The Russian Middle Class

1
The Russian Middle Class

• SITE, May 16, 2008

2
Introduction

• The Russian middle class emerges on the back of a
  strong economy
• Short term Russia a sweet spot in a sour world
• Medium term macro economic turnaround based on
  energy prices
• Long term convergence case based on a
  diversifying economy, kick-started by high oil
  prices
• The consumer class more pronounced than the
  middle class
• Short-term more focus on consumption than social
  or political factors
• Medium-term strong focus on socio-economic
  development and education
• Long-term consumers will demand more political
  rights

3
The growth story
Source IMF, World Economic Outlook, April 2008

• The Russian economy has almost doubled in real
  terms and increased more than 500 in nominal
  terms during the past ten years
• The US economy has grown approx 30 and 60 in
  real and nominal terms during the same period
• There is still plenty of room for catch-up as
  Russian GDP/capita is expected to be one fourth
  of the US at the end of 2008

4
The turnaround story
Source IMF, World Economic Outlook, April 2008

• From bankruptcy to an extraordinary strong fiscal
  position in ten years
• The third largest forex reserves in the world
• SP upgraded Russias BBB long term sovereign
  rating from stable to positive on the back of the
  strong fiscal position

5
The diversifying story more regions
Source Troika Dialogue

• Regions are the undiscovered convergence story.
• Russian regions represent 75 of GDP and 88 of
  the population
• Penetration level of goods and services are much
  lower than in Moscow

6
Conclusions

• The strong growth spreading into the regions
  gradually leads to more people taking part in the
  economy
• The Russian consumer class is the largest in
  Europe with 85m people
• 82 of Russians consider themselves middle class
  but approx 30 are
• The emergence of a solid middle class is the best
  prospect for a more ambitious development of
  Russian democracy
• Why is Russias Mango-clad, Ford-driving,
  Egypt-holidaying middle class not becoming more
  politically assertive? FT, Oct 30, 2006
• You have a good job, you have money, you have a
  nice dacha, but you cant get there because the
  roads are so terrible . . I think the next big
  wave of change will be more bottom-up. Thats why
  this middle-class phenomenon is so powerful.
  Stephen Jennings, CEO, RenCap