WHY RUSSIA
-
Complementarity of the Italian and Russian economies
-
Growth potential of Russia’s GDP
-
Opportunities for Italian companies offered by the process of modernization of the economy
-
Favour the Russian public looks to the Italian product with
-
Development programs of the Russian regions
SECTORS MOST’ACTIVE
-
Electricity, oil & gas, steam and air conditioning (even from renewable energy sources)
-
Plant, machinery and equipment
-
Marine and boats
-
Pharmaceutical plants and products
-
Furniture and wood construction
-
Food products and industry
-
Fashion clothing (including leather and fur)
WHY RUSSIA
Complementarity of the Italian and Russian economies
Russia is the leading supplier of energy products in the world but has an industrial base and a primary sector still relatively undeveloped; Italy, by contrast, does not have the raw materials but has a large and diversified manufacturing and agro-technical business. That is a complementarity between the two production systems that makes the two countries natural economic and trade partners. The complementarity is reflected not only in the trade balance, but also in a number of joint ventures that promote the transfer of technology.
Growth potential of Russia’s GDP
In the period 2000-2008, the Russian GDP and has grown at an average of around 8% per annum. After the 2009 crisis, the Russian economy began to grow at a slower pace than in previous years, but with rates higher than those that occur in Western countries. GDP increased by 4,3% in 2010 and 2011, 3,5% in 2012, 1,3% in 2013. Despite the slowdown, the growth potential of the country in the long run remains high, as evidenced by the continuous and significant improvement of the ”Index of doing business “in the last three years.
Opportunities for Italian companies offered by the process of modernization of the economy
The modernization of the economy and is a priority’ of the Federation’s Authorities. This applies not only to some key sectors with high technological content, but also infrastructure, whose improvement is essential to the development of the country. There are therefore opportunities of collaboration for Italian companies in many industries. Finally, measures of trade restrictions for food approved by the Russian government in response to the EU sanctions may be an incentive for the development of the agro-food sector of the Federation.
Favour with which the Russian public looks to the Italian product
The Russian public looks very much welcome the Italian product. The “Made in Italy” and its stands for quality, not only in the traditional clothing, food and furniture sectors (three “A” in Italian language), but also in the asset goods and industrial (machinery and mechanical) and in high technology. More in general, there is a capital of sympathy from the Russian side to our country, related to cultural and historical issues, which can be an objective advantage in terms of economic and trade cooperation.
Development programs of the Russian regions
Over 80 local authorities that make up the Federation (Republics and autonomous Regions) compete with each other to attract foreign investment. There are a number of Special Economic Zones (SEZs) at Federal level, which provide tax incentives, customs and administrative to business investors. Similar zones have been established at the local level. Several Italian companies have already successfully developed catching the opportunities offered by the SEZ (e.g. in the Lipetsk region, 440 kilometres south of Moscow).
The Macroeconomic Environment
The development model adopted in the last decade, based on the intensive exploitation of natural resources and the existing production capacity – which led to significant improvements in the living conditions of the population, by increasing real wages and consumption – has become in the course of 2013 less effective. Despite high oil prices and a gradual depreciation of the ruble against the dollar and the euro, this could also stimulate exports in non-oil component, economic growth slowed down. GDP growth stood at 1,4% for 2013.
Despite the economic slowdown, unemployment continued in 2013 to remain at low levels by 5,6%; there was, however, a change in the composition of employment, an increase in the share
of public sector consumption and lower levels of labour productivity. Real wages show a downward trend.
With regard to inflation, the rate for 2013 is around 6,5%.
The production of oil and natural gas has increased in relation to last year, 1,4% and 6,7% respectively, reaching a new record high in the post-Soviet period (more than 10,5 million barrels of oil and 1,54 billion cubic meter per day). Exports of natural gas grew by 1%, while oil fell by 2%. Moscow remains the leading exporter of gas worldwide.
The background of small and medium-sized enterprises is still underdeveloped and concentrated mainly in the commercial and consumer goods, while the industry is still weak. The supporting policies of the Authority in respect of SME’s are limited, as well as the financial instruments provided for their benefit.
