SPIRE SIGN IN Register

SpirE-Journal 2011 Q3

Russia: A sustainable success story?

Reader's Ratings:
Russia: A sustainable success story?

Russia is sometimes seen as the weakest member of the BRIIC grouping of emerging market powers, with many pointing to its shrinking population as a sign of future decline. However, the Russian economy has been buoyed by high energy prices in the past few years. Moreover, Russia enjoys key strengths in some sectors that will be critical to the 21st century – and not only energy. A determined state might still manage to reverse Russia’s slide from economic power. Investors and marketers ignore Russia at their own peril.

 

Heavy Manufacturing

A dark cloud loomed over Russia’s heavy manufacturing industry in the 1990s, as its protected markets both inside and outside Russia crumbled. Despite government efforts, manufacturing output declined throughout the 1990s, from the mid-90s onwards. One stark reminder of this was the collapse of Russian car exports to the countries of the Warsaw Pact, as illegal (and later legal) car imports out-competed the products of Russia’s obsolete and inefficient automotive plants. 

But in recent years, the sector has seen fresh interest from foreign firms. Trying to leverage its natural resource base as well as the legacy of Soviet infrastructure, the Russian government has designated certain areas as Special Economic Zones (SEZ), in a bid to jump-start heavy industry. One of these SEZs is in the Sverdlovsk Region, which is rich in natural resources. It also has a strong, diversified manufacturing and industrial sector plus a skilled labor force. Its stable economic growth combined with investment policies make it extremely attractive to foreigners. 

As at March 2010, Russia’s SEZs hosted over 200 foreign investors from 20 countries, including global manufacturers like Isuzu and Bakaert. 

Russia enjoys strengths in aviation, thanks to a world-class base of engineering and production for military and small-to-mid sized commercial aircraft. Russia will remain a global player in military aviation. But the overall outlook of the heavy manufacturing industry hinges on whether the government decides to place more emphasis on this sector. 

Construction

Construction experts in Russia are generally optimistic, as confirmed when in 2007 the construction industry was the second most profitable sector behind railway transportation. The construction industry is expected to be worth US$91.3billion in 2011. 

Russia’s construction boom has various drivers. One of them is building new infrastructure for global events. Prime Minister Putin has pledged $12 billion on new infrastructure for the 2014 Winter Olympics in Sochi.

An expanding middle class also means a rise in demand for residential apartments and retail outlets. In cities like Moscow and St. Petersburg, where tourism is a revenue generating industry, hotels and infrastructure are also highly in demand. Much of the budget allocated for building new infrastructure will be focused on improving energy distribution networks – pipelines, electric power plants and transmission lines. 

Construction companies prefer to import their building machinery from the West due to the weaknesses of domestic manufacturers. This in turn bodes well for Western construction equipment vendors. The market for constr


BTBTBTBTBTBT