There’s far too much negative commentary, perceptions and ignorance out there about Russia.
Back in the dark days of the GFC, the doomsdayers were predicting an “Armageddon scenario” in eastern Europe, with escalating debt, banking collapses and corporate failures likely to wipe Russia and some of its neighbours off the economic map for at least a decade or two! Some even suggested that the “R” should be removed from “BRIC” as Russia wasn’t worthy of its place amongst the new economic super-powers of the future.
Well, as it turns out, it was Western Europe that we should have all been worried about! The Russians are fast recovering from the global downturn, with predictions of a very respectable GDP Growth rate of over 5.5% this year, and not one Bank failure, corporate collapse or sovereign debt default to justify any of the doomsayers. Furthermore, with rising disposable income and low personal debt, Russia’s rapidly growing middle class are doing their bit for the global economy judging by retail sales in Moscow (which now exceed those in London and Paris!) and the 7 million mobile phones purchased in the first quarter of 2010 alone!
Even more encouraging are the moves being made by President Medvedev to seriously address two of Russia’s most widely reported long term problems:
An Ageing Population
The Government is introducing a number of programs designed to improve Russia’s demographic profile by supporting foster families, improving pre-school education and offering financial incentives payments for second births
An Over-Reliance on Oil and Gas Exports
President Medevedev’s new 2008 blueprint “Strategy 2020” includes an ambitious plan to attract foreign capital to an “innovation city” in the Moscow suburb of Skolkovo designed to “revive the greatness of a nation once known for scientific and technological achievement”. His vision is for the technology sector to make up 15% of exports by 2020, attracting billions of investment into innovative projects and driving out corruption, abuse and theft (which is one of Russia's greatest problems). I heard last week that Medvedev had sacked 14,000 policemen! I am sure there’s still a long way to go but that must be a good start!
Russia’s economic fundamentals are already the envy of most of Europe, their GDP per capita is the highest of all the BRICs (currently US$9,750 rising to US$15,500 by 2014 according to the IMF) and, according to our friends at East Capital:
* Russian corporate earnings are expected to be the highest in the world in 2010 (43% higher than in 2009)
* The Russian stockmarket is trading at a 26% discount to the other global emerging markets and is very cheap (at a PE ratio of 6.4 based on 2010 earnings)
Russia is currently the 6th largest economy in the world, will be one of the top performing stockmarkets of 2010, and their fast growing economy offers significant potential to exporters and investors. Don’t believe everything you read in the press!
Best wishes
David Thomas
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