Page 27 - RusRPTJuly18

with fairly high interest rates and Western sanctions limiting access to international lenders, the biggest factors depressing investment demand are the uncertain economic outlook and difficult business environment.
Russia’s corporate sector net profit was down 8.5% in 2017 y/y , according to Rosstat. The trend runs counter to GDP growth, which hit 1.5% last year after contracting by 0.2% in 2016. In nominal terms, net profit reached RUB10.3 trillion ($180bn)in 2017: some 34.8 thousand organizations brought in profits of RUB12.3 trillion, while another 12.4 thousand faced losses of RUB1.96 trillion. This data does not include small businesses, insurance companies, state institutions, or banks.
On a sectoral level, extractive industries led the pack , where net profit was up 17.9%, and a staggering 40% for hydrocarbons. Agriculture, meanwhile, saw worse performance despite overall sector growth, with net profit down 22.3% largely due to decreasing grain prices
Mergers and acquisitions (M&A) reached its highest value since 2014 of $13.4bn in value in 1H 2018, but from the lowest number of deals since 2008. $6.4bn was spent on M&A between Russian companies alone. The figures show positive trends and are good news for the economy in the macro sense, but the top 10 deals out of 499 account for 84.3% of the value of all M&A in 1H. Russia's largest companies and richest businessmen have done best since 2013, and these deals reflect a growing consolidation of market power, political power, and political access. Expect big firms and businessmen to cash in favours in 2H now that Moscow's economic plans are clearer. Russia's M&A market only saw $5.7bn worth of deals for the same period last year, so the market value has gone up. Russia's economy has more or less stabilized, making the market more attractive. But the total number of deals with international partners declined by 15% and their total value declined by 11% from last year. The overall number of deals declined 25%. The figure reflects a broader trend in the economy since 2013. Crises and external shocks have hurt small businesses much more than their larger counterparts. As a result, larger firms have expanded their market share and role. There's now less to buy due to large firms' expansion, so what's left has gotten more expensive. M&A shows healthy growth and is expected to as much as double its 1H activity in 2H since political plans affecting business are becoming clearer now that the electoral cycle for Putin's 4th term is over. But the dominance of large players means that access to "administrative resources" -- political favour and assets -- is the best leading indicator for whether a business or businessman will pursue big deals.
RUSSIA Country Report July 2018 www.intellinews.com