Russia is by far the largest country in Emerging Europe. Its economy has become increasingly dependent on hydrocarbons exports in recent years, leaving it vulnerable to shocks in the global economy. After a decade of political stability and economic prosperity in the 2000s, Russia is entering a more turbulent period that could distract policymakers from tackling the country's immense structural challenges.

At BMI, we ensure our clients make sound business decisions in Russia, using our risk-assessed total analysis model. Our research teams keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Our expert views are supported by our interactive data and forecasting. We also provide in-depth analysis on 24 of Russia’s most important industries. Our analysts will make sure you, as our client, are always ahead of the curve in Russia.

Russia Country Risk

BMI View:

Core Views

  • The ruling United Russia party will retain its parliamentary majority in legislative elections on September 18, benefiting from President Vladimir Putin's high approval ratings, patriotic fervour, and a weakened opposition. This will override dissatisfaction with poor economic conditions in the near term. The main political risk for Putin remains a challenger from within his circle, although he remains the frontrunner ahead of presidential elections in March 2018.

  • Russia's economy is emerging from prolonged recession in H216 but we forecast growth in 2017 and 2018 to be relatively subdued when considering the scale of the downturn since 2014. Rising oil prices are acting as a short-term boost, but will reduce the urgency to implement badly needed structural reforms, thus maintaining the country's commodity dependence.

  • ...

Russia Operational Risk Coverage (9)

Russia Operational Risk

BMI View:

BMI View: As one of the largest emerging markets globally, investment opportunities in Russia are potentially lucrative, but we caution that the trade and investment climate remains fraught with risk. The government continues to impose restrictions on trade flows and limits on foreign direct investment in certain sectors, while state-owned institutions are prevalent in all areas of the economy. Corruption is also rampant and the judiciary is weak and subject to political interference, which undermines trust in the legal system. Furthermore, the overall tax burden is considerable and some bureaucratic procedures remain plagued by delays. Western sanctions imposed against Russian economic targets in response to the Ukraine crisis have disrupted trade flows, restricted access to financing and inhibited growth. Although business-friendly reforms are driving some improvements in...

Russia Crime & Security

BMI View:

BMI View: Russia's security environment has deteriorated as the government has pursued an increasingly assertive foreign policy agenda, which has resulted in involvement in conflicts in Ukraine and Syria. While these actions do not pose a direct threat to business interests in Russia, they have heightened the risk that the country will be dragged into a wider conflict or subject to retaliatory terrorist attacks. In addition, businesses face considerable risks from criminal gangs, which have exacerbated issues with corruption and other financial crimes. Cybercrime is another concern, as Russia is an active cyberpower and businesses may be targeted or suffer from collateral damage as part of cyberconflicts. These myriad risks have significantly raised security costs for companies in Russia, and undermined the appeal of the...

Russia Labour Market

BMI View:

BMI View: Russia's labour market boasts a number of strengths which increase its appeal as a location for investment. Primarily, these stem from its large, well educated and highly urbanised labour force, as well as its competitive wage costs in relation to other European states. Businesses will continue to encounter challenges in the labour market, as labour costs are increased by mandatory social security contributions, and the shrinking labour force causes recruitment difficulties. Many companies will nonetheless be prepared to overcome these barriers in order to access the huge Russian market. Overall, Russia scores 64.8 out of 100 in the BMI Labour Market Risk Index, placing it in a competitive third position in the Emerging Europe region out of 31 countries.

Strong Education Base Offsets High Labour Costs
Russia And Regional Average - Labour Market Risk

Russia Logistics

BMI View:

BMI View: Russia's logistics sector is well developed and generally able to cater for the needs of the economy. Its focus on commodities has gradually shifted toward also catering for the logistics demands of the country's growing consumer base. This sector is not, however, without its risks, the most pertinent being the drop in infrastructure investment due to the downturn in the Russian economy. This investment is much needed to ensure the modernisation of Russia's utilities and transport network and protect against the growing threat to investors from shortages and congestion. ...

