Total sales of IT products and services in Russia were worth 711.6 billion rubles (€16.8 billion) in 2013, which is 0.5% less than the figure for the previous period. The IT market in the country declined for the first time since the crisis of 2009. Many leading players reported a contraction in their sales revenue last year.
Sales stagnation in some subgroups of the Russian IT market had already been observed by the end of 2012, but last year’s market decline was not expected by Russian industry analysts or business managers. There was a general consensus that there would be a modest increase in 2013.
If we excluded the effect of exchange rate variations, the decline of the market would be much deeper. Measured in euro the Russian IT market was worth 6% less year on year in 2013.
In 2013 we observed a qualitative change in market development. Short term projects dominated the corporate sector, and cost optimisation remained among the key business objectives. Russian business customers reduced purchases of new hardware and software licences and increased their spending on IT support and outsourcing solutions.
Last year the decline in corporate investments made the government an important investor in IT, and many Russian system integrators reported an increase in the share of government contracts as a proportion of their sales.
Finally, in 2013 IT distributors also faced payment delays, requests for extensions of commercial loans and the threat of bankruptcies in sub-distribution. All of this indicates some difficulties in the retail subgroup of the market also.
Russian companies reported relatively smooth changes in demand on the IT market last year. There was no sharp decline in sales, as was the case at the end of 2008 and in 2009. There was no mass interruption of on-going IT projects or revision of budgets. In 2013 the stagnation of sales reflected market evolution rather than external factors.
The differences in the economic development of the Russian regions cause significant regional variations in the size and maturity of regional IT markets, particularly in the corporate and public subgroups. The two largest regional IT markets in Russia are Moscow and St. Petersburg, and these accounted for most of the IT spending in the country. One of the main reasons for this regional concentration of the market is the location of the headquarters and offices of federal authorities and large companies in Moscow. As a result, many IT projects which are implemented in the regions of the country are contracted in Moscow. The city is thought to absorb up to 25% of IT spending in Russia.
Macroeconomic situation
Between 2001 and 2009 Russia experienced rapid economic growth. Annual GDP in the country expanded by more than 5% year on year. In 2009 Russian GDP declined by 7.8% year on year because of the global economic crisis and reductions in the prices of raw materials, oil and gas, the main export commodity in Russia. However, economic growth had already returned by 2010, when Russian GDP grew by 4.5% year on year to RUB 46,309bn (€1,150bn). In 2011 and 2012 the economy in the country continued to boast stable growth. However, in 2013 the growth rate declined to only 1.3% year on year, and forecasts for 2014 fluctuate around 1%.
The stagnation of Russian GDP can be attributed, to some extent, to the slowdown of the global economy. However, we think that there is at least one internal reason. Between 2001 and 2013 main driver of Russian economic development was large state-owned or state- controlled resources companies. The improvement in public management and favourable conditions on the external markets helped these companies to achieve substantial sales revenue growth. However, in 2013 this model exhausted its development capacity.
The current challenge for the Russian government and public is to create conditions for the rapid development of small and medium-sized businesses which can offer the market new products and services, along with a new standard of efficiency. This new subgroup of the economy could also drive overall economic development and also the development of the IT market.
Despite some stagnation in growth, nominal GDP in Russia reached RUB 66,755bn (€1,618bn) in 2013. Nominal GDP per capita exceeded €11,256, which positions Russia as a moderately developed economy. The average monthly per capita income in the country was RUB 25,647 (€620), whereas the average monthly salary was RUB 29,960 (€750). We have also observed a relatively sharp devaluation in the rouble.
Further economic development in Russia depends on many factors. However, the role of the government in managing economic growth is more prominent than in other countries. We also think that the Russian domestic consumer market still has sufficient potential for development, and that this could attract investments and prompt an increase in local production.
The Russian federal budget showed a slight deficit of RUB 310.5bn in 2013 (in comparison with RUB 37.1bn in 2012). Last year the deficit of the federal public budget was only 0.5% of GDP. In addition, the public external debt of Russia was only $55.8bn on 1 January, 2014 which is approximately $5bn more year on year.
Overall economic development in Russia last year was comparatively positive. However, the first signs of macroeconomic problems, including a low GDP growth rate, stagnation in investments, a reduction in exports and an increase in public external debt, were also observed. These negative factors are not critical. However, they do require some degree of government attention.
Short term outlook
The Russian economy is currently balancing on the edge of stagnation and modest growth, and this does not prompt new investments. In addition to the macroeconomic difficulties, there is still the threat of a full-scale confrontation with the US and EU countries which could restrict Russian business access to the global goods and capital markets. Among home users we see a reduction in spending. Individual consumers started to spend their budgets on the purchase of tablet PCs, which are, on average, less expensive than notebooks. Upgrades of laptop and desktop computers were postponed. This leads us to expect that the IT market in Russia will decline in 2014 also and that this decline will be driven by the hardware subgroup.
This press release is based on information contained in the latest PMR report entitled “IT market in Russia 2014. Development forecasts for 2014-2019.”
