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Financing the Russian Economy: Future opportunities and challenges Steven Fisher Managing Director, Citibank ZAO, Russia February 2008 Russia is a BRIC Leader Brazil Russia India 1,007 1,160 988 3,220 Economic Growth (2) (%) 3.4 6.0 8.3 9.8 Size of Equity Mkts (3) (US$bn) Growth 20012006 (%) 874 309 1,042 1,055 821 713 1,146 202 Growth of Acquisitions 316 1,831 1,266 459 607 7,943 2,491 771 >5 ~10 <5 ~20 Size of Economy (1) (US$bn) (4) (%) Growth of Equity Offerings (5) % of Global 20062007 IPO Offerings (6) (%) Notes: (1) (2) (3) (4) (5) (6) 2 (%)

2007 Nominal GDP; Source: EIU. 2007P GDP growth; Source: EIU. Market Cap as of December 2006 from Factset. 20012006 Market Volume; Source: SDC Any Involvement. 20012006 Equity offerings Equity and Equity Linked. 20062007YTD IPOs as of 17 September. China Exceptional Strength in Intellectual Capital Leads BRICs in Human Development Index Highest Literacy Rate among BRICs Rank Russia (65) 99.6 Russia Brazil (69) China China (81) 90.9 86.4 Brazil India (126) India 0 0.2 0.4 0.6 0.8 1 61.0 0 20 40 60 80 100 Leader in Higher Education 3 Sources: UNESCO, OECD, Economist 120 Russias Economy is larger than India, Brazil, South Korea Forecast to jump to top 6 player by 2020 GDP 2007E Rank Country/Region 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 ... 52 56 United States Japan Germany China United Kingdom France

Italy Spain CIS* Canada Russia Brazil India South Korea Mexico ... Ukraine Kazakhstan Source: EIU 2020 $MMM 13,893 4,464 3,284 3,220 2,682 2,434 2,046 1,401 1,364 1,284 1,160 1,007 988 969 871 ... 103 77 Rank Country/Region 1 2 3 4 5 6 7 8 9 10 11 12 13 14 ... 35 40 United States China Japan CIS* Germany United Kingdom Russia India France South Korea Italy Canada Spain Brazil Mexico ... Ukraine Kazakhstan $MMM 28,453 12,626 7,597 4,842 4,840 4,289 3,988 3,648 3,507 2,800 2,657 2,394 2,130 1,961 1,683 ... 468 386 Leading Energy Position is Key Economic Driver Ranking for FCY and Energy Reserves Oil (Proved Reserves)

Foreign Currency Reserves Rank Country 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 China Russia Taiwan South Korea India Singapore Hong Kong Brazil Malaysia Algeria Mexico Thailand Turkey Iran Libya Source: EIU 5 $MM Rank 1,076 296 266 238 166 135 134 86 82 78 76 66 61 58 57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Natural Gas (Proved Reserves) Country barrels % of (trln) total Rank Saudi Arabia Iran Iraq Kuwait UAE Venezuela Russia Kazakhstan Libya Nigeria USA Canada China Qatar Mexico

264.2 22.0 137.5 11.5 115.0 9.6 101.5 8.5 97.8 8.1 79.7 6.6 74.4 6.2 39.6 3.3 39.1 3.3 35.9 3.0 29.3 2.4 16.5 1.4 16.0 1.3 15.2 1.3 13.7 1.1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Source: BP research Country Russia Iran Qatar Saudi Arabia UAE Nigeria Algeria Venezuela Iraq Kazakhstan Turkmenistan Indonesia Australia Malaysia Norway Source: BP research m 3 (trln) 47.8 26.7 25.8 6.9 6.0 5.2 4.6 4.3 3.2 3.0 2.9 2.8 2.5 2.5 2.4 % of total 26.6 14.9 14.3 3.8 3.4 2.9 2.5 2.4 1.8 1.7 1.6 1.5 1.4 1.4 1.3 Russia Already Major Equity Market, Potential is Big 30 Companies with Market cap. >=US$6bn Rank Company Sector 1 Gazprom Oil and Gas 2 Sberbank Banks

3 Rosneft Oil and Gas 4 Lukoil Oil and Gas 5 Norilsk Nickel Metals 6 Unified Energy Systems Utilities 7 Surgutneftegaz Oil and Gas 8 TNK-BP Oil and Gas 9 VTB Banks 10 MTS Telecoms 11 Novolipetsk Steel Metals 12 Severstal Metals 13 Gazpromneft Oil and Gas 14 NOVATEK Oil and Gas 15 PIK Group Real Estate 16 MMK Metals 17 Tatneft Oil and Gas 18 AFK Systema Telecoms 19 Mosenergo Utilities 20 Pipe Metal Company Metals 21 Evrocement Build. Materials 22 Uralkali Fertilizers 23 Mechel Metals 24 Polyus Gold Metals 25 Baltika Brewery Food 26 Rostelecom Telecoms 27 OGK-3 Utilities 28 OGK-4 Utilities 29 Silvinit Fertilizers 30 OGK-5 Utilities Source: Bloomberg, 19 October 2007. 6 Mkt Cap US$bn 278.6 94.1 93.8 74.8 51.9 47.8 45.9 32.9 30.8 24.8 23.6 22.0 21.6