Russia Trade & Investment

BMI View:

BMI View: As one of the largest emerging markets globally, investment opportunities in Russia are potentially lucrative, but we caution that the trade and investment climate remains fraught with risk. The government continues to impose restrictions on trade flows and limits on foreign direct investment (FDI) in certain sectors, while state-owned institutions are prevalent in all areas of the economy. Corruption is also rampant and the judiciary is weak and subject to political interference, which undermines trust in the legal system. Furthermore, the overall tax burden is considerable and some bureaucratic procedures remain plagued by delays. Western sanctions imposed against Russian economic targets in response to the Ukraine crisis have disrupted trade flows, restricted access to financing and inhibited growth. Although business-friendly reforms are driving some improvements in the operating environment, Russia will...

Russia Industry Coverage (22)

Russia Agribusiness

BMI View:

BMI View: Russia's poultry and pork sectors will perform strongly as consumer demand is growing and domestic production is looking to bridge the gap left by EU imports, which will not resume until the end of 2017. Wheat will outperform the grains complex out to 2020 due to elevated farmgate prices in rouble terms and strong opportunities on the domestic and export markets, which will maintain production incentives. The Russian dairy sector will benefit from growth momentum until 2018 ...

Russia Autos

BMI View:

BMI View: Elevated exchange rates will continue to encourage import substitution which will allow domestic production to recover faster than domestic sales.

Passenger Car and Light Commercial Vehicle Sales
e/f = BMI estimate/forecast. Source: AEB, BMI
Key Views
* Falling real wages, due to decreasing gross wages, and working hours alongside high inflation will all weigh on consumer purchasing power and...

Russia Commercial Banking

BMI View:

Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

Russia Consumer Electronics

BMI View:

BMI View: Russian consumer electronics demand began stabilising in H116, after the plunge in spending in 2015 when steep rouble depreciation against the US dollar hit affordability and confidence levels in a recession-hit economy. We expect the recovery to continue into 2017, as pent-up demand is unlocked by stabilisation. However, upside will be short lived due to a weak purchasing power growth profile and declining population, limiting Russia...

Russia Defence & Security

BMI View:

BMI View: Russian defence spending will increase by 2% in 2016 amid declining international oil prices. New procurement will be driven by the need to control the country's borders, the fight against internal terrorism, the ongoing involvement in Ukraine and the Syrian civil war, and the need to modernise the armed forces. Moscow also continues to see the expansion of the EU and NATO close to its Western borders as a...

Russia Food & Drink

BMI View:

BMI View: Key economic indicators showed little signs of improvement in August 2015. Households will continue to struggle in coming months, while business investment will not pick up until interest rates and demand conditions improve. While Russia's food, drink and mass grocery retail sectors have undoubted potential in the longer term, headwinds will undermine any short-term opportunities.

Headline Industry Data

  • 2015 per capita food consumption (local currency) = +7.7%; forecast compound annual growth rate (CAGR), 2014 to 2019 = +7.4%.

  • 2015 beer volume sales = -6.0%; forecast CAGR to 2019 = 0.4%.

  • 2015 mass grocery retail sales (local currency) = +16.2%; forecast CAGR to 2019 = +16.5%.

Russia Freight Transport

BMI View:

BMI View: The difficulties Russia is facing in modernizing its transport system will impact the dynamics in the freight market over our forecast period until 2020. Both road and rail infrastructure need substantial investment to realize its transit potential, however the tight fiscal situation in Russia and Western sanctions will limit the Russian government's capacity to fund infrastructure projects. Sanctions prohibit the European Bank for Reconstruction and Development to lend money to Russia and thereby hindering Russia's capability to finance infrastructure projects.

Persistently low oil prices, weak investment growth and declining real incomes will prevent a swift recovery in the Russian economy in 2016. Russia will maintain a current account surplus in 2016 and 2017 as imports...

Russia Information Technology

BMI View:

BMI View: The IT market recovered from lows in H116, following its plunge in US dollar terms in 2016After IT market plunged in US dollar terms in 2015. However, the medium term outlook for growth is modest and we do not envisage a sustained acceleration in spending growth. The subdued economic outlook is one factor, and the weaker rouble could have a long term impact by promoting more cost-competitive domestic software and services solutions. There is also substantial uncertainty due to Russian economic performance correlating with the oil price, as well as the path for US-Russia relations around which there are several potential flashpoints.

Latest Updates & Industry Developments

  • ...

