Reaching Russia Through E-commerce (RRTEC) 2017 - Part 1

Reaching Russia
Through E-Commerce
RRTEC 2017
interstice
www.intersticeconsulting.com

Part I.
Economic backdrop
interstice www.intersticeconsulting.comRRTEC 2017

Russian real GDP growth is
resuming
interstice Source: World Bank
www.intersticeconsulting.comRRTEC 2017

G20 economies - GDP
interstice Source: OECD

G20 economies - per capita
interstice Source: OECD

interstice www.intersticeconsulting.com
Government debt
RRTEC 2017

Sovereign spread to UST
RRTEC 2017

Total external debt
RRTEC 2017

interstice
Household Debt : GDP
Source: BIS
RRTEC 2017

interstice
Stock market capitalization : GNI
Source: Siblis Research
RRTEC 2017
Market cap : GNI 
(12/31/2016)
Market cap: GNI 
(12/31/2011)
5-year  
change
South Africa 308.4% 216.1% 92.3%
USA 144.4% 99.0% 45.4%
India 133.7% 120.9% 12.8%
Canada 132.1% 112.1% 20.0%
Malaysia 130.9% 140.9% -10.0%
United Kingdom 118.1% 113.9% 4.2%
Japan 112.6% 52.7% 59.9%
Australia 105.1% 86.4% 18.7%
Euronext 92.8% 56.8% 36.0%
Korea 91.7% 85.6% 6.1%
China 88.7% 61.4% 27.3%
Philippines 66.2% 62.3% 3.9%
Germany 52.7% 32.9% 19.8%
Russia 49.3% 47.2% 2.1%
Indonesia 48.0% 46.6% 1.4%
Brazil 41.8% 53.3% -11.5%
Mexico 39.5% 40.0% -0.5%
Italy 32.1% 20.4% 11.7%

Budget forecast
RRTEC 2017
Source: World Bank

Revenue vs. spending
RRTEC 2017
Source: NATO (Source: IMF World Economic Outlook Database, October 2016; Russian Ministry of Finance;
Russian Federal Treasury; author calculations. Data series deﬂated using the IMF’s GDP deﬂator.)

Defence spending vs. NATO
RRTEC 2017
Spending (USD
millions)
% of GDP
Military personnel
(thousands)
NATO total $945,962 2.43 3,174
USA $683,414 3.58 1,308
UK $54,863 2.14 161
France $44,333 1.79 209
Germany $42,875 1.22 179
Italy $22,558 1.13 181
Canada $20,315 1.31 73
Turkey $12,315 1.52 387
Spain $11,655 0.92 121
Poland $9,997 2.01 111
Netherlands $9,426 1.17 41
Norway $6,309 1.59 20
Greece $4,572 2.32 107
Belgium $4,303 0.91 28
Denmark $3,667 1.17 17
Estonia $519 2.14 5.7
RUSSIA $77,270 5.4 1,490
Source: NATO 2017(e), Russia: World Bank (SIPRI) 2016

UNDP Human Development
RRTEC 2017
Source: UNDP 2017
VVHD ≧ 0.80 HHD = 0.70-0.79 MD = 0.55-0.69 LHD < 0.55

UNDP HDI — comparables
HDI Score Rank Life
expectancy
GNI per  
capita
Norway 0.949 1 81.7 $67,614
Australia 0.932 2 82.5 $42,822
Switzerland 0.932 2 83.1 $56,364
Germany 0.926 4 81.1 $45,000
Denmark 0.925 5 80.4 $44,519
USA 0.920 10 79.2 $53,245
UK 0.909 16 80.8 $37,931
Poland 0.855 36 77.6 $24,117
Saudi Arabia 0.847 38 74.4 $51,320
Hungary 0.836 43 75.3 $23,394
Argentina 0.827 45 76.5 $20,945
Russia 0.804 49 70.3 $23,286
Romania 0.802 50 74.8 $19,428
Kazakhstan 0.794 56 69.6 $22,093
Bulgaria 0.794 56 74.3 $16,261
Malaysia 0.789 59 74.9 $24,620
Mexico 0.762 77 77.0 $16,383
Brazil 0.754 79 74.7 $14,145
China 0.738 90 76.0 $13,345
Source: UNDP 2015

interstice
But… macro measures in Russia
(and even Moscow) are misleading

Income and wealth
disparities
• Approximately 23 million Russians – about 16% of the
population – now officially subsist below the poverty
line.
• Increasing signs that the huge concentration of wealth in
the hands of a tiny percentage of the population is
starting to annoy more Russians – especially as many of
the richest people are government officials, or those
close to them.
• A recent report found that 41% of Russians say they
struggle to get enough money together for food and
clothing.
interstice Source: Guardian (UK)

