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3
                                 rd
                                       !
                                 edition


...
www.constructionrussia.com




     Word from the author:

                           The construction industry in Russia ...
www.constructionrussia.com




              About the report:

              This third edition of PMR’s popular report, ...
www.constructionrussia.com




     Decreased availability of credit around the world has resulted in lower levels of fore...
www.constructionrussia.com




              Who will find the report Construction Sector in Russia 2009 most useful?

   ...
www.constructionrussia.com




    Excerpts from the report:




                                                         ...
www.constructionrussia.com




              PMR MarketInsight Methodology:
              This report was prepared using P...
101109




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PMR www.pmrcorporate.com
a British-American company providing market information, advice and service...
Construction sector in Russia 2009 – Development forecasts for 2009-2012


       Despite the doom and gloom brought about...
Construction sector in Russia 2009 – Development forecasts for 2009-2012


Capacity utilisation rate of construction compa...
Construction sector in Russia 2009 – Development forecasts for 2009-2012



Investment Fund  PPP
      Russia’s Investment...
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Leaflet B Construction Sector In Russia 2009 2012 Promotion

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  1. 1. 3 rd ! edition Construction sector in Russia 2009 Development forecasts 2009-2012 Publication date: October 2009 Languages: English
  2. 2. www.constructionrussia.com Word from the author: The construction industry in Russia has been hit hard by the global economic downturn. The quick links slowdown on the domestic construction market began in 2008 and deepened in 2009, with 80% of construction projects suspended and virtually no new residential and commercial property projects started. For the first time in the current decade the value of construction works will shrink this year, by over 15% in comparison to 2008. However, the worst for Russia’s construction is over now as the market will stabilise next year and return to a growth path in 2011. In 2010, construction of buildings will remain subdued due to the still ongoing problems with financing, but the industry will be stimulated by picking up capital expenditure for infrastructure development projects. Investment in roads, railways and airport expansion will be driven by the federal programme to modernise the country’s transport system, which envisages total outlays of $420bn, including $147bn from the federal coffers. Assuming a down-to-earth scenario that only 10% of the programme will be implemented, this will translate into a $7bn annual boost in construction activity each year through 2015. With federal budget deficit expected at 3-7% of GDP in the three upcoming years, much of the funding for Russia’s infrastructure projects will have to be attracted from private investors through schemes such as public-private partnerships and other non- budgetary sources, which will thus gain growing importance. Robert Obetkon, Senior Construction Market Analyst See the table of contents See the list of graphs and tables 2 Contact us for more information See other reports See how to order
  3. 3. www.constructionrussia.com About the report: This third edition of PMR’s popular report, Construction sector in Russia 2009, Development forecasts 2009-2011 quick links provides readers with a timely assessment of the construction industry in Russia as a whole, describes conditions in each major segment – engineering, non-residential and residential construction – and explores the major opportunities for the coming years. It supplies vital new information on planned energy and transportation infrastructure projects. As lagging economic conditions slow development and construction around the world, this report examines the reasons why Russia remains a country of continuing opportunity for construction related businesses and investors. Government funded projects, an abundance of in-demand natural resources and an increasing need for housing continue to provide solid options for innovative construction related businesses in each federal district of Russia’s vast and varied economy. Profiles of the largest companies engaged in locating and seizing those opportunities enhance the informational value of this document. The professionals at PMR have gathered all of the latest market intelligence and assembled it into this single clear, concise document – ready for delivery to you in convenient electronic format. See the table of contents See the list of graphs and tables Contact us for more information See other reports See how to order 3
