Resources, Assets Have Russia Looking at 2008 with Confidence

---

Researched by Industrial Info Resources (Sugar Land, Texas)--It could have something to do with elections coming up, but there has been a flurry of upward revisions on Russian government forecasts for the country’s GDP growth rate in 2007. From a range averaging around 6.5% plus from international forecasting bodies and the Russian government during the course of 2007, the Russian Ministry of Economic Development and Trade predicts the rate to grow 7.3% this year. Annualized growth in the first seven months of the year hit 7.9%. The ministry reported that in 2008-10, the country’s GDP would grow 6.4%, 6% and 6.3%, respectively.

In the period up to 2010, investments in Russia’s fixed assets could double on 2006 figures and reach $370 billion. Acting Minister of Finance Alexei Kudrin said that in 2000, total investment in fixed assets was $40 billion, giving a growth of 300% by 2006. He said that the $370 billion by 2010 forecast was ”conservative.” He said that the private sector would be the main contributor in the investment sphere, adding that the state’s share of fixed investment would be about 20%. At the same time, he admitted that the largest private investors are state-controlled monopolies but claimed that the main source of investment by natural monopolies was tariffs. He added that the contribution of oil and gas revenues into state investment would be gradually reduced.

Kudrin said that oil and gas will account for 3.7% of Russia’s GDP by 2011, down from the current 5.7%. He says that the excessive use of oil and gas resources in previous years had resulted in the fact that its share was initially 2.5% of the GDP and was now higher than ever at 5.7%.

Continuing to build the upbeat cash and asset flush business and industrial environment in Russia for the coming years, the country’s gold and foreign currency reserves reached an all-time high in mid-September at $420.9 billion, up $7.1 billion, at the beginning of September. Now holding third position in the global foreign exchange reserves and gold reserves league, Russia is targeting to narrow the gap with China and Japan.

A minimum of $1 trillion would be invested in Russia’s infrastructure before 2020, the ministry said. Special economic zones, venture funds and techno parks are key vehicles for the inflow of capital, including foreign direct investment (FDI). In 2006, Russia received $28.7 billion in FDI and is forecast to receive an average of more than $31 billion per annum through 2011.

In the key gas industry, where the neo-Russian economics of private/public investment is played out through the state monolithic monopoly Gazprom, approximately $18 billion per annum will be required to ensure the adequate supply of gas through 2030. The majority of this investment will go into production assets. Gas reserves are not a problem standing at 26% of the global total and with an ongoing replacement discovery balance.

The gas industry also provides a general key to the government’s development of the resource and industrial investment climate with a decision on the liberalization of the associated gas market due by the end of 2007, which would terminate direct price control over the product. The usual private/public majors have come to an agreement with the government on the subject with a view to specifying long-term formulas for the cost of the gas in supplier/user contracts.

The atmosphere of national confidence, which has been inculcated into industrial development, could lead to the consolidation of deals with foreign investors following a patchy period of disenchantment and estrangement on both sides. Confidence is a better basis on which to deal than prickly sensitivity. In oil, steel, petrochemicals, minerals and supply chain engineering, Russia is able to call on its own strong engineering heritage. It is now looking to develop further technological edge with international associates as it expands markets from interior lines of supply east and west and looks to take on the models of a leading global economy player. It has to balance using its cash pile between forcing terms in on the nail deals and building its domestic social infrastructure. This is an ongoing problem for which there are plenty of models around the world.

Industrial Info Resources (IIR) provides marketing communication services ranging from industrial database solutions to market forecasting, custom analytics, and specialty promotions that support high-level image campaigns.