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.

Country Risk

Russia Country Risk

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Core Views

  • President Vladimir Putin's popularity remains near record highs, although we expect this to moderate as economic hardship continues to to be realised by the general public. Despite the deterioration in living standards, we do not expect any mass uprising in response to the deteriorating economy.

  • Persistently low oil prices, fiscal austerity, weak investment growth and declining real incomes will lead to second consecutive real GDP contraction of 0.7% in 2016, followed by only a modest recovery to 1.5% growth in 2017.

  • Russia's long-term growth potential is subdued, closer to that of mature developed economies rather than a higher growth emerging market. This is due to the highly centralised nature of the economic model and large government footprint in key sectors, reliance on energy exports, poor business...

Russia Operational Risk Coverage (9)

Russia Operational Risk

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BMI View: A downturn in its economy and increasingly frosty relationship with the West will be the key risks that damage Russia's attractiveness to investors and severely impact the country's crime and security and trade and investment scores in the BMI Operational Risk Index. Tensions with Turkey and NATO, Russia's airstrikes in Syria and continued violence in Ukraine are negatively impacting the country's operating environment. Russia receives a score of 55.6 out of 100, placing it 16th out of 31 Emerging Europe states.

Security Risks Weigh On Operating Environment
Russia - Operational Risk Scores

Russia Crime & Security

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BMI View: A deteriorating interstate environment, the growing risk of terrorism and high crime levels contribute to an increasingly poor operating environment. The country's Crime and Security Risk score isn't just well below the global average, but it also places Russia in a very uncompetitive position regionally. The score of 43.0 out of 100 ranks the country 21st out of 31 Emerging Europe states.

Heightened Conflict Risk Hurts Operating Environment
Russia & Emerging Europe Regional Average - Crime And Security Risk Scores
100= Lowest risk; 0= highest...

Russia Labour Market

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BMI View: Russia's very large and highly skilled urban labour force is a significant incentive for investors from a range of different sectors. The country's good educational standards and strong enrolment rates from pre-primary through to tertiary level ensure that investors can expect a high level of literacy and numeracy across the country. That said, health risks are high in Russia, raising the possibility of lengthy absenteeism and incurring significant costs for employers. For these reasons, the country scores 63.0 out of 100 for Labour Market risks, putting it in third place...

Russia Logistics

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BMI View: Russia's logistics sector is well developed and caters for the needs of the country. 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 scores above the global average in the BMI ...

Russia Trade & Investment

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BMI View: As one of the world's major emerging markets, 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. The ongoing Ukraine crisis has also resulted in heightened risks, as Western sanctions against Russian economic targets have disrupted trade flows, restricted access to financing and inhibited growth. Although business-friendly reforms are driving some improvements in the...

Russia Industry Coverage (23)


Russia Agribusiness

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BMI View: We have revised our Russian agribusiness outlook for our Q1 2016 report. We are now estimating a modest rebound in the market after severe declines in the previous year due to trade restrictions. We are positive about the poultry and pork sectors of Russia, as consumer demand is growing and domestic production is looking to bridge the gap from imports. Grains consumption and production, along with rice, will both tick upwards, whereas dairy will continue to be in decline, largely as the number of dairy cows in Russia continues decreasing. We hold the opinion that the Russian exports of grains to Asia and its regional partners will be bolstered by a weakening...


Russia Autos

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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...

Commercial Banking

Russia Commercial Banking

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

Consumer Electronics

Russia Consumer Electronics

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BMI View: Multiple factors have deteriorated the Russian consumer electronics market, including international sanctions, the global oil price slump and the sharp decline of the rouble against the dollar. The Russian consumer electronics market contracted sharply in 2014 and 2015, especially with the depreciation of the rouble eroding rouble purchasing power in dollar terms. After the serious disruption of 2015, BMI expects a gradual recovery to begin in 2016 with rouble stabilisation, before an acceleration in growth in 2017. However, total demand in 2019 is forecast to still be 34.2% below the 2012 peak in US dollar terms. From this perspective, it is to be expected that heightened price sensitivity will increase the share of sales captured by local low-cost vendors such as Yota Devices, Explay and FLY, which all made major inroads in terms of market share in 2013 and 2014 and look set to...

Defence & Security

Russia Defence & Security

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BMI View:  Despite the dissolution of the Soviet Union and the Warsaw Pact over two decades ago, Russia remains an important international actor both in the Eurasian region and in the world at large. The country retains some of the world's biggest armed forces and has its largest nuclear arsenal. 

Russia has exploited rising hydrocarbon prices to perform a long-overdue modernisation of its armed forces. That said, the ability of Russia to continue on its path of military modernisation was cast into doubt in early October 2014 when Putin's finance minister Anton Siluanov cast doubt on whether the country's finances could afford to honour the modernisation pledges made to the country's military. This is not the first occasion that there have been disagreements in Putin's cabinet over military spending levels, with Alexei Kudrin, Siluanov's predecessor resigning in 2011 over...

Food & Drink

Russia Food & Drink

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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%.

Freight Transport

Russia Freight Transport

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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...