  4. 4. www.constructionrussia.com Decreased availability of credit around the world has resulted in lower levels of foreign direct investment in Russian construction projects. Opportunities do exist, however, particularly in energy, infrastructure and transportation projects financed by government funding, and the steady demand for imported construction materials. Are you searching for the data, analysis and direction needed to locate these opportunities? quick links If you are looking for: „ Russian economic conditions, including domestic and foreign investment levels, inflation and exchange rates and current and projected GDP „ Complete coverage of the Russian construction industry – output, top companies and profits, employment, wages, taxes, building materials and development forecasts „ Russian infrastructure development – including planned projects for roads, railways, airports, gas and oil pipelines, power generation and environmental development „ Non-residential development status – factories and warehouses, office facilities, hotels and trade and service facilities „ Russian residential construction market conditions, including levels of housing stock and new construction, housing prices and federally funded housing construction plans… …then this is the document you have been looking for! In addition, Construction sector in Russia 2009, Development forecasts 2009-2011, third edition reveals all the details and plans of the market’s most successful players in a special section dedicated to insightful company profiles. See the table of contents See the list of graphs and tables 4 Contact us for more information See other reports See how to order
  5. 5. www.constructionrussia.com Who will find the report Construction Sector in Russia 2009 most useful? PMR has specifically targeted this report to meet the informational needs of top managers at regional construction quick links companies, strategic planners and executive decision makers at companies considering market entry, regional producers and distributors of building materials and supplies, architectural and consultancy firms, developers, construction equipment producers, commercial and investment bank personnel and decision makers for real estate investment trusts will benefit from this concise yet comprehensive PMR publication. With a focus that is broad enough to present the complete market picture, yet specific enough to provide a solid basis for strategic planning, this report is a must-have resource for those interested in locating and maximising opportunity in the marketplace. See the table of contents See the list of graphs and tables Contact us for more information See other reports See how to order 5
  6. 6. www.constructionrussia.com Excerpts from the report: quick links Construction sector in Russia 2009 – Development forecasts for 2009-2012 Construction sector in Russia 2009 – Development forecasts for 2009-2012 Construction sector in Russia 2009 – Development forecasts for 2009-2012 Despite the doom and gloom brought about by the economic crisis, in the medium and Capacity utilisation rate of construction companies in Russia (%), Investment Fund & PPP long term, there is little doubt that the opportunities on the construction market in Russia by company size, 2006-2009 are both lucrative and numerous. A mere fraction of domestic demand for housing and CSR027 Russia’s Investment Fund (IF) was created at the end of 2005 with the aim of bolstering infrastructure development has been satisfied during the recent construction boom and so All construction including companies employing: the realisation of investment projects, particularly in the area of infrastructure. In 2006, RUB prospects for future development remain strong. companies Fewer than 51 51-100 101-250* Over 250** 69.7bn was earmarked for the IF, a figure that rose to RUB 72.9bn in 2007 and RUB 73.2bn in 2006 2008. In 2009, as has been mentioned already, budget allocations for the IF are to be cut to RUB 64bn ($2bn). The IF is intended to become the primary source of funding for PPP projects Q1 61 50 60 64 70 Q2 60 49 61 64 68 and to act as a catalyst in attracting private investment. To date, the fund appears to have Employment and wages Q3 65 54 65 66 73 Q4 66 56 65 67 72 2007 performed its task successfully – for every one rouble provided by the federal budget, just In 2008 the number of people employed in the construction industry increased by over two (2.2) roubles worth of private investment are attracted. Q1 65 55 62 65 71 Q2 66 57 65 67 72 6.5% to approximately 5.6 million. The economic downturn, however, resulted in H1 2009 Q3 68 58 68 70 74 Investments from the IF may take the form of: direct financing of up to 75% of total capital project costs as equity investment or Q4 69 59 67 70 75 employment levels falling by 4.8% in comparison with the same period of the previous year. 2008  The number of foreign workers employed on Russian construction sites decreased by almost through the financing of certain assets in exchange for the ownership title to the assets Q1 66 57 64 66 71 Q2 68 58 65 68 74 9% in H1 2009, to 730,700. As a comparison, in the first half of 2008, the number of foreign In 00 the number Q3 69 60 67 70 75  guarantee for 60% of the borrowings for the purposes of the project. Q4 67 59 66 68 72 workers employed in the Russian construction industry rose by 80% in year-on-year terms. of people employed 2009 The project approval procedure involves three stages: investment commission, Employment levels are expected to decrease further before the end of 2009 as companies Q1 58 50 56 58 63 in the construction Q2 57 49 54 57 62 governmental commission, and finally approval, which takes place during a meeting of the still plan to lay off more workers than they intend to hire. The numbers of construction workers * Before 2008: 101-200 workers Russian government. forced to drop from full to part time, or even accept unpaid leave, is also on the rise. industry increased ** Before 2008: over 200 workers Source: Rosstat, 2009 www.pmrpublications.com Financing can only be provided for