron and steel, and new understandings with the EU on textile trade removed all quantitative limitations in those fields.
Active in Italy are over twenty joint-stock companies with Russian participation. They are trading in oil and petroleum products, timber, iron and steel, chemicals, medicines, machinery and industrial equipment, and specialise in transport and deliveries.
Russia and Italy are not using to the full their investment potential, and its distribution between industries little promotes Russia's industrial progress. Implementation has started of investment projects agreements on which were signed during President Boris Yeltsin's visit to Italy in February 1998. They concern car production in Nizhny Novgorod with the Fiat; bus output in St. Petersburg with the Breda's participation; washing machine manufacture in the Moscow Region with the Merloni taking part; polypropylene and thermoelastoplastic production in Tobolsk with Technimont participation; a comprehensive Karelian food programme involving the Fata; Gazprom-ENI strategical partnership involving many fields--now at a blueprinting stage, alongside several other ambitious projects; joint manufacture of YAK 130 planes with Aeromacchi's participation; construction of an export-oriented gas mainline involving the Montedison; manufacture of air traffic control systems with the Alenia's participation; construction of comprehensive timber procession combines involving the Sis-system, and many other projects. Extended Italian capital participation in Russian industrial production, and smooth performance of industrial companies under joint management will largely improve Russia's attraction for the Italian business community to increase its industrial investment.
Direct economic links between Russian and Italian regions is a promising aspect of investment cooperation. Several parts of Russia--especially Moscow and the surrounding region, St. Petersburg, Bashkortostan, Mordovia, Tatarstan, Orenburg, Samara and Nizhny Novgorod are ever more active in teamwork with particular Italian regions and industrial companies. The Vladimir Region (Central Russia) alone has twenty companies with Italian participation. It established an Italy House, April 1998, to concentrate and encourage Italian corporate links with locally-based companies. A similar practice will spread to other parts of Russia.
Extensive materials have been prepared to inform Italian companies and agencies about Russian investment projects. It comprises concise information about more than 640 projects based in 26 Russian regions to a total exceeding 25 billion dollars. Information about chances for regional cooperation with Italy was available at international investment conferences convened in Krasnoyarsk, Nizhny Novgorod, Murmansk and Rostov-on-Don in 1997.
Spokesmen of Bashkortostan, Tatarstan and the Irkutsk Region visited Italy, May 1996, to negotiate with several Italian provincial governors. Crowning the talks was a cooperation agreement between Bashkortostan and the province of Bergamo.
Delegations from Mordovia, the Moscow, Vladimir and other regions visited Italy in 1997 for firsthand information about prospects of cooperation with Italy's particular regions.
Russia demonstrates investment projects offered by its regions at Milan's annual international show, Boritech. In 1997, it was offering 121 projects from twelve regions (Bashkortostan, the Khabarovsk Territory, St. Petersburg, Chuvashia, and the Voronezh, Astrakhan, Vladimir and Novgorod regions, to name but few).
Cooperation with Italian companies helped Russia to build giant industrial enterprises--suffice it to name the Togliatti autoworks, several carbamide and ammonia combines, a Moscow-based polypropylene plant, a pipe factory in Volzhsk, compressor stations for the Siberia-Western Europe gas mainline, several leather-processing and footwear factories, an optic fibre communication line connecting Russia and Italy via Ukraine and Turkey, and a manufacturing complex for farm produce procession and packing.
According to Russian State Statistical Committee figures for 1 January 1998, the total accumulated Italian investment in the Russian economy amounted to US million, or 2.77% of the summary overseas investments accumulated in Russia. In this, Italy ranks 7th among countries investing in the Russian market: the USA (US billion), U.K. (3.64), Switzerland (3.36), Germany (2.54), the Netherlands (0.84), Cyprus (0.73), Italy (0.6), Austria (0.49), France (0.41) and Sweden (0.39). The foremost four countries account for 70% of total accumulated investment in Russia. Italy ranks 13th in terms of direct investment accumulated in Russia, roughly US million.