Russia Infrastructure

BMI View:

BMI View : Russia's poor macroeconomic fundamentals, including a weak rouble exacerbated by international sanctions and a fiscal deficit driven by lower oil revenue, underpin our bearish outlook for the country's construction sector. Russia's residential and non-residential construction sector will be the primary victim of Russia's economic weakness and emerge as the clear underperformer, while the growth prospects for Russia's infrastructure sector are comparatively brighter on the back of a raft of high-value pipeline and transport projects.

Latest Updates And Structural Trends

  • International sanctions, which were renewed by the EU in June for a period of six months, continue to weigh...

Russia Insurance

BMI View:

BMI View: In the short term, Russia's insurance industry faces significant challenges from the weak domestic economy and currency movements, which means we expect to see sharp double-digit contractions in both life and non-life gross premiums written in 2015. While we do expect to see a return to growth in 2016, this is predicated upon a return to more positive economic territory - any further escalation in regional tensions or more extensive sanctions could derail this growth potential. Underneath these challenges, Russia's long-term growth potential is substantial...

Russia Medical Devices

BMI View:

BMI Industry View: We expect the Russian medical device market to contract by a 2009-2014 CAGR of 3.4% in US dollar terms, due to the continued depreciation of the Russian rouble over the forecast period. The financial sanctions imposed by the West due to Russia's involvement in the Ukraine crisis, together with the weakened currency caused by falling oil prices and high inflation, which is reducing consumer purchasing power, are having a negative impact on...

Russia Mining

BMI View:

BMI View: Russia's gold and coal production growth will be the sector's relative bright spots, while PGM's and iron ore output growth will grind to a halt. Low metal prices, the country's inadequate infrastructure and Western sanctions will continue to limit the sector's production growth.

Russia Mining Industry Value

Russia Oil & Gas

BMI View:

BMI View: Oil production continues to outperform as a weak rouble allows for maintained capex and lower operating costs. Gas production has been steady though exports, particularly to Europe, are up 14% over H116.

Headline Forecasts (Russia 2014-2020)
2014 2015e 2016f 2017f 2018f

Russia Petrochemicals

BMI View:

The Russian petrochemicals industry is benefitting from a collapse in the rouble, which has significantly reduced imports. The beginnings of recovery in 2017 should help increase consumption, but the chief concern will be access to finance to boost capacity and realise planned projects. As such, Russia is increasingly turning to Chinese state-owned petrochemicals industries in order to leverage its considerable resources for downstream production.

In the first seven months of 2016, the index of production of basic chemicals rose by 1% in the first seven months of 2016. Olefins output was down 2.3% year-on-year (y-o-y) to 1.6mn tonnes and benzene was down 2.6% to 691,000 tonnes, but xylenes were up 4% to 336,500 tonnes. Polypropylene (PP) output was 772,000 tonnes, on a par with the same period in 2015. Meanwhile, production of polyethylene (PE) increased 1% y-o-y to 958,400 tonnes with high density PE (HDPE) up 11% and linear low density (...

Russia Pharmaceuticals & Healthcare

BMI View:

BMI View: Russia's healthcare market is in a precarious position due to a severe lack of funding and an escalating burden of disease. The country's economic recession will see further pressure placed on the population for provision of care. Amendments to Russia's pharmaceutical legislation will, however, favour domestically-produced medicines over foreign drugmakers and multinational drugmakers will be pressured to establish a domestic manufacturing presence to comply with related new regulations. Nonetheless, given its sheer market size and unmet potential, the country will remain attractive for investment by multinational pharmaceutical firms for long-term growth.


Russia Power

BMI View:

BMI View: A weak economic outlook, a weakened rouble and tight credit conditions in Russia will continue to halt utility investments in new domestic power capacity. In addition, a sustained period of contraction in the manufacturing sector will curb growth in electricity consumption. Diversifying energy export markets away from the West will see opportunites opening up towards China and Saudi Arabia, among others.

Headline Power Forecasts (Russia 2013-2019)
2013e 2014e 2015f ...

