Russia

December 2008

RESCUE PACKAGE - The Russian government has lent 10 bn $ to cash-strapped firms. Another 40 bn $ is reserved for the remaining of 2008. However, during 2009 additional 150bn $ worth of loans are due. Although the government has time on its side, worries over the exchange-rate, currency reserves and the oil price dampen government's generosity.

GDP & INFLATION - The GDP forecast for 2008 has been lowered from 7.3% to 6.8-7% and the consumer price inflation is forecasted to slightly exceed 13% in 2008.

STEEL INDUSTRY - Severstal has cut its production by half and applied for a 244 M$ loan from Vneshekonombank. The company will reduce its capital expenditures by 20 % this year and will postpone a 8 bn $ investment program from 2009 to 2011. The steelmaker's debt has grown 140 percent to $3.6 billion since December.

CONSTRUCTION - The 2012 Winter Olympic Games 12 bn $ budget is under scrutiny. The federal government has committed to providing 60% of the costs but the falling oil price pressures the government to take a second look at cost. The government stated that an oil price of 60 $ per barrel would be needed to cover all governmental expenditures e.g. in 2010.

MACHINERY INDUSTRY - Liebherr International started a 200 M EUR project to build a excavation and construction machine plant in Nizhny Novgorod region. The new plant will also make spare parts for the aircraft industry and maintain after-sale service support for Russian Gidromash.


October 2008

INFLATION - Consumer prices were up 15% y-o-y last month. 12-month inflation has remained at the 15% level since last spring, and food prices continue to soar. Prices of grain products are up 25-40% y-o-y and milk products 25-30%. The Central Bank of Russia expects 12-month inflation to fall to around 12 % by December.

REAL ESTATE - The city of Moscow plans to spend as much as 2 Bn $ bailing out developers who are struggling to fund projects in the world's third-costliest property market.

BREWERY - Baltika, St. Petersburg's largest brewery, continued its expansion to Siberia. The company invested 143 M EUR in its new brewery in Novosibirsk. Baltika plans to become a leader in the Siberian market, and to raise its share of this market from today's 31% to 41%.

MEAT PRODUCTION - Cherkizovo group, a leading Russian meat producer, recorded a turnover of 559 M$ (up 66% y-o-y) and net income of 36 M$ (up 63% y-o-y) during the first nine months of 2007.

RETAIL - Sedmoi Kontinents, a Russian grocery retailer, sales turnover for 1H/08 grew to 790 M$, up 33%. The company's EBITDA for the same period was 67 M$, up 3% y-o-y.

CEMENT PRODUCTION - LSR Group, St. Petersburg producer of construction hardware, started construction of a 390 M EUR cement plant in Slantsy, Leningrad province. The plant, with an annual capacity of 1.85 million tons will be launched in 2010.

METAL PRODUCTION - UC Rusal, the world's largest aluminum concern, and OMK, a big Russian producer of metal ware, signed an agreement worth 270 M EUR for constructing a logistics complex for metal cargoes in Ust-Luga, Leningrad province.

TRANSPORT - Russia and North Korea began a 150 M EUR project to reconstruct the railroad from Russia's Khasan to North Korea's sea port of Rajin. Cargo transshipment from Asia to Europe along the route will take 14 days compared to the sea freight taking 45 days. The completion of just the first stage of the project will make it possible to attract up to 100,000 containers annually to the Trans-Siberian railroad.


August 2008

WAGES - Wages continue to rise rapidly. The average monthly wage in Russia is 430 EUR. Pay levels, however, vary widely across branches and regions. In real terms, the average wage rose 14 % y-o-y, some-what lower than a year ago.

UNEMPLOYMENT - The number of unemployed continued to fall putting the unemployment rate at 6.4%. Due to the rather low unemployment rate and weak mobility of labor, labor shortages have appeared in several fast growing regions. Rosstat reports that the unemployment rate at the end of 2007 was less than 1% in Moscow and only 2% in St. Petersburg.

AUTOMOTIVES - Daimler AG is in negotiations to purchase a 42% stake in truck manufacturer KAMAZ from Troika Dialog.

AUTOMOTIVES - Peugeot Citroen and Mitsubishi Motors have started the construction of a 470 M EUR plant and Hyundai a 330 M$ plant in St Petersburg.

REAL ESTATE - Russian capital surpassed London City in terms of office lease prices and now yields to London West End only. The average price one has to pay to rent a m2 in Moscow is 85 EUR/m2/month, while in the London City the average is 74 EUR/m2/month.

CAR SALES - Upto 3.8 million cars are to be sold in Russia in 2008 making it the largest car market in Europe. The car sales in 1H/2008 grew by 41% y-o-y.

FURNITURE - Russian Company Domashny Interier (Home Interior) has signed a franchise agreement with Austrian Kika Group, the company plans to launch a network of 15 stores in across Russia.