Russia's State registrar included short of 1,500 Russo-Italian joint ventures, as of 1 March 1998. Companies with total Italian capital accounted for over a hundred of these. More than 100 Italian-based companies have their offices in Russia.
Over 60% of the total Russo-Italian joint ventures engage in trade and agency, services, tourism and the hotel business, hardware and software supplies, and transportation. The rest are active in chemical, petrochemical and light industries, production of building materials and components, timber and waste procession, farming and farm produce procession.
Major success has been achieved in the Russian market by the Cameli Petroleum, Edison, Fata Group, Europa Consult, Igi-Igi, Snia Engineering, Loromeccanica, Galileo Industry Optiche and other corporate investors.
Cooperation with Italian-based companies extends in oil regining, petrochemistry and natural gas transportation.
The Edison established a joint venture involving the Gazprom, the Volta, to build a 1,000 km long mainline to transport Russian gas to Italy. The Italian partner accounts for 51% of its authorised capital.
The Cameli Petroleum takes part in the updating of a primary oil refining installation at the Ryazan petrochemical works.
The Igi-Igi and Snia Engineering are active in the light industry. The former established the Zarital joint venture on the basis of aMoscow footwear factory, Parizhskaya Komunna, where the Italian partner accounts for 40% of the authorised capital. The factory puts out a daily 5,400 pairs of women's fashion shoes.
The Balashov weaving and spinning mill is stepping up contacts with Italian companies to reprocess cotton waste into yarn.
The Snia Engineering closely cooperates with the Russian-based Kokhmatextile Co. A 1996 contract to a total US million envisages equipment supplies to produce an annual ten million metres of quality cotton fabrics and articles. The Italian partner will be marketing a part of the garments.
The Loromechanica established the Oraamur jewellery factory in Blagoveschensk, Amur Region, in which it accounts for 32% of the authorised capital. Total prospective investments are evaluated at US million, including UA million out of loans from a banking consortium led by the Banco Centrale Hispano Americano with guarantees of the Italian-based Sace corporate insurers.
The major Merloni Progetti of the Merloni group is building in Fryazino near Moscow a washing machine factory with a personnel of 400 to put out up to 400,000 Aristons and Indesits a year. The initial investment is to approach US million.
The Galileo Industry Optiche established the Comtez factory on the basis of the Yelets medical equipment factory to produce an annual ten million spectacle rims. The Italian partner accounts for 55% of the authorised capital.
The Fata Group is active on the agro-industrial complex. It is taking part in a programme, launched in 1992, to update and re-equip agro-industrial projects in the Kemerovo Region, Siberia on an Italian target loan. Russia's federal cabinet authorised and guaranteed the programme, which involves over US million and 51 Russian companies.
The regional administration considers prospects to expand contacts with the Fata Group which, in its turn, envisages more projects in other parts of Russia.
Fata Group managers, Evgeni Yassin, Russia's federal minister, representatives of ministries and federal agencies, and regional governors gathered for a roundtable in Moscow in October 1997.
The IRI, Industrial Reconstruction Institute, Italy's largest government amalgamation, has a holding structure, and is on the world's top ten industrial groups. Bringing together over 150 enterprises in various industries, it has a total personnel of 327,000, and an annual turnover exceeding US billion. M. Tedeschi, President.
The ENI national oil and gas amalgamation. Active in gas, chemical and petrochemical industries, it makes preference for developing countries in oil and gas production. It is in control of close on 160 companies with a total industrial personnel approaching 90,000. The annual turnover is roughly US billion. Privatisation was launched late in 1996 with 20% of shares offered for stock exchange trading. L. Meanti, President.
A US billion contract with Gazprom envisages joint development and exploitation of oil- and gasfields in Europe, the Mediterranean and China. The ENI also intends to purchase Gazprom shares within 3% of the entire block owned by this Russian economic giant. The first project on the contract concerns oil and gas drilling near Astrakhan as part of a strategical cooperation system of an European and even global scope, dominated by the Gazprom in the centre, the ENI south and the Shell, north. This latter made a similar bilateral contract with Gazprom in November 1997.
