Russia comes in for a certain amount of bad press, not least of which in these columns, due to its patchy adherence to the rule of law, at least as applied in the corporate world, and the growing centralization of power into the hands of self styled hard man Prime Minister Vladimir Putin. A member of Goldman’s BRIC acronym Russia is seen both as an emerging country as in emerging out of the collapse of the old Soviet empire – and as a world superpower by virtue of owning far more nuclear weapons than it knows what to do with. But as with every coin there are two sides and a refreshing article by Tim Gosling in the Rossiyskaya Gazette and distributed by the Telegraph newspaper puts the case for Russia being seen in a much more favorable light against its BRIC peers.
Russia is part way between European power and emerging market country. With 142 million people it is by far the most populous country in Europe, more than twice France, Turkey and Germany. Even so, compared to Brazil at over 190 million not to mention India or China it is the smallest of the BRIC countries from a population point of view. Supporters would argue though that what it lacks in quantity it makes up for in quality in terms of per capita income and the relative size of its consuming middle class. The data varies but the RBTH article puts Russia’s per capita income (adjusted for purchasing power) at about $18,945 compared with $10,427 in Brazil, $6,675 in China and $3,248 in India. Russia may have fewer people, but those it does have are the richest of all the BRIC nations by a long chalk, twice as well off as the average Chinese and five times better off than the average Indian. These numbers compare closely with the latest World Bank report from July 2010. Furthermore, the article states that 68% of Russians can be considered middle class (approximately 100m people), against 31% in Brazil (75m) 13% in China (160m) and less than 3% in India (30m).
The differences in the per capita income are also expressed in the differing rates of growth between China/India at 8-10% and Russia at 4-6%. Russia is more of an industrialized country with higher levels of education among other metrics. A prime example of Russia’s position relative to both Europe and the BRICs is car ownership. Car ownership in Russia is 231 per 1,000 people, half that in Western Europe but five times more than in China. Detractors could say this means growth in the market will be slower but the average age of cars on Russian roads is 11.5 years against the Western European average of 8.5. This means that not only will the market double in size as it converges with Western Europe, but it will grow even faster, as car owners have to replace their existing cars sooner than their peers in the West.
Does all this make Russia an interesting place to invest? Supporters would say yes. Russia’s companies are trading well below the price/earnings ratio norm at a ratio of 7x, whereas those of India, Brazil and China are well above it at multiples of 21x, 15x and 14x respectively. But price/earnings ratios are not the whole story. Russia as a place to invest is for those with deep pockets and steady blood pressure. Politics still dominates many aspects of business life and connections are crucial, if not for the investor then for the company they are investing in. In the long run, Russia has a lot going for it. In the short term, a little more rule of law, a little more democracy and a little less centralist control would make the climate a lot more appealing.