Ken Research announced latest publication on, “Russia 2016 Construction Outlook: Growing Market with USD 300 Billion of Infrastructure Mega-Projects Pipeline”, offer insights on the changing trends and key issues within the Infrastructure and Construction industry in Russia. The analysis of the aforementioned trends has been done across main sectors: Real Estate; Transportation; Energy, Industrial & Utilities; and Social Infrastructure, within the industry with comprehensive overview of key sectors: Power sector, Railways sector and Real estate-Mixed Use sector.
Key Topics Covered in the Report
- Detailed profile of Infrastructure and Construction industry in Russia
- Overall, Regional and Sector wise analysis of Megaprojects spending in Russia
- Changing Dynamics, Opportunities and Challenges in the Russian Infrastructure industry
- Detailed coverage of ‘Project Financing’ and ‘Project Risks (Cost & Time overruns) & Returns’
- Comprehensive overview of Key sectors: Power sector, Railways sector & Mixed-use sector
- Competitive landscape of the Infrastructure and Construction industry in Russia
- Regulatory framework (including PPP growth) applicable toInfrastructure and Construction industry in Russia
Economic Environment of Russia
Russia is one of the most affluent mixed economy in the world. Vast natural resources are the key determinant of the Russian economy. It has abundant oil, natural gas and precious metals making up a major share of Russian exports and comprising about half of the Govt.’s revenue. This huge revenue helped Russia overcome the economic collapse of 1998and is also presently one of the key drivers of country’s growth. The Russian economy is characterised by significant state-control on key sectors of the economy. Large state-owned institutions hold strong influence over political and financial institutions; and distort the economy. From early 2014,, as a result of falling oil prices and economic sanctions from EU & US, the economy is in recession and expected to show recovery by 2017 (World bank).
Looking at the macroeconomic landscape, Russia is home to 143.7 million people. With GDP 1.178 trillion USD and GDP (PPP) 3.6 trillion USD, it is the fifteenth largest economy in the world as per nominal GDP and sixth largest as PPP. The sector wise contribution to GDP includes 59.7%, 36.3% and 4% by services, industry and agriculture respectively. Consumption and investment has expanded although with a declining rate. Surging inflationary pressure is a major cause of turbulence to macroeconomic stability. Russian govt. is not very welcoming to the external global world. FDI inflows amounts to just 21billion USD. Government’s import substitution policy aims at substituting imports with domestic goods restricts the inflow of foreign products as well as market players in the country.Exports have also shown impressive increase with Russian Exports value standing at 82.1 billion USD and dominated by petroleum products, natural gas and metals.
Brief Overview of the Construction Industry in Russia
Construction industry is the pillar of a country’s development and growth. Unfortunately, Russia has a struggling one. In 2015, the industry witnessed significant deterioration on account of declining construction activity due to weak economic growth, declining fixed capital investments, reduced oil & gas investments, currency depreciation, international sanctions, and declining oil prices. As a result, the country has consistently been placed low on the infrastructure quality by the Global Competitiveness Report. This has led to an immediate need to restore its deteriorating assets, build new ones and improve its global position. Russian Govt. has placed Infrastructure & Construction industry at the centre of the national policies and agendas, with the commitment of investing more than 1 trillion USD by 2020.
Despite strong growth of the Russian infrastructure industry since independence, the industry is still ranked low on the global platform. With some improvement in its global ranking to 74th position in 2015 from 101st in 2012; the country still lags behind in providing best infrastructure facilities.It has a decent power and railway network but inefficient infrastructure in transport and telecommunication sector. Primarily focussing on the power and railway sector, huge investments are committed by the govt. under various development & strategy programmes. Under ‘Energy Strategy 2030’ the govt. aims to double the electricity generation capacity by 2030. Russia has a megaprojects pipeline worth USD 300 billion. Similarly, to strengthen the railways, the backbone of Russian trade, govt. has announced few high speed rail projects costing more than USD 20 billion. Looking at strategic trends in Russian Megaprojects, investment in brownfield megaprojects have increased along with increasing average size of the megaprojects. Since most of these projects are public centric, hence are largely funded by state, with 60-70% of the fund coming from state budget. However, global crisis has forced the govt. to look for other financing options especially PPP. There has been a significant growth in PPP projects in Russia. As a result of low interest rates offered on loans, many foreign construction companies & domestic private companies have entered the industry. Apart from the govt. creating vast opportunities for the growth of the industry, it still faces challenges such as few stalled big projects with little progress due to delays in finding investors, also impacting the final cost and timely delivery of these projects.
Major Market Players in the Construction Industry in Russia
To reduce the burden of Govt. of financing megaprojects, private players are increasingly being attracted through various ways. From PPP projects to offering low interest rates on loans, govt. is trying hard to incentivise the private companies to enter the industry.
Some major market players in selected sectors of construction industry such as Power sector, Railway sector and Real estate sector include: RusHydro, ROSATOM, RUSAL, Interbering, Russian Railways, Gazprom, Rosneft, Mitsubishi, Mitsui & Co, Shell, Eastern Energy Company, State Grid Corporation of China, Russia Ministry of Transport, Moscow Ring Railway, Saint Petersburg City Administration, Kaltchuga Capital Management SA, Rublyovo-Arkhangelskoye, CDS Group, Sibur, LukOil Company, Vnesheconombank, African Development Bank, KFW Development Bank, Clean Technology Fund, European Investment Bank, World Bank, SK Most, AO Institute Stroyproekt, Jsc Bamstroymekhanizatsia, VTB, Rosmorport, Uralkali, Suek, United Grain Corporation, Global Ports Investments Plc, Metalloinvest MC LLC, Sberbank, Power Construction Corporation of China, SUE Moscow Metro, Mosinzhproekt, CRCC, China International Fund Management, COMEX Holding, Classic Group Ltd, RDI Group, DON Story Invest etc.
The weak performance of the industry over the last few years is expected to continue in 2016 as well with a slight further contraction of the construction industry on account of worsening business environment and capital outflows due to Russia-Ukraine conflict. However, the growth momentum will be steadily regained through expanding infrastructural construction over the coming years. Also, increased investment in brownfield projects are expected as the country focuses on improving its existing assets. Industry competitiveness is also anticipated to increase on account of influx of foreign and domestic players in the industry as a result of PPP and low interest rates on loans.
Some key factors that will be driving the growth of Russian Construction Industry in coming years include:
- Recognition of Infrastructure construction as a major contributing factor to country’s long term growth
- Huge investment by the govt. under various socio-economic development plans such as ‘Energy Strategy 2030’ and ‘Strategy for Developing Rail Transport in the Russian Federation to 2030’
- Rising disposable income boosting the residential construction in the country
- Fifa World Cup, 2018, expected to generate increased demand for infrastructure construction in related areas such as hospitality and transportation, along with attracting investment
- Growing number of PPP projects in Russia& low interest rates charged on loans
However, international sanctions and low oil prices will continue to challenge the growth of the Russian Construction Industry over next few years.
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Ankur Gupta, Head Marketing & Communications