Macroeconomic indicators
[ultimatetables 4 /]
*Source: Embassy of Italy on data from EIU and IMF
Doing Business Index
| 2012 | 2013 2014 | ||||||
| Pos. 183 countries |
Pos. 185 countries |
Pos. 185 countries |
Italy | ||||
| Position in the overall ranking | 120 | 112 | 92 | 67 | |||
AREAS OF INTEREST
Electricity, gas, steam and air conditioning (including renewables)
The oil&gas industry is the priority of the Russian economy. The Federation has in fact the world’s largest reserves of gas, whose is the biggest exporter. Russia has the eighth largest world’s oil reserves, is the world’s biggest exporter of oil and the first / second producer: in 2013 continued to mark record production – over the threshold of 10 million barrels a day – confirming at the same time the priority of exploration and potential exploitation of Arctic resources, as well as the attraction of foreign investment and technology for the future of the mining industry in Russia. The oil&gas revenues account for about 40% of the national budget and 68% of exports. It is quite clear, then, the strong dependence of the Russian economy from the energy sector, and the strategic importance Moscow gives to the established relations with consumers of energy (flows continuity, predictability of prices, long-term supply contracts, increased diversification of transit routes and markets). The Italian-Russian cooperation in the energy field dates back to the late 50s and has evolved in recent times by established business relationship to a partnership based on a more industrial interdependence. Enel is the first Italian investor in Russia engaged in generating electricity through Enel OGK-5 and selling of electricity through RusEnergoSbyt. Eni is the first European customer of Gazprom, participates in the Blue Stream gas pipeline and the South Stream projects and has entered into a strategic cooperation agreement with Rosneft which involves the exploration of two offshore blocks in the Barents Sea and in the Black Sea the exchange of technology and Rosneft’s participation in international projects of Eni. Saipem has participated in the construction of the North Stream.
Plant, machinery and equipment
The Russian market offers interesting opportunities in all fields of mechanical, electromechanical requiring renovation and technological upgrading in order to follow the federal programs of development of domestic manufacturing. Within this segment, , the supply of technology to the food processing industry and wood processing (furniture and accessories for the construction industry) show good prospects, especially at regional level; it is also confirmed the vitality of engineering, production of electric power, petrochemical and production of articles and materials in plastic and rubber. Finally, is being consolidated the presence of Italian suppliers’ industrial group with their production facilities in Russia. The development of domestic and foreign investments, including those in the Special Economic Zones, suggests a sustained growth in demand for machinery and equipment in the near future. It should be noted in this regard that the local industry is not able to compete with foreign suppliers, including Italian, in most specialized mechanical engineering. Even the development programs of productions substitutive of imports will inevitably be focused only on the most strictly necessary to the system, like heavy industry in the fields of energy, transport and military supplies.
From the operating point of view, as in the past, the most critical issues felt by the Italian suppliers include the construction of networks of technical assistance and the efficient management of the flow of spare parts, accessories and components. For firms in the sector of asset goods, then, the main development directions must look primarily to these presences of services to be able to respond quickly to users’ needs. Particular attention should be paid also to the programs of technological development of local industry and the space that is created in the transition from pure research to its incorporation into efficient technology products, for which not always exist in this country networks and hubs and therefore requires often collaboration with foreign partners with specific expertise in this field.
Marine and boats
Shipbuilding, unlike the recreational boating in Russia does not reach the level of diffusion and importance of other markets; it is one of the areas identified as priorities by the authorities of the Russian Federation. Most of the industry is controlled by the State through the United Society of Shipbuilding (in Russian OSK) that owns 100% of the property; established in 2007, currently has in its portfolio 80% of orders for shipbuilding in the Russian Federation. In the area of civil shipbuilding OSK produces virtually all types of vessels and marine structures that currently exist, from drilling and extraction, the icebreakers, tankers, oil tankers, gas carriers, container- carrying ships, Ro – RO, etc. The new Russian plan for the shipbuilding industry, in order to bring the civilian sector at least at 2% of the world market, as well as to abolish VAT on imported components from abroad and not available on the market, provides funding for global 140 billion rubles (about € 4 billion) by 2015, out of that 97 billion rubles at the expense of the state budget. The situation is therefore very favourable for what concerns the opportunity to present their products and technologies to Italian Russian counterparts, which can be broadly identified in the large shipyards, mostly owned by the holding company OSK and centres of research and innovation, almost all university or government sponsored. The fact that local counterparts are easy to find and relatively few could facilitate the contacts at the highest level.
