Russia’s exposure to the global financial crisis had become unquestionable by the end of 2008.

After years of dynamic development, a result of the country’s stable economic growth, rising incomes and expansion of modern retail channels, the Russian economy started slowing down to encounter severe after-effects of the economic downturn in 2009.

After several years of booming consumption, the Russian retail sector has been exposed to one of its hardest trials since 1998. Market players have had to face and adjust to the new reality not witnessed on such a scale for a decade.

At the same time, the huge Russian retail market remains one of the most attractive globally, while the retail industry is one of the most promising areas of the country’s economy. According to PMR’s recent report, “Retail in Russia 2009″, in 2008 the Russian retail market was worth over $500bn, and rose in value by over 28% year on year.

Crisis creates opportunities

Now, at the end of 2009, it is still difficult to fully assess the future impact of the crisis on the retail industry. The difficulties which the Russian economy and thus the retail sector have faced this year were not newly arisen problems; they have been exposed and intensified due to the situation on the global markets.

The crisis exposed the problems of bloating which afflicted the industry and thus cleared the market and pushed the country towards improved quality of retailing and service. Among many others, it hold back chaotic expansion on a first-come, first-serve basis and forced out weak, inefficient businesses from the scene. It made retailers focus most of all on effectiveness and exerted pressure for the introduction of clearer retail concepts.

Russian retail market remains highly fragmented

Despite changes which acted in favour of consolidation of the retail market, overall, 2009 did not spark many mergers and talks of acquisition on the Russian market on either a global or domestic scale. This is how the crisis exposed that Russia is lacking good-quality, effective and not overvalued retail assets.

According to PMR’s analysts, the top ten players on the scene accounted for less than 10% of the market jointly in 2008. The low consolidation level and thus low market shares of the players also make M&A deals less attractive on the global level as major international players are interested in buying assets which would give them an advantageous position on the market.

Market trends make changes in the top retailers’ rank

Nevertheless, 2009 witnessed certain changes and shifts between major players on the retail market scene. The rapidly changing market situation along with undue reliance on credit and vast investments resulted in problems with liquidity and a growing indebtedness which eventually forced out several major retailers from the market.

On the other hand, reduced purchasing power of consumers, slumping demand and changing spending patterns made further changes in the rank of the top retailers. These mostly acted in favour of grocery retailers and have also privileged the development of certain retail formats, such as discounters, and contributed to further changes in the rank of the leading retailers.

Consumers’ confidence crisis

While during the year Russian consumers have found a way to cope with the economic crisis, mainly by applying certain saving strategies, great caution has been demonstrated with regard to spending, which is reflected in the changing structure and value of retail trade turnover.

For instance, according to PMR’s latest report, not until the beginning of 2009 did the share of food products in the total retail sales turnover start growing against the share of non-food goods.

After the initial shock of the crisis, however, in Q2 2009 the consumer confidence index rebounded for the first time since the dramatic drop in Q4 2008, giving the hope that recovery could be within sight.

This press release is based on information contained in the latest PMR report : Retail in Russia 2009 Market analysis and development forecasts for 2009-2011

The pharmaceutical market in Central and Eastern Europe is dominated by generic drugs. This subdivision was worth €17.2bn in 2008 and is expected to develop by around 14% per annum between 2009 and 2011.

The growth rate of the innovative drug market, which was worth €12.4bn in 2008, will be slower, according to the latest report from PMR, a research and consulting company, entitled “Generic and innovative drugs market in Central and Eastern Europe 2009. Comparative analysis, reimbursement policies and development forecasts for 2009-2011″.

Generics to account for 60% of the market in 2009

According to PMR estimates, the generic drug market (including non-branded generics, traditional products and other products which have never enjoyed patent protection) in Central and Eastern Europe  was worth €17.2bn in 2008, in contrast to a market value figure of €12.4bn for innovative drugs. Generic drugs therefore accounted for around 58% of the pharmaceutical market in the region in terms of value (taking into account both pharmacy and hospital sales).

The CAGR for generics will reach as much as 14% between 2009 and 2011, whereas that of innovative drugs will be much lower. “As a result, the share of generic drugs will constantly increase and in 2009 generics will account for around 60% of the pharmaceutical market in Central and Eastern Europe”, according to Agnieszka Stawarska, Pharmaceutical Market Analyst at PMR and a co-author of the report.

Although the innovative drug market in Central and Eastern Europe will develop at a slower rate than that of generic drugs between 2009 and 2011, the growth rate of original medicines for the whole region will be positive. It has, for the time being, been compromised by the cost-containment policies of the CEE countries, which have been stepped up during the global financial crisis. However, in the medium term PMR expects an improvement in health awareness and the modernisation of healthcare systems, including the development of private health insurance and the establishment of health insurance and drug reimbursement systems, similar to those in European countries, in Russia and Ukraine, to be drivers of the innovative drug market in the CEE countries. An additional driver will be the aging of the population in the region.