COSMETICS - French Company L'Oreal and the authorities of the Kaluga Region, Russia, signed an agreement on construction of a cosmetics factory. The expected investment is 45 M EUR. L'Oreal plans to finish construction works by the end of 2010.

RETAIL - Cloth retailer Melon Fashion Group intends to open 280 new stores in Russia. Trade network expansion up to 400 outlet stores will require an investment of 20 M$.

AGRICULTURE - Russian government plans to create a state grain trading to control up to half of the country's cereal exports.

SHIPBUILDING - Russian shipbuilding holding OPK, the owner of two St. Petersburg shipyards, signed a memorandum with South Korean Daewoo Shipbuilding and Marine Engineering on joint projects in shipbuilding. The sides have plans to invest 650 M EUR in creating a large shipyard complex in St. Petersburg, which would produce gas tankers for Gazprom. Norwegian Aker Yards might also join this project.

TRANSPORT - Prime minister Putin presented a record 13,500-billion-rouble (nearly EUR370 billion) investment program targeting development of transport infrastructure to run between 2010 and 2015.

INSURANCE - Russia's Department of Insurance Supervision reports insurance premium in-come last year reached 776 billion roubles (over EUR20 bil-lion), up 27 % y-o-y. Growth was slightly higher than in 2006. Nevertheless, Russia's insurance sector is still small; premium income corresponds to only about 2.5 % of GDP (e.g. the EU average exceeds 8 % of GDP).

ECONOMY - The latest World Bank survey of Russia finds distinct signs of economic overheating. Factors include GDP growth in excess of 8 %, growth in real wages far outstrip-ping productivity gains, a decline in unemployment below 7 % and accelerating inflation.


May 2008

FOREIGN DIRECT INVESTMENT - The law on foreign investment in strategic industries got final confirmation. Foreign investors are required to seek official permission before acquiring 50% of an enterprise operating in the following strategic fields:

Hydrometeorology, geophysics
Nuclear energy (materials, waste handling, research, equipment design and construction, safety studies)
Manufacture, maintenance and sales of technology used for intelligence or code encryption
Design, manufacture, maintenance, sales and use of weapons systems and arms
Design, testing, manufacture and maintenance of aerospace technology, air safety, space activities
Large circulation publishing, TV and radio broadcasting
Natural monopolies (excluding electrical power and municipal heating distribution, postal services)
Major telecommunications companies (excluding Internet providers)
Major metals producers if their products are used by de-fence industries
Prospecting and quarrying of important minerals
Fisheries

FOREIGN INVESTMENTS - Foreign investments almost doubled in the Leningrad region in 2007. FDI grew 5% y-o-y only, while long-term credits from foreign sources rose nearly fourfold. The structure of foreign investments changed significantly in 2007 with share of FDI decreasing from 67% to 37% and other investments growing from 33% to 63%. Foreign trade grew 22% on the import side and 40% on the export side, y-o-y.

PRIVATIZATION - The Russian Privatization Authority announced that it had privatizing 867 companies and received 750 M$ for them in 2007.

CREDIT RATING - Standard & Poor has revised its outlook of Russia from stable to positive. The main reasons include strong economy, comfortable budget surplus and growing reserves. The high oil price is having a positive effect on the country's domestic demand.

RETAIL - The Finnish retailer SOK announced plans to take 10% of the St. Petersburg retail market. SOK plans to invest 500 M EUR by 2015 to create a network of 20 Prisma supermarkets.

RETAIL - A survey ranked Russia as Europe's fourth largest retail market after Germany, France and Great Britain in 2007. It was forecasted that that in 2008 Russia will become Europe's largest retail market. Among European cities, Moscow already overtook the number one London market in 2007. An indication of rising general living standards is the decreasing sales in outdoor markets: down from 20% to 15% of all retail sales in 2007.

FOOD INDUSTRY - Kraft Foods launched a new instant coffee plant in the Leningrad region. The plant cost 70 M EUR and has an annual production capacity of 5 000 tons.

INSURANCE - A subsidiary of Sampo, IF P&C Insurance Holding Ltd, announced its plans to acquire 100% stock of St. Petersburg insurance company Region. The value of the purchase remains confidential, but experts evaluate it to be close to 4B EUR.

RETAIL - Wal-Mart announced its intention to expand to Russia and Eastern Europe, announcing that it had recruited Stephan Fanderl , a German retail executive, to explore opportunities in the region.


March 2008

ELECTIONS - Dmitri Medvedev won the Russian presidential election on 2 March. According to preliminary results, Medvedev gained 70% of the votes, whilst communist candidate, Ziuganov, received 18%, nationalist Zhirinovsky 9% and Bogdanov from the Democratic Party gained less than 2%. Voter turnout was around 70%. The election of Medvedev paves the way for a continuation of Putin's policies and no dramatic changes are expected in the short term. Medvedev is however expected to have a somewhat more liberal economic policy, less confrontational foreign policy and generally more focus on socio-economic development. In a speech he announced that he would focus on institutions, innovations, infrastructure and investments.

