BMI View: International sanctions that are weakening the economy, coupled with low oil prices, underline our bearish outlook over the Russian construction sector. We currently forecast Russia's construction industry to contract by 1.8 % in real terms in 2016 - a mild improvement compared to the deep 6. 7 % contraction of 2015 - as a result of low base effects and the adjustment of the economy to the new oil price environment.
Latest Updates And Structural Trends
Russia's actions in Ukraine have resulted in international sanctions, some of which target loans from the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB). These sanctions will continue to have a significant impact on the Russian government's capacity to fund infrastructure projects.
Middle Eastern and Chinese construction companies will increase their market share in Russia's competitive landscape as a result of Western sanctions imposed after the country's actions surrounding the Ukraine crisis. Shifting the balance away from European firms will diversify Russia's options for funding and project delivery.
Our Country Risk team maintains a bearish outlook over the Russian economy and forecasts a continued recession of -1.2% GDP real growth in 2016 before returning to weak growth from 2017 onwards. Russia's annexation of Crimea and perceived belligerence towards Ukraine, in addition to falling oil prices, have triggered significant rouble volatility and massive private net capital outflows. The flight of capital, which could have otherwise been deployed to productive investment domestically, has worsened the investment outlook.
We maintain our view that political risk will continue to curtail construction industry growth as corruption is endemic and public policy remains opaque, convoluted and subject to frequent change.
|e/f = BMI estimate/forecast.Source: BMI|
|Construction industry value, RUBbn||3,957.20||4,141.40||4,500.60||4,933.60||5,380.00||5,812.80||6,280.30||6,753.70||7,296.10||7,882.00||8,514.90|
|Construction Industry Value, Real Growth, % y-o-y||-6.68||-1.84||2.67||3.62||3.05||2.05||2.04||1.54||2.03||2.03||2.03|
|Construction Industry Value, % of GDP||4.9||4.7||4.8||4.9||5.1||5.2||5.4||5.5||5.7||5.9||6.1|
The crisis with Ukraine, sanctions against Russia and falling oil prices have considerably affected the country's macroeconomic picture and our outlook for construction industry growth in particular. Since then, Russia has dropped from 6th to 15th place out of 18 countries in our RRI for the Central and Eastern European (CEE) region.
Russia's Industry Rewards score is now 40.0, below the regional average of 47.1. This is explained by the downward revision of our forecasts for construction industry value.
In terms of risks, we continue to highlight multiple threats to investors in Russia, from political and forex, to legal and regulatory factors, which make it more difficult for projects to attract the private capital required for their implementation.
|Risk/Reward Index||Rewards||Industry Rewards||Country Rewards||Risks||Industry Risks||Country Risks|
The Russia Infrastructure Report features BMI Research's market assessment and forecasts covering public procurement and spending on all major infrastructure and construction projects, including transportation and logistics by land, sea and air; power plants and utilities, and commercial construction and property development. The report analyses the impact of regulatory changes and the macroeconomic outlook and features competitive intelligence on contractors and suppliers.
BMI's Russia Infrastructure Report provides industry professionals and strategists, sector analysts, investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the Russian infrastructure and construction industry.
- Benchmark BMI's independent infrastructure industry forecasts for Russia to test other views - a key input for successful budgetary and planning in the Russian infrastructure market.
- Target business opportunities and risks in the Russian infrastructure sector through our reviews of latest industry trends, regulatory changes and major deals, projects and investments in Russia.
- Assess the activities, strategy and market position of your competitors, partners and clients via our Company Profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering infrastructure and construction, regulatory changes, major investments and projects and significant national and multinational company developments. These are broken down into construction (social, commercial and residential), transport (roads, railways, ports, airports, etc), and energy & utilities (powerplants, pipelines and so on).
Industry SWOT Analysis
Analysis of the major strengths, weaknesses, opportunities and threats within the infrastructure and construction sectors and within the broader political, economic and business environment.
BMI Industry Forecasts
Historic data series (up to 2012) and forecasts to end-2024 for all key industry indicators, supported by explicit assumptions, plus analysis of key developments in the market and risks to the main forecasts. Indicators include:
Construction: Industry value (USDbn); contribution to GDP (%); total capital investment (USDbn); real growth (%).
Construction industry real growth forecasts (%) and industry value (USDbn) forecasts for industry sectors are split into Residential and Non-residential and Infrastructure sectors. Where the data is available for particular countries the infrastructure is further broken down into indicators for the transport subsectors of roads, railways, airports and ports and the energy and utilities sub-sectors of power plants and transmission grids, oil & gas pipelines and water infrastructure. This dataset is unique to the market.
The reports also include analysis of latest projects across the infrastructure sectors (transport, utilities, commercial construction).
BMI’s Infrastructure Risk Reward Index
BMI’s Risk Reward Index provides investors (construction companies, suppliers and partners) looking for opportunities in the region with a clear country-comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points. These provide indices of highest to lowest appeal to investors, with each position explained.
An assessment of the competitive landscape and key challenges to entering the market. Details of the largest companies active in the sector across the sub-segments of the industry, including the key financial figures from some of the largest players in the sector.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
The Infrastructure reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.