Russia is back!
Russia has made an impressive comeback on the international stage. On June 26th and 27th country officials will negotiate toward achieving an pact on economic and resource issues with the European Union. Nevertheless, the excellent economic track record of recent years is still on somewhat uncertain footing. To safeguard growth, the Russian government must create a modern infrastructure, implement competitive production technologies and ensure that its workforce is fully trained.
For western companies, the investment campaign is a unique opportunity to enter this attractive market. In addition to infrastructure, retail and tourism are particularly interesting. That was the message of company founder Prof. Roland Berger at this year's Summernight Symposium hosted by Roland Berger Strategy Consultants in Vienna.
Following the crisis in the 1990s, Russia's economy is gaining ground again. The GDP grew an average of 6.6 percent annually in the past seven years, putting it just behind China (10.1 percent) and India (7.6 percent). This makes Russia the world's 7th largest economy. But this upswing is heavily driven by global demand for commodities: petroleum, oil products and natural gas account for nearly two-thirds of all Russian exports, and metals for more than 14 percent.
Diversifying to secure growth
"The Russian government has recognized the need to diversify, and developed an ambitious program. But it is still not enough," Roland Berger said in his presentation. Political goals for the coming years include establishing an independent judiciary, drastically reducing bureaucracy, cutting taxes to stimulate innovation and investment, establishing an independent finance system, promoting the ruble as the regional reserve currency, setting up a national innovation program and implementing a program for social development.
Besides the known problems of corruption, bureaucracy and an inadequate legal framework, there are obstacles to development that won't likely be easy to solve: "Major progress is needed particularly in infrastructure in order to avoid endangering the upswing," says Berger. But the most severe issue is the rapidly declining population. "The population is shrinking by more than 2,000 people per day, which means that the country will have 25 percent fewer inhabitants in 2050 than it does today. The labor market, social security systems and economy (capital intensity, productivity) will thus be facing enormous challenges that can apparently be overcome only by letting in international investors," says Berger. International companies can also profit from the high demand for infrastructure and capital goods, as well as the growing purchasing power.
For western companies, the investment campaign is a unique opportunity to enter this attractive market. In addition to infrastructure, retail and tourism are particularly interesting. That was the message of company founder Prof. Roland Berger at this year's Summernight Symposium hosted by Roland Berger Strategy Consultants in Vienna.
Following the crisis in the 1990s, Russia's economy is gaining ground again. The GDP grew an average of 6.6 percent annually in the past seven years, putting it just behind China (10.1 percent) and India (7.6 percent). This makes Russia the world's 7th largest economy. But this upswing is heavily driven by global demand for commodities: petroleum, oil products and natural gas account for nearly two-thirds of all Russian exports, and metals for more than 14 percent.
Diversifying to secure growth
"The Russian government has recognized the need to diversify, and developed an ambitious program. But it is still not enough," Roland Berger said in his presentation. Political goals for the coming years include establishing an independent judiciary, drastically reducing bureaucracy, cutting taxes to stimulate innovation and investment, establishing an independent finance system, promoting the ruble as the regional reserve currency, setting up a national innovation program and implementing a program for social development.
Besides the known problems of corruption, bureaucracy and an inadequate legal framework, there are obstacles to development that won't likely be easy to solve: "Major progress is needed particularly in infrastructure in order to avoid endangering the upswing," says Berger. But the most severe issue is the rapidly declining population. "The population is shrinking by more than 2,000 people per day, which means that the country will have 25 percent fewer inhabitants in 2050 than it does today. The labor market, social security systems and economy (capital intensity, productivity) will thus be facing enormous challenges that can apparently be overcome only by letting in international investors," says Berger. International companies can also profit from the high demand for infrastructure and capital goods, as well as the growing purchasing power.
Infrastructure as a growth driver
Particularly the need to improve infrastructure offers Western European construction companies, plant/mechanical engineers and capital goods companies attractive opportunities. Infrastructure investments totaling USD 96 billion over the next three years are planned. But it is not just the government – private investors are also investing heavily. Russian building construction, for example, has seen growth rates of over 10 percent per year in recent years. In addition, Russia's increasing prosperity is making it an attractive market for retail. In the past five years, this segment saw annual growth rates of 23.1 percent, which will slow to 11.7 percent by 2010. " The Russian market offers Western European chains a unique opportunity to break out of their saturated markets," says Berger.
ICT and tourism are industries of the future
The consultant sees the ICT sector as another promising industry: "Deregulation and strong growth are making the Russian market attractive for international companies. An international comparison shows that current communication costs are still very high, which is proof of the market potential." Particularly the equipment market for fixed line and cellular telephony offers opportunities for Western companies, with annual growth rates of around 28 percent. Interesting options include content provision and entry into the cable television market through the purchase of an operator.
More and more Russians also want to enjoy the fruits of their labor, which is creating annual growth rates of around 9 percent in domestic and international tourism. "Travel abroad enjoys especially high demand, but travel within the country and to Crimea is also growing steadily," says Berger. And the 2014 Winter Olympics in Sochi will bring further infrastructure investments and tourists.
If you have questions regarding this, or any other article, please do not hesitate to contact us:
Particularly the need to improve infrastructure offers Western European construction companies, plant/mechanical engineers and capital goods companies attractive opportunities. Infrastructure investments totaling USD 96 billion over the next three years are planned. But it is not just the government – private investors are also investing heavily. Russian building construction, for example, has seen growth rates of over 10 percent per year in recent years. In addition, Russia's increasing prosperity is making it an attractive market for retail. In the past five years, this segment saw annual growth rates of 23.1 percent, which will slow to 11.7 percent by 2010. " The Russian market offers Western European chains a unique opportunity to break out of their saturated markets," says Berger.
ICT and tourism are industries of the future
The consultant sees the ICT sector as another promising industry: "Deregulation and strong growth are making the Russian market attractive for international companies. An international comparison shows that current communication costs are still very high, which is proof of the market potential." Particularly the equipment market for fixed line and cellular telephony offers opportunities for Western companies, with annual growth rates of around 28 percent. Interesting options include content provision and entry into the cable television market through the purchase of an operator.
More and more Russians also want to enjoy the fruits of their labor, which is creating annual growth rates of around 9 percent in domestic and international tourism. "Travel abroad enjoys especially high demand, but travel within the country and to Crimea is also growing steadily," says Berger. And the 2014 Winter Olympics in Sochi will bring further infrastructure investments and tourists.
If you have questions regarding this, or any other article, please do not hesitate to contact us:
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