The FIAT, the country's largest private concern, with a total personnel of 270,000, controls over a hundred companies and accounts for 80% of cars (2.3 million put out in 1996). It controls 13% of the European automotive market. Net profits amounted to 2.37 trillion liras in 1996. C. Romiti, Administrative Council President.
Under an agreement made by the FIAT and the GAZ (Nizhny Novgorod autoworks), an annual 150,000 FIAT Palio Weekend, FIAT Siena and FIAT Marea cars are to be manufactured and sold, with US million investments to come within five years. As the agreement stipulates, FIAT and GAZ are to hold 80% of the stock, and the EBRD will own the remaining 20%. This was the most ambitious agreement after a project implemented in Togliatti twenty years ago. The first cars are to appear late in 1998 and early 1999.
The Breda Finmeccanica. The Breda Railway Construction Co. is, within the next five years, to assemble 1,350 city-route buses, each 12 metres long, to a total US million, at the Yakhroma works near Moscow. A joint venture was established for the purpose, in which 30% of the authorised capital belongs to the Mostransauto Co. and the Yakhroma works. Another 1,350 buses will be produced at the second stage. In 1997, the Breda Co. made a contract with St. Petersburg to supply a thousand city buses, with prospects for an additional 1,600. The Breda and the St. Petersburg-based Severny Zavod established a joint venture in which the former possesses 35% of the authorised capital. It will cooperate with the Passazhirautotrans for municipal transport services.
The Fininvest, Italy's third-largest private amalgamation in terms of annual turnover (US billion), with a 26,000 personnel. Main lines of business: television, book publishing, advertising, production and distribution of television and cinema films, insurance, and a chain of department stores. S. Berlusconi, proprietor. F. Confalogneri, President.
The Confindustria, Italy's largest private entrepreneurs' league, which unites 123 regional and 118 industrial associations, bringing together close on 100,000 companies. Total personnel, over 4 million. G. Fossa, President.
The National Cooperative League. Established in 1886, it was Italy's first organisation to launch business ties with Soviet Russia in 1920. It brings together over 15,000 cooperatives with a total membership exceeding 3.3 million.
The Confagricultura, General Conference of Italian Agriculture. Unites agricultural entrepreneurs who account for over 60% of Italian farm produce. A. Bocchini, Director-General.
The Merloni. The Merloni Co. built a factory in Lipetsk on a turn-key arrangement in the 1970s. In 1998, it signed a contract to purchase a land plot in the Moscow Region to build a household electric appliance factory. The project demands an over US million investment. Production is to start early in 1999.
The Parmalat. Having invested US million, the company is assembling equipment at a newly built Nizhny Novgorod-based dairy plant, to start production toward the end of 1998. The company is simultaneously launching juice and soft drink production in Yekaterinburg.
The Tecnimont. The company, of the Montedison group, launched polypropylene production in two major plants in Moscow and Ufa (Bashkortostan) in 1996/97. Now, it is engaged in three major projects.
First, extension and updating of the Tobolsk gas processing plant, supplied by Tyumen Region gasfields. The project demands US million investment. A third of this will come from Japanese and Turkish partner chemical companies.
Second, launching stenole procession into porous polystyrole at a major petrochemical combine in Tatarstan's Verkhnekamsk, for which purpose a joint venture is to be set up with roughly US million to invest in.
Third, factory construction on the Baltic coast near St. Petersburg to produce fertilisers out of gas piped from the Yamal field. Technological supplies and production launching demand a US million investment.
The FATA. In 1998, the company signed a contract with the Karelian government envisaging an ambitious venture to put out foodstuffs to a total exceeding US million. The company is to supply machinery, equipment and know-how, and provide maintenance for continuous produce supplies from the farm to the shop in a chain: sowing--attendance--harvest--procession--reprocession--sale. Gaetano Di Rosa, president of the Fata Turina group, signed a similar contract with the Daghestani government in autumn 1997.
The Ferrero. The company will invest in a Nizhny Novgorod Region-based confection package factory to an overall US to 100 million. Construction is to start in summer 1998.
