Page 10 - IFR Opportunities in Russian capital markets

CHAPTER 01
ifrintelligence reports/Opportunities in: Russian Capital Markets
This debate will not be resolved unless oil prices collapse and the ideas can be tested. The consensus is that Russia's economy is still very dependent on oil, but that each year that passes shifts the centre of gravity towards the consumer.
Consumer spending
Retail turnover was up 13% in 2006, to RUB8.6bn and has been growing in double digits for six straight years. Consumer spending has increased massively in the last seven years, from US$90bn in 1999, equivalent to 45% of GDP, to an estimated US$290bn by the end of 2006, or 31% of GDP, as shown in Figure 1.2 (RUB26.1 = US$1).
While spending as a proportion of proportion of GDP has been shrinking, the telling numbers are in the changing distribution of spending. At the beginning of the 1990s food dominated the spending of the average Russian, but this has fallen steadily, from 56 kopeks in every ruble in 1999 to 40 kopeks by 2006, while total spending has more than tripled (CAGR 19.2%).
Figure 1.2: Russian consumer market dynamics, 1999–2006E (US$bn, %)
13%
1999 2006E
19%
40%
31%
Source: RBA Research
US$90bn
CAGR = 19.2%
56%
US$290bn
41%
F&B
Non-food
Services
Personal income
Personal incomes were up 10% in 2006, compared to 11.1% in 2005. The nominal average monthly wage was RUB10,700 in 2006, 24.5% up, compared to 2005. In real terms, salaries in Russia went up 13.5% over the year and have octupled since Putin took office in 2000 (see Figure 1.3). Russian real disposable income was up 10% in 2006 and the average per capita income was up 20.5% on the year, to RUB14,757 per month by the end of December 2006, according to Rosstat (the Federal State Statistics Service).
Russia’s robust economic growth is bringing with it a growing danger of social unrest; sociologists say that if the difference between the income of the top 10% of the population is more than 10 times the income of those in the bottom 10% of the population, this fuels resentment that can spark popular protest.
Russia still has some breathing space and if the Kremlin is successful in its drive to diversify the economy – and especially in its efforts to promote small and medium-sized enterprise – then this danger can be nipped in the bud. But the difference in these two incomes is already seven-fold and continues to creep up.
The disparity in personal incomes again widened slightly in the first quarter of 2007. The top- earning 10% of the population accounted for 30% of overall cash incomes in the first quarter of 2007, compared with 29.7% in the first quarter of 2006 and 29.6% in the first quarter of 2005.
The lowest-earning 10% accounted for just 2% of income in the period, compared to 2% in the first quarter of 2006 and 2.1% in the first quarter of 2005.
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