Russia Trading Conditions cars, consumption patterns and electoral consequences Paul Forrest Director Forrest Research Presentation to Russia Midlands Business Club Birmingham July 14 th 2011 Source: RSS & Forrest Research Source: IMF & Forrest Research Source: RSS, HSBC, Markit Economics & Forrest Research Source: Bloomberg, RSS, & Forrest Research Source: CBR, RSS, & Forrest Research Source: CBR & Forrest Research Source: MoF, CBR & Forrest Research Source: MoF, VTB Capital Reliance on Sovereign Wealth Funds to support Budget Reserve Fund official projections National Welfare Fund official projections Source: MoF, VTB Capital Source: Autostat RSS & Forrest Research Source: OPEC Russian Passenger Car Parc January (mln units) Source: Autostat & Forrest Research Source: Autostat RSS & Forrest Research Implications for Consumption Russian consumption patterns rapidly approaching EU average Authorities favouring domestic production to imports Increased valued added both in exports and domestic production Contributing, firstly to a rapid increase in domestic car production Secondly, increased demand for locally sourced component manufactured products Thirdly, increased car ownership will create ancillary demands Including: Infrastructure provision (toll roads); Servicing; Greenfield amenities (shopping malls, leisure activities) Electoral Implications weaker economic performance may erode electoral confidence fiscal discipline may weaken Real living standards and lack of social mobility Current diarchy untenable December Duma elections may produce shock Presidential election may see credible contender Reforms urgently needed to address structural weakness Putin & Medvedev quasi- laissez faire approach to end Internationally Competitive Corporates Internationally Competitive Corporates Internationally Competitive Corporates Source: Markit Economics & Forrest Research Thank you For further information contact