16.4 13.9 13.8 13.2 13.1 9.9 9.9 9.3 9.0 8.8 8.5 8.2 8.1 6.6 6.3 6.2 6.1 New Listings Will Bring More Sector Diversification Sector Breakdown, by Market Cap (MSCI) Financials Utilities Materials Telecoms Energy Leading EM Equity Market Rank Country 1 China 2 Korea 3 Brazil 4 Taiwan 5 Russia 6 South Africa 7 India 8 Mexico 9 Malaysia 10 Israel 1125 Others Grand Total: % of EM MSCI 17.4% 14.9% 12.0% 11.0% 8.9% 6.8% 6.8% 5.0% 2.3% 2.1% 15.5% 100% Source: MSCI, Citi, 18 October 07. Improving Risk Profile Rating Agency 31.12.04 Current S&P BB+ BBB+ Fitch BBB- BBB+ Moodys Baa3 Baa2 Source: S&P Sovereign Ratings History Since 1975; Fitch Complete Sovereign Rating history; Bloomberg Russia Update: Stronger and More Stable Since the 1998 financial crisis, Russias economy has stabilized and greatly expanded Average real GDP annual growth rate since 1998 - 6.9%

GDP grew from $200 billion in 1999 to $1.2 trillion in 2007 Personal consumption rate more than doubled since 1999 Total Central Bank reserves: $483 billion Stabilization Fund: $121.7 billion Public Sector Debt: declined from $152 billion in 1998 to $37 billion in 2007 Due to become the 8th-largest economy in the world in 2007 (using purchasing power parity exchange rates) Rus s ia Re al GDP produced (billions of Ruble ) 14000 12000 After 7 years in office, Putins approval ratings are higher than ever at 80%, though public trust of leaders in general is low An unprecedented majority of the public report they are more or less happy with life, and optimistic about the future 10000 8000 6000 4000 2000 0 Source: The Economist Intelligence Unit Russia Country Data Annual Time Series, 2007 7 Beyond Natural Resources: Consumer Boom Presents New Opportunities The emerging Russian middle class of 30 million is set to become one of the largest in the world Russian consumers tend to be early adapters of new technology with discerning tastes Spotlight on Rising Russian Middle Class 12th-largest retail market in the world, to become 9th-largest by 2010 Expanding to provincial cities 2007 1990 Russias cities are growing, and 14 cities have populations near 1 million Rank 1 Population 8,297,000 26 Rank City Novokuznetsk Population 564,000 2 3 St Petersburg Novosibirsk 4,678,000 1,400,000 27 28 Penza Ryazan 528,000 528,000

4 Nizhny Novgorod 1,358,000 29 Orenburg 523,000 1,267,000 1,165,000 1,153,000 1,092,000 1,088,000 1,084,000 1,014,000 1,003,000 992,000 903,000 876,000 875,000 720,000 668,000 654,000 640,000 614,000 609,000 607,000 591,000 580,000 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Naberezhnye Tchelny Lipetsk Tula Tyumen Kemerovo Astrakhan Tomsk Kirov Cheboksary Ivanovo Bryansk Tver Kursk Magnitogorsk Kaliningrad Nizhny Tagil Murmansk Ulan-Ude Arkhangelsk Kurgan Smolensk 521,000 519,000 506,000 502,000 492,000 482,000 481,000 466,000 459,000 459,000 455,000 451,000 440,000 427,000 425,000 393,000 379,000 370,000 365,000 364,000 351,000 5

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 8 City MOSKVA (Moscow) Ekaterinburg Samara Omsk Kazan Ufa Chelyabinsk Perm Rostov-na-Donu Volgograd Voronezh Krasnoyarsk Saratov Tolyatti Ulyanovsk Izhevsk Krasnodar Yaroslavl Khabarovsk Vladivostok Irkutsk Barnaul Source: City Mayors Statistics http://www.citymayors.com/features/euro_cities1.html Source: Russian Ministry for Economic Development & Trade, http://www.economy.gov.ru, accessed 24th July, 2007 60% of FDI into Russia is now in the non-natural resources sector Russia ranked the second most attractive retail market in the world after India* 35 years after Pepsi and 17 years after McDonalds entered the market, many iconic brands are starting to follow suit (Campbells, Starbucks) Key growth sectors include autos, construction, luxury goods, hospitality, advertising, banking and professional services * AT Kearney 2007 Survey FDI Rates and IPOs: Buoyant Regional Opportunities Russia leads the way in attracting FDI in the region, followed by the Saudi Arabia and Turkey, despite concerns over corruption and ease of working in the business environment Foreign Direct Investment (US $MM) 2000 2001 2002 2003 2004 2005 Russian Federation United Arab Emirates Turkey Ukraine Poland Romania Egypt Saudi Arabia 2,714.23 (514.56) 982.00 595.00 9,343.00 1,037.00 1,235.40 183.00 2,748.29 1,184.32 3,352.00

