Global Business Consulting: Russia strong among CEEMEA nations ...

By: Modern Russia and Dr. Daniel Thorniley, DT?Global Business Consulting on March 19, 2012

Modern Russia?s interview with Global Business Consulting Director Dr. Daniel Thorniley highlights how Russia is performing better than Europe and other BRIC countries. ?Dr. Thorniley has extensive experience working with high-level clients on business strategy in Central & Eastern Europe, Middle East & Africa (CEEMEA), global and emerging markets.?

Why do you think Russia is ripe for investment?

Russia is currently the best performing growth economy in Europe. In all sectors, 60-80 percent of companies foresee sales growth over 10 percent in 2012. Russia leads the 2012 sales outlook for the whole of the Central Eastern Europe (CEE) region in all sectors except for pharmaceuticals where it takes second spot to Turkey. In the B2B sector, a quarter of companies operating in Russia expect sales to rise by more than 20 percent. Russia is increasingly proving itself as a relatively strong growth market based on two crucial factors: the rest of the world is underperforming, and Russian economic results jumped in Q4 2011.?

What are your thoughts on the government?s role in the economy? Is it important?

The government?s decisions have huge effects on people and their spending patterns. First, government public spending is very important, as public sector wages account for 12 percent ?of total national income and government transfers account for 19 percent of total national incomes (of which 11 percent is devoted to pensions), amounting to 31 percent of total national income. Additionally, 12 percent of the population is employed by the government, the equivalent of 25 percent of the workforce. Furthermore, 40 percent of the population receives social benefits. Forecasts for Q1 2012 expect government to boost social spending that will in turn drive consumer demand.

How does Russia compare against the other BRIC countries?

Russia is the European BRIC. Compared with its peers, GDP per capita in Russia is four to eight times that in China and India, and western company sales are 8-15 times larger than in China and India. It is estimated that Russia will be the biggest European auto market in 2012-13 and it will be the biggest consumer products market in 2023. Russia offers a positive profit market for 90 percent of companies operating there.?

What makes Russia stand out is that its consumers, B2B and government understand value and are willing to pay premium prices for quality. Russia also has a thriving market for affordable goods, thus Russian sales can target the rich and also the lower, middle class segments (something that many other markets do not combine). Russian sales across all sectors are holding up very well in 2011 and Russia is by far the strongest top-line sales market in Europe. Compared to Europe, public debt is 10 percent which is lower than the Eurozone average of 100 and about the same figure in the U.S. Russia also has foreign currency reserves that are the third highest in the world at $520 billion and the country has another $120 billion in rubles.

What are your thoughts on the evolution of the Russian consumer?

Consumption accounts for 50 percent of Russia GDP. Russia is a very good market for consumer product (CP) companies compared with other markets of the world. ?Currently year-on-year western CP companies are growing organic top-line in Russia by 5-15 percent, which once again shows there are opportunities at the premium end as well as for affordable innovation. Consumer confidence is stable at good levels (a number of -7 while other CEE markets record -30 or -40).

The Russian consumer is relatively stronger than others in CEE and Western Europe and the U.S. because they have less exposure to mortgage payments, rate hikes, credit card and student loans, and fluctuating house prices. They also face less pressure from rising pension costs. They benefit from very good real wage levels, good savings levels, and are not susceptible to debt denominated in foreign currencies, unlike many CEE markets.

How is the Information Technology sector progressing?

Most companies are growing at 8-25 percent and most in the IT industry are seeing sales rise at 30-40 percent. ?Russia is one of the strongest IT markets in the CEEMEA region. The sector average for top-line sales in 2011 was about 35-45 percent, and some companies recorded 40-70 percent top-line growth. Sales were positive in all customer sectors including consumers, corporate and government. Financing has generally been available and good.

In your opinion, what keeps the Russian economy afloat?

The final months of 2011 looked reasonably good for Russian GDP growth. Inflation is trending downwards well to 6.2 percent at end of 2011 and about 6.0 percent in 2012.?

Manufacturing indicators have been good and the Purchasing Mangers? Index (PMI) was noticeably strong in the final quarter of 2011. ?Fixed investment is surging, retail sales are rising, real wages look stable and inflation has been falling further. Agriculture rebounded from last year?s crisis. Furthermore, trade figures remain solid as imports and exports also rose at the end of 2011. While trade is slowing also for Russia down to 20 percent from 35 percent on average, it slowed even more in other CEE markets from 18 percent to six percent.?

The Russian economy could in theory survive a more severe global downturn better than in 2008-09 because the external debt exposure of Russian corporates is much stronger than before and also because the Central Bank intends for the ruble to act as a ?shock absorber? in any upcoming financial crisis.?

Source: http://www.modernrussia.com/content/global-business-consulting-russia-strong-among-ceemea-nations

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