Russia’s Infrastructure Imperative, And BMI’s Construction Forecasts

We maintain our view that the infrastructure sector’s growth in Russia will be underpinned by the government’s drive to develop its vast natural resources, especially in Siberia and the Far Eastern region. The flagship of this is the multibillion dollar Eastern Gas Programme, which will reinforce Russia’s economic pivot towards Asia. In light of the developments planned, especially in the oil and gas sector, freight railways, pipelines, ports and power generation projects will therefore see high levels of expansion over the coming years. We forecast construction industry value growth of 4.9% in 2013 and an annual average growth rate of 4.2% to 2022.

Meanwhile, sporting events, namely the Winter Olympics 2014 in Sochi, and the FIFA World Cup in 2018, will provide further incentives for Russia to improve its infrastructure.

The Main Risks

Naturally, there are risks to investment in Russia’s infrastructure sector.

Political risk: Russia’s poor business environment is characterised by legal and regulatory risk, and endemic corruption and bureaucracy. There is also a rising risk of public discontent and protests.  

Project funding: The cost of the Sochi Olympics has gone up five times already, and it has doubled for the FIFA World Cup (from US$10bn in 2011 to US$20.6bn in 2013, and rising).

Lack of investor confidence: This has resulted in the failure of the Russian government to attract private capital and foreign expertise.

Full coverage of Russia’s infrastructure development is available to subscribers at Business Monitor Online.