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Reaching Russia Through E-commerce (RRTEC) 2017 - Part 1

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Reaching Russia Through E-Commerce is back and better than ever! This time we've expanded the content and have divided it into 3 parts. Part 1 covers the current economic environment of Russia and the Eurasian Economic Union.

Part 2 will provide an overview of the Russian and EEU e-commerce markets (covering both domestic sales and cross-border sales)

Part 3 will highlight some of the most promising sub-sectors for e-commerce in Russia.

Published in: Economy & Finance
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Reaching Russia Through E-commerce (RRTEC) 2017 - Part 1

  1. 1. Reaching Russia Through E-Commerce RRTEC 2017 interstice www.intersticeconsulting.com
  2. 2. Part I. Economic backdrop interstice www.intersticeconsulting.comRRTEC 2017
  3. 3. Russian real GDP growth is resuming interstice Source: World Bank www.intersticeconsulting.comRRTEC 2017
  4. 4. G20 economies - GDP interstice Source: OECD www.intersticeconsulting.comRRTEC 2017
  5. 5. G20 economies - per capita interstice Source: OECD www.intersticeconsulting.comRRTEC 2017
  6. 6. interstice www.intersticeconsulting.com Government debt RRTEC 2017
  7. 7. interstice www.intersticeconsulting.com Sovereign spread to UST RRTEC 2017
  8. 8. interstice www.intersticeconsulting.com Total external debt RRTEC 2017
  9. 9. interstice Household Debt : GDP www.intersticeconsulting.com Source: BIS RRTEC 2017
  10. 10. interstice Stock market capitalization : GNI www.intersticeconsulting.com Source: Siblis Research RRTEC 2017 Market cap : GNI
 (12/31/2016) Market cap: GNI
 (12/31/2011) 5-year 
 change South Africa 308.4% 216.1% 92.3% USA 144.4% 99.0% 45.4% India 133.7% 120.9% 12.8% Canada 132.1% 112.1% 20.0% Malaysia 130.9% 140.9% -10.0% United Kingdom 118.1% 113.9% 4.2% Japan 112.6% 52.7% 59.9% Australia 105.1% 86.4% 18.7% Euronext 92.8% 56.8% 36.0% Korea 91.7% 85.6% 6.1% China 88.7% 61.4% 27.3% Philippines 66.2% 62.3% 3.9% Germany 52.7% 32.9% 19.8% Russia 49.3% 47.2% 2.1% Indonesia 48.0% 46.6% 1.4% Brazil 41.8% 53.3% -11.5% Mexico 39.5% 40.0% -0.5% Italy 32.1% 20.4% 11.7%
  11. 11. interstice www.intersticeconsulting.com Budget forecast RRTEC 2017 Source: World Bank
  12. 12. interstice www.intersticeconsulting.com Revenue vs. spending RRTEC 2017 Source: NATO (Source: IMF World Economic Outlook Database, October 2016; Russian Ministry of Finance; Russian Federal Treasury; author calculations. Data series deflated using the IMF’s GDP deflator.)
  13. 13. interstice www.intersticeconsulting.com Defence spending vs. NATO RRTEC 2017 Spending (USD millions) % of GDP Military personnel (thousands) NATO total $945,962 2.43 3,174 USA $683,414 3.58 1,308 UK $54,863 2.14 161 France $44,333 1.79 209 Germany $42,875 1.22 179 Italy $22,558 1.13 181 Canada $20,315 1.31 73 Turkey $12,315 1.52 387 Spain $11,655 0.92 121 Poland $9,997 2.01 111 Netherlands $9,426 1.17 41 Norway $6,309 1.59 20 Greece $4,572 2.32 107 Belgium $4,303 0.91 28 Denmark $3,667 1.17 17 Estonia $519 2.14 5.7 RUSSIA $77,270 5.4 1,490 Source: NATO 2017(e), Russia: World Bank (SIPRI) 2016
  14. 14. interstice www.intersticeconsulting.com UNDP Human Development RRTEC 2017 Source: UNDP 2017 VVHD ≧ 0.80 HHD = 0.70-0.79 MD = 0.55-0.69 LHD < 0.55
  15. 15. UNDP HDI — comparables HDI Score Rank Life expectancy GNI per 
 capita Norway 0.949 1 81.7 $67,614 Australia 0.932 2 82.5 $42,822 Switzerland 0.932 2 83.1 $56,364 Germany 0.926 4 81.1 $45,000 Denmark 0.925 5 80.4 $44,519 USA 0.920 10 79.2 $53,245 UK 0.909 16 80.8 $37,931 Poland 0.855 36 77.6 $24,117 Saudi Arabia 0.847 38 74.4 $51,320 Hungary 0.836 43 75.3 $23,394 Argentina 0.827 45 76.5 $20,945 Russia 0.804 49 70.3 $23,286 Romania 0.802 50 74.8 $19,428 Kazakhstan 0.794 56 69.6 $22,093 Bulgaria 0.794 56 74.3 $16,261 Malaysia 0.789 59 74.9 $24,620 Mexico 0.762 77 77.0 $16,383 Brazil 0.754 79 74.7 $14,145 China 0.738 90 76.0 $13,345 interstice www.intersticeconsulting.comRRTEC 2017 Source: UNDP 2015
  16. 16. interstice But… macro measures in Russia (and even Moscow) are misleading www.intersticeconsulting.comRRTEC 2017
  17. 17. Income and wealth disparities • Approximately 23 million Russians – about 16% of the population – now officially subsist below the poverty line. • Increasing signs that the huge concentration of wealth in the hands of a tiny percentage of the population is starting to annoy more Russians – especially as many of the richest people are government officials, or those close to them. • A recent report found that 41% of Russians say they struggle to get enough money together for food and clothing. interstice Source: Guardian (UK) www.intersticeconsulting.comRRTEC 2017
  18. 18. Income distribution and poverty rates (OECD) interstice www.intersticeconsulting.com Source: OECD RRTEC 2017
  19. 19. interstice www.intersticeconsulting.com Paucity of the middle class Source: Credit Suisse (2016)RRTEC 2017
