Russian Federation
the awakening bear?
BACKGROUND
Movers & Shakers Fact Sheet
Founded in the 12th century, the Principality of Muscovy was able to emerge from over 200 years
of Mongol domination (13th-15th centuries) and to gradually conquer and absorb surrounding
principalities. During the 19th century, more territorial acquisitions were made in Europe and Asia.
Defeat in the Russo-Japanese War of 1904-05 contributed to the Revolution of 1905, which
resulted in the formation of a parliament and other reforms. The Communists under Vladimir LENIN
seized power in 1917 and formed the USSR. The Soviet economy and society stagnated in the
following decades until General Secretary Mikhail GORBACHEV (1985-91) introduced glasnost
(openness) and perestroika (restructuring) in an attempt to modernize Communism, but his
initiatives inadvertently released forces that by December 1991 splintered the USSR into Russia
and 14 other independent republics. Since then, Russia has struggled in its efforts to build a
democratic political system and market economy to replace the social, political, and economic
controls of the Communist period. While some progress has been made on the economic front, and
Russia's management of its windfall oil wealth has improved its financial standing, recent years
have seen a re-centralization of power under Vladimir PUTIN and democratic institutions remain
weak.
Population:
141,377,752 (July 2007 est.)
Age structure:
0-14 years:
15-64 years:
65 years and over:
14.6%
71.1%
14.4%
Population growth/decline: -0.484%
Ethnic groups:
Russian 79.8%, Tatar 3.8%, Ukrainian 2%, Bashkir 1.2%, Chuvash 1.1%,
other or unspecified 12.1%
Languages:
Russian, many minority languages
Geographical note: Largest country in the world in terms of area but un-favourably located in
relation to major sea-lanes of the world
Climate:
Ranges from steppes in the south through humid continental in much of European
Russia; sub-arctic in Siberia to tundra climate in the polar north; winters vary from
cool along Black Sea coast to frigid in Siberia; summers vary from warm in the
steppes to cool along Arctic coast
Natural resources: Wide natural resource base including major deposits of oil, natural gas, coal,
and many strategic minerals, timber
Environmental issues: Air pollution from heavy industry, emissions of coal-fired electric plants,
and transportation in major cities; industrial, municipal, and agricultural pollution
of inland waterways and seacoasts; deforestation; soil erosion; soil contamination
from improper application of agricultural chemicals; scattered areas of sometimes
intense radioactive contamination; groundwater contamination from toxic waste;
urban solid waste management; abandoned stocks of obsolete pesticides
Business Vantage Ltd
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ECONOMY
Overview:
Russia ended 2007 with its ninth straight year of growth, averaging 7% annually
since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble initially drove
this growth, since 2003 consumer demand and, more recently, investment have played a
significant role.
Over the last five years, fixed capital investments have averaged real gains greater than 10% per
year and personal incomes have achieved real gains of more than 12% per year.
The federal budget has run surpluses since 2001 and ended 2007 with a surplus of 3% of GDP.
Over the past several years, Russia has used its stabilization fund based on oil taxes to repay all
Soviet-era sovereign debt to Paris Club creditors and the IMF. Foreign debt has decreased to 39%
of GDP, mainly due to decreasing state debt, although commercial debt to foreigners has risen
strongly. Oil export earnings have allowed Russia to increase its foreign reserves from US$12
billion in 1999 to some US$470 billion at year end 2007, the third largest reserves in the world.
During PUTIN's first administration, a number of important reforms were implemented in the areas
of tax, banking, labour, and land codes. These achievements have raised business and investor
confidence in Russia's economic prospects, with foreign direct investment rising from US$14.6
billion in 2005 to an estimated US$45 billion in 2007. In 2007, Russia's GDP grew 8.1%, although
inflation grew to c12% after the 2006 ten year low of below 10%. Non-tradable services and goods
for the domestic market, as opposed to oil or mineral extraction and exports, drove growth.