Russia Real Estate

BMI View:

BMI View: Rental rates and occupancy levels are both expected fall over the course of 2016, following a poor performance in 2015. We expect demand from foreign players to remain low and barriers to entry to remain high. The main catalysts for the downward trend across most of the real estate market are the weak economy and trade sanctions. Weak GDP figures and falling income levels are restricting consumer spending, and reducing the attractiveness of the Russian market to new players. We do not forecast a major turn-around over the course of our forecast period to 2020.

We expect only a modest recovery in GDP in 2016 as consumers remain under pressure, from both the sharp depreciation in the rouble and elevated inflation. Declining fiscal revenues mean the government will struggle to prop up the economy and we do not expect government consumption to be a significant driver of growth. We...

Russia Renewables

BMI View:

BMI View: Lingering political and economic problems are subduing investor interest in the Russian non-hydroelectric renewables sector resulting in very weak growth in renewables capacity over our 10-year forecast period. International sanctions, economic recession and little domestic demand also in light of continuously low fossil fuel prices further undermine our outlook. Elevated financing costs and rouble volatility have also stopped previously awarded projects from being developed. With little to no action in 2016 counteracting these developments, growth expectations for 2017 remain highly constrained.

Renewables Headline Forecasts (Russia 2015-2021)
2015e 2016f...

Russia Retail

BMI View:

BMI View: Russia's economic outlook remains uncertain as low oil prices - combined with elevated inflation, persistent currency weakness and government budget cuts - are expected to continue. While the economy is set for a recovery during the final quarter of the year, it will be extremely weak. We are therefore expecting to see further erosion of household spending power and this will present ongoing difficulties for retailers, with total industry value contracting by double-digit figures for the second year in a row.

Headline Household Spending

Russia Telecommunications

BMI View:

BMI View: The Russian mobile market rebounded in the last six months prior to September 2015, following declines relating to MTS cleaning-up its base off inactive users, and the tie-up between Tele2 and Rostelecom. With a penetration rate of 173.8%, we still think inactivity is an issue, as many users seem to have added a new SIM card while moving to 3/4G. The success of data services has been positive for operators, but this has come at great costs, with the overall economic environment at home and abroad leading some to consider tower outsourcing to reduce costs and focus more specifically on services.

Key Data

  • The Russian mobile market has rebounded in Q2 and Q315, finishing September 2015 with 249.3mn subscribers and a penetration rate of 173.8%

  • For the first time in Q315, Rostelecom had more fibre...

Russia Tourism

BMI View:

BMI View: We expect the weaker rouble to bring back an increase in the number of tourism arrivals to Russia in 2016. Europe will remain the main market, owing to proximity, but the Asia Pacific will also rise as a regional source market as a result of increasing relations between Russia and China. The weak economy, however, will hamper these positive developments from having significant repercussions on the development of infrastructure (still hindered by issues related to EU economic sanctions) and international tourism receipts, the value of which will continue to fall due to economic circumstances. We expect the 2018 World Cup to provide new opportunities, however, for Chinese businessmen wishing to invest in Russia, unhindered by visa issues or economic sanctions.

Key Forecasts (Russia 2012-2019)...

Russia Water

BMI View:

BMI View: Overall we believe the Russian water and sanitation sectors are showing steady improvement in the quality of the service offering; however, the high costs and limited revenues, in conjunction with poor infrastructure in many regions, will continue to render them an unappealing investment option.

Falling private investment, stubbornly high inflation and slowing economic growth support our overall bearish outlook for Russia's water infrastructure industry, in spite of much needed modernisation, replacements and expansions of existing facilities and networks - much of which is likely to be shelved given the current economic climate. However, one bright spot is the Russian focus on developments in Crimea; key among these are water infrastructure developments for supply, distribution and...

Latest Russia Articles

  • The integration of IoT and big data technology in agriculture will pick up ...

  • Given the advanced status of a number proposed LNG projects, a low-cost gas...

  • The demographic tailwinds to fuels consumption growth in emerging markets w...

Latest Russia Blogs

Latest Russia Podcasts

  • On May 21 Moscow and Beijing finally completed negotiations on a USD40...

  • Russia's intervention in Ukraine has been widely described as the most...

  • The Winter Olympics were clearly designed to showcase the superpower a...


Download PDF

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.

Thank you for your interest

You will shortly receive your free executive summary by email.