Russia Infrastructure Report Q1 2009

In time for the launch of BMI's infrastructure Q109 reports, we have revised our construction data. The data has been modified from 2008 onwards. This initiative stems from new methodology being introduced in our forecasting method and aims to increase the relevance and reliability of BMI's infrastructure data. BMI strives to be able to offer five year industry forecasts and we are happy to announce that the majority of infrastructure data for the Russia now stretches to 2013.

For 2009 BMI forecasts that Russia's construction industry will be worth RUB2,458.80bn (US$94.57) this is a growth of 9.37% on 2008 figure of RUB 2,042.67bn (US$81.59bn). Construction growth has been slipping in Russia since it reached its peak of year on year growth in 2007. The construction sector is increasing its percentage share within Russia's GDP. In 2009 the construction percentage of Russia's GDP is set to increase to 5.32% and we predict that this will expand to 5.72% by the end of our forecast period (2013). Russia's construction workforce is also increasing with the number of labours in the sector set to number 6.6mn in 2009. Construction workers make up approximately 9.64% of Russia's total workforce.

BMI believes that the construction sector, not just domestically in Russia, but worldwide will be buffeted by the global economic downturn and will lead to investors tightening their belts, leaving less money to go towards funding infrastructure related projects, especially those in the real estate sphere. This could see a serious decline in the number of companies available to participate in Private Public Partnership (PPP) projects, which will lead to delays and in some case cancellations of proposed infrastructure schemes.

In relation to Russia, BMI believes that large infrastructure projects, such as those associated with the Sochi 2014 Winter Olympics will go ahead and that money will be available from the state to negate any setbacks. BMI believes that the pinch for Russia's construction sector will be felt by real estate developers. Huge investment has been made in the country's real estate sector as new housing complexes have offered Russia's developing middle class the opportunity to leave behind old soviet-era apartments, and shopping malls and entertainment centres have appeared in commercial centres. It is these areas where BMI expects to see investment and development cool. This cooling is already becoming apparent with the Wall Street Journal quoting Dmitry Lutsenk, from the major Moscow-based developer Mirax Group, as saying that the company has cancelled US$4bn of new projects and plans to focus on existing obligations.