Income distribution and
poverty rates (OECD)
Source: OECD
RRTEC 2017

Paucity of the middle class
Source: Credit Suisse (2016)RRTEC 2017

Mean vs median wealth
Mean  
Wealth
Median
Wealth
Mean /  
Median
USA $344,692 $44,977 7.7
UK $288,808 $107,865 2.7
Singapore $276,885 $101,386 2.7
France $244,365 $99,923 2.4
Japan $230,946 $120,493 1.9
Sweden $227,295 $39,692 5.7
Germany $185,175 $42,833 4.3
UAE $151,098 $62,332 2.4
Hungary $33,893 $19,345 1.8
Poland $24,584 $9,484 2.6
Malaysia $24,429 $6,457 3.8
Mexico $21,125 $6,066 3.5
Turkey $19,685 $4,339 4.5
Brazil $18,059 $3,811 4.7
Indonesia $10,772 $1,966 5.5
Russia $10,344 $991 10.4
Philippines $9,878 $2,055 4.8
India $3,835 $608 6.3
Data source: Credit Suisse (2016)
RRTEC 2017

Regional income disparities
Source: Rosstat (2012)
RRTEC 2017

Moscow incomes are a multiple
of the Russian average

And Moscow incomes are in line
with major international cities

Eurasian Economic Union
• Common
market of 183
million
• Economically
anchored by
Russia (140
million) and
Kazakhstan (18
million)
Source: IMF
RRTEC 2017

Eurasian Economic Union

Strong growth projections
Source: IMF
RRTEC 2017

EEU wealth distribution
Adult
population
GDP per
adult
Mean  
Wealth
Median
Wealth
Mean /
Median
Russia 108,892,000 $24,945 $10,344 $991 10.4
Kazakhstan 11,144,000 $25,326 $4,134 $571 7.2
Belarus 7,473,000 $9,750 $1,259 $721 1.7
Armenia 2,292,000 $4,933 $5,558 $2,012 2.8
Kyrgyzstan 3,729,000 $2,339 $4,806 $1,921 2.5
Data source: Credit Suisse (2016)
RRTEC 2017

Key takeaways
• Russia’s macro finances are sound and the country is at low risk of financial distress,
subject to reeling in defence spending over the medium term. The direction of oil
prices is the main caveat. Still, there is ample buffer to protect the state from
defaulting on its external debt.
• Russia is a country of extremes: distances, terrain, temperature, living conditions,
income, and wealth. Macro indicators which place Russia as an upper-middle
income country mask deep disparities between individuals and regions.
• There is non-trivial risk of social unrest over the medium term, given the persistent
gap in income and wealth and increasing rumblings amongst the have-nots. A
catalyst may be the presidential elections due in March 2018 or the potential
succession struggle leading up to the end of President Putin’s (expected) final term
in 2024.
• Lack of options to invest money safely in financial assets predisposes Russian
consumers to channel investment funds into the property market (for those who
have the excess funds). For those who don’t, they prefer to spend their disposable
income on travel, fashion, entertainment, etc.

How can
Interstice Consulting support
your business in Russia?

About Interstice Consulting
• Founded in 1993, we are a partnership offering a range of
professional services: company formation, international tax
structuring, data privacy, expansion into emerging markets,
digital marketing, IT project management.
• We have longstanding experience and contacts in Russia and
other former Soviet Union countries (since 2004).
• Our Russian office has assisted a number of foreign consumer
brands in entering the market.
• We also have an Asian regional presence: a permanent office
in Singapore, good contacts in India, Philippines.

Market entry and support
services
interstice
• Write custom memorandum on key tax and legal considerations
• Assist in registering and administering local companies
• Obtain necessary compliance documents to import and sell products
• Act as importer of record
• Solicit orders from retailers
• Sell and supply products to retailers in accordance with an order
• Sell products to individual consumers
• Travel to and attend corporate and social events or functions as being
appropriate venues to sell, market and solicit orders
• Develop and implement a marketing and PR strategy to market products to
individual consumers
• Provide customer service support
• Procure 3PL services
• Procure payment collection services for orders
• Provide translation services
• Procure printed and packaging materials for products, such as labels, wrapping
paper and other
• Provide general consulting services

Contact
Leighton Peter Prabhu 
Managing Partner 
Interstice Consulting LLP 
moscow@intersticeconsulting.com 

Reaching Russia Through E-commerce (RRTEC) 2017 - Part 1

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Reaching Russia Through E-commerce (RRTEC) 2017 - Part 1