Economic development in Russia growing market for consumer … · 2016-10-25 · Economic development in Russia – growing market for consumer goods SOME THEMES OF PRESENTATION:

Economic development in Russia – growing market for consumer goods

Kari Liuhto Director, Professor Centrum Balticum Turku, Finland BPO Seminar Turku September 7th, 2012

SOME THEMES OF PRESENTATION: 1) Russia’s role in the global economy

2) Economic development and consumption in Russia

3) Russia’s foreign trade and the role of the Baltic Sea region

4) Doing business with the Russians without going to Russia = Russian investments and tourism abroad

© Kari Liuhto

DISTRIBUZIONE % PIL MONDIALE PER AREA DALL'ANNO ZERO A FINE MILLENNIO SCORSO

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

0 1000 1500 1820 1870 1913 1950 1973 1998

Cina Giappone India Altri Paesi asiatici Europa Occidentale Europa Orientale & Russia USA America Latina Africa

Russia’s share in the global economy during past 2000 years

(% share of global GDP)

China

Japan

India

Other Asia

Western Europe

Eastern Europe & Russia

USA

Latin America

Africa

Russia’s share in the global economy now: 21% of gas reserves 5% of oil reserves 4% of military expenditure 3% of economy (GDP) 3% of trade 2% of foreign direct investment 2% of population

Development of real GDP in Russia (%)

Ministry for Economic Development

Russia is the 6th largest economy

in the world (GDP at PPP)

… and with 4% annual growth,

Russia will be bigger than Germany

in 2022, if Germany grows at

the rate of 1% per annum.

World Bank

Living standard (GDP / capita, $)

Finland 45,000 EU $ 34,500

Russia $ 17,000

Romania $ 12,600

Sources: Transparency International; CIA World Factbook

Distribution of income–global inequality rank (GINI index – N= 140)

1. Namibia 71 39. Bulgaria 45 40. USA 45 52. Russia 42 53. China 42 78. Lithuania 38 89. Latvia 36 93. Poland 34 109. Estonia 31 123. Denmark 29 129. Belarus 27 130. Germany 27 131. Finland 27 138. Norway 25 140. Sweden 23

Source: CIA 2012

Some are more equal than others - Russia’s 10 richest persons

Source: Forbes 2011

1. Vladimir Lisin (1956) Net Worth: $24 billion - Source: Steel industry 2. Alexei Mordashov (1965) Net Worth: $18,5 billion - Source: Steel and mining company Severstal 3. Mikhail Prokhorov (1965) Net Worth: $18 billion - Source: ONEXIM Group, investments 4. Vladimir Potanin (1961) Net Worth: $17,8 billion - Source: Interros 5. Alisher Usmanov (1953) Net Worth: $17,7 billion - Source: Metalloinvest, Mail.ru Group, investments 6. Oleg Deripaska (1968) Net Worth: $16,8 billion - Source: Basic Element Company 7. Mikhail Fridman (1964) Net Worth: $15,1 billion - Source: Alfa Group, oil, banking, telecom 8. Vagit Alekperov (1950) Net Worth: $13, 9 billion - Source: LUKOIL 9. Roman Abramovich (1966) Net Worth: $13,4 billion - Source: Investments 10. Viktor Vekselberg (1957) Net Worth: $13 billion - Source: Renova

In 2011, about 100 billionaires in Russia - value of their total ownership about $ 432 bn = GDP of Sweden + the Baltic States Not all the rich included in the list The source of wealth of invisible oligarchs is usually linked with licences and other state privileges. Metal men rule – 15 years ago oil men Ownership of Lisin = * Close to Estonian GDP Ownership of top 10 = * Close to Finnish GDP * 3 times bigger than the Finnish state budget

Retail trade development (annual change %)

Retail trade development

gives an indication of private consumption

-10

-5

0

5

10

15

20

2003 2004 2005 2006 2007 2008 2009 2010 2011

+ 6.9 % in 1-7/2012

Source: Bank of Finland, 2012

Development of retail trade in Russia (RUR billion)

