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Tapio Pietilä
Russia needs construction materials and technologies
The key challenges for the Russian economy are improvement of efficiency and adoption of new technologies. This provides good opportunities for Western investors and companies. Now is the right time to act.
Imports are growing faster than predicted in Russia. Consumer demand is strong.
Russia’s output dropped 8% in 2009, even though the economy hit bottom in the second quarter. The turning point came in the third quarter, when we began to see some positive growth. Russia’s output and imports are now growing faster than economists predicted some months ago. Consumer demand is strong.
The annual growth forecast for Russian GDP this year is 6%, and for the next two years 4%- to 5% per year. Import activity is expected to increase in 2010-2012 by 10- to 13% per year. This forecast is based on the prediction that oil prices will ascend slowly but continuously (Bank of Finland).
Last year, private consumption in Russia fell sharply. This year's international economic situation and developments in prices of raw material will brighten the outlook for demand from consumers and companies.
With normalization of the financial markets, companies are expected to raise their level of investment. Investment projects put on ice have already re-started.
Construction companies are re-starting housing projects in Russia.
International Finnish construction companies YIT, Lemminkäinen and SRV have re-started their housing projects, as have similar Russian companies; all are reacting to rising housing prices and lowering interest rates. They have also started to purchase land on which to build new projects, because land prices have hit bottom.
Russian housing demand is high.
Consequently, Russia is now in urgent need of construction materials and technologies. Especially in Russia, there will be a great demand for modern, energy-efficient technologies used to build single-family houses.
Exports to Russia will be more difficult due to protectionist measures. Many exporters are learning that it is necessary to transfer part of their production to Russia.
Exporters are moving into Russia.
Finnish companies that previously exported food products to Russia are moving manufacture of those same products to Russia. Atria's meat processing plant and Valio's dairy products packaging plant are examples. This move is essential for their continued growth in the Russian market.
The Russian central government is practically free of debt and has a fairly good credit rating, so financing instruments should not be a big problem. The business climate has become more optimistic and lenders’ acceptance of risk is increasing.
One new phenomenon is that some Russian individuals and investors have returned to the international market and are again buying residential and industrial premises.
Now is the right time to act.
ABOUT THE AUTHOR: Tapio Pietilä is a pioneer of joint ventures between Finland and Russia in the steel construction industry. His leadership inspired the growth of SRV International Oy, EKE Group, the Federation of Finnish Industries, the Finnish Joinery Industry Group, and many others. He provides consulting services in Russia and Finland, focusing on real estate development and project management, foreign acquisitions and financing, and enterprise start-ups. Learn more.
