Russia 2020: What Russia will Look Like in the Future The World’s Largest Country: How Multinational Companies are Seizing its Opportunities France Houdard Managing Director france.houdard@exolus.com March 2011

Why? Preface: What Does World’s Largest Country Look Like from Space? Source: NASA (United States – National Aeronautics and Space Administration)

INTRODUCTION: Russia Structural Framework and Forward Trends . . .

80% Population in West … East Largely Uninhabitable Framework: Structural Determinants of Russia’s Economic Geography …

Economy: Growth in Russia’s Economy Economy Doubled in 7 Years (‘01 – ‘08) … IMF Forecasts Rapid Growth to 2015 Source: IMF

Source: ERSUSDA Wealth: Russia to have Highest GDP per Capita among BRIC Countries Russia GDP per Capita: USD 6,200 (2009) … USD10,000 (2020) Russia GDP per Capita

Income: Russia leads BRIC’s in Per Capita Disposable Income Per Capita Disposable Income Growing at Average 6% Per Annum Source: GS Global ECS Research Disposable Income Per Capita (USD per annum)

Resources: World’s Leading Energy Superpower – Oil and Gas World’s Largest (#1) Oil Producer … World’s Largest (#1) Gas Producer Source: BP Statistical Review of World Energy 2010 World Oil Producers (12.9% share, 2009) World’s … Largest (#1) oil producer 2nd largest oil exporter 8th largest oil reserves OIL World Gas Reserves (23.7% share, 2009) World’s … Largest (#1) gas producer Leading (#1) natural gas exporter Largest (#1) natural gas reserves GAS

Resources: World’s Leading Energy Superpower – Mineral Fuels World’s 2nd Largest Coal Reserves … 3rd Largest Uranium Reserves Source: BP Statistical Review of World Energy 2010, British Geological Survey

Resources: World’s Leading Mineral Industry – Iron and Steel World’s Largest (#1) Iron Reserves … 4th Largest Steel Producer Source: U.S. Geological Survey

Resources: World’s Leading Mineral Industry – Nickel, Copper World’s Largest (#1) Nickel Producer … 7th Copper Producers Source: U.S. Geological Survey

The Future: 1 of 5 Countries with Highest Combined - GDP, Population, Resources > USD3 trillion GDP … 100+ million people … > 3 million sq km

Corporate Trends: Structural Optimization – Markets, Resources, Innovation

Corporate Burning Platforms: Markets, Resources, Innovation Market Access/Revenue Growth … Global Structural’ Cost Reduction

Top Foreign Investment Destinations in Western Part of Russia 1. Production/Resources: Where are Leading Direct Investment Nodes? Source: Rosstat

Russia Already 5th Largest Consumer of Cars in Europe 1. Production/Resources: Car Production Proxy for Production Nodes? Sources: All Publically Available Information, Company Websites

1. Production/Resources: Moscow Region Immense, as Large as Countries Moscow Region (45,900 km sq) larger than entire Switzerland (41,285 km sq) Sources: Publically Available Information

1. Production/Resources: Management Sourced in Moscow City, Labor Local Management-Labor Skill/Cost Drivers  70 – 100 km from Moscow City Sources: Company Websites, All Publically Available Information

1. Production/Resources: Leningrad Region even Larger, Size of Hungary Leningrad Region (84,500 km sq) roughly same size as Hungary (93,030 km) Sources: Publically Available Information

1. Production/Resources: Management from St. Petersburg, Labor Local Management-Labor Skill/Cost Drivers  30 – 60 km from St Petersburg City Sources: All Publically Available Information, Company Websites

2. Cost/Revenue: Where are Pareto-Optimal Market/Resource Envelopes? Intersection of People (West) … A/S Cities … Natural Resources (East) Source: UNDP, “National Human Development Report in the Russian Federation 2010”

2. Market: Car Sales/Production Proxy for Directional Market Sizing? Car Penetration Highest in Russia among the 4 BRIC Countries Sources: Association of European Business; Autostat; Rosstat, GS Global ECS Research, Other