Foodstuffs

Non-foodstuffs

Source: CEMAT 2011

1 EUR = 41 RUR on 6.9.2012

Consumption grown by 4 times in this millenium

Around a half of incomes

goes still to food

Source: East Office of Finnish Industries, 2011

Source: East Office of Finnish Industries, 2012

Average income around € 600

officially

Has uncertainty increased in Russia, since consumption grows slower than wage development

Federal Districts in 1995 and 2009 (FDI and foreign trade [excl. CIS] 2000-2009)

Source: Rosstat 2012

North-West

2000 2009 Population 10% 9% GDP 11% 10% Retail sales 11% 9% FDI 10% 16% Exports 11% 11% Imports 19% 20%

South 2000 2009 Population 14% 16% GDP 8% 8% Retail sales 8% 13% FDI 25% 3% Exports 3% 3% Imports 5% 4%

Volga 2000 2009 Population 21% 22% GDP 21% 16% Retail sales 16% 18% FDI 6% 6% Exports 16% 10% Imports 7% 5%

Ural 2000 2009 Population 9% 9% GDP 14% 14% Retail sales 8% 10% FDI 6% 1% Exports 21% 16% Imports 5% 4%

Far East 2000 2009 Population 5% 5% GDP 6% 5% Retail sales 5% 4% FDI 7% 9% Exports 4% 5% Imports 3% 3%

Central 2000 2009 Population 26% 26% GDP 35% 38% Retail sales 38% 34% FDI 42% 58% Exports 32% 45% Imports 53% 62%

Siberia 2000 2009 Population 14% 14% GDP 15% 10% Retail sales 14% 11% FDI 4% 6% Exports 12% 9% Imports 6% 3% 40 % of

retail sales

Development of Russia’s foreign trade ($ bn)

0

100

200

300

400

500

600

92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 10 11

Exports

Imports x 6

x 10

Source: Russian Customs

Growth without develoment = trade structure remained the same since 1991

Impact of oil price: in 2000 below $ 30 – now $ 113 per barrel

Structure of Russia’s foreign trade Machines against raw materials

Trade between Russia and the BSR countries

Sources: Nordregio 2007; Russian Customs 2012

Share in Russia’s foreign trade

turnover in 2011 EU 48.0 % BSR countries 18.9%

Germany 8.7 % Poland 3.4 % Finland 2.3 % Sweden 1.1 % Lithuania 1.0 % Latvia 1.0 % Denmark 0.5 % Estonia 0.5 % Norway 0.4 %

Trade between Russia and the BSR countries (value of total trade in USD billion in 2011)

Sources: Russian Customs 2012

Value of Russia’s foreign trade turnover (exports + imports)

in 2011 Total trade $ 821 billion BSR countries $ 155 billion Germany $ 72 bn Poland $ 28 bn Finland $ 19 bn Sweden $ 9 bn Lithuania $ 8 bn Latvia $ 8 bn Denmark $ 4 bn Estonia $ 4 bn Norway $ 3 bn

Russian imports from BSR countries

total $ 61 billion - Germany covers

over 60% - imbalance

between imports and exports

Poland $ 7 bn

Sweden $ 4 bn

Norway $ 2 bn

Finland $ 6 bn

Latvia $ 1 bn

Lithuania $ 1 bn

Estonia $ 1 bn

Importance of Russia as a trading partner for the BSR countries in 2011

Sources: national statistics, 2012

Share of Russia in imports of … Share of Russia in exports of …

Denmark 2 % 2 %

Estonia 8 % 11 %

Finland 19 % 9 %

Germany 5 % 3 %

Latvia 10 % 11 %

Lithuania 32 % 17 %

Norway 2 % 1 %

Poland 12 % 5 %

Sweden 6 % 2 %

The Russian foreign direct investment (FDI) stock abroad

($ billion)

