Industry Trend Analysis - Industry Scale Attractive In Otherwise High Risk Market - AUG 2017

BMI View: The prospect of additional international sanctions and our expectations for weak oil price gains in 2017 and 2018 will exacerbate an already weak Risk profile for Russia ' s infrastructure sector. The market ' s strongest attribute remains its scale as the largest construction market in Central and Eastern Europe.

Risk/Reward Snapshot
Russia & CEE Region Infrastructure Risk/Reward Index
Source: BMI Infrastructure Risk/Reward Index. Scores out of 100, Higher Score = More Attractive Market

Global And Regional Ranks

  • Regional rank (out of 14): 7

  • Global rank (out of 105): 19

Key Features and Latest Updates

  • Russia ranks above the regional average of 46.9 in our Infrastructure Risk Reward Index, with the region-leading scale of the country's construction sector and its moderate construction real growth outlook outweighing suboptimal risk conditions.

  • Though the country's large, mostly urban population will continue to boost Rewards scores in the short-term, Russia's low population growth will weigh on future structural demand for infrastructure, particularly as the country's project pipeline thins out after the 2018 World Cup (a key driver of infrastructure investment in Russia to date).

  • Russia presents a substantially riskier environment in which to invest in infrastructure relative to its Central and Eastern European peers. Geopolitical tensions continue to cloud the outlook for international firms looking to invest - with a fresh round of sanctions likely to pass the US Congress in the next months, we see substantial scope for Russia's risk profile to deteriorate further in the coming quarters, especially with regard to projects like Nord Stream 2 given the fact that these sanctions target the energy and pipeline sectors in particular.

  • The dependence of the Russian government on hydrocarbon revenue to fund infrastructure projects will be laid bare in a period of lower oil prices. Crucially for the sector, we have recently downgraded our oil price outlook and expect the price of Brent to average USD54per bbl in 2017 and USD61.2 per bbl over the next five years, indicating that government finances will remain under pressure.

RRI Matrix Breakdown
Russia & CEE Region Infrastructure Risk/Reward Index By Component
Source: BMI Infrastructure Risk/Reward Index. Scores out of 100, Higher Score = More Attractive Market