Russia

Russia ended 2007 with its ninth straight year of growth, averaging 7% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap rouble initially drove this growth, since 2003 consumer demand and, more recently, investment have played a significant role. Over the last six years, fixed capital investments have averaged real gains greater than 10% per year and personal incomes have achieved real gains more than 12% per year.

During this time, poverty has declined steadily and the middle class has continued to expand. Russia has also improved its international financial position since the 1998 financial crisis. The federal budget has run surpluses since 2001 and ended 2007 with a surplus of about 3% of GDP. Over the past several years, Russia has used its stabilization fund based on oil taxes to prepay all Soviet-era sovereign debt to Paris Club creditors and the IMF.

Foreign debt is approximately one-third of GDP. The state component of foreign debt has declined, but commercial debt to foreigners has risen strongly. Oil export earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $470 billion at year end 2007, the third largest reserves in the world.

During Putin's first administration, a number of important reforms were implemented in the areas of tax, banking, labour, and land codes. These achievements have raised business and investor confidence in Russia's economic prospects, with foreign direct investment rising from $14.6 billion in 2005 to approximately $45 billion in 2007.

In 2007, Russia's GDP grew 8.1%, led by non-tradable services and goods for the domestic market, as opposed to oil or mineral extraction and exports. Rising inflation returned in the second half of 2007, driven largely by unsterilised capital inflows and by rising food costs, and approached 12% by year end.

In 2006, Russia signed a bilateral market access agreement with the US as a prelude to possible WTO entry, and its companies are involved in global merger and acquisition activity in the oil and gas, metals, and telecom sectors.

As regards opportunities for investment in property, land and real estate we believe Russia will definitely provide developments of unparalleled quality. We are currently sourcing and investigating a number of developments and will be ready to offer the first of these by early 2009.