Local companies are generic-oriented…

There are few innovative pharmaceutical companies of local origin in Central and Eastern Europe. Most companies based in the region are generic drug manufacturers. “The largest players of this kind include Gedeon Richer, Krka, Egis and Zentiva. These companies have a presence in most CEE countries and they are well-established there” Monika Stefanczyk, Head Pharmaceutical Market Analyst at PMR and a co-author of the report, explains. For such companies, the region of Central and Eastern Europe is usually the main area of their activities.

The second group of companies consists of global generic players. Their presence differs from one CEE country to the next. For example, Dr. Reddy’s, an Indian generic manufacturer, concentrates on Russia, which is one of the company’s key markets worldwide. Actavis, an Iceland-based manufacturer, is at its strongest in Bulgaria and Russia. Ranbaxy’s key markets in the region are Romania and the CIS countries (Russia and Ukraine in particular). Stada has a strong presence in Russia, particularly after the acquisition of two Russian companies (Nizhpharm and Makiz-Pharma); and at the beginning of 2009 the company entered Poland and Bulgaria by establishing subsidiaries there.

A number of consolidation processes recently took place in the generic arena, which were of great importance for Central and Eastern Europe. For example, Teva gained a strong presence in the region through the acquisition of Barr in July 2008, which included one of the largest local generic drug producers ? the Croatian company Pliva. In June 2008, Mylan, a US generic manufacturer, acquired the CEE generics businesses of Merck KGaA, the prominent German drug manufacturer. The deal includes Merck’s operations in Poland, Hungary, Slovakia, Slovenia and the Czech Republic. In March 2009 Zentiva, one of the leading generic players in the region, was bought by Sanofi-Aventis. In May 2009 Novartis acquired the generic cancer drug production division of the Austria-based EBEWE Pharma.

…whereas innovation is the domain of global concerns

The innovative drug market in the region is dominated by multinational pharmaceutical concerns. Such companies have representative offices in most of the Central and Eastern European countries, but, as they are active all over the world, the region is not, in most cases, their main market. However, innovative drug producers often choose Central and Eastern Europe as a place in which to locate clinical trials, because of the low costs, high population and limited access to innovative therapies in such countries.
Today innovative companies face a crisis associated with the loss of patent rights pertaining to their most important products, which is expected to affect their sales performance in Central and Eastern Europe also, as many players of domestic origin may launch the generic equivalents of their drugs on the market.

After the dramatic slump in early 2009, the mood prevailing within the construction industry in Poland is starting to gradually turn more upbeat.

Construction companies are more optimistic in their assessments of the market situation and the condition of their enterprises than they were six months ago. Driven by the rising implementation of civil engineering projects, construction and assembly output will see a rise of not less than 5% in 2009, expanding to approx. 8% in 2010.

Rising optimism in the construction sector
A survey conducted by research and consulting company PMR for the needs of the “Construction sector in Poland, H2 2009 – Comparative regional analysis and development forecasts for 2009-2012″ report reveals certain improvement in the mood among the larges construction companies operating in Poland. However, construction firms are still very far from optimism levels seen in 2006-2008 regarding market situation.
Over one-fifth of the largest construction companies assess the situation in the Polish construction sector as positive, whereas six months ago, a mere 9% of respondents shared this view. Likewise, companies’ predictions about the development of the construction market situation in the next 12 months demonstrate stronger optimism than in March 2009 – 42% of companies surveyed predict that the market situation will improve, while a paltry 14% expect that it will continue to deteriorate.

Polish construction companies’ assessment of portfolios of orders has improved to some extent as well – 39% of respondents provided positive assessment of the current number of orders (compared with 31% six months earlier); 30% of companies surveyed held the opposite view. Additionally, companies are more optimistic about the future size of their order portfolios – 49% of respondents expect the number of orders to grow in the next 12 months, while 20% of major builders anticipate falls in the number of orders.

Good financial standing of construction companies
The financial situation of the largest construction companies continues to be rated as good – 71% of companies surveyed believe this to be the case (compared to 60% six months ago). 32% of the major building companies in Poland anticipate that at the end of 2009, the financial standing of their enterprises will be better-off compared to the situation in 2008; exactly the same proportion of respondents take the opposite view. ”

As a result of deflation in the construction industry, many of the contracts concluded in 2008 and executed in 2009 will carry higher-than-expected margins, which will boost financial results of the majority of large construction companies relative to the preceding year. However, soon or later, construction prices will start to rise, hence the strong competition observed recently will have an adverse impact on the financial performance of contractors,” says Bartlomiej Sosna, Senior Construction Analyst at PMR and the author of the report.

