Russia emerges as high growth market

Russia's economy is currently booming. The country has experienced several years of strong growth (8% in 2007) and it is now the tenth largest economy in the world. Its vast oil and gas resources are key to its economic strength; the country is the second largest oil-producing country in the world and state-controlled Gazprom is the world's largest gas company.

A strong economy, a population of over 140 million and the potential for significant long-term growth have made the country a priority market for many international companies. Some of the areas identified as opportunities for international companies include the oil and gas, power, aerospace, automotive, and construction sectors.

On the downside, Russia is not an easy place to do business. International companies complain of high levels of bureaucracy and corruption. The 2008 World Bank's Ease of Doing Business survey (covering the period April 2006 to June 2007) ranks Russia 106 out of 178 countries. This puts it behind Paraguay and Ethiopia and just ahead of Nigeria and Bangladesh.

In the longer term, Russia could face significant labour shortages. The country's population is falling by over 700 000 per year and male life expectancy is now 58 years (which is comparable to Bangladesh). There is already a shortfall of skilled workers, which is exacerbated by low labour mobility.

Composites

As would be expected, the strong Russian economy is spurring growth in the country's composites industry.

According to the Moscow-based Union of Glass Fibre Manufacturers (UGFM), during the past six years the use of glass fibre in Russia has grown by 150%, at a compound average growth rate (CAGR) of 7.8% (Figure 1). Imports have varied between 23% and 41% during this time. In his conference presentation, UGFM's Executive Director Kirill Vasiliev explained that the use of glass fibre composites in Russia is expected to treble in the next five years, to reach an estimated figure of 321 000 tonnes in 2013 (Figure 2.) And there is potential for much more growth. Vasiliev explained that composites consumption per capita in Russia was just 0.2 kg in 2004 and it is expected to increase to 2.3 kg by 2013, which is still very low compared to many other regions (Figure 3).

Although these predictions look rosy, Vasiliev also highlighted some of the challenges facing the Russian composites industry. These include:

• domestic production being supplanted by imports;
• lagging behind developed countries in terms of production methods, product quality, scale of production and product range;
• the conservative attitude of manufacturers and consumers towards new materials;
• poor government support (and the strong position of the metals industry); and
• a shortage of skilled manpower.

UGFM was established in 2004 with the aim of safeguarding the interests of Russian manufacturers of glass fibre and products based on glass fibre. Today, its 20 members include manufacturers of glass fibre from Russian and other Commonwealth of Independent States (CIS) countries, as well as international equipment suppliers. Its objectives include promoting the applications of glass fibre products, encouraging the formation of standards for the industry, strengthening cooperation between glass fibre producers, users of glass fibre products and suppliers of specialist equipment, and fostering international cooperation.

In terms of import issues the UGFM is calling for abolition of duties on imported advanced technology not manufactured in the country, and the introduction of measures to protect against growth in product imports. It is also campaigning against ‘grey imports.’

Markets

According to Dimitry Bulychev, Account Manager, Russia and CIS, for Owens Corning Vetrotex (OCV) Reinforcements, the composites market is growing at a rate of up to 16% a year, 1.5-2 times more than the growth of gross domestic product (GDP) in Russia. In his conference presentation, he highlighted a number of markets with high growth opportunities for composites:

• construction: new housing commissioned in the country was up 19.4% in 2007 and 9-12% growth is forecast for 2008-2010;
• vehicle manufacture: 12 vehicle production plants will be built by 2010; by 2015 they are all set to have localised component production;
• highway construction: there are plans to construct more than 10 000 km of road in Russia by 2015;
• infrastructure: 150 000 km of water supply and sewer pipes are to be modernised by 2012; and
• the oil industry: replacement of metal pipes by corrosion-resistant composite pipes with a service life of up to 50 years.

In July, Owens Corning announced that it is doubling the production capacity of its glass fibre composites facility in Gous-Khrustalny, which is around 200 km east of Moscow. Owens Corning acquired the facility as part of its 2007 acquisition of Saint-Gobain's composites businesses. Construction at the plant is expected to start this year, with start-up anticipated by the end of 2009.

According to Bulychev, the glass fibre market in the CIS in 2007 was 130 000 tonnes, with composites taking 30 000 tonnes of this. The glass fibre market in Russia in 2007 was around 80 000 tonnes, with construction representing over 60% of this (Figure 4).