Russia to be USD30 billion Market (2015) … 9th Largest in World Pharmaceutical Market Size Country Ranking (2000 – 2015f - USD billion) Sources: IMS; GSK, “Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets” JMCP; Monitor Analysis; Exolus 2. Market: Projected to be World’s 10th Largest Pharma Market by 2015

2. Market: High Spending Growth Resumes through Global Financial Crisis Sales Growing at 21% CAGR USD Million Retail Sales Growth Source: EIU

3. Innovation: Modern Focus on Traditional Strength – Science & Technology Sources: All Publically Available Information, Company Websites, i-gorod Website Cisco Boeing Siemens Microsoft Nokia Intel Tata Nokia Siemens EADS Alstom Lukoil Rosatom Industry Focus Life Sciences Renewable Energies Aerospace Information Technology Telecommunications Nuclear Technology Skolkovo Innovation Center … USD2 billion over Next 3 Years

3. Innovation: Strong Science and Engineering Focus in Russian Education Sources: OECD Science, Technology and Industry outlook, 2010 Science & Engineering as % of all Graduates: 25% in Russia … 15% in US

Russia Economic Outlook

Senior Executives Select Russia as a Top Global Investment Destination Russia Top 5 Investment Destination in World Source: World Investment Prospects 2009 - 2011 Top 14 Most Attractive Destinations for Future Investment (2009 – 2011) % Percent of Responses

Russia Economic Outlook: Large Forex Reserves, Positive Fundamentals World’s 3rd Largest Forex Reserves … Low External Debt … Growing Banking System Russia Holds The World’s 3rd Largest Foreign Exchange Reserves: USD 485 billion In 2011 the Central Bank has accumulated over USD 458 billion in foreign reserves, up from USD 12 billion in 1999. The accumulation of large external surpluses means financial system enjoys abundant liquidity. Low External Debt/GDP Ratio and Positive Current Account Balance Healthy external debt to GDP ratio at 21% of GDP in 2010. Current account surplus at 5.1% of GDP in 2010; projected at 4.7% in 2011 and 4.2% in 2012. Federal budget deficit at 3.9 % GDP in 2010; projected to decrease to 2% of GDP in 2011. Russia’s Banking System under Rapid Expansion Total assets projected to double between 2010 and 2015, from EUR 400 billion (2010) to EUR 800+ billion (2015). Between 2010 to 2015, total lending to grow at 14.2 % CAGR; corporate loans at 14.3%; retail loans at 14.7% and mortgages at 15.5%. Source: IMF; World Bank; Sberbank; UniCredit

For a Comparative Perspective with the other BRIC Countries Please Refer to the Following Research Reports Found on Slideshare @ http://www.slideshare.net/contest/worlds-best-presentation-contest-2010/entries http://www.slideshare.net/Exolus/india-2020-what-india-will-look-like-in-the-future http://www.slideshare.net/Exolus/brazil-2020-what-will-brazil-look-like-in-the-future Download Reports @ www.exolus.com/en/knowledge/research.html China 2020 Brazil 2020 India 2020

Global Expansion Strategy & Cross-Border Investment Execution (Greenfield, M&A, Joint Ventures, Outsourcing) About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work with management teams in the development of their global expansion strategies, across the range of investment formats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies by providing program management across all phases of cross-border investment projects, from candidate searches and evaluation, through investment structuring and negotiations. The founders of Exolus have spent the past two decades in the global service space and have direct experience operating in nearly all of the major investment destinations in the world (40+ countries). The team has served clients of all sizes, both public and private, on projects that ranged in investment size from USD10 million to greater than USD1 billion. We have served clients across all of the following industry segments: Life Sciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector. Follow Exolus at: www.exolus.com Need Further Information: info@exolus.com Want Copies of our Reports: www.exolus.com/en/knowledge/research.html

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