Information Technology

Russia Information Technology

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BMI View: We have left our forecasts for the Russian IT market unchanged in our Q1 2016 report update after undertaking multiple revisions in 2015. We made multiple downgrades in 2015 to account for the tougher economic climate, international sanctions and the steep depreciation of the rouble against the US dollar. As a result of these conditions, 2014 and 2015 saw a significant contraction in dollar terms. In 2016, we believe the market will begin to grow positively in US dollar terms after two years of massive contraction. Sanctions impact vendors asymmetrically, for instance US vendors are most likely to suffer due to reputational damage, with IT products and solutions increasingly seen through the lens of national...


Russia Infrastructure

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BMI View: International sanctions that are weakening the economy, coupled with low oil prices, underline our bearish outlook on the Russian construction sector. We currently forecast Russia's construction industry to contract 2.3% in real terms in 2016 - a mild improvement compared to the deep contraction of 2015 - as a result of low base effects and the adjustment of the economy to the new oil price environment.

Key Trend And Developments

  • Russia's actions in Ukraine have resulted in international sanctions, some of which target loans from the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB). These sanctions will continue to have a...


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...

Medical Devices

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 Metals

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BMI V iew: The Russian metals sector will post weak growth over the remainder of 2014 as the aluminium sector returns to modest growth after extensive cuts and weak prices plague the steel sector. Beyond 2015, growth will pick up as we see higher prices for aluminium and global demand growth for steel improves. Still, we expect companies' investment plans to focus on improving plant efficiency and reducing costs rather than building new plants or expanding production capacity. Despite only modest growth, Russia will remain one of the world's largest producers of base and industrial...


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

Oil & Gas

Russia Oil & Gas

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BMI View: Oil production outperformed in 2015, but will decline from 2016 as tax changes and sanctions limit upstream development. Gas production, which underperformed in 2015, will improve as domestic and foreign demand pick up.

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


Russia Petrochemicals

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BMI View: The Russian petrochemicals industry managed to report strong growth in H115 in spite of worsening economic fundamentals due to its ability to defend margins on lower product prices and increase its domestic market share. The fall in the cost of locally available naphtha feedstock as well as the slump in the value of the rouble helped boost the competitiveness of Russian output, even as end markets went into recession. However, 2016 is set to be more challenging with producers expecting a decline in sales and production.

Russian producers reported double digit growth across a variety of petrochemicals segments, with plastics and rubber witnessing notably strong growth. The trend has fuelled domestic self-sufficiency, even as petrochemicals exports to Europe have slumped in the face of trade sanctions and the Ukraine crisis as well as the domestic economic recession.


Pharmaceuticals & Healthcare

Russia Pharmaceuticals & Healthcare

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BMI View: Russia's healthcare and pharmaceutical markets are in a precarious position due to the country's economic recession. Healthcare in the country remains desperately in need of additional funding, and amendments to Russia's pharmaceutical legislation will hinder market access for drugmakers due to complex medicine registration laws and increased governmental influence on pricing. With significant challenges facing both sectors, we see a reduction in attractiveness of the operating environment to multinational pharmaceutical firms.

Headline Expenditure Projections

  • Pharmaceuticals: RUB885.67bn (USD22.96bn) in 2014 to RUB1.02trn (USD16.66bn) in 2015; +14.8% in local currency terms and -27.4% in US dollar terms. Forecast unchanged from last quarter...


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 ...

Real Estate

Russia Real Estate

BMI View:

BMI View: We see medium- to long-term potential in Russia's commercial real estate sector as the underlying fundamentals in Russia's industry sectors improve as the country emerges from recession and the sanctions are lifted. The expected improving demand for commercial properties and relatively good yields make Russia a good market for investors over the medium-to-long term. However, current uncertainty of Russia's political stance has had a detrimental effect on domestic business and consumer confidence, as well as the consolidating banking sector for financing. Weak demand for commercial properties and relatively low yield spreads given the...


Russia Renewables

BMI View:

BMI View: High financing costs, currency volatility and increasingly stringent local content requirements mean that growth in Russia's non-hydropower renewables segment will be limited over our 10-year forecast period. While the most recent tender provided another 365MW of projects, we expect these ongoing economic issues to result in the sector attracting limited investment, as investors will look elsewhere to grow their businesses, and likely project delays.

Considering the adverse impact of sanctions on the availability of international funding, coupled with mounting pressures on the government to cut costs as foreign exchange reserves are tapped to cover fiscal deficits, an expensive renewables segment will face a tough environment in the Russian market. This will in turn weigh on growth in the segment.



Russia Retail

BMI View:

BMI View: The Russian economy shrunk by a sharp 3.7% during 2015, in part due to continued low oil prices and the hit from Western sanctions. Together with high levels of inflation, which reached 12.9% last year, we expect the retail sector to struggle. Russia has already seen its investment levels stall while the risk profile has deteriorated and we believe this will act to suppress growth throughout all the retail sectors until at least 2017 .

Headline Household Spending
BMI Calculation/Russia Federal State Statistics Service


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...

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