projects worth over RUB 5bn ($156m) over five- In the second quarter of 2010, the situation is expected to improve. Russian authorities to . million. year period. Two types of evaluation are used for project examination: qualitative (first of all, recently announced that 75,000 construction jobs will be created in 2010 and 2011 as the generation of social benefits) and quantitative, which include: country ramps up its preparations for the winter Olympics in 2014. At present, 11,000 workers Traditional obstacles, such as high costs of building materials and structures, have  macroeconomic productivity – the implementation of the project should contribute to are employed on Olympics-related construction projects in Sochi, of which 300 are foreigners. ceased to pose such serious problems for constructors8. Instead, insolvency of clients has been an increase in GDP on a national or regional level Construction projects related to the APEC-2012 Summit will also create new demand for the major problem for Russian constructors this year.  budgetary effectiveness – the project should generate tax revenues for local and federal labour. There are currently over 5,000 construction workers employed in these projects, budgets almost 3,500 of which are working on the construction of two bridges: the 70-metre-high  financial effectiveness – i.e. the project should have a negative stand-alone net present suspension bridge that traverses the Bosfor Vostochny Strait, which divides Vladivostok and Main barriers to doing business in the Russian construction sector value (NPV) justifying state support for implementation. It should generate economic (% of all construction enterprises), Q4/2008-Q3/2009 Russky Island; and the bridge across the Golden Horn Bay. In 2010 and 2011, the expected profit if support is provided (creating a positive NPV). Project profitability should be at CSR028 peak construction period for these projects, at least 12,000 people will work on Russky Island least 4%, but no higher than 11%. 46 44 44 alone. 43 41 40 31 32 In 2008, five road construction and five railway construction projects received support 27 from the IF. This support amounted to RUB 18.5bn ($578m) in total. Number of employed in construction industry in Russia (’000), 2005-2008 So far, 21 investment projects of national importance have been approved by the government for state support from the IF. Support for these 21 projects amounts to RUB 400bn CSR019 ($12.5bn). 5,610 5,073 5,268 4,916 In addition, between September 2008 and mid-2009 the ministry of regional Q4/2008 Q1/2009 Q3/2009 development received 53 project proposals from over 30 regions requesting funding from the IF. The value of claims associated with these projects amounted to a combined total of RUB 51bn (of which private investors would contribute RUB 247bn while an additional Insolvency of clients High taxes Expensive building materials RUB 20bn would come from regional budgets). Nineteen of these projects have already been approved by the government commission for project review. The total combined value Source: Rosstat, 2009 www.pmrpublications.com of these projects is RUB 103.6bn ($3.2bn), of which RUB 13bn is to be provided by the 2005 2006 2007 2008 Source: Rosstat, 2009 www.pmrpublications.com investment fund. 8 The same percentage of respondents now cite expensive materials as the main obstacle as was the case back in Q1 2006. Interestingly, at the beginning of 2006 just over half( 52%) of respondents cited high taxes as one of the main obstacles, which is 12 p.p. more than in Q3 2009. www.pmrpublications.com www.pmrpublications.com www.pmrpublications.com 1 See the table of contents See the list of graphs and tables 6 Contact us for more information See other reports See how to order
  7. 7. www.constructionrussia.com PMR MarketInsight Methodology: This report was prepared using PMR MarketInsight methodology developed by PMR which assists in the complex preparation of industry reports. It defines the ways in which data should be collected for such reports and outlines the quick links methods to be used in analysing the information collected in order to obtain a true picture of the market in question. It also contains special procedures to follow in the case of incomplete market. PMR MarketInsight precisely defines report content and structure. Industry reports prepared using PMR MarketInsight are based on information from a variety of available statistical, industry, general and official sources as well as information from PMR’s own database and primary research independently carried out by PMR. The sources we use are individually tailored to each project. Selected PMR clients: See the table of contents See the list of graphs and tables Contact us for more information See other reports See how to order 7
