Russia II: Embracing prosperity

Aired August 2008

The largest country in the world.. with one foot in Europe and the other in Asia.. more than 160 different ethnic groups.. this is Russia.
The vastness of the Russian land is hard for Westerners to grasp. Nearly twice the size of the United States, Russia ranges across 11 time zones.
Russia today is an exceptionally large middle-income country which has undergone a dramatic transition from a centrally-planned to a market economy.

It has maintained political and social stability, as well as good economic performance and rising living standards. The country's financial situation continues to improve, with a decline in sovereign debt levels and an increase in its credit ratings. The Russian rouble has also continued to appreciate against the dollar.

Nowhere else reflects the ambitions of the Russian people as its capital Moscow does. The city is huge, surreal and exciting. It is the nation’s largest city, with one in 15 Russians living here.
Built on the important Moskva River, Moscow was ideally placed to dominate trade among the Russian princedoms. It has never looked back.
No other Russian city comes even close to the level of prosperity, modern infrastructure and comfort of the capital. 80% of the country’s wealth is located here.
Living in a large city like Moscow requires a good public transportation system.
While the road network is good, being in one of the largest urban conglomerates will inevitably mean that if you drive, you will spend a good part of your day stuck in traffic. And driving in Russian traffic is not for the faint-hearted.
Many Muscovites avoid the hassle altogether by going underground.
The Moscow metro system is the quickest and easiest way to get around the metropolis.

Spanning the entire Russian capital, Moscow Metro currently boasts 170 miles of route length, 12 lines and 176 stations.
Presently, the Moscow Metro has exciting new plans for the network.

It is no secret that investing in the real estate market is one of the surest and fastest ways to make money.
Now, industry experts are pointing to the Russian property market as the latest hotspot for investors. And nowhere more so than in Moscow. The city has seen a year-on-year rise of 50% in the average cost of one square foot of floor-space.

In fact, the level of real estate development and investments in Moscow has surpassed that of London’s, and is now second in Europe only to Paris. This is a sure sign of how much things have improved in the sector, when only 30 years ago, privately owning or developing property in the country was near impossible, much less for a foreigner.
The opening of the Russian real estate market to international investors opens up many avenues for investment. Apart from financing new construction projects, expertise in market analysis, facility management, and building construction are also greatly in demand.
This rapidly developing mortgage market, as well as recent economic stability and a growing middle-class promises to be lucrative for yet another sector in the Russian economy – insurance.

The Russian government has gradually begun to implement liberalisation of the insurance industry. In 1999, it eased restrictions on foreign-owned companies by permitting them to be directly licensed in Russia. This means that there will likely be opportunities for entry and growth for US insurance companies in the near future.

The combination of weak competition and huge pent-up demand offers an attractive target for companies which can bring new technology, experience and professionalism to the country.

ENERGY - AGRO-INDUSTRIAL - AERO-ENGINEERING

Russia holds the world's largest known natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. The country is also the world’s fourth largest electricity producer, and a major supplier to the European Union.

In 2003, the government announced a new energy strategy for the country aimed at increasing energy efficiency, reducing the sector’s impact on the environment, as well as sustainable energy development.Beyond this time, we will unfortunately be unable to make any changes to the commercial.
And on the list is also how Moscow can attract investors to further develop the energy resources available for the city’s consumption.

Russia has a projected annual investment need of between US$30-40 billion for the next ten years.
Government policies are now evolving to allow for private and foreign ownership in major energy enterprises.
Mining is another industry which is picking up in Russia.
A major company in this sector is Metalloinvest, who specialises in the supply of steel and iron ore to the world.

In July 2007, the government announced a programme for the development of agriculture.
The new programme is designed to compensate for years of under-funding and to encourage production through import substitution.
Grains are among the country’s most important crops, occupying more than 50% of cropland.
Until the mid-1990s, the government continued to act as chief marketing agent for the food sector by guaranteeing farmers a market at fixed prices. That situation however, has ceased to be so.
Thus, many farms are forced to rely on outside investors to guarantee loans.
Traditionally non-agricultural companies, these large holding companies have become involved in agriculture over the past five years.

The aerospace sector is another promising area for US-Russian commercial partnerships.
Already, there are several major US aerospace companies that are active in joint-investment and co-operative projects with Russian partners.
Despite the challenges faced by joint-aerospace projects, including trade, regulatory and structural obstacles, the business climate for these projects has recently improved.

TELECOMMUNICATIONS & TRANSPORT

Russia is beginning to live up to its potential status as one of the largest IT markets in Europe.
Although complete liberalisation of the telecommunications sector is not expected to come about till 2010, Russia’s IT services industry is currently growing at about 10% per year.

Already, manufacturers of components and hardware are tailoring their products for the local market. The country is also becoming an increasingly important centre for software development.

In the past year, the government has started to give IT a much higher place in national policy priorities. The sector is now seen as central to Russia’s economic ambitions of doubling GDP by 2010.

The small business market is emerging as the primary battleground for enterprise application vendors, with local companies emerging to challenge the multinationals.
One such company is Rambler Media.

In 2007, the Ministry of IT and Communications launched a new programme that aimed to enable every home to have a computer. The plan is to provide a tax rebate for families purchasing computers.

Although there are currently about 30 million internet users in the country, the internet penetration rate per unit of population is still low at about 30%.
Consequently, the level of computer penetration in the country is also low at 9%. This means that opportunities abound for vendors in the coming years.