Russia Infrastructure Report Q2 2008

Since the collapse of Communism, Russia has been implementing modernisation projects on its Soviet era infrastructure. Privatisations in the country's utility area have taken place, airports have been renovated, Russia's railways have been extended, to keep it the country with the second longest track in the world and upgrades have been implemented on its highways. The country's construction industry is booming, projects such as Moscow's International Business Centre, which when completed will boost two of Europe's tallest buildings, have bought continued investment into the sector. This high growth phase is expected to continue. BMI in its Russian Infrastructure Report for Q2 2008 is forecasting that Russia's construction Industry will reach a value of RUB1.74trn (US$62.63bn) in 2012, making up nearly 3% of the year's gross domestic product (GDP).

Russia's construction industry received a further boost in April 2007, Sochi, Russia's Black Sea coastal resort, won the bidding for the 2014 Winter Olympics. Construction on the Olympics infrastructure, which is to include stadiums and ski runs, is underway, as well as infrastructure projects to ensure that the regions utilities and transport network is ready in time for the Olympic visitors in 2014.

The Russian construction industry has been known to outperform the country's economy. The industry is currently going through a high-growth phase, having registered an expansion of more than 15% in 2006.

Growing oil and gas output and an expanding retail sector have been major growth drivers. Both domestic and foreign companies have been scaling up operations. This report forecasts the industry to grow at 9.2% on average during 2008-2012.

The state's continuous efforts at attracting foreign investment have been successful, as is evident from a large number of overseas players now operating in the country. Sub-segments such as retail and home renovation have benefited from the improving middle-class living standards. Current projects include the construction of a number of oil and gas pipelines, power stations and multiple residential and commercial developments. Some of the major projects planned or currently underway are the US$12-14bn development of the Shtokman deposit; the US$11bn East Siberia-Pacific Ocean oil pipeline and US$10.5bn Nord Stream pipeline.

However, the industry has to cope with a number of impediments. These include remarkably high levels of corruption and bureaucracy and a slow and decrepit judicial system. The industry also faces the risk of increasing state intervention and shortage of building materials such as cement, pre-fabricated ferroconcrete structures, roofing and walls. Furthermore, a shrinking population may lead to slackening of housing demand.