Property News

The Russian Consumer is the key!

In all that’s been written and said about Russian politics in recent weeks, I think we’re forgetting about the significance and importance of the Russian consumer.

Whilst Russia is still regarded by many as an economy dominated by the oil and gas sector, it is actually domestic consumption which contributes 63% of their economic output and is the main driver of growth. Investors and businesses looking to gain from Russia’s rising influence on global markets would do well to consider the following:

1. Russia is a “middle income” country

The World Bank defines “middle class” as relating to a person who earns US$6,000 per annum on a purchasing power parity (PPP) basis. On this measure, over 68% of Russians are defined as “middle class”, by far the largest of the BRICs which include Brazil (31%), China (13%) and India (3%).

The other measurement widely used to measure the relative wealth of countries is “GDP per capita”. Once again, according to Goldman Sachs projections, Russia will maintain the highest GDP per capita of all of the BRICs in the coming decade, exceeding China and India by some distance between now and 2050.

2. Russian consumers have no significant debt

With the collapse of the Soviet Union in 1991, and the re-distribution of assets, all Russian citizens were gifted their home by the State. As a result, the average mortgage debt in Russia is negligible (?130 per person) compared with ?12,370 in the Eurozone and ?26,040 in the USA.

Whilst there has been a reluctance amongst Russians to borrow over the past two decades, with interest rates at 16% p.a. or over, this is changing with interest rates declining to more affordable levels. For example, SberBank, Russia’s largest retail bank, now offers a “888” mortgage loan package which is becoming very popular (8% p.a. fixed home loan rate for 8 years with approval within 8 days) and is likely to trigger more domestic spending on a wide range of luxury goods and other domestic items.

3. Russian incomes have risen significantly

The average monthly income, which was less than US$200 per month in 2003, is now more than $1,000 per month, and with the highest rate of income tax at only 13% and very little debt to service, Russians have very high levels of disposable income. Not surprisingly, Russia now leads the whole of Europe in the sale of key consumables (eg pharmaceuticals, mobile phones, broadband and even beer - catching up with Vodka as the beverage of choice amongst Russians!) and retail sales in Moscow now exceed Paris and London. By 2025 the consumer market in Russia, which is now approx. 142 million, is expected to be larger than Germany’s, Europe’s largest market.

4. Russians are travelling and spending money overseas

20 years ago in the days of the Soviet Union, Russians were banned from travelling overseas. Soviet citizens would holiday inside the eastern bloc eg Crimea’s beaches, the Baltics, sanatoriums in Poland and Czechoslovakia.

In 1995 only 2.6 million Russians went on holiday outside the former Soviet Union; by 2006 this figure had trebled to 7.7 million and 2008 was by far the best year ever for Russia’s tourism industry with 11.3 million Russians taking vacations abroad. After a short dip caused by the global financial crisis, this figure is expected to triple again this year.

Apart from the sheer volume of Russians travelling overseas, they are also amongst the world’s largest spenders. Travel operators report that Russians spend on average US$1,000 per head on their holidays and, most important of all, 72% of tourists pay for their holidays in cash!


Don’t be misled by the media’s obsession with the re-election of Putin as President and write off Russia as a market that should be considered for business and investment. Look beyond the headlines into what’s really happening on the ground, particularly in domestic consumption, and act accordingly. There has never been a better time to invest in Russia and the time to do it is when everyone else is negative!