Source: World Investment Report, 2011

1 20

434

0

50

100

150

200

250

300

350

400

450

500

1990 2000 2010

Russia is 17th largest outward investor

in terms of outward FDI stock with 2%-share

…

but if we look outflow of

investments in 2010, the Russia ranks 7th with $ 52 bn

Main destination Cyprus

… significant amount of Russia’s outward FDI return to Russia

Sources: UNWTO 2012; national statistics, 2012

0.1%

1.0%

0.5%

4.1%

8.3%

0.0%

Marginal

Importance of Russia as foreign investors for the BSR countries in 2010

(share of Russia in inward FDI stock)

3.5% Marginal

in 1994,Russia’s share was 4%

Travel of Russians abroad Travelling to and from Russia in 2011

Source: Russian Federal Agency for Tourism 2012

25 million visits to Russia 44 million visits from Russia (+12% growth in 2011) (+11% growth in 2011) from the CIS 70% 44% to the CIS from China 3% 7% to Turkey from the USA 1% 6% to China from Turkey 1% 4% to Egypt from other countries 3% 7% to other countries from the EU 22% 32% to the EU

EU 5.5 mn 14.0 mn EU Finland (+ transit) 1.2 mn 4.4 mn Finland (+ transit) Poland (Kal-grad) 0.7 mn 1.7 mn Estonia Germany 0.6 mn 1.3 mn Germany Lithuania 0.6 mn 0.8 mn Spain Latvia 0.6 mn 0.8 mn Lithuania (Kaliningrad impact) Estonia 0.5 mn 0.7 mn Italy Other EU states 1.3 mn 4.3 mn Other EU states

EU’s BSR (18%) 4.4 mn 9.4 mn EU’s BSR (21%) Less than 20 mn Russians

hold a foreign passport

Importance of Russia as foreign tourists for the BSR countries in 2011 (Share of Russians from nights spent by foreigners in 2011)

Sources: UNWTO 2012; national statistics, 2012

13%

No data

Russia’s international tourism expenditure grows fast . It was $ 27 bn in 2010 and $ 33 bn in 2011. Russia currently ranks 7th in the globe with a 3%-share.

23%

3%

19%

17%

4%

2%

2%

Some conclusions

1) Russia’s economy and consumption continues to grow faster than those of Western Europe (GDP growth 2-4% for foreseeable future), but Russia’s competitiveness develops slower (growth ≠ development) i.e. export structure will develop slowly 2) Russia’s WTO membership increases its imports in short run (7-9%) and exports in longer

run (in short run exports are estimated to grow by 1%) 3) As foreign investments tend to follow trade flows, we may expect growth in investment

flows to both directions (to & from Russia) 4) Economic potential of outbound tourism from Russia is clearly under-used 5) Some emerging phenomena with an impact on the BSR - Exports of ‘Western’ goods from Russia - Russians open/buy a high-tech firms abroad and export their products to Russia - LNG terminal boom in the BSR 6) Shall slow reform in the political side slow down economic reform in longer run ?

Centrum Balticum Centre - presentation

History of the Centrum Balticum Foundation

• The Centrum Balticum Foundation was established in 2006 • Founders of the Foundation are: 5 West coast cities of Finland, Regional Council of South-West Finland and 3 universities located in

Turku • The Centrum Balticum Centre began its activities in 2007 • The Protection Fund for the Archipelago Sea was established in 2007 • The Turku Process Secretary was founded in 2012

Organisation of Centrum Balticum Foundation

Board of Directors

Chairman Mayor of Turku Aleksi Randell

Secretary General

Director of External Affairs Mikko Lohikoski

TURKU PROCESS

SECRETARIAT

Process Coordinator Mikko Lohikoski

Planning Officer

Helinä Yli-Knuutila

CENTRUM BALTICUM CENTRE

Director

Prof. Kari Liuhto

Deputy Director Kirsi Ahlman

Special Adviser

Salla-Maria Alanen

Communication Officer Helena Erkkilä

Annika Forbes-Sarantsin

Project Manager

PROTECTION FUND FOR THE ARCHIPELAGO SEA

Chairman of Board Juha Kääriä

Executive Manager Salla-Maria Alanen

Main objectives of Centrum Balticum Centre

To act as a national information unit on the Baltic Sea region issues in Finland To act as a co-ordinator for a nation-wide network of the Baltic Sea region researchers and experts To establish a national Foresight Centre on the Baltic Sea region

