Funding Freeze Weakens Infrastructure Sector

BMI View:   We have considerably downgraded our forecast for construction industry value real growth in Russia from -0.5% to -3.7% y-o-y. This is on the back of weaker than expected official growth reported for 2013 as well a deteriorating business environment. Russia's actions in Ukraine have prompted sanctions from the European Union (EU) which will constrain the country's access to capital for infrastructure projects. This bearish outlook is exacerbated by falling private investment, stubbornly high inflation, and slow economic growth.  

European Union (EU) sanctions on Russia over its actions in Ukraine target loans from the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB), both of which have become an increasingly important source for the funding for Russian infrastructure projects. Apart from funding, the EBRD and the EIB provide considerable expertise to the Russian construction industry in the form of project management and the structuring of project finance. As such, the EU sanctions to be implemented by the EBRD and the EIB will have a detrimental impact on infrastructure industry growth in Russia. 

The EBRD has already announced that it will not make any new investments in Russia "for the time being", as the official statement said on 16th July 2014. In 2013, Russia borrowed USD2.4bn from the EBRD and USD1.3bn from the EIB.

Sanctions To Hit Infrastructure Growth
Russia Construction Industry Value LHS And Real Growth RHS (2012-2023)

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Related sectors of this article: Infrastructure
Geography: Russia, Russia