Drawing on data sources such as the Grant Thornton IBR, the EIU and the IMF, this report considers the outlook for the economy, including the growth expectations of 400 businesses interviewed in Russia, and more than 12,500 globally.

1. Focus on: Russia
Grant Thornton International Business Report 2013

2. Focus on: Russia
Introduction
Russia is an emerging economy of more than 143m
people. In 2012, its GDP was approximately US$2trn,
making it the eighth largest economy in the world.
Drawing on data sources such as the Economist
Intelligence Unit (EIU), the International Monetary Fund
(IMF) and the Grant Thornton International Business
Report (IBR), this short report considers the outlook
for the economy, including the expectations of 400
businesses interviewed in Russia, and more than
12,500 globally, over the past 12 months.
Sergey Tishakov
Grant Thornton Russia
Partner
T +7 495 258 9990
E sergey.tishakov@ru.gt.com
W www.gtrus.com
US$2trn
gross domestic product
143 million inhabitants
Focus on: Russia 2

3. Focus on: Russia
Economy
Economy
expanded by
Like other emerging giants and fellow BRICs, Brazil and India, the
Russian economy has slowed sharply.
Growth of 3.4% in 2012 was the second
slowest rate of expansion in the Putin-era
with 2013 performance forecast to be even
more sluggish. The budget and growth
prospects in general remain heavily
dependent on international commodity
prices which are under threat from the
shale gas revolution, although continuing
12.0%
unrest in the Middle East means the price
6.1%
of oil is expected to remain well above
US$100/barrel. Oil and gas dominate
6.0%
exports, accounting for around 70% of
5.9%
the total.
64.9%
5.1%
3.4%
Export markets
in 2012
12.0%
Netherlands
Ukraine
Germany
China
Italy 53.9%
Others
6.1%
16.0%
6.0%
15.0%
64.9%
53.9%
5.9%
5.1%
6.3%
16.0%
15.0%
6.3%
4.5%
4.3%
4.5%
4.3%
Key indicators
• the economy grew by 1.2% in Q2
compared with the same period
12 months previously, down from
1.8% in Q1
• however, the economy actually
contracted by 0.3% on a
quarterly basis
• investment and construction activity in
the first six seven months of the year
were down 0.7% and 0.3% respectively
on the same period in 2012
4.0
• retail sales were up by 3.8% in
January-July boosted by rising
disposable incomes
• inflation continues to fall, dropping
12.0%
to 6.1% in September the slowest in 6.1%
12.0%
13 months
6.0%
• the current-account surplus6.1%
shrank to
US$1.1bn in Q3, down from US$5.8bn5.9%
6.0%
64.9%
in the Q2 and the lowest since 1998. 5.1%
4.0
Import sources
3.5
5.1%
3.0
3.0
2.5
16.0%
2.5
China
Germany
Ukraine
Belarus
Japan
Other
16.0%
2.0
53.9%
5.9%
64.9%
3.5
53.9%
1.5
15.0%
15.0%
1.0
6.3%
0.5
6.3%
4.5%
4.3%
2.0
1.5
1.0
0.5
0.0
4.5%
0.0
4.3%
Source: Observatory of Economic Complexity
-0.5
4.0
-1.0
4.0
-1.5
3.5
2.5
-1.0
3.5
3.0
-0.5
2013
3.0
-1.5
2014
2015
2016
2013
2017
2014
2018
Focus on: Russia 3
20