Despite Russia's recent success, serious problems persist. Oil, natural gas, metals, and timber
account for more than 80% of exports and 32% of government revenues, leaving the country
vulnerable to swings in world commodity prices. Russia's manufacturing base is dilapidated and
must be replaced or modernized if the country is to achieve broad-based economic growth.
GDP:
US$2.088 trillion (2007 est.)
Purchasing power parity
GDP growth:
8.1% (2007 est.)
GDP composition:
agriculture: 4.7%
industry: 39.1%
services: 56.2%
Industries:
Complete range of mining and extractive industries producing coal, oil, gas,
chemicals, and metals; all forms of machine building from rolling mills to high-performance aircraft
and space vehicles; defence industries including radar, missile production, and advanced electronic
components, shipbuilding; road and rail transportation equipment; communications equipment;
agricultural machinery, tractors, and construction equipment; electric power generating and
transmitting equipment; medical and scientific instruments; consumer durables, textiles,
foodstuffs, handicrafts
Paved Airports:
1,260
Merchant marine:
1,130 ships (1000 GRT or over)
Ports:
Anapa, Kaliningrad, Murmansk, Nakhodka, Novorossiysk, Rostov-na-Donu,
Saint Petersburg, Taganrog, Vanino, Vostochnyy
TRADE
Trade with the UK: In 2007 UK exports to Russia reached an all-time high of £2.8bn, an
increase of 36% on those figures recorded for 2006. Russia is now the UK's 16th largest export
market. Over the past few years, trade between Russia and the UK has increased significantly, and
this is expected to continue
UK imports from Russia decreased by 6.1% in 2007 to £5.5b
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Direct Investment: In 2007 Great Britain was the leader in investment in Russia (US$26.3
billion), Nearly half of this investment was in wholesale/retail trade sectors, with processing
industries, transport and communications, and coke and oil goods production accounting for the
main portion of the remaining investment.
Exports:
US$365 billion (2007 est.)
Export commodities: Petroleum and petroleum products, natural gas, wood and wood products,
metals, chemicals, and a wide variety of civilian and military manufactures
Export partners:
Netherlands 12.3%, Italy 8.6%, Germany 8.4%, China 5.4%, Ukraine
5.1%, Turkey 4.9%, Switzerland 4.1%
Imports:
US$260.4 billion (2007 est.)
Import commodities: Machinery and equipment, consumer goods, medicines, meat, sugar, semifinished metal products
Import partners:
Germany 13.9%, China 9.7%, Ukraine 7%, Japan 5.9%, South Korea
5.1%, US 4.8%, France 4.4%, Italy 4.3%
CONSTRUCTION
It was estimated that the Russian construction industry grew by around 14.5 percent a
year in the period 2003–07*.
Demand for high quality building products is forecast to grow by around 10-15% p.a. as large
companies (local and international) strive for economies of scale and become more vertically
integrated. In addition growing oil and gas output, a burgeoning retail sector (13% p.a. growth
2003-2007*) and the effects of rising middle-class living standards has fuelled growth in the
industry.
In 2011, the value of the Russian construction industry is forecast to reach US$91.83bn,
contributing 7.19% to the total gross domestic product (GDP).
However factors including shortage of building materials, uncertain property rights, red tape and
the risk of increasing government interference in business will hinder the growth of the industry.
Major infrastructure projects in Russia include the US$12-14bn development of Shtokman gas
deposit; the US$11bn East Siberia-Pacific Ocean oil pipeline project; the US$10.5bn North
European gas pipeline; the US$6.4bn Southern- European gas pipeline project; the US$6.34bn
highway linking Moscow to St Petersburg; and the US$6bn nuclear power station at Sosnovyi Bor.
Examples of planned residential developments/mixed use in Moscow include: luxury
apartment block in centre (US$157m), low-rise mini-city in Stupinskiy District (US$1.3bn) and
upmarket detached houses in the western province of Moscow (US$58m).
