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SACE : Doing Business in Russia

SACE : Doing Business in Russia. Macroeconomic highlights: free of Paris Club debt and capital restriction. Russian economy remains on an expansion path , with 2005 being a year of new records, including FDI at $ 16.7 bn, a fiscal surplus at 7,5% of GDP, CBR reserves at 182bn.

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SACE : Doing Business in Russia

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  1. SACE : Doing Business in Russia

  2. Macroeconomic highlights: free of Paris Club debt and capital restriction • Russian economy remains on an expansion path, with 2005 being a year of new records, including FDI at $ 16.7 bn, a fiscal surplus at 7,5% of GDP, CBR reserves at 182bn. • Who are Y2006 favorites? Metals sector is key driver of economic growth this year, increase in the production of metal products amounted to 26%, this is in turn partially due to the impressive rise in metals: nickel prices went 145$ up, copper - 63%, hot-rolled steel – 40%. Spill-over effects from other sectors are also playing a role – increasing demand from the fuel sector is leading to increased production of steel pipes… • Paris club pre-payment – Russia’s landmark deal. A milestone in Russia’s modern economic history. - With it, Russia has parted with the status of debtor country vis-à-vis the Paris Club and has further improved its standing compared with other emerging markets in terms of its sound macroeconomic fundamentals. In particular, public external debt is reduced to 5% of GDP, with the overall stock of public debt in Russia to meager 9% of GDP. • Macro sustainability: estimations show that Russia’s current account turns negative at an average price of Brent blend at about $36/bbl, and fiscal balance stay positive until $33/bbl.

  3. Key macroeconomic indicators, 2003-8F

  4. Mature fiscal policy In short-term fiscal rules are expected to be strengthened: • Transfer of Stabilization Fund’s resources into a hard currency • Further reform of the Stabilization fund: division into Future generation’s Fund and a Reserve part designed to counter external stocks • Non-oil budget formulation a major step forward: (so far a proposal of Ministry of Finance) for separation oil from non-oil revenues favors greater fiscal stability raising fiscal transparency, allowing for longer horizons and emergence of clear non-oil deficit

  5. Investment big push in 2007-2008 • Budget recourses: are they spent effectively? This fear appears to be overcome, thanks to adoption of PPPs mechanism by Russian government.This shall allow Russia to undertake greater investment from the budget to develop descript infrastructure as well as to finance the so-called priority sectors. • Apart from the Special Economic Zones, which have a significant component of private sector participation, there is also newly created Investment Fund. • Venture Fund – another phenomenon of Y2006, similarly to Investment Fund will operate on the basis of PPPs and is set to finance projects in the IT and high-tech sectors. • Capital expenditures financed directly from the budget are also increased, with one of the more notable cases being the budgeting of $1.5 bn to RAO UES. • The strategy of jump-starting modernization via investment in key sectors, so-called “Big push” have important implications for strategic investments into Russia. As some sectors are state-picked as winners, investors or suppliers may explore moving their assets or intensifying cooperation into sectors blessed with the state support. So far, this clearly include transportation, electricity, and the IT sector. Among national champions of strategic names definitely Gazprom and United Aircraft Corporation.

  6. Projects considered for financing from the Investment Fund

  7. Russian banking • The sector continues to demonstrate impressive performance, well outpacing that of Russian economy. Forecasts confirm an annual growth for 40% in Y2006. • Russia remains underbanked…- within 9 months of 2006 Russian banks provided only half of the loans relative to GDP (25%) that did banks in Eastern Europe and 30% than the Latin America. • The Russian banking services penetration to converge with the average for CEE peers in the next 5 years. This implies that the sector will continue expanding at just marginally lower rates. • Capital raising: the key theme for 2006-7. • Inflation, which is expected to remain high in the near-term future (above 10% per year, positively influence the sector).

  8. Key risks inherent to Russian banking sector • The risk of a slowdown in economic growth stemming from either a fall in the oil prices or poor macroeconomic policy. • A worsening in the business environment, driven by tightening interest margins and increasing competition in every segment of the banking business eroding banks’ profits and volumes. • The risk that the monetary tightening currently being undertaken by the CBR may prove excessive, increasing funding costs and reducing asset utilization in the sector. • A wide-scale increase in risks being taken by banks providing retail and SME loans en masse, which may lead to poor loan book quality and, hence, to a substantial credit crunch.

  9. Key aims and proposed measures of banking reform 2005-8

  10. SACE exposure in Russia • Total exposure 4.950 • For short term 62 • For medium/long term 2.816 • Claims to recovery 2.092 Russia data 30/06/2006 € million • Total exposure € 579 mil. • On 24 banks • 51 Banks Assessed Russian Banking sector

  11. International Network • Mosca • Istanbul • Shanghai • Mosca • Shanghai, Istanbul: next opening 2006/2007 • Brazil, India, North Africa:next opening 2007 / 2008

  12. How we help you in your business • We provide consulting services to Italian enterprises and their Russian counterparts already at the stage of the commercial negotiations to foster the close up of the export transaction or/and investment into Russia • We support back-forward economic process, developing transactions initiated by Russian companies in their search for Italian supply • We assure the prompt informational input from the field on actual debtors and current market facilitating accelerated decision process and duly finalization of the project • We coordinate mutual actions with our Italian customer, financial institutions involved, Russian Importers and deferent Sace divisions • Advantages • Expertise on local regulatory and business environment as well as local accounting allowing for fast and precise risk evaluation • Availability for local site visit and on field inquiry • Possibility to address operational difficulties to allow for smooth development of the transaction

  13. How to contact SACE Moscow office Representative in Moscow office (SACE Group) Svetlana Gromyko-Piradova Tel. +7 495 258 21 55 Fax. +7 495 258 21 56 s.gpiradova@sace.it 123610 Moscow, Russia Krasnopresnenskaya nab., 12-office 1202

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