Russian public market to reach $250 billion this year
Currently public market covers all the areas of the Russian economy and social sphere. After the first wave of economic crisis, the volume of transactions in this market since 2011 has significantly increased, which also reflected in a significant increase of the number of new tenders, which also attract foreign business.
As a rule, the majority of state orders accounted for the largest cities of the country, which have strong economic potential, among which are Moscow, St. Petersburg, Novosibirsk, Samara, Volgograd, Kazan. The volume of Moscow state order currently remains the largest in Russia.
About 60% of the Russian public market account for such sectors as transportation, health care, construction, education and defense. At the same time, according to analysts’ predictions, the share of agriculture this year will also increase, due to ongoing process of import substitution in the industry.
In contrast to many EU states, where the share of public market usually does not exceed 5%-6% of the national GDPs, in the case of Russia this figure is estimated at 18% and, amid the ever deteriorating economic environment in the country, it share continues to grow, as the Russian business considers the government as one of the most reliable business partners during the times of the economic crisis in the country.
Still, the level of competition in the Russian public market is steadily declining, as, due to the current financial crisis in Russia and associated with it lack of cheap loans, many companies refuse to work with the state.
Get our daily investorintel update
As a rule, the proper execution of state contracts in Russia is associated with the need to attract third-party funding (mostly bank loans) until the full payment under the agreement. The current financial crisis in Russia results in the fact that the cost of attracting of these credit resources has significantly increased, while their value is always included in the cost of production. This also results in the purchases of goods and services by the state at inflated prices.
In terms of business, a public customer, on the one hand, has traditionally been considered as the desirable customer by the majority of Russian companies, however the existing practice of mandatory delays of payment and strict conditions of obligations’ fulfillment result in an decline of the interest of business to state orders.
In addition, due to the current financial crisis, the government is considering ways for the achievement of significant savings during the signing and execution of state orders.
The peak contractual orders in the Russian public market is traditionally observed during the autumn and early winter periods, while the decline of purchasing activity always occurs during the first months of each year.
The situation with public orders currently remains stable only in those regions, where, in addition to state funding, a significant part of funds is provided by the regional budgets. Among these regions are the Moscow city and the Moscow region, where a slight growth continues to be observed in the majority of segments of local industrial production.
Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>