Reaching Russia Through E-commerce (RRTEC) 2017 - Part 1

Reaching Russia Through E-Commerce

RRTEC 2017

intersticewww.intersticeconsulting.com

http://www.intersticeconsulting.com

Part I. Economic backdrop

interstice www.intersticeconsulting.comRRTEC 2017

Russian real GDP growth is resuming

interstice Source: World Bankwww.intersticeconsulting.comRRTEC 2017

G20 economies - GDP

interstice Source: OECDwww.intersticeconsulting.comRRTEC 2017

G20 economies - per capita

interstice Source: OECDwww.intersticeconsulting.comRRTEC 2017

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Government debt

RRTEC 2017


Sovereign spread to UST

RRTEC 2017


Total external debt

RRTEC 2017

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Household Debt : GDP

www.intersticeconsulting.comSource: BIS

RRTEC 2017

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Stock market capitalization : GNI

www.intersticeconsulting.comSource: Siblis Research

RRTEC 2017

Market cap : GNI(12/31/2016)

Market cap: GNI(12/31/2011)

5-year change

South Africa 308.4% 216.1% 92.3%USA 144.4% 99.0% 45.4%

India 133.7% 120.9% 12.8%

Canada 132.1% 112.1% 20.0%Malaysia 130.9% 140.9% -10.0%

United Kingdom 118.1% 113.9% 4.2%Japan 112.6% 52.7% 59.9%

Australia 105.1% 86.4% 18.7%Euronext 92.8% 56.8% 36.0%

Korea 91.7% 85.6% 6.1%China 88.7% 61.4% 27.3%

Philippines 66.2% 62.3% 3.9%

Germany 52.7% 32.9% 19.8%Russia 49.3% 47.2% 2.1%

Indonesia 48.0% 46.6% 1.4%Brazil 41.8% 53.3% -11.5%

Mexico 39.5% 40.0% -0.5%Italy 32.1% 20.4% 11.7%


Budget forecast

RRTEC 2017Source: World Bank


Revenue vs. spending

RRTEC 2017

Source: NATO (Source: IMF World Economic Outlook Database, October 2016; Russian Ministry of Finance; Russian Federal Treasury; author calculations. Data series deflated using the IMF’s GDP deflator.)


Defence spending vs. NATO

RRTEC 2017

Spending (USD millions) % of GDP Military personnel

(thousands)

NATO total $945,962 2.43 3,174USA $683,414 3.58 1,308

UK $54,863 2.14 161

France $44,333 1.79 209Germany $42,875 1.22 179

Italy $22,558 1.13 181Canada $20,315 1.31 73

Turkey $12,315 1.52 387Spain $11,655 0.92 121

Poland $9,997 2.01 111Netherlands $9,426 1.17 41

Norway $6,309 1.59 20

Greece $4,572 2.32 107Belgium $4,303 0.91 28

Denmark $3,667 1.17 17Estonia $519 2.14 5.7

RUSSIA $77,270 5.4 1,490

Source: NATO 2017(e), Russia: World Bank (SIPRI) 2016


UNDP Human Development

RRTEC 2017Source: UNDP 2017

VVHD ≧ 0.80 HHD = 0.70-0.79 MD = 0.55-0.69 LHD < 0.55

UNDP HDI — comparablesHDI Score Rank Life

expectancyGNI per capita

Norway 0.949 1 81.7 $67,614Australia 0.932 2 82.5 $42,822

Switzerland 0.932 2 83.1 $56,364Germany 0.926 4 81.1 $45,000Denmark 0.925 5 80.4 $44,519

USA 0.920 10 79.2 $53,245UK 0.909 16 80.8 $37,931

Poland 0.855 36 77.6 $24,117Saudi Arabia 0.847 38 74.4 $51,320

Hungary 0.836 43 75.3 $23,394Argentina 0.827 45 76.5 $20,945

Russia 0.804 49 70.3 $23,286Romania 0.802 50 74.8 $19,428

Kazakhstan 0.794 56 69.6 $22,093Bulgaria 0.794 56 74.3 $16,261Malaysia 0.789 59 74.9 $24,620Mexico 0.762 77 77.0 $16,383Brazil 0.754 79 74.7 $14,145China 0.738 90 76.0 $13,345

interstice www.intersticeconsulting.comRRTEC 2017Source: UNDP 2015

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But… macro measures in Russia (and even Moscow) are misleading

www.intersticeconsulting.comRRTEC 2017

Income and wealth disparities

• Approximately 23 million Russians – about 16% of the population – now officially subsist below the poverty line.

• Increasing signs that the huge concentration of wealth in the hands of a tiny percentage of the population is starting to annoy more Russians – especially as many of the richest people are government officials, or those close to them.