4. 4.9%
Focus on: Russia
12.0%
6.3%
4.5%
4.3%
53.9%
Growth and trade forecasts
4.0
3.5
3.0
16.0%
15.0%
6.3%
1.5
4.5%
4.3%
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2.0
0.0
-0.5
2.5
-1.0
-1.5
2013
Privatisation, together with efforts to
reform the business operating environment
and pensions look unlikely to make much
headway over the short to medium-term.
The expansion of the Eurasian Customs
Union – which currently includes Belarus,
Kazakhstan and Russia – looks set to be
dealt a major blow with popular pressure
growing in Ukraine to reject Russian
overtures and instead look west to the
European Union for closer economic ties.
6.0%
15.0%
5.9%
Growth is expected to slow to 1.8% in 2013 with global trade still tepid
64.9%
53.9%
5.1%
and concerns over the end of monetary easing in the United States
increasing capital flight from emerging markets. The economy is
expected to pick up pace in 2014, with expansion of 3.3% forecast,
accelerating to 3.8% in 2015.
1.0
0.5
0.0
forecast growth
in 2013
-0.5
-1.0
-1.5
2015
1.8%
2014
The improvement is set to be led by a
growth in exports from just 1.9% growth
in 2013 to 6.0% in 2014 and 5.2% in 2015.
Despite this, the current account balance is
expected to slip into deficit by 2016 and
continue to worsen thereafter as import
growth accelerates.
Exports account for more than 30%
of GDP so the any deterioration in
international commodity prices presents
a major downside risk to this forecast.
However continuing unrest in the
Middle East should keep oil and gas
prices elevated and the government
budget close to balance.
5.9%
6.0%
5.1%
Economic outlook
16.0%
6.1%
6.1%
12.0%
2014
2015
Source: Economist Intelligence Unit (2013)
2016
2017
2018
Current-account balance (% GDP)
Real GDP growth (%)
2016
3.3%
2013
forecast growth
in 2014
2017
2018
Focus on: Russia 4

5. 80
Focus on: Russia
70
60
50
40
30
20
10
80
0
Business growth prospects
-10
70
-20
Russian business optimism dropped to net 19% in Q3, down from 28% in Q2 and 53%
at the start of the year as confidence in the economic outlook has waned. This is well
below the global and BRIC averages (both 32%). However Russian business growth
expectations have remained fairly steady. Net 53% expect revenues to climb over the
next 12 months, below the BRIC average (67%) but above the global result (47%).
Similarly 45% expect profitability to increase, above both the BRIC (41%) and global
(38%) averages. These figures are well down on pre-crisis figures. Before the financial
crisis struck in 2008, 80% of Russian businesses expected to see revenues rise and a
further 68% expected to raise profits.
60
Investment plans have been more volatile, perhaps reflecting an aversion to planning
50
for long-term growth with the economic outlook so uncertain. In Q1, net 11% of
business leaders planned to increase investment in plant and machinery over the next
40
12 months, rising to 47% in Q2 and 66% in Q3 – a record high since 2008. However,
30
business leaders seem reticent to take on extra staff. Just net 25% expect to hire workers
in the coming year. This is level with the global average but just half the rate recorded
20
in 2007 and 2008.
10
0
-10
-20
Net percentage of businesses expecting to
increase profits (next 12 months)
43%
expect
80
70
60
revenues
50
to rise
40
30
10
2009
2010
2011
2012
2013
80
35%
planning
70
60
50
investment
activity
40
20
0
10
-10
2007
2008
2009
2010
80
Source: Grant Thornton IBR 2013
70
2008
30
20
-20
2007
Net percentage of businesses expecting to increase
investment in plant & machinery (next 12 months)
2011
2012
2013
0
Russia
BRIC
2007
2008
2009
2010
2011
2012
2013
Russia
BRIC
Source: Grant Thornton IBR 2013
60
50
40
30
Focus on: Russia 5

6. Focus on: Russia
Growth constraints
Stifling bureaucracy is the key constraint stopping Russian businesses
from growing. Over the course of 2013, 62% have cited regulations and
red tape as a constraint on their expansion plans. This marks the fifth
straight year bureaucracy has risen as a constraint since falling to just
25% in 2009 at the height of the financial crisis and is the highest level
recorded since this question was first asked in 2007.
A lack of skilled workers is affecting
50% of Russian businesses. This is a
challenge that business leaders in
emerging markets tend to have to deal
with more than peers in mature markets
but the Russia result is fully 10 and 20
percentage points above the BRIC and
global averages respectively. A shortage
of orders is cited by two in five
businesses, down from one in two
during the financial crisis and slightly
below the BRIC average.
2007
2008
2009
2010
A shortage of finance is also a concern.
Over the past 12 months, 45% of Russian
businesses have cited financial constraints
on their ability to grow their operations
– the third straight year this has risen.
This compares to a BRIC average of
32% and a global average of just 21%.
2009
2010
2011
59
2007
2008
2009
2010
2011
2012
2013
44
38
18
25
32
40
29
42
35
55
38
Russia
BRIC
62
42
Source: Grant Thornton IBR 2013
2011 bureaucracy
2012
2013
constraining
business
2008
Percentage of businesses citing regulations
and red tape as a constraint on growth
Percentage of businesses citing a lack of skilled
workers as a constraint on growth (2013 average)
growth
2012 2013
plans
50
a lack of
talent is a
challenge
40
30
Russia
BRIC
Global
Source: Grant Thornton IBR 2013
Focus on: Russia 6