Improvement in PMR Construction Climate Indicator
A special summary index portraying the level of the market situation in the Polish construction industry is created on the basis of assessments of the current market situation, the financial standing and portfolio of orders obtained by construction companies. In September 2009, the PMR Construction Climate Indicator had a value of 5.5 pts, showing certain improvement in the market situation in the construction sector in the past six months.

According to companies surveyed, the most attractive segments of the construction market in the two-year horizon include roadwork projects (84% of responses), sports and recreation facilities (31%) power engineering construction (31%) and environmental protection construction (24%). At the opposite end of the spectrum were the following sectors: office construction (5%) and warehouse construction (9%), which were considered the least promising segments of the construction market in the coming two years.

The responses largely reflect the current situation in the construction market where road building projects constitute the main driving force behind growth in the construction industry – in the initial three quarters of 2009, the segment reported a year-on-year increase in construction and assembly output of over 40%. In the same period, the growth rate for the entire civil engineering construction segment was over 25%, making up for declines in residential and non-residential construction (-12.8% and -6,5%, respectively).

“In the coming months, we expect continued falls in construction and assembly output generated by the construction of buildings, which, however, will be made up for by rapid growth in civil engineering construction. The Polish construction market will return to a sustained growth path only after the commercial construction situation has stabilised, which is not to be expected earlier than the middle of 2010. However, it all largely depends on the anticipated growth in lending activity of financial institutions,” adds Bartlomiej Sosna.

This press release is based on information contained in the latest PMR report : Construction sector in Poland, H2 2009

Russian telecommunication operators have been expanding aggressively in the CIS since the early 2000s, but no major deals were recorded in 2008 or 2009.

The move on the part of Russian operators toward business diversification into adjacent areas, uncertainty over the fate of Svyazinvest, the national state-run fixed-line holding, the high cost of telecommunication assets, and, of course, the more restrictive investment opportunities amid the financial crunch, have all contributed to the break which Russian operators took during the process of intensifying their expansion into the CIS markets. Nevertheless, investment activity is likely to resume in the near future, and a number of deals can be expected in 2010-2011.

The full report is accessible here : Investments of Russian telecoms in CIS countries – current state and prospects for the future

The construction industry in Russia has been hit hard by the global economic downturn. The slowdown on the domestic construction market began in 2008 and has intensified in 2009.

The majority of construction projects have been suspended and virtually no new residential or commercial property projects have been started. For the first time this decade, the value of construction works will have shrunk – by over 15% in comparison with 2008. Despite this though, it seems that the worst of the storm has passed and market stability should return in 2010, with the promise of growth in 2011.

According to the “Construction sector in Russia 2009 – Development forecasts for 2009-2012” report recently published by PMR, a research and consulting company, the situation on the Russian construction market began to deteriorate in the second half of 2008 and the slowdown deepened towards the end of the year. Yet thanks to healthy growth figures posted in H1, growth figures for the entire year remained strong.

“Without the buffer of a strong first six months, 2009 has witnessed a fully fledged construction crisis, with output, employment and other key indicators for the industry falling sharply.”, according to Robert Obetkon, a Senior Construction Analyst at PMR and the author of the report. In rouble terms and at the time of publication, the Russian construction industry contracted by 18.4% in the first three quarters of 2009. In dollar terms, however, and due to the depreciation of the rouble, the value of the industry plummeted to just $81bn for the period Q1-Q3 2009 – down from $129bn in the same period one year earlier.

Residential construction figures indicate that this segment has thus far not been dramatically affected by the economic crisis. After a 6.5% growth last year, the number of housing units built in Russia underwent a slight decrease during the first nine months of the year. The total floor space of apartments completed (up 4.6% last year) fell by 0.6% in Q1-Q3 2009. However, the decline in housing construction levels is expected to intensify in the upcoming months as hardly any new residential projects are being commenced.

“While residential and non-residential construction activity will remain relatively subdued at least for the next year due to ongoing difficulties in securing financing, most construction contracts will be related to infrastructure development projects.”, says Robert Obetkon. These will serve to boost the overall level of construction activity in the country.