Examples of planned non-residential developments include: ski resorts in Krasnodarskiy
Territory (US$69m) and Adygea Republic (US$124m), sports complex including hotel in Nizhny
Novogram (US$294m), shopping centres in Novosibirsk (US$57m) and Saratov (US$125m),
business centres in Moscow (US$298m and US$314m) and the renovation of Red Square including
new luxury hotel.
* The World Bank in Russia. June 2008
Business Vantage Ltd
14 Park Street, Windsor. SL4 1LU
BUILDING STATISTICS
Number of
buildings
Buildings commissioned, total
Total floor space of
buildings, million
m²
2005
2006
2005
2006
141,619
159,033
66.3
75.6
131,043
148,721
54.8
62.3
10,576
10,312
11.5
13.3
including:
residential
non-residential
of which:
industrial
2,211
1,951
2.5
2.5
agricultural
666
1,094
0.8
1.5
commercial
3,801
3,701
3.5
3.9
educational
447
544
1.3
1.4
healthcare facilities
540
573
1.0
1.3
2,911
2,449
other
2.4
2.7
Source: Rosstat, 2007
DOING BUSINESS IN RUSSIA
Federal and regional authorities have been encouraging foreign investment and as a result, many
foreign companies have entered the Russian market. However there is corruption in Russia and it is
sometimes difficult for foreign companies to compete for contract against Russian firms.
Other factors that hinder UK companies are:
 Size of territory & poor transport infrastructure
 Different legal, tax & customer codes, language, visa requirements
 Image of Russia: bureaucratic, corrupt & different business practices, high start up costs
That being said Russia is a major market for UK companies and has enormous potential.
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Economic growth hit six year high of an average of c7% year-on-year in 2007
Fixed capital investment increased by 20%
Household consumption is buoyant with real disposable incomes up by 12%
13% increase in retail sales
Imports of goods & services up by 36%
REMEMBER
 Be patient! It could take some time before you are successful.
 Travel. Be prepared to visit several times. Meet your customers frequently.
 Talk. Russians prefer to do business face-to-face. Personal relationships are very important
 Research. Know your market!
 Use an agent/partner. Will ease local legal, tax & corruption problems.
 Have a good translator. Russian is not an easy language to do business in.
Source: UKTI
Business Vantage Ltd
14 Park Street, Windsor. SL4 1LU
FURTHER INFORMATION
 Internet domain
 International dialling code
.ru
07
Currency:
Russian rouble (RUR)
Exchange rate:
£1 = 45 roubles
US$ = 24.6 roubles (28th August 2008)
VISA
Visas are required to enter Russia. If you live in England, Wales or Northern Ireland visas are
obtained from the Embassy of the Russian Federation in London.
The Embassy in London can normally process visas in 15 working days, and applications can be
submitted by post or in person. However during periods of high demand, for example during the
summer holidays, visas should be applied for well in advance.
Most entry visas include an exit visa, which you must have to leave Russia.
Trade & Investment Section - British Embassy
Moscow 121099
10 Smolenskaya Naberezhnaya
Tel: +7 (495) 956 7477
Russian Chamber of Commerce and Industry
109012, Moscow, St. Ilyinka, 6
Phone: +7 (495) 620-0009
Fax: +7 (495) 620-0360
http://eng.tpprf.ru/
Russo- British Chamber of Commerce
Willcox House
3rd floor 4th floor Office A21
42 Southwark Street
London SE1 1UN
Tel: 020 7403 1706
Galereya Aktyor Business Centre
3rd floor 4th floor Office A21
ul. Tverskaya 16/2
Moscow 125009
Tel: +44 (0) 20 7403 1706
www.rbcc.com
Prepared by:
Business Vantage Ltd
14 Park Street
Windsor. SL4 1LU
 01753 847610
www.businessvantage.co.uk
This fact sheet contains information complied from a number of sources and Business Vantage
cannot guarantee the accuracy of the information, it is intended for general guidance only.
