Russia overview

Cityscape in Russia

The EBRD is currently only supporting its existing projects and clients in Russia. The Bank’s operational approach, following guidance from a majority of Directors, is currently not to undertake any new business in the country.

In Russia we focus on:

Diversifying the economy: private enterprises and private financial institutions that support non-resource sector growth are key for diversification. About 90 per cent of EBRD investments in Russia in 2013 were in the private sector.

Investing in and setting standards for modernisation and innovation: focus is needed on enterprises that innovate, introduce modern new technologies, or upgrade to international standards, particularly with regard to corporate governance, transparency, energy efficiency, inclusion and gender issues. Improving energy efficiency is a key aspect of modernisation across various sectors of the economy.

Supporting privatisation and private sector development: the role of the private sector in the economy needs to increase through strengthening existing private operators; increasing the MSME share in the economy; pursuing transparent and competitive majority privatisation strategies for state-owned companies; conducting policy dialogue on privatisation; and promoting PPPs as a tool to attract more private sector investment into state-dominated sectors.

Increasing economic opportunities in Russian regions: Russia is a federal state whose component regions vary widely in terms of per capita income, unemployment and investment. To promote regional development, it is necessary to support projects and reforms that advance transition in regions that are less advanced than Moscow and St. Petersburg and that are committed to improving the investment climate.

As well as being a country where the EBRD works, Russia is also an EBRD donor. In 2013 the Russian government established its first bilateral Technical Cooperation fund, worth €40 million and covering a five-year programme, in support of the EBRD’s core operations in the country. Almost 50 per cent of the funding is earmarked for the development of projects in transport and infrastructure – with the rest split between energy efficiency, agribusiness and SMEs. At the beginning of 2014 the Advice for Small Business programme benefited from Russian funding. Russia also remains the biggest donor to the NDEP environmental window with total contributions totalling €60 million. In 2015 Russia paid €5 million to the NDEP Support Fund.

The EBRD’s latest Russia strategy was adopted on 18 December 2012

Current EBRD forecast for Russia’s Real GDP Growth in 2017 1.2%

Current EBRD forecast for Russia’s Real GDP Growth in 2018 1.4%

The Russian economy has been undergoing a second year of recession with a GDP contraction of 0.9 per cent year-on-year in the first half of 2016 as oil prices fell to their lowest levels since 2003. A sharp contraction in both household demand (4.7 per cent) and corporate investments (7.1 per cent) continued in 2016, as inflation was still cutting into real incomes, while sanctions and high interest rates made access to financing more difficult and costly. Net exports contributed positively to the growth in the first half of 2016 as the drop in exports on lower commodity prices was more than offset by imports contraction. Unemployment has remained low at around 5 to 6 per cent as corporations generally prefer to cut wages first instead of shedding labour. Despite the improvement in price competitiveness resulting from the sharp depreciation, export and production gains were limited to a few sectors, mostly agriculture, food (also benefiting from the imports ban), chemicals, rubber and plastics.

Private sector capital outflows continue in 2016 (US$ 10 billion in the first three quarters of the year), but at a significantly slower pace than in 2014 (US$ 153 billion) and 2015 (US$ 57 billion). Increased Eurobond issuances and syndicated borrowing (US$ 22 billion in the first three quarters of 2016, including US$ 1.75 billion sovereign borrowing vs. US$ 12 billion in the whole of 2015) signal increased market demand for Russian assets but external funding is still well below pre-2014 levels.

Domestic demand remains weak in 2016, but the stronger rouble will continue to support imports and reduce the trade surplus. Increasing oil prices underpin the economic recovery in the second half of 2016; resulting in a GDP growth of -0.6 per cent. In 2017 growth is expected to pick up to 1.2 per cent, supported by higher oil prices, recovering private consumption and investments. Long-term growth, without significant reforms, may remain at around 1 to 2 per cent annually due to low investments and outdated production capacities.

Russia in the EBRD’s 2016-17 Transition Report