Russia 2020: WhatRussia will Look
Like in the Future<br />The World’s Largest Country: How Multinational Companies are Seizing its Opportunities<br />France Houdard<br />Managing Director<br />france.houdard@exolus.com<br />March 2011<br />

Preface: What Does World’s Largest
Country Look Like from Space? <br />Why?<br />Source: NASA (United States – National Aeronautics and Space Administration)<br />

INTRODUCTION: Russia Structural Framework and
Forward Trends . . .<br />

Framework: Structural Determinants of Russia’s
Economic Geography … <br />80% Population in West … East Largely Uninhabitable<br />Russia Map<br />People<br />Permafrost & Plains<br /> Mountains<br />17,075,400 km2 … 1/8th World’s Land Area … 10 time Zones <br />

Economy: Growth in Russia’s Economy<br
/>Economy Doubled in 7 Years (‘01 – ‘08) … IMF Forecasts Rapid Growth to 2015<br />Will host Olympic games<br />Russia GDP (USD trillion, PPP-adjusted))<br />IMF Forecast<br />Global Financial Crisis<br />USD trillion<br />2x<br />Actual<br />Source: IMF<br />

Wealth: Russia to have Highest
GDP per Capita among BRIC Countries<br />Russia GDP per Capita: USD 6,200 (2009) … USD10,000 (2020)<br />2020<br />Russia GDP per Capita <br />2009<br />Source: ERSUSDA <br />

Income: Russia leads BRIC’s in
Per Capita Disposable Income<br />Per Capita Disposable Income Growing at Average 6% Per Annum<br />Disposable Income Per Capita (USD per annum)<br />Russia<br />Brazil<br />China<br />India<br />Source: GS Global ECS Research <br />

Resources: World’s Leading Energy Superpower
– Oil and Gas<br />World’s Largest (#1) Oil Producer … World’s Largest (#1) Gas Producer<br />World Oil Producers (12.9% share, 2009)<br />OIL<br />World’s …<br /><ul><li>Largest (#1) oil producer

2nd largest oil exporter

8th largest oil reserves</li></ul>World Gas
Reserves (23.7% share, 2009)<br />GAS<br />World’s …<br /><ul><li>Largest (#1) gas producer

Leading (#1) natural gas exporter

Largest (#1) natural gas reserves</li></ul>Source:
BP Statistical Review of World Energy 2010<br />

Resources: World’s Leading Energy Superpower
– Mineral Fuels<br />World’s 2nd Largest Coal Reserves … 3rd Largest Uranium Reserves<br />World Coal Reserves (19% share, 2009)<br />COAL<br />World’s …<br /><ul><li>5th coal producer

3rd coal exporter

2nd largest coal reserves</li></ul>World Uranium
Reserves (10% share, 2008)<br />URANIUM<br />World’s …<br /><ul><li>4th uranium producer

3rd largest uranium reserves</li></ul>Source: BP
Statistical Review of World Energy 2010, British Geological Survey<br />

Resources: World’s Leading Mineral Industry
– Iron and Steel<br />World’s Largest (#1) Iron Reserves … 4th Largest Steel Producer<br />World Iron Reserves (18% share, 2009)<br />IRON<br />World’s …<br /><ul><li>3rd pig iron producer

Largest (#1) iron reserves</li></ul>World Raw
Steel Production (5.5% share, 2009)<br />RAW STEEL<br />World’s …<br /><ul><li>4th raw steel producer

4th raw steel exporter</li></ul>Source: U.S.
Geological Survey<br />

Resources: World’s Leading Mineral Industry
– Nickel, Copper<br />World’s Largest (#1) Nickel Producer … 7th Copper Producers<br />World Nickel Production (19% share, 2009)<br />NICKEL<br />World’s …<br /><ul><li>Largest (#1) nickel producer

Largest (#1) nickel exporter

3rd nickel reserves</li></ul>World Copper Production
(4% share, 2009)<br />COPPER<br />World’s …<br /><ul><li>7th copper producer

5th copper exporter

9th largest copper reserves</li></ul>Source: U.S.
Geological Survey<br />

The Future: 1 of 5
Countries with Highest Combined - GDP, Population, Resources<br />> USD3 trillion GDP … 100+ million people … > 3 million sq km<br />Over 100 million People<br />Over 3 million sq km<br />Indonesia<br />Philippines<br />Canada<br />Bangladesh<br />Pakistan<br />Australia<br />Russia<br />Brazil<br />US<br />India<br />China<br />Nigeria<br />Ethiopia<br />Mexico<br />Japan<br />Germany<br />France<br />Italy<br />Over<br />US$3 trillion GDP (PPP)<br />United Kingdom<br />