7. Focus on: Russia
Finding growth
The IBR 2013 results suggest three areas on which Russia could focus
to boost growth:
Productivity
Innovation is important because it increases
long-term business growth prospects by
boosting the quality, productivity and
efficiency inputs. The issue is brought into
sharper focus as Russia’s population not
only ages but also shrinks – there are
expected to be 13% fewer people in
Russia in 2030 compared with 2006.
However, on average over the past
12 months, just 9% of Russian businesses
have indicated an expectation to increase
R&D activity, the fourth lowest of the
45 economies surveyed. And this is not a
one-off occurrence. Since this question was
first asked in 2010, this figure has barely
moved. By contrast 36% of BRIC businesses
and 21% globally expect to increase
investment in R&D in year ahead. The
reform of the Russian Academy of Science
was thought by some to be a step in the right
direction but just 27% of businesses expect it
to have a positive effect on R&D.
Consumer demand
Private consumption is expected to
contribute incrementally less to GDP over
the medium term, falling from 3.5% in 2012
to 1.9% in 2018. The recent deceleration in
inflation has boosted real incomes, which
grew by 4.4% in July 2013 compared with
the same period a year earlier.
However, on average over the past
12 months just 46% of Russian business
leaders expected to raise salaries, well
below the BRIC (68%) and global (67%)
averages. Moreover with inflation still
running at 6% and forecast to remain
above 5% in the medium-term, just 10%
expect to offer real increases, again below
the BRIC (17%) and global (15%) results.
This points to a squeeze on disposable
incomes and therefore on consumption.
Infrastructure
Better connectivity allows business to
access inputs more quickly and speeds up
the provision of goods and services to
consumers. Good quality infrastructure
improves the efficiency of operations so
investing in better roads, rail and
broadband raises growth potential.
However, Russian businesses are far
from satisfied with the transport and
information communications technology
(ICT) available to them. Over the past
12 months, 39% have cited poor transport
infrastructure as a constraint on growth.
Only businesses in India (47%) are less
satisfied. A further 35% cite the poor
quality of ICT infrastructure. Only
businesses in India, Botswana, the
Philippines and Vietnam are less satisfied.
Net percentage of businesses expecting to increase R&D activity
(2013 average; next 12 months)
Russia
BRIC
Global
9
36
21
Net percentage of businesses expecting to raise salaries
(2013 average; next 12 months)
46
68
67
Percentage of businesses citing infrastructure as a growth constraint (2013 average)
Transport
39
26
14
ICT
35
26
16
Focus on: Russia 7

8. IBR 2013 methodology
The Grant Thornton International Business Report (IBR) is the leading mid-market business survey in the world,
interviewing approximately 3,300 senior executives every quarter in listed and privately-held businesses all over the
world. Launched in 1992 in nine European countries, the report now surveys more than 12,500 businesses leaders in
45 economies on an annual basis, providing insights on the economic and commercial issues affecting companies globally.
The data in this report are drawn from interviews with chief executive officers, managing directors, chairmen and
other senior decision-makers from all industry sectors in businesses with 100-499 employees. Q3 data is drawn from
3,300 interviews globally (100 in Russia, 375 in the BRICs) conducted in September 2013. 2013 data is drawn from over
12,500 interviews (400 in Russia, 1,500 in the BRICs) conducted between November 2012 and September 2013.
To find out more about IBR, please visit: www.internationalbusinessreport.com.
Dominic King
Grant Thornton International Ltd
Global research manager
T +44 (0)207 391 9537
E dominic.king@gti.gt.com
Nadia Pototskaya
Grant Thornton Russia
Head of marketing
T +7 495 258 9990
E nadia.pototskaya@ru.gt.com
© 2013 Grant Thornton International Ltd.
‘Grant Thornton’ refers to the brand under which the Grant Thornton
member firms provide assurance, tax and advisory services to their
clients and/or refers to one or more member firms, as the context requires.
Grant Thornton International Ltd (GTIL) and the member firms are not a
worldwide partnership. GTIL and each member firm is a seperate legal
entity. Services are delivered by the member firms. GTIL does not provide
services to clients. GTIL and its member firms are not agents of, and do
not obligate, one another and are not liable for one another’s acts or omissions.
www.gti.org