  8. 8. 101109 About PMR: PMR www.pmrcorporate.com a British-American company providing market information, advice and services to international businesses interested in Central and Eastern European countries as well as other emerging markets. PMR key areas of operation include business publications (through PMR Publications), consultancy (through PMR Consulting) and market research (through PMR Research). PMR Publications www.pmrpublications.com provides reliable market intelligence for business professionals interested in Central and Eastern European countries as well as other emerging markets. Publications by PMR analyse the business climate in the region, in particular in the construction, retail, IT, telecommunications and pharmaceutical sectors. The offer includes both free and paid reports, newsletters, online news services. PMR Research www.research-pmr.com offers a full array of qualitative and quantitative research methodologies, providing services such as customer satisfaction studies, brand awareness and brand image research, distribution and competition studies, segmentation analyses, fieldwork, online surveys and customised analyses of selected branches of the economy. PMR Consulting www.pmrconsulting.com provides a wide range of services, including market entry feasibility studies, sourcing, CI (competitive intelligence), strategic advisory, FDI assistance (MA and greenfield projects), quick consulting as well as any other services and support a company might require to enter a market, find a business partner or gain reliable information. PMR Ltd. Sp. z o.o., ul. Supniewskiego 9, 31-527 Krakow, Poland Questions about ordering? Contact our sales department: tel. /48/ 12 618 90 30 fax /48/ 12 618 90 08 e-mail: moreinfo@pmrcorporate.com www.pmrpublications.com See other reports See how to order
  9. 9. Construction sector in Russia 2009 – Development forecasts for 2009-2012 Despite the doom and gloom brought about by the economic crisis, in the medium and long term, there is little doubt that the opportunities on the construction market in Russia are both lucrative and numerous. A mere fraction of domestic demand for housing and infrastructure development has been satisfied during the recent construction boom and so prospects for future development remain strong. Employment and wages In 2008 the number of people employed in the construction industry increased by 6.5% to approximately 5.6 million. The economic downturn, however, resulted in H1 2009 employment levels falling by 4.8% in comparison with the same period of the previous year. The number of foreign workers employed on Russian construction sites decreased by almost 9% in H1 2009, to 730,700. As a comparison, in the first half of 2008, the number of foreign In 00 the number workers employed in the Russian construction industry rose by 80% in year-on-year terms. of people employed Employment levels are expected to decrease further before the end of 2009 as companies in the construction still plan to lay off more workers than they intend to hire. The numbers of construction workers forced to drop from full to part time, or even accept unpaid leave, is also on the rise. industry increased In the second quarter of 2010, the situation is expected to improve. Russian authorities to . million. recently announced that 75,000 construction jobs will be created in 2010 and 2011 as the country ramps up its preparations for the winter Olympics in 2014. At present, 11,000 workers are employed on Olympics-related construction projects in Sochi, of which 300 are foreigners. Construction projects related to the APEC-2012 Summit will also create new demand for labour. There are currently over 5,000 construction workers employed in these projects, almost 3,500 of which are working on the construction of two bridges: the 70-metre-high suspension bridge that traverses the Bosfor Vostochny Strait, which divides Vladivostok and Russky Island; and the bridge across the Golden Horn Bay. In 2010 and 2011, the expected peak construction period for these projects, at least 12,000 people will work on Russky Island alone. Number of employed in construction industry in Russia (’000), 2005-2008 CSR019 5,610 5,073 5,268 4,916 2005 2006 2007 2008 Source: Rosstat, 2009 www.pmrpublications.com www.pmrpublications.com
  10. 10. Construction sector in Russia 2009 – Development forecasts for 2009-2012 Capacity utilisation rate of construction companies in Russia (%), by company size, 2006-2009 CSR027 All construction including companies employing: companies Fewer than 51 51-100 101-250* Over 250** 2006 Q1 61 50 60 64 70 Q2 60 49 61 64 68 Q3 65 54 65 66 73 Q4 66 56 65 67 72 2007 Q1 65 55 62 65 71 Q2 66 57 65 67 72 Q3 68 58 68 70 74 Q4 69 59 67 70 75 2008 Q1 66 57 64 66 71 Q2 68 58 65 68 74 Q3 69 60 67 70 75 Q4 67 59 66 68 72 2009 Q1 58 50 56 58 63 Q2 57 49 54 57 62 * Before 2008: 101-200 workers ** Before 2008: over 200 workers Source: Rosstat, 2009 www.pmrpublications.com Traditional obstacles, such as high costs of building materials and structures, have ceased to pose such serious problems for constructors8. Instead, insolvency of clients has been the major problem for Russian constructors this year. Main barriers to doing business in the Russian construction sector (% of all construction enterprises), Q4/2008-Q3/2009 CSR028 46 44 44 43 41 40 31 32 27 Q4/2008 Q1/2009 Q3/2009 Insolvency of clients High taxes Expensive building materials Source: Rosstat, 2009 www.pmrpublications.com 8 The same percentage of respondents now cite expensive materials as the main obstacle as was the case back in Q1 2006. Interestingly, at the beginning of 2006 just over half( 52%) of respondents cited high taxes as one of the main obstacles, which is 12 p.p. more than in Q3 2009. www.pmrpublications.com