Corporate Trends: Structural Optimization –
Markets, Resources, Innovation<br />

Corporate Burning Platforms: Markets, Resources,
Innovation<br />Market Access/Revenue Growth … Global Structural’ Cost Reduction<br />Markets<br />Knowledge<br />REVENUE<br />R&D<br />Sales<br />INNOVATION<br />Engineering<br />IT HR<br />Service<br />Efficiency<br />Efficiency/ Shared Services<br />F&A Procure<br />Distribution<br />Sourcing<br />Innovation/ Knowledge<br />Production /Assembly<br />Resources/ Cost Reduction<br />COST<br />Markets / Revenues<br />Resources<br />DRIVING Shareholder Value<br />

1. Production/Resources: Where are Leading
Direct Investment Nodes?<br />Top Foreign Investment Destinations in Western Part of Russia<br />Foreign Investment Concentration<br />A-Cities – Highest Population and FDI<br />S-Cities – Mid-High Population and FDI<br />St. Petersburg<br />Moscow<br />Nizhny Novgorod<br />Kazan<br />Tolyatti<br />Yekaterinburg<br />Rostov<br />Ufa<br />Krasnodar<br />Chelyabinsk<br />Omsk <br />Novosibirsk <br />Source: Rosstat<br />

1. Production/Resources: Car Production Proxy
for Production Nodes? <br />Russia Already 5th Largest Consumer of Cars in Europe<br />Russia Automotive Production<br />A-Cities<br />S-Cities<br />Isuzu<br />Chevrolet<br /> GAZ<br />Hyundai<br />Nissan<br />Ford<br />GM<br />Toyota<br />Volvo<br /> FIAT<br /> Sollers<br /> Great Wall<br /> ZMA<br /> KIA<br /> Lada<br />St. Petersburg<br />KIA<br />BMW<br />Nizhny Novgorod<br />Moscow<br />Renault<br />ZIL<br />Kazan<br />Yekaterinburg<br />Tolyatti<br />Tata Motors<br /> Geely<br />Ufa<br />Chelyabinsk<br />Rostov<br />VW<br /> Skoda<br />Peugeot<br />Citroen<br />Mitsubishi<br />Krasnodar<br />IVECO<br />Paz<br /> Hyundai<br /> Tata Motors<br />GM – AVTOVAZ<br /> LADA<br />Sources: All Publically Available Information, Company Websites<br />

1. Production/Resources: Moscow Region Immense,
as Large as Countries<br />Moscow Region (45,900 km sq) larger than entire Switzerland (41,285 km sq)<br />Moscow Region<br />(45,900 km sq)<br />Switzerland (Country)<br />(41,285 km sq)<br />Moscow City<br />Moscow Region<br />Sources: Publically Available Information<br />

1. Production/Resources: Management Sourced in
Moscow City, Labor Local<br />Management-Labor Skill/Cost Drivers  70 – 100 km from Moscow City<br />Moscow Region<br />(45,900 km sq)<br />Sergievo-<br />Posadskiy<br />Dmitrovskiy<br />Klinskiy<br />Solnechnoaorskiy<br />Mitishchinskiy<br />Balashikhinskiy<br />Istrinskiy<br />Moscow <br />City<br />Ryzskiy<br />Odintsovskiy<br />Orekhovo-<br />Zuevskiy<br />Lenininskiy<br />Ramenskiy<br />Naro-Fominskiy<br />Eqor’evskiy<br />Chekhovskiy<br />Kolomenskiy<br />Stupinskiy<br />Serpukhovskiy<br />Sources: Company Websites, All Publically Available Information<br />

1. Production/Resources: Leningrad Region even
Larger, Size of Hungary<br />Leningrad Region (84,500 km sq) roughly same size as Hungary (93,030 km)<br />Leningrad Region<br />(84,500 km sq)<br />Hungary (Country)<br />(93,030 km sq)<br />St Petersburg City<br />Leningrad Region<br />Sources: Publically Available Information<br />