Business Vantage Ltd
14 Park Street, Windsor. SL4 1LU
BUSINESS VANTAGE
Business Vantage was formed in 1996 with the aim of adding real value to our clients through a
process of sound advice, practical support and hands on involvement. We specialises in the built
environment delivering optimum value through targeted marketing and research support.
“Knowledge is power”. Business Vantage’s pragmatic approach to research means that all our
projects add valuable information to your business planning process.
Helping you:
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Specialise and focus on key market sectors
Understand the market’s perception of your organisation
Identify business opportunities; develop existing customers & win “right fit” customers
Build more profitable relationships
Business Vantage's ability to provide effective support is underpinned by:
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Detailed market knowledge/understanding
The wide experience of our key executives and consultants
Our pragmatic approach to all projects undertaken
Delivering practical, deliverable solutions that add real value and work
Since its inception, Business Vantage has gained and retained major client organisations.
Some examples of our studies are:
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The professional services market in Glasgow and Manchester
Understanding the potential for added value services
Overview of the UK Facilities Management market
Provision of legal services in the property sector
Service extension through brand leverage
The fit-out market in the West Midlands
Research into regional markets potential
Natural stone procurement in the UK
The fit out market in Manchester
Logistics & distribution study
Partnering in social housing
Global construction market
Understanding brand issues
Property development study
Brand awareness studies
European logistical study
Industrial market study
Align to your client’s agenda
Ongoing studies undertaken by Business Vantage continually identify the perceived gap between
Client Expectations and Advisor / Supplier delivery and highlight the opportunity that exists for any
organisation that invests in understanding the client organisation.
The Process
Understand
Feedback
Action
Team
Debrief

Agenda &
Objectives
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Target
Sample

Research
Process
 Client/Market
Feedback
Client
Seminars
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Marketing
& Service
Development
Client
Acquisition &
Development
Research to understand clients; their drivers;
organisation; structure; culture; specific needs
and expectations is fundamental to creating an
edge, differentiating, winning new clients and
building strong relationships.
Typical Client Research Objectives:
Client
Feedback
Through direct dialogue with clients understand
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What drives the client organisation?
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What are their critical success factors?
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What is their culture?
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What is their agenda / areas of focus?
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What are their expectations from the supply chain?
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Decision making structure – how does this function?
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How suppliers are selected / engaged?
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Structure of the supply chain / current relationships
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Types / nature of relationships
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How do they engage consultants / suppliers?
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What are their expectations?
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Where are the gaps?
Engage
Inform
© Business Vantage Ltd 2008
One-to-One
Client debriefs
Interact
Win & Develop
Our Customer Alignment Process sets out a
research driven plan, which will enable your
organisation to intelligently target and engage
with pre-selected potential client organisations,
win new business and build strong long-term
relationships
Business Vantage Ltd
14 Park Street, Windsor. SL4 1LU
“Equal Partners - customer and supplier alignment”
Business Vantage has also undertaken some of the industries largest syndicated studies of
customer and supplier alignment – the “Equal Partner” research studies.
Private sector construction
Public sector construction
“The results of the study by Business Vantage are very enlightening and has
revealed some new and interesting thinking that owners and occupiers in engaged in
the office property market would do well to heed.”
Roger Bright, Chief Executive, The Crown Estate
Office occupancy
“The BPF welcomes the contribution of the “Equal Partners – Customer and supplier
alignment in retail property” to the debate on improving the relationship between
suppliers of property and their customers.”
