2016 Overview of Russia’s Investment Potential

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Mikhail Dmitriev, President of New Economic Growth in Moscow, is one of Russia’s leading strategic thinkers, and an ex-member of the Russian Government, being Vice-Minister for Finance from 2000-2004 and chairing the Centre for Strategic Research in Moscow, the countries top think-tank.

In his recent Asia House presentation “Russian Society  and the Economic Turning Point: Opportunities Missed, Opportunities Taken”, Dmitriev’s comments are, for a change, more upbeat about Russia’s immediate prospects. While the difficult situation in Russia is old news, according to official data provided by the Federal State Statistics Service (FSSS), in 2015 Russia’s GDP decreased by 3.7 percent and industrial production dropped by 3.4 percent. Based on that data, it appears that there are no reasons to be optimistic in 2016. The fundamental factors that caused the recession are still there: oil prices are low, and international sanctions have not been lifted.

However, Dmitriev’s position is rather more encouraging. According to his analysis, a closer look at the FSSS 2015 figures shows that not all segments of the economy reported negative results. True, the processing industry cut production by 5.4 percent, and the production and distribution of power, gas and water was down by 1.6 percent, but agriculture grew by 3 percent as a clear response to the opportunities presented by the “sanctions war.” Mining operations increased by 0.3 percent, which means that the crisis has not quelled investors’ interest in this key segment for the Russian economy.

Actually, a few segments utilized their competitive advantage that resulted from sanctions, embargoes, import substitution and devaluation of the rouble. Three industries came out on top last year: the food processing industry, including tobacco and drink manufacturers (2 percent growth), coal and oil production (0.3 percent growth) and chemical production (6.3 percent growth).
In other areas, the growth was sporadic. During the recession, Russia increased the production of meat, fish, dairy, cheese, sugar, textiles, car tires, pipes, plywood, chipboard, varnish, paint and household chemicals.

Moreover, positive dynamics were also exhibited by such complex industrial sectors as machinery (1.3 percent), computers and their components (2.8 percent), microchips (10.4 percent), radio and TV transmitters (14 percent), medical products, including surgical equipment and orthopedic devices (1.5 percent), pharmaceuticals (8.9 percent) and locomotives (230 percent). Not too bad overall.

Remarkably, in spite of the recession and the general decline in production, companies’ ruble income dramatically increased last year. Based on January-November 2015 results (the FSSS has not yet tallied up annual results), summing up the profits and losses of companies, ruble income increased by 48.6 percent and reached 8.3 trillion rubles (about $ 105 billion in today’s currency rate).

This number is made up of the following telling statistics: 38,500 Russian companies reported 10.233 trillion rubles in total profits, while only 16,000 companies reported losses in the amount of 1.896 trillion rubles. The main reason for the encouraging financial performance is the 290 percent year-on-year increase in the positive balance of processing companies, which earned 2.184 trillion rubles and topped the 2.09 trillion rubles profit of the fuel and energy complex.

Dmitriev’s report to Asia House may be found in full here


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