  20. 20. Mean vs median wealth interstice www.intersticeconsulting.com Mean 
 Wealth Median Wealth Mean / 
 Median USA $344,692 $44,977 7.7 UK $288,808 $107,865 2.7 Singapore $276,885 $101,386 2.7 France $244,365 $99,923 2.4 Japan $230,946 $120,493 1.9 Sweden $227,295 $39,692 5.7 Germany $185,175 $42,833 4.3 UAE $151,098 $62,332 2.4 Hungary $33,893 $19,345 1.8 Poland $24,584 $9,484 2.6 Malaysia $24,429 $6,457 3.8 Mexico $21,125 $6,066 3.5 Turkey $19,685 $4,339 4.5 Brazil $18,059 $3,811 4.7 Indonesia $10,772 $1,966 5.5 Russia $10,344 $991 10.4 Philippines $9,878 $2,055 4.8 India $3,835 $608 6.3 Data source: Credit Suisse (2016) RRTEC 2017
  21. 21. Regional income disparities interstice www.intersticeconsulting.com Source: Rosstat (2012) RRTEC 2017
  22. 22. Moscow incomes are a multiple of the Russian average interstice www.intersticeconsulting.comRRTEC 2017
  23. 23. And Moscow incomes are in line with major international cities interstice www.intersticeconsulting.comRRTEC 2017
  24. 24. Eurasian Economic Union • Common market of 183 million • Economically anchored by Russia (140 million) and Kazakhstan (18 million) interstice www.intersticeconsulting.com Source: IMF RRTEC 2017
  25. 25. Eurasian Economic Union interstice www.intersticeconsulting.comRRTEC 2017
  26. 26. Strong growth projections interstice www.intersticeconsulting.com Source: IMF RRTEC 2017
  27. 27. EEU wealth distribution interstice www.intersticeconsulting.com Adult population GDP per adult Mean 
 Wealth Median Wealth Mean / Median Russia 108,892,000 $24,945 $10,344 $991 10.4 Kazakhstan 11,144,000 $25,326 $4,134 $571 7.2 Belarus 7,473,000 $9,750 $1,259 $721 1.7 Armenia 2,292,000 $4,933 $5,558 $2,012 2.8 Kyrgyzstan 3,729,000 $2,339 $4,806 $1,921 2.5 Data source: Credit Suisse (2016) RRTEC 2017
  28. 28. Key takeaways • Russia’s macro finances are sound and the country is at low risk of financial distress, subject to reeling in defence spending over the medium term. The direction of oil prices is the main caveat. Still, there is ample buffer to protect the state from defaulting on its external debt. • Russia is a country of extremes: distances, terrain, temperature, living conditions, income, and wealth. Macro indicators which place Russia as an upper-middle income country mask deep disparities between individuals and regions. • There is non-trivial risk of social unrest over the medium term, given the persistent gap in income and wealth and increasing rumblings amongst the have-nots. A catalyst may be the presidential elections due in March 2018 or the potential succession struggle leading up to the end of President Putin’s (expected) final term in 2024. • Lack of options to invest money safely in financial assets predisposes Russian consumers to channel investment funds into the property market (for those who have the excess funds). For those who don’t, they prefer to spend their disposable income on travel, fashion, entertainment, etc. interstice www.intersticeconsulting.comRRTEC 2017
  29. 29. How can Interstice Consulting support your business in Russia? interstice www.intersticeconsulting.comRRTEC 2017
  30. 30. About Interstice Consulting • Founded in 1993, we are a partnership offering a range of professional services: company formation, international tax structuring, data privacy, expansion into emerging markets, digital marketing, IT project management. • We have longstanding experience and contacts in Russia and other former Soviet Union countries (since 2004). • Our Russian office has assisted a number of foreign consumer brands in entering the market. • We also have an Asian regional presence: a permanent office in Singapore, good contacts in India, Philippines. interstice www.intersticeconsulting.comRRTEC 2017
  31. 31. Market entry and support services interstice • Write custom memorandum on key tax and legal considerations • Assist in registering and administering local companies • Obtain necessary compliance documents to import and sell products • Act as importer of record • Solicit orders from retailers • Sell and supply products to retailers in accordance with an order • Sell products to individual consumers • Travel to and attend corporate and social events or functions as being appropriate venues to sell, market and solicit orders • Develop and implement a marketing and PR strategy to market products to individual consumers • Provide customer service support • Procure 3PL services • Procure payment collection services for orders • Provide translation services • Procure printed and packaging materials for products, such as labels, wrapping paper and other • Provide general consulting services www.intersticeconsulting.comRRTEC 2017
  32. 32. Contact Leighton Peter Prabhu
 Managing Partner
 Interstice Consulting LLP
 moscow@intersticeconsulting.com
 interstice www.intersticeconsulting.comRRTEC 2017

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