Modern Russia growing beyond Moscow
Moscow will emerge as a new global Mega City by 2025, accounting for 25 to 30 percent of Russian GDP and 20 percent of the population. Frost & Sullivan forecasts another five to seven cities will become alternative growth centers by 2020, bridging the welfare gap between Moscow and other regions.
Vladivostok, Tomsk and Yekaterinburg are proving to be new locomotives for growth. The gradual improvement of quality of life in Vladivostok, Irkutsk, Novosibirsk and other formerly depressed towns is the result of huge public investment projects, such as the RUB 284 billion ($9 billion) invested to prepare Vladivostok to host the APEC summit in September 2012.
Yekaterinburg is the heart of the Ural region bridging Europe and Asia. Along with Krasnodar and Kaluga, Yekaterinburg has shown stable growth in population and business activity over the last ten years, despite the economic crisis, due to regional initiatives to create favorable conditions for investment. Similarly, Project Tomsk 3.0 combines plans for innovative economic development with the creation of strong scientific and educational institutions, a comfortable living environment and social infrastructure.
Frost & Sullivan believes that the Mega City will be one of Russia’s most interesting future trends, the emergence of which will be expedited by modernization of supporting infrastructure.
One of the most ambitious infrastructure development programs in the world
“Russia has two problems – fools and bad roads.” This humorous proverb might soon be obsolete as the government intends huge investments that may well rid Russia of the “roads problem” by 2020. Current conditions are far from ideal, with 29 percent of federal roads and up to 60 percent of Moscow roads overloaded. Road accident statistics highlight the frightening facts – Russia sees 23.5 deaths per 100,000 people.
The government considers the automotive industry a strategic one, and its support for this segment bodes well for overall growth. Ambitious plans include construction or modernization of up to 20,000 km of roads, including toll highways. The launch of the Customs Union of Russia, Belarus and Kazakhstan creates a strong driver for development of Trans-Siberian routes and multi-modal hubs. Dynamic growth is expected in both the passenger car and light commercial vehicle segments.
Russian air passenger traffic is expected to increase from 66 million in 2012 to 85 million by 2018, supported by rising personal incomes. However, 80 percent of Russia’s airport infrastructure is outdated. Pilot investment projects have already started in Moscow, St. Petersburg, Krasnodar and Sochi. Tourism cluster development plans will bring four new airports and the modernization of six existing ones in the Caucasus region.
Frost & Sullivan expects 20,000 km of new railroads, which have historically served as the country’s arteries, to be constructed by 2030. Pilot high-speed railway projects “Moscow-Saint-Petersburg” and “Sochi” signify the dawn of a new era – 1,500 km at speeds of up to 350 km/h.
According to Frost & Sullivan estimations, about 60 percent of the population will use e-government services in 2020, compared to the current 11 percent, which will put Russia in the lead among East European nations by total number of users.
The healthcare industry will also take part in e-modernization, drawing up to RUR 24 billion ($800 million) into such promising spheres as telemedicine and m-healthcare.
Russian e-commerce saw steady growth in annual turnover (up to 40 percent) in 2011, driven by development of user data security and improvements in logistics. Increasing Internet penetration, raising the number of active credit cardholders and overcoming general distrust of Internet purchases can fuel further growth.
Energy saving as a lifestyle approach
To complement the Smart City trend, “smart” is emerging as the new “green.” According to the Russian Federal Law №261, energy efficiency should increase by 40 percent by 2020, while Russia’s share of imported equipment should be reduced by the same percentage. Initially, the country is focusing on an LED lamps revolution and the deployment of smart meters.
The lighting industry is facing the most notable transition since the introduction of electric light bulb in the 19th century, mainly due to the rapid emergence of LEDs offering potential energy savings of 80 percent. Along with the market for the lamps themselves, LED lighting systems require complex microelectronics, creating the opportunity for that market to develop.
A plant manufacturing smart meters was opened in Krasnoyarsk in February 2012 by Intellectual Metering Systems, owned by the Krasnoyarsk Regional Energy Company, and with the support of the Russian Energy Agency and in close collaboration with France’s Sagemcom.
Globalization has changed Russia entirely, making it a competitive and attractive country for investment. Frost & Sullivan perceives Mega Trends as a key factor in successful development – both for the country and businesses – and as a tool to build strong business and generate new revenues.
Beatrice Shepherd is vice president, CEE, Russia & CIS at Frost & Sullivan.