1. Production/Resources: Management from St.
Petersburg, Labor Local<br />Management-Labor Skill/Cost Drivers  30 – 60 km from St Petersburg City<br />Leningrad Region<br />(84,500 km sq)<br />Vsevolzhsky<br />Viyborgskiy<br />Primorskiy<br />Koldinskiy<br />Krasnosel’skaya<br />Lomonosov<br />Kirovski<br />Pushkinsky<br />Gatchina<br />Tosnenski<br />Sources: All Publically Available Information, Company Websites<br />

2. Cost/Revenue: Where are Pareto-Optimal
Market/Resource Envelopes?<br />Intersection of People (West) … A/S Cities … Natural Resources (East)<br />Per Capita GDP<br />(USD, PPP-Adjusted)<br />Per Capita GDP / A/S-City Overlay<br />Chukotka<br />Arkhangelsk<br />Murmansk<br />Kamchatka<br />A-Cities<br />S-Cities<br />Magadan<br />Karelia<br />7<br />Arkhangelsk<br />Leningrad<br />23<br />Sakha<br />21<br />Vologda<br />Tver<br />Komi<br />Krasnoyarsk<br />24<br />20<br />Yamalia<br />8<br />15<br />10<br />3<br />6<br />4<br />19<br />39<br />16<br />Kirov<br />17<br />Sakhalin<br />12<br />14<br />42<br />Perm<br />Khantia-Mansia<br />40<br />41<br />34<br />18<br />2<br />5<br />37<br />38<br />36<br />Sverdlovsk<br />35<br />Rostov<br />Saratov<br />33<br />Khabarovsk<br />Amur<br />Tyumen<br />Tomsk<br />22<br />Volgograd<br />31<br />11<br />Omsk<br />Buryatia <br />Irkutsk<br />Orenburg<br />46<br />25<br />Novosibirsk<br />43<br />32<br />1<br />Zabaykalsk<br />27<br />9<br />Primorsky<br />28<br />45<br />29<br />Altai<br />44<br />26<br />Tuva<br />Altai<br />30<br />Source: UNDP, “National Human Development Report in the Russian Federation 2010” <br />

2. Market: Car Sales/Production Proxy
for Directional Market Sizing?<br />Car Penetration Highest in Russia among the 4 BRIC Countries<br />Russia<br />Brazil<br />Car Penetration in BRIC (units per 1,000 people)<br />Car Penetration in Russia (units per 1,000 people)<br />China<br />India<br />Sources: Association of European Business; Autostat; Rosstat, GS Global ECS Research, Other<br />

Russia to be USD30 billion
Market (2015) … 9th Largest in World<br />2. Market: Projected to be World’s 10th Largest Pharma Market by 2015<br />Pharmaceutical Market Size Country Ranking (2000 – 2015f - USD billion)<br />Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus<br />

2. Market: High Spending Growth
Resumes through Global Financial Crisis<br />Sales Growing at 21% CAGR<br />Retail Sales Growth<br />USD Million<br />Source: EIU<br />

3. Innovation: Modern Focus on
Traditional Strength – Science & Technology<br />Skolkovo Innovation Center … USD2 billion over Next 3 Years<br /> Industry Focus<br /> Life Sciences<br /> Renewable Energies<br />Aerospace <br /> Information Technology<br />Telecommunications<br /> Nuclear Technology<br />Under Negotiations<br />Signed Partnerships<br />Cisco<br />Boeing<br />Siemens<br />Microsoft<br />Nokia<br />Intel<br />Tata<br />Nokia Siemens<br />EADS<br />Alstom<br />Lukoil <br />Rosatom<br />ABBYY<br />Novartis<br />Honeywell <br />DuPont<br />Google<br />Kodak<br />Schlumberger<br />Johnson & Johnson <br />IM-TECH <br />DOW Chemicals<br />John Deere<br />Sources: All Publically Available Information, Company Websites, i-gorod Website<br />

3. Innovation: Strong Science and
Engineering Focus in Russian Education<br />Science & Engineering as % of all Graduates: 25% in Russia … 15% in US <br />Engineering Degrees<br />Science and Engineering as Percentage of New Degrees<br />Science Degrees<br />Sources: OECD Science, Technology and Industry outlook, 2010 <br />

Russia Economic Outlook<br />

Senior Executives Select Russia as
a Top Global Investment Destination<br />Russia Top 5 Investment Destination in World<br />Top 14 Most Attractive Destinations for Future Investment (2009 – 2011)<br />% <br />Percent of Responses<br />Source: World Investment Prospects 2009 - 2011<br />

Russia Economic Outlook: Large Forex
Reserves, Positive Fundamentals<br />World’s 3rd Largest Forex Reserves … Low External Debt … Growing Banking System<br /><ul><li>Russia Holds The World’s 3rd Largest Foreign Exchange Reserves: USD 485 billion

In 2011 the Central Bank
has accumulated over USD 458 billion in foreign reserves, up from USD 12 billion in 1999.

