Russia Country Risk Report

Published 25 February 2015 | Quarterly

  • 56 pages
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$1,195.00
Russia Country Risk Report

Core Views

  • President Vladimir Putin's popularity remains near record highs. We expect this to suffer moderate declines as the reality of economic hardship beings to be realised by the general public. Political influence will remain in favour of defence and security hardliners. This will have fiscal consequences as military spending continues to remain high.

  • Prolonged lower oil prices during 2015 will have a negative impact on economic activity. High inflation will negatively affect consumer's purchasing power resulting in a reduction in private consumption.

  • This reduction in private consumption is reflected in our balance of payments forecast. Though we expect exports to decrease, due to a significant fall in imports we expect to see a current account expansion during 2015.

  • Monetary policy will remain relatively tight during 2015. A decrease in the rate of inflation in H215 will allow for monetary easing. The monetary authority will be eager to reduce rates so as not to inhibit economic activity and stifle the banking sector with high borrowing costs.

Major Forecast Changes

  • Following heavy depreciation in the rouble we now forecast the currency to average RUB62.50/USD during 2015.

  • We have upwardly revised our inflation forecast in light of rouble depreciation. We expect Russian inflation to peak in Q215 before beginning to gradually decline, averaging 14.0% during the year. The CBR will reduce its main policy rate to 11.0% in an attempt to return to monetary policy normality and not impede growth unnecessarily.

  • We have made a large downward revision to our growth outlook. This is due to lower oil prices constricting output, rising prices reducing consumer's purchasing power and an unfavourable business environment due to high rates. We now forecast the Russian economy to contact by 5.2% in real terms in 2015 before growing return to growth in 2016 with a 0.3% expansion.

  • We now forecast Russia's current account balance to make a short-lived...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Risk To Outlook
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Index
7
Domestic Politics
8
Putin's Popularity Masks Rising Medium-Term Risks
8
Table: Politic al Overvi ew
8
Foreign Policy
10
Economic Weakness To Constrain Geopolitical 'Revival'
10
Long-Term Political Outlook
13
Kremlin Facing Tougher Challenges Over 2014-2024
13
Chapter 2: Economic Outlook
17
SWOT Analysis
17
BMI Economic Risk Index
17
Economic Activity
18
Oil Prices Aggravating An Already Grim Macro Outlook
18
table: GDP By Expenditure
18
Balance Of Payments
20
Balance Of Payments Crisis Risks Rising
20
Table: Current Account
21
table: Chang es To Priv atis ation Sch edu le
22
Fiscal Policy
23
Modest Fiscal Deficits Masking Vulnerabilities
23
table: Fiscal Policy
23
Monetary Policy
25
Return To Easing in 2015
25
table: Monetary Policy
26
Currency Forecast
27
Rouble To Find Temporary Strength
27
table: CURRENCY FORECAST
27
Chapter 3: 10-Year Forecast
29
The Russian Economy To 2023
29
Structural Deficiencies Weighing On Growth
29
table: Long-Term Macroeconomic Forecasts
29
Chapter 4: Operational Risk
31
Russia Aggregate SWOT Analysis
31
Operational Risk Index
31
Operational Risk
32
table: Operational Risk
32
Transport Network
33
table: Emerging Eu rop e - Transpo rt Network Risks
34
Economic Openness
38
table: Europe - Economic Openness Risk
39
table: Top 5 Product Imports (USDmn)
40
table: Top 5 Trade Partners - Product Exports (USDmn)
41
Chapter 5: Key Sectors
43
Infrastructure
43
table: Construction And Infrastructure Industry Data
44
table: Construction And Infrastructure Industry Data
45
Oil & Gas
48
Other Key Sectors
53
table: Pharma Sector Key Indic ato rs
53
table: Telecoms Sector Key Indicators
53
table: Defence and Security Sector Key Indicators
53
table: Food and Drink Sector Key Indicators
54
table: Autos Sector Key Indicators
54
table: Freight Key Indicators
54
Chapter 6: BMI Global Assumptions
55
Global Outlook
55
Reality Check: Uncertainty Reigns
55
Table: Global Assumptions
55
Table: Developed States, Real GDP Growth, %
56
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
56
Table: Emerging Markets , Real GDP Growth , %
57

The Russia Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Russia. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Russia's economic, political and financial prospects through end-2019, just published by award-winning forecasters, BMI  Research.

Key Uses

  • Forecast the pace and stability of Russia's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Russia's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Russia, including currency volatility, the commodity price boom and protectionist policies.

The Russia Country Risk Report by BMI  Research includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the Russia' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Russia through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Russia Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Russia and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Russia, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Russia over the next 5-years?

BMI's Russia country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Russia Market - Political Strengths, Weaknesses, Opportunities and Threats facing Russia.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Russia's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Russia’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Russia's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Russia?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Russia against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate Russia’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in Russia will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in Russia's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express