Page 74 - IFR Opportunities in Russian capital markets

CHAPTER03
ifrintelligence reports/Opportunities in: Russian Capital Markets
Having hovered around 14–15% of GDP for the last few years, fixed investment growth rates year- on-year took off in the second half of 2006 to hit about 19% by the end of the year. The growth was even faster in some sectors, such as construction, which saw investment rate growth of 21% towards the end of 2006 on a three-month moving average basis, as can be seen in Figure 3.14.
"The impetus for this acceleration comes from the boost to fixed investment. Having taken the backseat to consumption over the last three years, investment leaped strongly in autumn 2006: year-on-year fixed investment growth was above 15% for three consecutive months," says the bank, arguing that Russia is moving into a new investment-driven cycle of growth.
"Thus, we expect to see a virtuous cycle of investment and demand growth emerging, which will greatly enhance the quality of Russia's economic growth. The stories most closely tied to the 'new capex cycle' paradigm are rapid financial deepening and domestic energy reform," say the bank's analysts.
Figure 3.14: Fixed investment and stock exchange sector movements, 2004 - 06 (%)
% yoy
25 20 15 10
5
0 –5
Industrial production Investment Construction
Jan 05
Source: Rosstat
Jan 04
Jan 06
Investment structure
Consumer-oriented companies have caught the headlines as the fast growing and most dynamic sector, but the structure of investment is still biased towards the natural resources sector, which accounted for 45% of total investment growth in the first three quarters of 2006. For manufactur- ing, year-on-year investment growth was only 6% in the first three quarters, according to Rosstat (see Table 3.24).
The economy needs to diversify and a vibrant bank sector is the key to allowing companies to invest, but it is still early days in the diversification odyssey.
Table 3.24: Investment breakdown and growth, by sector, 1Q2006 – 3Q2006 (%)
Q106-Q306 Growth (yoy) % total
Source: state statistics service
Total
Natural resource extraction Manufacturing
Agriculture
Electricity, gas an water supply Construction
Retail
Transport
Communications
Real estate
State admin and social services
12 100 29 19 6 18 43 4 1 7 6 4 0 3 15 21 4 5 4 11 15 9
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