The accumulation of large external
surpluses means financial system enjoys abundant liquidity.

Low External Debt/GDP Ratio and
Positive Current Account Balance

Healthy external debt to GDP
ratio at 21% of GDP in 2010.

Current account surplus at 5.1%
of GDP in 2010; projected at 4.7% in 2011 and 4.2% in 2012.

Federal budget deficit at 3.9
% GDP in 2010; projected to decrease to 2% of GDP in 2011.

Russia’s Banking System under Rapid
Expansion

Total assets projected to double
between 2010 and 2015, from EUR 400 billion (2010) to EUR 800+ billion (2015).

Between 2010 to 2015, total
lending to grow at 14.2 % CAGR; corporate loans at 14.3%; retail loans at 14.7% and mortgages at 15.5%.</li></ul>Source: IMF; World Bank; Sberbank; UniCredit<br />

For a Comparative Perspective with
the other BRIC Countries Please Refer to the Following Research Reports<br />Found on Slideshare @<br />http://www.slideshare.net/contest/worlds-best-presentation-contest-2010/entries<br />http://www.slideshare.net/Exolus/india-2020-what-india-will-look-like-in-the-future<br />http://www.slideshare.net/Exolus/brazil-2020-what-will-brazil-look-like-in-the-future<br />Download Reports @<br />www.exolus.com/en/knowledge/research.html<br />Brazil 2020<br />India 2020<br />China 2020<br />

Global Expansion Strategy & Cross-Border
Investment Execution (Greenfield, M&A, Joint Ventures, Outsourcing)<br />About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work with management teams in the development of their global expansion strategies, across the range of investment formats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies by providing program management across all phases of cross-border investment projects, from candidate searches and evaluation, through investment structuring and negotiations. <br />The founders of Exolushave spent the past two decades in the global service space and have direct experience operating in nearly all of the major investment destinations in the world (40+ countries). The team has served clients of all sizes, both public and private, on projects that ranged in investment size from USD10 million to greater than USD1 billion. We have served clients across all of the following industry segments: Life Sciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector.<br />Follow Exolus at: www.exolus.com<br />Need Further Information: info@exolus.com<br />Want Copies of our Reports: www.exolus.com/en/knowledge/research.html<br />

Disclaimer<br />In writing we benefit
from standing on the shoulders of others and, in the process, we strive to make our own contributions to the market of ideas. As well, we are always tremendously grateful for the many, often selfless, contributions that are availed in the process.<br />The opinions represented herein were prepared for information purposes only, at the time of publication. The information represented herein is believed to be reliable, at the time of publication, and was obtained by various public sources also believed to be reliable. The opinions were considered to be accurate at the point of creation, and further, any views, forecasts, or estimates contained herein may be subject to change at anytime without notice. The opinions expressed or implied herein may not be the opinions of the author, also Exolus, or any associated affiliates.<br />This report and the information contained herein collectively, is not offered as, and should not be regarded as, used or relied upon as advice on any matter. It shall not constitute or be construed as a recommendation or solicitation on behalf of the author, and no legal commitment or obligation shall arise by reason of this document. Thus, the reader shall make an independent assessment of opinion’s stated herein that shall not be considered a substitute for obtaining advise from the readers’ advisors. <br />The author shall not accept responsibility, express or implied, with regards to the accuracy and completeness of the information herein, and the author shall not be liable whatsoever and howsoever arising in connection to this publication. The author shall not accept, and hereby disclaim, all responsibility and liability to all persons, entities, or organizations for all consequences arising out of any use or reliance on the whole or any part of this publication.<br />This publication should not be reproduced or distributed without the author’s consent and is not intended for distribution in any jurisdiction in which this would be prohibited.<br />

Copyright © 2011 Exolus. All
rights reserved.<br />