The Telecom-Stet International group. Early in 1997, Telesoft Italia Co. and Rostelecom made a US million contract for electronic communication software design and supplies. Early in 1998, the two companies signed another contract for US million to the Russian partner and US million going to the Italian company. It is part of a Rostelecom project for a long-range transnational communication control network. In 1992-97, Italtel supplied to Russia electronic communication systems to US million.
The Codest Engineering. As a 213-metre-long two-tier pedestrian bridge was built near Krasnopresnenskaya Embankment in Moscow in 1997, on a US million effort, Codest secured another, US million contract, for a Stock Exchange highrise. 182 metres high. The building will appear near the Triumphal Arch in Kutuzovsky Prospekt.
The ICE. The Italian Foreign Trade Institute and the Russian travel company Expocentre signed a protocol of intentions for an exposition pavilion, floor space 15,000 to 20,000 sq m to be built on the Krasnaya Presnya trade fair complex in Moscow. It will be used to exhibit Italian commodities and rented for other events. Investments are estimated at US million. The Italian partner will provide a half. Taking part in the project on the Italian side will be, apart from the ICE, interested trade-fair agencies of Bologna, Milan, Verona and Bari.
The Marelli. The company is having negotiations in Nizhny Novgorod to launch a TV-set production line, demanding a US million investment. The Italian partner is taking 25% upon itself.
The Candy. The company turned an interested eye to Russia after it successfully launched production in Czechia and Hungary. The Candy intends to start with its household electric appliance assembly later to switch to manufacturing after required facilities are built.
The legal and contract basis of cooperation. Of an essential importance for bilateral contacts are: a Treaty of Friendship and Cooperation, signed by Russia and Italy on 14 October 1994, during Prime Minister Silvio Berlusconi's visit to Russia; an Agreement on Encouragement and Mutual Protection of Capital Investment, signed in Rome on 9 April 1996, during a maiden session of the Russo-Italian Council; a Double Taxation Agreement for Profit and Property Tax and Prevention of Tax Evasion, Rome, 9 April 1996; an Agreement on Cooperated Currency and Export/Import Control and Combating Money Laundering, signed in Rome, 29 July 1996; and an Agreement on Cooperation on Military-Technical Issues and the Defence Industry, signed in Rome on 23 November 1996.
As President Boris Yeltsin was paying a visit to Italy, February 1998, the following documents were signed: Programme of Action in the Relations between Russia and Italy; Agreement on Cultural Cooperation; Agreement on Customs Cooperation; and Agreement on Cooperated Civil-Oriented Space Research and Use.
The Russo-Italian Council for Economic, Industrial and Financial Cooperation. Established in compliance with the Friendship and Cooperation Treaty of 14 October 1994, the Council coordinates business ties. Its main objectives are: to define lines of bilateral contacts, draft recommendations to streamline them, and assist in coping with whatever problems may arise. The council had its firstsession in Rome on 9 April 1996; the second in Moscow on 2 May 1997; and the third in Rome on 21 May 1998. Boris Nemtsov, Deputy Prime Minister, was council president for Russia, and Lamberto Dini, Minister of Foreign Affairs, for Italy.
The council has two ad hoc teams--for economic and industrial contacts, and for financial matters. An entrepreneurial committee for business contacts was set up under the council aegis, which has ad hoc teams for power industry, machinery and industrial equipment, agriculture, defence industry conversion, and financial issues.
Presiding at the third council session in Rome, 21 May 1998, were Georgi Gabunia, acting Minister of Industry and Trade, for Russia, and Pietro Fassino, Deputy Minister of Foreign Affairs, for Italy.
Major attention was paid during the session to bilateral financial relations. As the arties stated with satisfaction, the settlement of the basic problems made the SACE reconsider its stance on the insurance of transactions with Russia towards more openness. A memorandum of mutual understanding was signed the same day between Vnesheconombank and SACE. According to it, in 1998/99 the latter will accept for insurance bilateral contracts, approved and guaranteed by the former, to a total up to US million. As a follow-up, protocols of intentions were signed for the Italian banks IMI, Mediobanca and Mediocredito Centrale to loan to the Vnesheconombank 500 billion liras, 500 billion, and 150 billion, respectively.