Liz Peace, Chief Executive, British Property Federation
Retail property
Endorsed by:
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British Council for Offices
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British Property Federation
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British Retail Consortium
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British Council of Shopping Centres
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Confederation of Construction Clients
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Constructing Excellence
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CoreNet
Supported by:
Atisreal
Barclays Bank
Bovis Lend Lease
British Land
Chapman Taylor
Cyril Sweett
Broadway Malyan
Capita Symonds
Costain
Denton Wilde Sapte
Faber Maunsell
GMW Architects
Grosvenor
Hammerson
hbg Construction
Hermes
HOK
Hornagold & Hills
IDM
Johnson Controls
Land Securities
Land Securities Trillium
Mace
Nabarro
Northcroft
pcm
Sheppard Robson
The Crown Estates
To find out more about Business vantage, our work and how we could be of assistance to your
organisation contact
David Jennings – Managing Director
 [email protected]
Richard Newton – Head of Research
 [email protected]
 01753 847610
www.businessvantage.co.uk
Business Vantage Ltd
14 Park Street, Windsor. SL4 1LU
**** STOP PRESS ****
LATEST SITUATION – 1st September 2008
A short chronology of recent events in the Russia v Georgia conflict:
April 16 – Prime Minister Putin orders Russian officials to establish semi-official ties with Abkhazia
and South Ossetia separatist administrations.
April 29 - Russia dispatches extra troops to Abkhazia to counter what it says are Georgian plans
for an attack.
August 4 - Russia accuses Georgia of using excessive force in South Ossetia.
August 8 - Russia sends forces into Georgia to repel a Georgian assault on South Ossetia.
- Georgia says the two countries are at war.
August 12 – Russian President Medvedev issues orders to stop fighting in the five-day conflict.
- Both sides sign up in principle to a plan brokered by French President Sarkozy.
August 16 - Russia signs a peace deal to end the fighting in Georgia but said "extra security
measures" were needed before it could begin withdrawing its troops.
August 22 - Russia says it has completed the pullout from Georgia of troops it sent in to reinforce
peacekeepers.
August 26 - Russia recognizes South Ossetia and Abkhazia as independent.
ECONOMIC COMMENT FOLLOWING CONFLICT – BUSINESS AS USUAL?
Kingsmill Bond, chief strategist at Troika Dialog, the oldest and largest private investment bank in
Russia, said "I am not sitting on the edge of my seat looking at capital flows every day and
worrying about who is taking their money out because the macroeconomic framework and the
rouble will remain strong regardless.” #
Akber Khan, EMEA Equity Strategist at Deutsche Bank, said: "Russia is a country which boasts
strong economic growth and resilience, the key ingredients you would look for to ride out the storm
in global financial markets."#
Meera Patel, senior analyst at Hargreaves Lansdown, said: "It is the latter (corporate
fundamentals) that should ultimately drive the Russian market rather than swings in sentiment.
The Russian market is up 1,400 per cent over the last 10 years and we feel there is plenty of room
for growth going forward." *
Elena Shaftan, head of the Emerging European team at Jupiter, says: "It is clearly a very
upsetting event (the conflict in Georgia) that has led to indiscriminate market selling and
Russia’s perception in the West will suffer as a result. However, it has no significant
impact on Russia’s economic fundamentals and corporate earnings and at the end of the
day we firmly believe this is what ultimately drives the markets." *
James Davies, investment research manager at Chartwell, says: "The events of the past couple of
weeks have demonstrated that Russia is still an emerging market. Russia is a land of enormous
opportunity, but also risk, and the world looks a very different place from Moscow – something that
is not always appreciated in western Europe." *
Alexander Khaldey, chief executive of AFI Development, said: ‘The demand for quality properties
in Moscow and selected towns still far outstrips supply and the depth of our resources, combined
with our development pipeline, means we can expect to realise further gains for our shareholders
in the coming years.’ **
September 1 - “We live in a world that is so interconnected and interdependent that for a country
like Russia to be isolated is out of the question per se," Vladimir Chizhov, Russian Ambassador to
the EU.
# “Harried investors in retreat from Russia”. Financial Times, August 28 2008
* “Is Russia now too risky to invest in?” Daily Telegraph, 26/08/2008
** “Russia’s AFI reports strong half year figures”. Property Week, 28/08/2008
Business Vantage Ltd
14 Park Street, Windsor. SL4 1LU