Pharmaceutical plants and products
The development of the pharmaceutical industry is one of the priorities of the Russian government. Already in April 2009 after the approval of the law on “Strategy for the development of the pharmaceutical industry of the Russian Federation until 2020”, was drafted a “Model development for a pharmaceutical cluster in St. Petersburg.” Subsequently, in March 2010 guidelines have been prepared in order to define a single, coherent approach to regulate the activities of local institutions, investors, national and international academic institutions and research bodies. The goal of the federal authorities is to provide incentives and create the condition that eases investment in research in order to be more competitive. The intervention is based on the implementation of infrastructure projects for the preparation of settlement areas of the companies, the use of public-private projects, assisting in various stages of investment, facilitation of customs and excise. This the package of benefits developed for the Special Economic Zones was created in 2005 in order to promote the activities of Russian and foreign investors in priority sectors, in this case in particular in the area of St. Petersburg.
Furniture and wood construction
The development of a domestic industry of woodworking is indisputable opportunity for Russian economy, because of strong domestic demand, mainly generated from the building, and the wide availability of raw material. However, the country industrial vocation in this area was slowed, since the mid-nineties of the last century, due to the gradual obsolescence of production facilities, caused in turn by an insufficient flow of investments in technology and machinery. Hence the dominance of imported products, with a significant Italian presence in markets such as the furniture and furnishings of wood. Among the measures taken by the Russian authorities to reverse this trend we highlight the review of duties on products and semi-finished wood, that contributed as early as 2007 to penalize exports of raw timber for the benefit of semi-finished products and other products with higher added value. In addition, several regional projects to support the location of production activities in the furniture and building materials, and policies to encourage the construction of residential buildings by wood, primarily in the northern regions of European Russia and Siberia; objectives of these policies are on one side the recovery of the local traditions, on the other hand the search for high energy efficiency and low environmental impact housing solutions. All of this can result in attractive investment opportunities also in terms of supply chain integration and diversification, taking advantage of local production for all those types of products for which competition on the cost and simplifying the chain distribution assume decisive importance. In addition, the ability to benefit from development programs and support mentioned above, both federal and local, as well as the benefits of ease of interaction and relationship with the Italian suppliers of machinery and technologies for wood processing, that is credited with a large share of the Russian market in the sector.
The positive trend in the market of furniture and home accessories in Russia is accompanied by the growth of construction and the increase in real incomes of increasingly part of the population, favored by the use of more consumer credit tools than in the past. This has formed a “mass market”, which already covers 40% of the population. The Russian demand for furniture and other home furnishings will mostly look abroad; in fact, the local industry, despite the growth, fails to satisfy the quantity and quality demands of the market, in many cases limited to the production of finished articles with the use of semi-finished products and components import. In this scenario, Italy is in second place among supplier countries (including China and Germany). The areas of greatest interest to the Italian products are concentrated in the upper segment of the market, while China is still a major competitor in the mid-range and (more and more) upper- middle-product. In addition to an increase in imports, there has been a steady increase in the number of architects and interior designers operating in Russia and the wider dissemination of information and trends, domestic and foreign, that shape and influence an increasingly demanding public. In recent years, much of the market growth is attributable to the development of housing, but it has also been a strong growth in the furniture sector for specialized categories. Among those furniture stores, shopping malls, restaurants and other public places, which must combine purely technical and functional requirements to the recognition of the design, and office furniture. In this sector, the Italian industry plays a leading role, thanks to the creativity of design and the ability to offer large products range especially in both style and materials.
Food products and industry
The Russian market of wine-agro-food products has been particularly dynamic in recent years. Italy’s share is currently less than our ability to offer: the food industry represents about 6% of our exports to Russia. Italian production, although popular with Russian consumers belonging to the medium / high urban classes, suffers the difficulty to access represented by the system of certification and product registration and licensing system.
In addition to the complex procedures, frequent changes in the law make it particularly difficult for the foreign operators, especially without a strong marketing structure, to plan their activities reliably and maintain control of the marketing of its brand without the assistance of a local partner. This results in a stronger position of major importers / distributors, even more so when they are confronted with a large number of small to medium-sized producers, relatively unstructured, such as those operating in the Italian agricultural sector.
An essential role in the spread of the image and products of Made in Italy is the Italian restaurant, increasingly common in Russia, especially in large cities (Moscow, St. Petersburg, and Yekaterinburg). In addition to Moscow, which constitutes 40% of the Russian food market, there is a growing demand by the other big cities of Russia (Nizhny Novgorod, Samara, Kazan ‘, Rostov-on-Don, Novosibirsk). The 2013 confirmed a generally positive year for the Italian agro- food exports.