Russia approved the start of first-stage implementation of a programme for Russian managers' training in Italy on President Boris Yeltsin's earlier initiative. It envisaged up to 500 Russian managers training in 1998. The parties agreed on close cooperation to ensure programme progress and the greatest possible efficacy.
The session determined to establish a transport ad hoc team on the council, and a commission for power production cooperation, which was to overtake the competences of its counterpart on the Entrepreneurial Committee. The council also took into consideration prospects to establish on that committee an ad hoc team for small and medium-range business.
Apart from a summing-up communique and a VEB/SACE memorandum, the council also signed another official document, a memorandum for cooperation to promote small and medium-range business between Russia's State Committee for the Promotion of Small Business, and Italy's Ministry of Industries.
Prominent on the session agenda was joint R&D on the YAK/AEM 130 training aircraft. The parties agreed that the project ought to go over to its production and marketing stages. As the Yakovlev R&D bureau, the Nizhny Novgorod-based Sokol plant, and the Aermacchi signed a contract for cooperated efforts on the plane, the Russian delegation to the council spoke for a related intergovernmental understanding to be signed as soon as possible.
Following the session, the Confindustria hosted a meeting of Russian delegates with Italian businessmen, which resulted in a number of bilateral contracts--in particular, an agreement with Breda Co. for a joint-venture bus-making autoworks in Yakhroma (Moscow Region); and a protocol of intentions with CO.VI.M. for a joint venture in Nizhny Novgorod to bottle grape wines and make confectionery additives and raw pharmaceutical substances (annual output 10 million litres of wine, project cost US million). Another contract was made with SIS System for equipment supplies to a Leningrad Region-based timber mill to reprocess an annual 230,000 cu m of raw timber and put out 60,000 cu m of lumber (project cost roughly US million). A protocol of intentions was signed with the same company for a joint venture in Sarov, Nizhny Novgorod Region, to put out an annual 250,000 window frames and 150,000 doors. Cooperation understandings were made between the Kometa research institute and Elsacom for a Zerkalo-KS regional satellite communication system, and light aviation diesel enginesproduction launched in Voronezh--this latter between the Engine-making R&D bureau and VM Motori.
Mr. Gabunia took part in an annual General Assembly of the Italo-Russian Chamber of Commerce, which gathered at the Confindustria the same day.
The council earmarked its next session for the first half of 1999.
Credit lines. In compliance with intergovernmental agreements, Italy opened to Russia three credit lines to a total US billion. They helped, in 1991/92, to purchase equipment, foodstuffs and other commodities to US billion. As Russia failed to pay interest on those loans, Italy suspended contract crediting and insurance guarantees in January 1993.
In February 1996, the Italian government determined to deblock the unpaid part of the 1991 investment credit line at 420 billion liras, or US million.
A memorandum on mutual understanding, signed in Moscow on 2 July 1996, defined the basic patterns of spending the unblocked sum and its transfer into an export loan to finance Russian government-guaranteed purchases of investment commodities and services in Italy.
An interbank agreement on the use of that loan was signed in Moscow on 22 May 1997. The document entered into force, November 1997, after necessary procedures were completed (coordination and transfer of Russia's Finance Ministry guarantees, legal expertise by the Justice Ministry, etc.).
Simultaneously with those developments, the Ministries of the Economy, of Foreign Economic Contacts and Finances, and the Vnesheconombank were selecting projects to finance on the above credit line. Shortly before the start of 1998, the federal cabinet issued decrees to include in the line eleven projects to a total US million to finance the following technological supplies: for baby food manufacture in the Moscow Region, Kaliningrad, the Krasnodar Territory and the Penza Region, to a total US million; packing material production, Tyumen, US million; timber processing, Komi Republic, US/2 million; Government House maintenance, Moscow, US million; children's bicyclemanufacture, Saransk, US million; tile production, Kabarda-Balkaria, US million; chocolate, Saransk, US million; and aluminium rolled wire, Mordovia, US million.
In addition, the Government drafted decrees covering another US million.