Emerging Markets: Russia & the CIS Responding to Rising Demand Stuart Hensel Senior Analyst May 3rd 2007
Russia & the CIS: Interest Rising As seen by: FDI inflows & outflows Lending flows Growing CIS presence on Western markets
FDI inflows (annual av, US$ bn) 50 40 30 CIS 20 10 New EU members Mercosur 0 1997-2001 2002-06 2007-11
Russian FDI outflows (ann av, US$ bn) 16 14 12 10 8 6 4 2 0 1997-2001 2002-06 2007-11
Total external borrowing ( US$bn) 500 400 300 200 100 CIS (Big 3) Mercosur ASEAN Central Europe 0 1997-2001 2002-06 2007-11
CIS Exports to the EU (US$ bn) 200 150 100 50 0 1992 1996 2000 2004
Why is interest in the CIS rising? Natural resource abundance Low wage base Economic stability Rapid economic growth Large markets
% of gas supplies coming from Russia, 2005 1 Germany 44% 2 Italy 29% 3 Turkey 65% 4 France 26% 5 Hungary 72% 6 Finland 100% 7 Slovakia 100% 8 Poland 60% 9 Czech Republic 82% 10 Austria 63% Source: US Department of Energy
World oil supply, 2006 Former USSR Other OECD OPEC CIS - 12% of total supplies Source: EIA
Oil Reserves (bn barrels) Saudi Arabia 262.7 Canada 178.9 Iran 133.3 Iraq 112.5 UAE 97.8 Kuwait 96.5 CIS 95.7 Venezuela 75.6 Russia 69.0 Libya 40.0 Source: CIA World Factbook
Hourly Wage Costs, 2006 (US$) 8 7 6 5 4 3 2 1 0 Pol Hun Slov Rus Ukr Chi Ind Source: Economist Intelligence Unit
Oil Prices & Russian Export Earnings 400 300 1995=100 200 Oil prices Exports 100 0 1995 1999 2003 Source: Economist Intelligence Unit
Russia s Resulting Boom (1995=100) 220 170 Real GDP 120 Consumption Wages 70 1995 1999 2003 Source: Economist Intelligence Unit
Inflation & Rouble Rate (% change yoy) 80 40 Rouble/US$ Inflation 0-40 1997 2001 2005-80 Source: Economist Intelligence Unit
Private Russian Net Capital Outflows ($ bn) 20 10 0-10 -20-30 1999 2001 2003 2005 Source: Economist Intelligence Unit
Av Ann % Real GDP Growth (2002-06) 12 10 8 6 4 2 0 Chi Ind Ukr CIS Rus A10 EU10 M4 WE Source: Economist Intelligence Unit
Av Ann % Real GDP Growth (2007-11) 10 8 6 4 2 0 Chi Ind CIS Ukr A10 Rus EU10 M4 WE Source: Economist Intelligence Unit
300 250 Large Markets 200 Population (million, 2006) 150 100 50 0 CIS Rus EU10 Ukr Pol Rom Cze Hun Bul Cro Source: Economist Intelligence Unit
But greater CIS exposure brings risks Unfavourable demographics Bad politics Excessive oil concentration Dutch disease? Poor business environments
Plummeting population (millions) 2000 2050 % change Germany 82.2 73.6-10.5 Italy 57.7 57.7-12.7 Russia 146.7 109.2-25.6 Ukraine 49.0 33.6-31.4 Belarus 10.0 7.74-22.6 Source: US Bureau of Census
EIU Democracy Rank (out of 165 countries) Full Democracies Czech Republic 18 Flawed Democracies Ukraine 52 Moldova 62 Hybrid Regimes Russia 102 Authoritarian Regimes Kazakhstan 120 Belarus 128 Source: Economist Intelligence Unit
EIU Business Environment Rankings Rank out of 82 countries in 2007-11 Estonia 21 Czech Republic 27 China 56 Russia 66 Kazakhstan 72 Ukraine 75
EIU Country Risk Ratings Estonia BBB Czech Republic BBB China BB Russia BB Kazakhstan BB Ukraine B
Rising Hourly US$ Wage Costs 14 12 Central Europe 10 8 6 Russia 4 2 0 1998 2002 2006 2010 China Ukraine India Source: Economist Intelligence Unit
Energy as % of Total Goods Exports Russia 65.1% Kazakhstan 71.9% Azerbaijan 84.6% Turkmenistan 83.0% Belarus 38.8%
Dutch Disease? 150 Real Effective Exchange Rate, 1997 = 100 100 Russia Kazakhstan Azerbaijan 50 1995 1999 2003 2007 2011 Source: Economist Intelligence Unit
CIS Data - Additional Risk? Data quality has improved But reliability concerns persist Sourcing data
What does this mean for business intelligence?
A more demanding market What does the EIU see? granularity increased demand for emerging market information demand for industry information demand for risk analysis understanding the customer need need for customisation flexible delivery mechanisms demand for ever higher quality relevance, accuracy and speed
How has the EIU responded? Increased our country coverage 201 markets, 150 with numerical forecasts Built a strategic industry capability integrated with our macroeconomic view Increased focus on risk launched an operational risk service upgrading our financial risk service Hugely boosted our custom business market studies, political reviews, industry benchmarking, modelling and forecasting
Flexible delivery mechanisms Economist Intelligence Unit Country Analysis Executive Services Corporate Network Economist Conferences Electronic services and publications Custom research and presentations Executive peer groups Business meetings and government roundtables
Maintain our tradition of quality 130 in-house country analysts 600 contributing analysts based in-country quantitative and qualitative approach reliable sources of local data in 201 countries sensitivity to geopolitical dynamics independent view ongoing assessment of global trends and events almost 60 years of experience
Quality centered methodology Gather dependable information Use in-country analysts Select most timely, reliable data Conduct primary research Qualitative and quantitative approach Apply global assumptions Use a variety of models Provide qualitative insight Ensure quality Review of analysis by country experts Automated checks Final approval by regional heads
What does all this mean for you? Your reality more demanding internal clients evolving offering from your suppliers The challenges (as we see them) match information to the need ever greater understanding of your clients needs ever greater understanding of the strengths and weaknesses of your sources The result a significant source of value to your business