Centrum Balticum Centre - National BSR Information Unit in Finland

Annual National Baltic Sea Forum • Fifth Forum organised on June 7-8th, 2012 • Brings new initiatives and visions related to the Baltic Sea Region into public discussion • Encourages cooperation between Baltic Sea Region actors of Finland

Luncheon seminars with ambassadors • First organised in November 2011 • So far, luncheon seminars organised with ambassadors from Poland, Latvia, Estonia, Lithuania, and Denmark • Luncheons to be held in Autumn 2012: Austria, Sweden, Belarus, Germany and Russia

Brainstorms with researchers and other experts • Possibility for discussion, networking and new initiatives

Distribution of the BSR information to the Finnish citizens • Weekly BSR column, Pulloposti, written by Finnish experts - distributed to some 10,000 Finns • Quarterly BSR review, Itämeriläinen, was first published in June 2012 • Domus Baltica, interactive BSR portal, to be opened by the end of 2012

Some ongoing projects

Kansainvälisen

roolin

vahvistaminen

1/2013 ->

”Strengthening the role and visibility of Southwest Finland of the Baltic Sea issues” • Tenure: 8/2011-12/2012 • Financing: Regional Council of Southwest Finland

”The Baltic Sea Challenge” • Tenure: environmental non-stop initiative • Financing: City of Turku and City of Helsinki

”SmartComp – Smart Competitiveness for the Central Baltic Region” • Tenure: 5/2012-12/2013 • Financing: Central Baltic INTERREG IV A Programme 2007-2013

Gradual internationalisation

Events for the English-speaking audience • Organisation of luncheon seminar with BSR ambassadors • Expert seminars, such as “The Baltic Sea Region 2025” seminar, organised in Turku • International part of the National Baltic Sea Forum

Information distribution and production in English • Sponsorship of Baltic Rim Economies (BRE) review produced by the Pan-European Institute • Presentations of the staff of the Centrum Balticum Centre in international fora • The English section of the interactive information portal, Domus Baltica, to be opened by the

end of 2012 • “The Baltic Sea Region 2025: The Future State of the Region” – report to be published in Spring

2013 in the USA • Possible participation in “Political State of the Region” – report produced by the Deep Water

Think Tank • BSR country information slide packages in 2013 produced by experts of the University of Turku

Participation in international projects • SmartComp – Smart Competitiveness for the Central Baltic Region” Financing: Central Baltic INTERREG IV A Programme 2007-2013 • Preparation of the Turku Process-related project concerning energy savings

Opening Aleksi Randell, Mayor, City of Turku, Finland (confirmed) Introduction to the seminar Kari Liuhto, Professor, Director, Pan-European Institute, Finland (confirmed) Future of the Baltic Sea region Erkki Tuomioja, Minister for Foreign Affairs, Finland (confirmed) Energy outlook of the Baltic Sea region Arvydas Sekmokas, Minister of Energy, Lithuania (confirmed) Security issues in the Baltic Sea region Artis Pabriks, Minister of Defence, Latvia (confirmed) Future competitiveness of the education and research systems in the Baltic Sea region Jaak Aaviksoo, Minister of Education and Research, Estonia (confirmed) The impact of Russia’s WTO membership and the Eurasian Economic Union on the Baltic Sea region Sergey Sutyrin, St. Petersburg State University, Russia (confirmed) Energy security in the Baltic Sea region Tomas Malmlöf, Swedish Defence Research Agency (FOI), Sweden (confirmed) Baltic maritime transport – tense relationship between logistics and environmental regulations Karl-Heinz Breitzmann, University of Rostock, Germany (confirmed) Future development of tourism in the Baltic Sea region Wolf Born, State Chancellery Mecklenburg-Vorpommern, Germany (confirmed) For more information, please contact [email protected]

Welcome to “The Baltic Sea Region 2025” jubilee seminar in Turku, October 25th, 2012

Address: Vanha Suurtori 7 Internet address: www.centrumbalticum.org

Welcome to the Baltic Sea House of Turku