• A recent report found that 41% of Russians say they struggle to get enough money together for food and clothing.

interstice Source: Guardian (UK)www.intersticeconsulting.comRRTEC 2017

Income distribution and poverty rates (OECD)

interstice www.intersticeconsulting.comSource: OECD

RRTEC 2017


Paucity of the middle class

Source: Credit Suisse (2016)RRTEC 2017

Mean vs median wealth


Mean Wealth

Median Wealth

Mean / Median

USA $344,692 $44,977 7.7UK $288,808 $107,865 2.7

Singapore $276,885 $101,386 2.7

France $244,365 $99,923 2.4

Japan $230,946 $120,493 1.9

Sweden $227,295 $39,692 5.7

Germany $185,175 $42,833 4.3

UAE $151,098 $62,332 2.4

Hungary $33,893 $19,345 1.8

Poland $24,584 $9,484 2.6

Malaysia $24,429 $6,457 3.8

Mexico $21,125 $6,066 3.5

Turkey $19,685 $4,339 4.5

Brazil $18,059 $3,811 4.7

Indonesia $10,772 $1,966 5.5

Russia $10,344 $991 10.4

Philippines $9,878 $2,055 4.8

India $3,835 $608 6.3

Data source: Credit Suisse (2016)RRTEC 2017

Regional income disparities

interstice www.intersticeconsulting.comSource: Rosstat (2012)

RRTEC 2017

Moscow incomes are a multiple of the Russian average


And Moscow incomes are in line with major international cities


Eurasian Economic Union• Common

market of 183 million

• Economically anchored by Russia (140 million) and Kazakhstan (18 million)

interstice www.intersticeconsulting.comSource: IMF

RRTEC 2017

Eurasian Economic Union


Strong growth projections

interstice www.intersticeconsulting.comSource: IMF

RRTEC 2017

EEU wealth distribution


Adult population

GDP per adult

Mean Wealth

Median Wealth

Mean / Median

Russia 108,892,000 $24,945 $10,344 $991 10.4

Kazakhstan 11,144,000 $25,326 $4,134 $571 7.2

Belarus 7,473,000 $9,750 $1,259 $721 1.7

Armenia 2,292,000 $4,933 $5,558 $2,012 2.8

Kyrgyzstan 3,729,000 $2,339 $4,806 $1,921 2.5

Data source: Credit Suisse (2016)RRTEC 2017

Key takeaways• Russia’s macro finances are sound and the country is at low risk of financial distress,

subject to reeling in defence spending over the medium term. The direction of oil prices is the main caveat. Still, there is ample buffer to protect the state from defaulting on its external debt.

• Russia is a country of extremes: distances, terrain, temperature, living conditions, income, and wealth. Macro indicators which place Russia as an upper-middle income country mask deep disparities between individuals and regions.

• There is non-trivial risk of social unrest over the medium term, given the persistent gap in income and wealth and increasing rumblings amongst the have-nots. A catalyst may be the presidential elections due in March 2018 or the potential succession struggle leading up to the end of President Putin’s (expected) final term in 2024.

• Lack of options to invest money safely in financial assets predisposes Russian consumers to channel investment funds into the property market (for those who have the excess funds). For those who don’t, they prefer to spend their disposable income on travel, fashion, entertainment, etc.


How can Interstice Consulting support

your business in Russia?


About Interstice Consulting• Founded in 1993, we are a partnership offering a range of

professional services: company formation, international tax structuring, data privacy, expansion into emerging markets, digital marketing, IT project management.

• We have longstanding experience and contacts in Russia and other former Soviet Union countries (since 2004).

• Our Russian office has assisted a number of foreign consumer brands in entering the market.

• We also have an Asian regional presence: a permanent office in Singapore, good contacts in India, Philippines.


Market entry and support services

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• Write custom memorandum on key tax and legal considerations • Assist in registering and administering local companies • Obtain necessary compliance documents to import and sell products • Act as importer of record • Solicit orders from retailers • Sell and supply products to retailers in accordance with an order • Sell products to individual consumers • Travel to and attend corporate and social events or functions as being

appropriate venues to sell, market and solicit orders • Develop and implement a marketing and PR strategy to market products to

individual consumers • Provide customer service support • Procure 3PL services • Procure payment collection services for orders • Provide translation services • Procure printed and packaging materials for products, such as labels, wrapping

paper and other • Provide general consulting services

www.intersticeconsulting.comRRTEC 2017

Contact

Leighton Peter PrabhuManaging PartnerInterstice Consulting [email protected]


Reaching Russia Through E-commerce (RRTEC) 2017 - Part 1

Economy & Finance

Transcript of Reaching Russia Through E-commerce (RRTEC) 2017 - Part 1