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12 Jun 2018 Updated 26 Mar 2021

Russia

Economic Opportunities in Russia’s Post-Crisis Landscape

Russia is enjoying a period of economic stability after two years in recession. With a rouble that has stabilised, and favourable trends in global commodity prices, the country is seeing higher retail sales, a growth in real wages, and increasing employment.

In addition, reforms since 2012 – including the establishment of a one-stop shop for company registrations and improvements to the tax system – have made doing business in the country easier.

Russia now ranks 35th out of 190 national economies – just below Japan – on the World Bank’s annual Ease of Doing Business survey.

The Russian economy grew 1.7% in 2017, and the World Bank expects it to grow by 1.7% in 2018 and 1.9% in 2019, with consumer demand expected to drive GDP growth in the coming years.

Economic Opportunities in Russia’s Post-Crisis Landscape
With a stabilising rouble and the growth of consumer spending, Russia is a great market for Singapore companies to explore

Niche consumer demand

Wage recovery is fuelling the growth of consumer spending in Russia, a country with a consumer market of 150 million people, and a median population age below 401. Alongside its economic recovery, wages in Russia have increased by about 4%, encouraged by a state decree to increase civil servant salaries.

This would be the first increase in state salaries since October 2013, in a market per-capita income is about one-third higher than that of China.

With the average Russian spending 80% of his or her disposable monthly income, there are substantial opportunities for Singapore companies in the consumer sector. In particular, the Russian market favours companies that can adapt their strategies to address the gaps in the Russian consumer market.

Singapore companies such as Food Empire Holdings, which produces MacCoffee and MacChocolate beverages, have continued to maintain their position as a national favourite by aligning their product and pricing strategies with market demand, and enjoying increasing economies of scale as the business grows.

Economic Opportunities in Russia’s Post-Crisis Landscape
Food Empire has enjoyed over 50% of market share in Russia since the launch of MacCoffee in the Eastern Bloc in 1994.

Even as household spending presently constitutes 53% of Russia’s GDP, the Russian consumer has evolved to become sophisticated, pragmatic and value-conscious following the 2014 crisis: A 2016 McKinsey survey of Russian consumers found that over a third of Russian consumers have changed where they shop at, in order to buy their preferred brands at lower prices.

In Moscow and St. Petersburg, price comparison apps such as EdaDeal have gained a loyal following, as consumers compare prices before fulfilling their shopping lists at multiple stores.

This has led to a sharp growth in hypermarket-style retail revenues. while overall retail growth increased by about 2% year-on-year (YoY) in Q1 2018, retail sales by Russian FMCG retailers X5 and Lenta increased by 20.2% and 19.9% respectively2.

There are also opportunities for Singapore companies who are able to offer unique and higher perceived value compared to competitors – these could be unique products such as higher quality foods at affordable prices, or value-for-money snacks at attractive price points. Russian businesses also favour suppliers which are able to produce a consistent supply of food, for example.

Growing consumer trust and better infrastructure are also driving e-commerce sales; the Russian e-commerce market has been growing at a rate of about 20% annually over the past five years, and is expected to be worth USD 35 billion by 2019. In addition to being a good platform for servicing the Russian consumer, there is also opportunity for e-commerce enablers including warehousing services, fulfilment services, and CRM systems, which Singapore specialists can provide.

Advice for Singapore companies that want to do business in Russia

  • Leverage Russia’s close economic links with Central Asia: Russia is part of the Eurasian Economic Union (EAEU), which includes Kazakhstan, Kyrgyzstan, Armenia and Belarus. The EAEU is a single economic market of over 183 million people and a GDP of over US$4 trillion (PPP), and facilitates free transit of goods, services, capital and workers between its member nations. Singapore companies in Russia would therefore enjoy easier access to the other countries via Russia, making it an ideal base for expansion into the region.
  • Take a long-term view and build up niche value: Russian consumers are discerning and cost conscious, but loyal. Companies should thus invest in offering good value to customers in order to build trust and develop the market. This could mean progressing towards manufacturing with a partner in-market, in order to cut down on transport and customs clearance costs, in order to offer customers increased value, or providing more customised software solutions which larger European providers are unable to offer.

1 CIA Factbook
2 "Deep freeze bites in Russian retailers' sales" - Reuters

Russia Singapore business Forum 2018