Boston, MA -- (SBWIRE) -- 06/03/2014 -- We are maintaining our bearish construction industry view for Russia in 2014, forecasting -0.5% real growth for the year. We estimate that the industry entered a period of contraction in 2013 at -1% and we only expect the industry to emerge from this downturn in 2015. The large investments made surrounding sporting events have so far failed to stimulate growth in the sector. In addition, private investment has continued to weaken as a result of endemic corruption, inefficient bureaucracy, and lack of investor guarantees. This poor business environment is exacerbated by stubbornly high inflation and slow economic growth.

Key developments in the sector:

- Recent developments have prompted our Country Risk team to revise further down our already belowconsensus growth forecasts for Russia. Russian perceived belligerence towards neighbouring Ukraine and concerns over military escalation have spurred rapid capital flight and shattered investor confidence in Russia. Investors are likely to remain wary of further escalation in the tensions between Russia and the West over Ukraine that might result in a military stand-off and/or substantive sanctions, such as mutual trade restrictions and capital controls.
- The awarding of the long-awaited Public-Private Partnership (PPP) for the Lena bridge project confirms our view that private interest in Russia's PPP market is likely to stem mainly from Russian companies. In addition, this USD1.7bn project presents a considerable upside to our construction industry forecast for the country.
- In March 2014, 10 consortiums expressed interest in the Moscow-Kazan high-speed railway, which was presented to potential investors in Moscow. A number of global firms including French, Spanish and Italian companies, expressed interest in the project.
- With regards to metros, new PPP legislation, expected to be approved by Q314, will open the door for the private sector to participate in rail construction and the acquisition of rolling stock. The draft law would allow the investment of non-budget funds in metro infrastructure through concessions.
- In January 2014, Lithuania-based company Avia Solutions Group and Russia's state-owned company Rostec signed a cooperation agreement to develop and management a new Moscow airport with a capacity of 12mn passengers a year. The new Russian airport, dubbed Ramenskoye International Airport, is designed to cater for low-cost airlines - a niche industry that has experienced slow growth in Russia as a result of insufficient infrastructure.
- Infrastructure associated with the export of commodities (pipelines, ports and transport infrastructure - to support oil and gas output east and west of the Urals) has a high growth potential - as development is predicated on growth in the natural resources sector. These projects have been prioritised by the government.

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