  11. 11. Construction sector in Russia 2009 – Development forecasts for 2009-2012 Investment Fund PPP Russia’s Investment Fund (IF) was created at the end of 2005 with the aim of bolstering the realisation of investment projects, particularly in the area of infrastructure. In 2006, RUB 69.7bn was earmarked for the IF, a figure that rose to RUB 72.9bn in 2007 and RUB 73.2bn in 2008. In 2009, as has been mentioned already, budget allocations for the IF are to be cut to RUB 64bn ($2bn). The IF is intended to become the primary source of funding for PPP projects and to act as a catalyst in attracting private investment. To date, the fund appears to have performed its task successfully – for every one rouble provided by the federal budget, just over two (2.2) roubles worth of private investment are attracted. Investments from the IF may take the form of:  direct financing of up to 75% of total capital project costs as equity investment or through the financing of certain assets in exchange for the ownership title to the assets  guarantee for 60% of the borrowings for the purposes of the project. The project approval procedure involves three stages: investment commission, governmental commission, and finally approval, which takes place during a meeting of the Russian government. Financing can only be provided for projects worth over RUB 5bn ($156m) over five- year period. Two types of evaluation are used for project examination: qualitative (first of all, generation of social benefits) and quantitative, which include:  macroeconomic productivity – the implementation of the project should contribute to an increase in GDP on a national or regional level  budgetary effectiveness – the project should generate tax revenues for local and federal budgets  financial effectiveness – i.e. the project should have a negative stand-alone net present value (NPV) justifying state support for implementation. It should generate economic profit if support is provided (creating a positive NPV). Project profitability should be at least 4%, but no higher than 11%. In 2008, five road construction and five railway construction projects received support from the IF. This support amounted to RUB 18.5bn ($578m) in total. So far, 21 investment projects of national importance have been approved by the government for state support from the IF. Support for these 21 projects amounts to RUB 400bn ($12.5bn). In addition, between September 2008 and mid-2009 the ministry of regional development received 53 project proposals from over 30 regions requesting funding from the IF. The value of claims associated with these projects amounted to a combined total of RUB 51bn (of which private investors would contribute RUB 247bn while an additional RUB 20bn would come from regional budgets). Nineteen of these projects have already been approved by the government commission for project review. The total combined value of these projects is RUB 103.6bn ($3.2bn), of which RUB 13bn is to be provided by the investment fund. www.pmrpublications.com 1
  12. 12. SUBSCRIPTION CARD TO ORDER RETURN THE FORM TO US VIA FAX ON: /48/ 12 618 90 08 Please send me the report: Construction sector in Russia 2009 Development forecasts for 2009-2012 Publication date: October 2009 Language versions: English Please note that chosen PMR Construction sector reports, as part of a promotion, have one price for PDF version plus an extra price for additional CD version, which is valid until December 31st 2009. 1 Report PDF* PDF + CD* YOUR LICENCE English €1500 €1750 * With this price the client is purchasing a license authorising the unrestricted copying, distribution and dissemination of the electronic PDF publication (in part or in whole) via a computer network solely within the organisation indicated on the order form, regardless of country location. By choosing the additional CD, delivered by courier, the client is purchasing the PDF version of the Report plus CD with extra files with all the graphs and tables in a copyable format easy to use in your own analyses and presentations. If your contact details are different to the invoicing details, please fax them to us together with the completed order form. Mr Mrs Ms 2 INVOICING DETAILS Last Name First Name Job title Company Country Invoicing address E-mail Tel./Fax Core business EU VAT Number Polish clients will be invoiced in PLN (based on the NBP exchange quoted on the day preceding the invoice date) and need to add 22% VAT. 3 Foreign clients will be invoiced in EURO. MONEY TRANSFER TO: CREDIT CARD: PAYMENT FORM PMR Ltd. Sp. z o.o. Diners Club Visa Eurocard / Mastercard American Express For Polish clients: Account to be charged and currency (Credit card charges will be made in PLN at current exchange rates) Raiffeisen Bank Polska S.A. ul. Armii Krajowej 18, 30-150 Krakow Name of card owner Account number: 36 1750 1048 0000 0000 0758 5225 Credit Card No For foreign clients: Raiffeisen Bank S.A. Valid until ul. Armii Krajowej 18, 30-150 Krakow Account number: PL 92 1750 1048 0000 0000 0758 5284 Billingaddress SWIFT CODE: RCBWPLPW of card Correspondence address 4 E-mail / Tel. to accounting I undertake to contact PMR within seven days should I not receive any of the copies. In sending this form I authorise PMR to invoice me without my signature and to use the company details on the form for processing my subscription (Ustawa o ochronie danych osobowych Dz. U. nr 133/97, poz. 883) Signature: only signed forms can be processed Thank you! We will contact you soon to confirm your order. PMR Ltd. Sp. z o. o., tel. /48/ 12 618 90 00, fax /48/ 12 618 90 08, e-mail: moreinfo@pmrcorporate.com, ul. Supniewskiego 9, 31-527 Krakow, Polska NIP number: 676-20-95-189, destination of region court: Sad Rejonowy dla Krakowa-Srodmiescia w Krakowie XI Wydzial Gospodarczy Krajowego Rejestru Sadowego, KRS number: 0000057694, the amount of company’s nominal capital: one hundred and thirty thousand PLN 281107
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