Increased capital expenditure on road and railway construction, as well as airport expansion, will be driven by the federal programme aimed at modernising the country’s transport system between 2010 and 2015. This programme will require a total investment of $420bn, of which $147bn will be sourced from the federal coffers. Assuming a conservative scenario whereby only 10% of the programme will be implemented, this will equate to a $7bn annual boost in construction activity each year through to 2015. With the federal budget deficit expected to be 3-7% of GDP over the next three years, much of the funding for Russia’s infrastructure projects will have to be provided by private investors through schemes such as public-private partnerships and other non-budgetary sources, which will thus increase in importance.

The projects that will provide a boost to the construction industry in the upcoming years include the first public-private partnership (PPP) projects, signed in 2009. These include the $1.5bn contract for the construction of the first section of a toll motorway between Moscow and St. Petersburg, and the $2.1bn contract for the upgrade of Pulkovo Airport. The PPP scheme in Russia demonstrates great potential: 20% of infrastructure development and modernisation projects planned for the next ten years in Russia are to be financed through PPPs.

Apart from transport infrastructure, substantial investment is also planned in the energy sector. The main projects include the $1.2bn reconstruction of the Sayano-Shushenskaya Hydroelectric Power Plant and the construction of several nuclear power plants. Other major infrastructure projects planned in Russia include the new spaceport, Vostochny Cosmodrome, the construction of which should commence in 2011 and is expected to cost $12.5bn.

An additional boost in infrastructure spending will be provided by the $1bn infrastructure investment fund established jointly in July 2009 by Vnesheconombank, Renaissance Capital Group, the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (a part of the World Bank), the Development Bank of Kazakhstan, and the international investment company, the Macquarie Group. The fund will invest in the development of Russia’s transport infrastructure, power engineering, municipal services, airports, ports, roads, etc.

Russia’s preparations for the Sochi 2014 Winter Olympics and the APEC Summit to be held in Vladivostok in 2012 are also serving to support the country’s construction industry. The total investment related to these two events may well eventually exceed $20bn, of which the lion’s share will be spent on the construction and modernisation of civil engineering structures, such as roads, railways, tunnels, airport facilities and power infrastructure, as well as sports venues (predominately stadiums).

PMR Publications is part of PMR – a British-American company providing market information, advice and services to international businesses interested in Central and Eastern European countries as well as other emerging markets. PMR key areas of operation include consultancy and market research.

In 2008 the OTC product market in Central and Eastern Europe developed by around 26%, to €9.2bn.

In 2009 this market in the region will grow by around 8%, according to a recently released report “OTC market in Central and Eastern Europe 2009. Comparative analysis and development forecasts for 2009-2011″ from PMR, a research and consulting company.

8% OTC market growth in 2009
In the last few years the economies of the Central and Eastern European (CEE) countries (Russia, Poland, Ukraine, Bulgaria, Romania, Hungary, the Czech Republic, Slovakia, Slovenia and Croatia) expanded very dramatically. The favourable economic situation, combined with increases in wages and burgeoning affluence in the countries in question, along with changing lifestyles which prompt people to take better care of their health and appearance, accelerated the growth of the OTC market in Central and Eastern Europe.

In 2008 it grew by 26% and was worth €9.2bn, according to PMR estimates. The current global financial crisis will result in a reduction in demand for OTC products, as people try to limit their spending on products which they can do without, and in the pharmaceutical industry this means spending less on dietary supplements and OTC drugs. In some CEE countries, such as Ukraine, negative growth may even be seen on the OTC product market.
“However, PMR forecasts that, despite this, the overall OTC product market in the region will grow by around 8% to approximately €10bn in 2009. This is mainly because, in Russia, the largest market of the region, the OTC product market will see a positive growth rate of several percent this year” Monika Stefanczyk, Head Pharmaceutical Market Analyst at PMR and report co-author, explained.

In the first half of 2009, the market in Russia grew by around 28% in rouble terms. In euro terms the growth rate was 6%, and in dollar terms there was an 8% reduction . However, such figures reflect unfavourable exchange rates and not, therefore, real market growth. This shows, that despite the global financial crisis, Russians are still buying OTC products very often and that the market should also grow rapidly in the next few months.
Russia predominates in the region
Last year, almost half of OTC market value in the region was accounted for by Russia, according to PMR estimates. Poland was the second largest OTC market in the region, with a share as a proportion of total sales in excess of 22%. Ukraine had a share of around 10%, whereas for the Czech Republic the figure fluctuated around 6%.

Regulations pertaining to distribution not standardised
One of the factors which influences growth on the OTC product market is the nature of the regulations pertaining to the distribution of such products in individual countries. “Although in some countries non-pharmacy and online sales of OTC drugs is allowed, pharmacies will remain the main channel for sales of OTC medicines, because there is a preference among consumers of OTCs to purchase such products at outlets at which they can also obtain a pharmacist’s advice” Agnieszka Stawarska, Pharmaceutical Market Analyst at PMR and report co-author, explained.

