This week we focus on Russia, the fifth largest economy on the European continent and the world’s 11th largest in terms of nominal GDP at $1.6 trillion. It remains both a major economy and a major market, and it remains on AMT’s radar for member opportunities. The economy returned to pre-pandemic levels several months ago, but the manufacturing sector has been erratic. After months of expansion, the manufacturing PMI recently contracted to 46.5 as new orders and production react to a decline in demand. However, high oil prices, a vibrant IT sector, and the demand for copper should keep them on the recovery track. For more industry intel and other tidbits, read on.
Russia remains a large market for machine tools and associated equipment. Imports in the $1.6 billion range have been recorded year after year. 2020 was no exception.
In the first six months of the year, the GDP increased by 4.8%, rising to the pre-pandemic level, and should be maintained for the rest of the year. Recent Brent oil prices around $70 per barrel certainly helps.
The August manufacturing PMI fell to 46.5 and was the strongest decline since November 2020. As demand weakened, downturns in production and new orders drove the overall contraction.
Russia is struggling with inflation, which hit 6.7% at the end of August. This is influencing quality of life and consumer demand.
FDI in Russia showed a decline between 2019 and 2020. In 2021, FDI is on the rise and already reached more than $4 billion. The largest investments have been in color metals, particularly copper, and IT, where China is the No. 1 investor.
It seems the pandemic put a spotlight on the importance and strength of private small businesses in Russia. These companies have recovered quickest, and only a small percentage of the country’s 100,000 such companies have closed. Conversely, large enterprises run by governmental agencies have continued to struggle to recover. This is reinforcing the notion that to improve the economy, the government needs to reduce its involvement in the private business sectors. This is particularly true in agriculture.
Overall, the sector that is largely private that will benefit from government assistance is IT. Russia has made sustained IT development a top priority. This quest for IT innovation also coincides with attempts to streamline traditional industries, creating opportunities for transformative technologies.
A coal mine in Yakutia, Russia’s largest region and which is 95% permafrost, recently opened for tourists and is the most recent addition to industrial tourism. It is a concept that has taken hold throughout the country and includes metallurgical plants, steel works, watch factories, and a machine tool museum.
There is a concentrated effort to develop the Russian Far East region with major incentives for both domestic investments and FDI. So far, the region has attracted over $50 billion in FDI. Unprecedented incentives are offered to those who would venture to begin business on the Kuril Islands, north of Japan. The city of Vladivostok is developing a satellite city, aptly named Sputnik, for 300,000 inhabitants and will include high-quality amenities to attract new settlers to the region.
For more information, please contact Hubert Sawicki at hsawicki@AMTonline.org.