FOREIGN DIRECT INVESTMENT - FDI into Russia doubled in 2007 totaling USD 27.8bn, states the Russian statistics authority. The total inflow of foreign capital also doubled last year, reaching USD 121bn. The consumer goods sector was the most popular, attracting 40% of the investments. The trend is expected to continue in 2008 as European investors, according to a study published by A.T. Kearney, see Russia as the third most interesting FDI target after India and China.

MINING - Russian Severstal has sold two of its coal mines in Berezovskaya and Pervomaiskaya to Arcelor Mittal for USD 650m. The deal was unexpected, but explained by the fact that Severstal seems to have got a very good price for the assets.

ENERGY - Finnish power giant Fortum bought 29% of the shares of Russian power company TGK-10 for EUR 0.8bn and committed to buying a further 24-47% of the company.

RETAIL - SCA, the Swedish company having brands such as Libero and Libresse, invests EUR 48m in a new production facility for consumer goods in Tula region South of Moscow.

AUTOMOTIVE INDUSTRY - French car giant Renault's expansion in Russia saw the company paying USD 1bn for a 25% share of Russian car manufacturer Avtovaz.

CONSTRUCTION - A Hungarian developer TriGranit signed an investment agreement with the St. Petersburg government. TriGranit invests nearly EUR 0.5 bln in two projects. The first project is the construction of a multifunctional Badajevszkij shopping and exhibition center on 28 ha, which will also incorporate residential and office buildings, hotels and congress center. The second project is a large movie studio complex with hotel and parking facilities on Basil Island.

CONSTRUCTION - A tender for a complete reconstruction of Apraksin Yard, the largest marketplace in the city centre, was won by a large Russian developer Glavstroy-Spb. The winner is a part of a nation-scale Bazel holding, owned by aluminum magnate Oleg Deripaska. Glavstroy-SPb intends to invest EUR 700mln in this project.

ELECTRONICS - Flextronics, a Singapore producer of electronics and IT-equipment, decided to create its plant in St. Petersburg. The plant would produce monitors, TV-sets, PCs and laptops. Annual turnover of the subsidiary is expected to be EUR 70 mln, and after extension EUR 350 mln.

FOOD INDUSTRY - Finnish company, Fazer Group, announced its plans to invest EUR 70 mln in the creation of a new bakery in Leningrad region. Prior to the bakery investment Fazer has already invested EUR 130 mln in Russia.

AUTOMOTIVE INDUSTRY - A group of 11 South Korean producers of automobile parts plan to create a techno park close to the constructed Hyundai car plant. The companies intend to invest nearly EUR 150 mln, but are still looking for a convenient location in Leningrad region or in St. Petersburg.

CONSTRUCTION MATERIALS - Danish company H+H International started to build a plant producing aerated concrete. The plant will be launched already in 2008 and in 2009 its capacity is expected to reach 0,4 Mm3. Initial investment to the plant is EUR 30 mln.

BANKING - A Russian company Krizo and Chinese Beijing C&W Technology are investing EUR 35 mln in Leningrad region to build a factory for producing ATMs. Until now all the ATMs used in Russia have been imported.

BANKING - International Personal Finance Ltd bought 52% of the Kaliningrad Maritime Commercial Bank. The British company wants to use this bank as a platform to develop its consumer credit business in Russia.


January 2008

FOREIGN INVESTMENTS - Foreign investments in St. Petersburg. In the first three quarters of 2007 non-financial large and medium enterprises invested almost EUR 4 bln into St. Petersburg's economy, which by 32.0% exceeded the corresponding sum for January-September 2006. Construction and transport were the most attractive sectors for the investors. Foreign capital inflow constituted the bulk of all investment, totaling EUR 3.4 bln. The share of foreign portfolio investment continued to grow, comprising 10.9% of all FI, much higher than the small 1.2% share it had a year ago.

RETAIL - Swedish IKEA announced its decision to invest at least 100 mln EUR and build a store in the Kaliningrad region with a total area of 140 thousand square meters.

CAR INDUSTRY - British producer of automobile components Stadco Ltd got a permission to build its production plant in the Vsevolozhsk district of Leningrad region. Stadco plans to start supplying components to regional and St. Petersburg auto producers from 2009 onwards, and invests EUR 208 mln in this new plant.

MEAT INDUSTRY - Sadia from Brazil has invested USD 78 mln in a poultry processing plant in Kaliningrad and will open it by the end of the year.

MACHINERY INDUSTRY - Russian metal company Maksi- Group announced its plans to invest EUR 300mln in creating a plant producing metallic articles and armature. The plant would supply its products to St. Petersburg construction companies.