In addition, the online sales channels of many groups of drugs may not become widely used, because of several factors: lack of trust in the channel in question, consumer habits and, finally, the low number of internet users in some countries.
In none of the countries of the region are there restrictions on the sale of dietary supplements in general stores, which are always subject to laws on foodstuffs, rather than those pertaining to pharmaceuticals. Legislation which regulates non-pharmacy sales of OTC drugs is, however, more restrictive, and the regulations differ from one country to the next.

In none of the CEE countries analysed is the sale of all OTC drugs permitted in general stores. The most liberal law exists in Hungary, where some 390 brands of OTC drugs may be sold in places other than pharmacies.
Most CEE countries also do not permit the online sale of drugs.

The most liberalised countries are Poland and the Czech Republic, whose governments have decided to regulate this issue and have approved the online sale of all OTC drugs. In Poland the online sale of OTC drugs was approved on 1 May 2007, and in the Czech Republic a law permitting the online sale of medicines came into force in January 2008.

PMR Publications is part of PMR – a British-American company providing market information, advice and services to international businesses interested in Central and Eastern European countries as well as other emerging markets. PMR key areas of operation include consultancy and market research.

Today the market for biotechnology which can be used in pharmaceuticals and medicine (“red biotechnology”) is growing at a moderate pace in Poland.

In 2008 the sales of industry players even declined, as Bioton, the largest Polish biotech firm, performed poorly. Biotechnological firms are working hard on new products, the sales of which will have a substantial impact on the rate of growth of the industry over the next two years.

No significant development in biotechnology before 2011

In the last two years pharmaceutical biotechnology industry in Poland has seen a significant reduction in the annual rate of sales growth, according to the latest PMR Publications report “Biotechnological innovations in the pharmaceutical industry in Poland”.

According to PMR Publications estimates, in 2008 the industry’s revenues suffered as a result of a deterioration in the performance of Bioton, the largest Polish biotech company. It was estimated that, in 2008, biotech companies in the Polish pharmaceutical industry achieved combined sales worth PLN 607m (€173m), around 2% less than the 2007 figure. Nevertheless, in future years, despite the uncongenial economic situation, the market will grow at several percent per year, and in 2011 sales should improve by almost 30% year on year. This will be a consequence of the development of innovative projects which are, today, at the inception or start-up stage and are not yet yielding a return.

EU funds growth of energy industry

As elsewhere in the world, access to high risk financing is crucial to the development of innovative technologies. The availability of EU funds in Poland has made it possible to support the development of investment firms interested in putting money into biotechnology industry ventures which carry some risk. The Innovative Economy Operational Programme is the most important of the accessible EU funds. In addition, as a result of the appropriate use of EU funds, it is, today, easier for companies active in Poland to fund investment in research into and the implementation of innovative technologies. In our opinion, despite the lamentable global economic situation, in the short term Poland has a chance to develop a real biotechnological industry.

According to the Ministry of Economic Affairs, between 2007 and 2013 companies and scientific institutions in the medical, pharmaceutical and biotechnological industries will, with the help of EU funds, implement projects worth around PLN 662m, or approximately €150m, in all (The Innovative Economy Operational Programme), of which PLN 120m (approximately €27m) will be allocated to projects associated with the medical equipment and technologies market and with dietary supplements . Meanwhile, the bulk of the remaining EU funds will be directly or indirectly associated with red biotechnology in Poland. This figure is not final, as many tenders have not yet been completed. In addition, more competitions are to be announced.

Increasing number of innovative projects

Although official statistics do not show an increase in the number of biotechnological companies in Poland, this has, in fact, grown in recent years. For example, in 2007 two biotechnological companies, Mabion and Selvita, were established, and one in 2008 – Celther.

The fact that Polish life sciences are just beginning to develop intensively is best illustrated by the number of new innovative ventures, particularly those in the biotechnology industry linked with the pharmaceutical industry. Significant innovative projects include those carried out by companies such as:

* Celther (stem cell therapy)
* Celon Pharma (siRNA-based therapy)
* Mabion (modified monoclonal antibody therapy)
* Euroimplant (tissue engineering and regenerative medicine)
* Biocontract (innovative vaccines for skin and kidney cancer).

With regard to the abovementioned fields, which are the focus of today’s efforts on the part of Polish firms, these will, in the future, undoubtedly provide a competitive edge for the Polish red biotechnology industry.

PMR Publications is part of PMR – a British-American company providing market information, advice and services to international businesses interested in Central and Eastern European countries as well as other emerging markets. PMR key areas of operation include consultancy and market research.