Russia’s
The programme is designed to transform the economy, but it is off to a slow start and actually the planned spending is about a fifth of what is needed to bring the quality of
"In order to improve the probability of achieving most of its targets, the government might need to increase the volume of allocated resources" from its current level of
Road to somewhere
Investment into roads will take up the largest part of infrastrcure spending and should have the greatest beneficial effect on the economy. Just under half (45%) of all the spending will go on infrastructure and two thirds (63%) of that part of the spending will go on roads alone, with the rest spent on waterways (14%) and railways (20%), plus a little bit (2%) to upgrade airports.
Analysts believe that the spending will add about 1% compound average growth rate (CAGR) to Russia’s GDP growth on top of the current expectations for 1-2% growth a year, which is capped by Russia’s structural constraints.
The almost
“According to the WEF Global Competitiveness Report, based on average of selected country’s data, a 1 point increase in the overall infrastructure quality index requires investment of an extra 2.4-2.8% of GDP. As such, the infrastructure part of Russian national projects would lead to four to five points improvement of index and shift
Still, the amount dedicated to infrastructure investment will lift the Russian spend from the already respectable 2.5% of GDP a year the state has been investing on average until now to a healthy 3-4% of GDP in 2019-24. To put that into context the typical investment into infrastructure to just maintain the status quo runs at 0.5-1% of GDP in most countries.
As things stand the
This is actually the Kremlin’s second attempt at launching a massive infrastructure programme. In 2007 inflation fell into single digits for the first time since the collapse of the
Russia’s plans are running behind those of other emerging markets like
The implementation of the spending is also running behind the plan, but its starting to catch up, said VTBC said in a report.
The very largest plans are the most likely to face delays but these only account for about 20-30% of the total spending. And with 45% of spending on roads, this is the one part of infrastructure spending that is already underway and being implemented by well worn public-private partnerships, so should be relatively easy to ramp up. The rail spending (20%) is the one sector where these public-private partnerships are entirely new and will be the most difficult to set up.
Trains, planes, cars and boats
Investment into roads includes transforming regional roads to “safe and quality” roads, or upgrading 41,000km out of the total 511,000km road network, which will cost
The railways part of the programme targets high-speed passenger trains on one hand and increasing the freight capacity of Russia’s key railway routes – North-South, WestEast (including BAM and Transsib) and Europe-West China – on the other.
A few large railways projects are also included into several projects unrelated to the railway-specific segment – these are the
The plan to develop waterways targets a capacity increase of 30% at sea ports. Taman on the
The plan also envisages the development of inland waterways, with port capacity to increase 70%. The third part of the waterways plan is to develop the Northeast Passage, with the aim being to triple traffic. In order to reach this target, several ports are to be expanded and a new fleet of nuclear ships built.
The last part of the infrastructure investment plan is to improve inter-regional air communication to increase the share of non-
PPP Funding
The state is going to fund two thirds of all this investment, with the rest supposed to come from private sources in private-public partnership arrangements.
The state has already been running these PPP deals successfully in developing the road network and
However, the share of private participation depends on the type of transport: the state will cover circa 88% of the road and airport investment, 48% of the waterways, but private investors are expected to pay for 95% of the rail investments.
PPP deals took off in 2010 and have grown from five to 18 in operation between 2015 and 2019, but by last year a total of 418 PPP contracts had been signed. The advantage for the state in a PPP deal is they allow the state to put off its contributions; the investors cover the immediate capex costs and the government contributes with investment guarantees in the future should the project fail to generate the sort of returns the investors expect.
“Among the largest PPP projects completed in recent years in the form of concessions were roads, including the high-speed motorway between
The two most active participants at the moment are Russian state banks Gazprombank and
While there have been many delays in getting the national projects off the ground, several projects have already begun and more are moving out of the design phase, which takes one to two years, and will enter the construction phase next year.
Federal Projects status | |||
| Pre-design | design and financing | construction |
Road |
Tolyatti bypass, |
Road network development, | |
Rail |
Rail transport and transit, |
| |
Waterway |
|
Northeast Passage, |
Coal terminal Lavna & Chaika,
Cargo complex in Muchka, |
Airport |
|
|
Development of regional airports & routes, |
Source: |
Government figures released recently showed that in the first nine months of 2019 only 52% of the funds allocated for the year had been spent. Another independent study found that the benefits of economic growth this year are likely to be wiped out by the costs of Putin's VAT increase.
“Overall, the national projects are still running behind the initial plan. However, in our view, the lag is not so large as to preclude a catch-up. While the state will, in our view, probably spend only
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