Investing in Russia – WHERE TO INVEST

THIS POST WAS ORIGINALLY PUBLISHED JULY 06, 2007

Investing in Russia – WHERE TO INVEST

Many foreign investors are expressing interest in investments in Russian companies. Many of them DO INVEST. To generate more action and to facilitate sound decisions on this I have made a small research effort, that I think may be of interest. This research is based on the official statistics data provided by the Federal State Statistics Service. I have picked up the most successful industries and summarized them in the table below. The first line represents the accumulated numbers for all industrial sectors in Russia in terms of earnings (you may adjust RUR data into USD with an average exchange rate of 1USD = 26 RUR). Furthermore in the first line there are numbers representing average percent of profitable and unprofitable companies for all sectors; an if go blow down the lines for each quoted sector.

So, when looking at 2006 numbers:- the best performing is the Railway Transportation sector: although the earnings number is not that impressive, all others show good potential;
- Construction industry is No.2, with Manufacturing Activities following closely.
In 2007:- Railway Transportation sector shows extremely impressive growth with Manufacturing Activities as No.2.




To illustrate the tremendous growth of Manufacturing Activities I am providing the information by the Government of St.Petersburg that gives the following statistics data for 2007. 

 1. Manufacturing of other non-metallic mineral 2. Metallurgical production and production of prefabricated metalware 3. Production of machines and hardware 4. Production of rubber and plastic items 5. Production of electrical equipment, electronic and optical machines 6. Woodworking and production of wooden items 7. Production of leather, leather items and production of footwear 8. Production of food products including drinks and tobacco 9. Chemical production
Just a few new items from the last days that may influence the decision making process.

Railway Transportation- Private railway carrier companies are developing at extremely fast pace – now they have more than 30% of cars
- The Russian Railways is finalizing establishment of the First Freight Company. The plans call for the company’s IPO in 2009; at that time its market cap should be $ 3 – 3.5 billion.
- This summer the Russian Railways are planning to sell 20% of railway car repair plants – private carriers are going to establish their own repair facilities

Manufacturing Activities- Rexam, the British company that leads the world in the manufacture of cans is buying Rostar, a Russian beverage can maker for £150 million (Rosar is a sister company of Rusal)
- Coca-Cola Hellenic Bottling, is buying a plant near Moscow for 191.5 million euros ($261 million) to boost capacity in one of its fastest-growing markets.

Distributive Industries
- It is reported that Wal-Mart is engaged in heavy discussions with MACROMIR developer company to facilitate Wal-Mart’s market entry in Russia.
- M.VIDEO, Russian consumer electronics retailer is in discussions with French Darty, to sell part of its equity.

ConstructionIn its latest report Merrill Lynch estimates $195 billion three-year infrastructure spending plan in Russia. A key focus of Russian infrastructure spending will be to improve the energy distribution network in order to ensure a steady stream of commodity revenues. An increasingly important segment is infrastructure spending related to real estate development in Russia. Russian real estate, especially Moscow, is experiencing the greatest boom in recent history. The clearest beneficiaries of the investment boom are companies specializing in engineering, real estate, construction and building materials. “Earnings momentum is excellent. The consensus expects earnings in the EEMEA industrials space to accelerate from 18% in ‘07 to 25% in ‘08” – states the report. And just the latest example – ST-REGION investment and construction company announced their plans of 2008 IPO on LSE with the hope to raise $ 1 billion.

Summarizing all this:

INVEST IN THE COMPANIES OF RAILWAY TRANSPORTATION, CONSTRUCTION, TELECOMMUNICATIONS AND DISTRIBUTIVE INDUSTRIES