792.00 5,714.00 1,157.00 509.90 504.00 3,461.13 1,306.69 1,137.00 693.00 4,131.00 1,144.00 646.90 453.00 7,958.12 4,255.96 1,752.00 1,424.00 4,589.00 2,213.00 237.40 778.46 15,444.37 8,359.43 2,837.00 1,715.00 12,873.00 6,517.00 2,157.40 1,942.00 14,599.61 12,000.00 9,681.00 7,808.00 7,724.00 6,388.00 5,375.60 4,628.00 Kazakhstan 1,282.52 2,835.00 2,590.22 2,092.03 4,112.60 1,738.40 Source: United Nations Conference on Trade and Development (UNCTAD), Foreign Direct Investment Database, http://stats.unctad.org Accessed on 17 October 2007 IPOs in the Region (July 2006- July 2007) 35000 $31,079 30000 mil $ 25000 20000 15000 10000 5000 $4,888 $4,689 $3,228 $2,709 $1,631 $173 $137 0 9 Source: Thompson Financial SDC Platinum , accessed 1stJuly, 2007 $119 2006 28,700 8,300 20,100 5,200 14,000 11,400 10,000 18,300 6,100

Eastern Europe Private Sector in GDP (in per cent) Estonia Kazakhstan Latvia Lithuania Poland Romania Russia Ukraine 80 65 70 75 75 70 65 65 Source: European Bank for Reconstruction and Development, EBRD Transitions Report 2006, accessed 27 August 2007. www.ebrd.com. FDI in Russian Federation 1994-2007, forecast 2008-09, USD bn 60 53 50 40 38 32,4 30 34 FDI 20 10 12,512,9 8 4,9 2,8 3,3 2,7 2,5 3 2,6 2,1 0 0,7 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08F'09F 10 There are Still Challenges to Doing Business in Russia Russia retains many of the complex bureaucratic procedures present in many post-communist countries World Bank Ease of Doing Business Indicators (Ranking of 175 Countries) Dealing with Employing Registering Getting Protecting Enforcing Licenses Workers Property Credit Investors Contracts Rank Rank Rank Rank Rank Rank Estonis 14 156 21 48 33 29 Latvia 82 96 85 13 51 3 Saudi Arabia 47 40 3 48 50 136 Lithuania 57 124 4 36 83 18 Romania 90 145

123 13 33 37 Turkey 128 136 31 68 64 34 UAE 38 65 8 115 107 144 Kazakhstan 173 22 72 48 51 28 Poland 156 78 81 68 33 68 China 175 86 29 84 83 20 Russia 177 101 45 84 83 19 India 134 85 112 36 33 177 Brazil 107 119 110 84 64 106 Egypt 163 108 101 115 83 145 Ukraine 174 102 138 68 141 46 Economy Source: World Bank Doing Business Indicators 2007, accessed on 27 September 2007. www.doingbusiness.org. Transparency International Corruption Perceptions Index 2007 Country Rank 2006 CPI 2007 CPI Score Score 28 Estonia 6.7 6.5 34 UAE 6.2 5.7 51 Latvia 4.7 4.8 51 Lithuania 4.8 4.8 61 Poland 3.7 4.2 64 Turkey

3.8 4.1 69 Romania 3.1 3.7 72 China 3.3 3.5 72 India 3.3 3.5 72 Brazil 3.3 3.5 79 Saudi Arabia 3.3 3.4 105 Egypt 3.3 2.9 118 Ukraine 2.8 2.7 143 Russia 2.5 2.3 150 Kazakhstan 2.6 2.1 11 Estonia Ease of Doing Business Rank 17 (+1) Latvia 22 (-2) Saudi Arabia 23 (+10) Lithuania 26 (-2) Romania 48 (+7) Turkey 57 (+8) UAE 68 (+1) Kazakhstan 71 (flat) Poland 74 (-6) China 83 (+9) Russia 106 (+7) India 120 (+12) Brazil 122 (-8) Egypt 126 (+26) Ukraine 139 (flat) 0 20 40 60 80

100 120 140 (+/- change from 2006) Country Source: Transparency International, Corruption Index 2006. Accessed on 29 August 2007. In recent years, Russias bureaucracy has expanded and its corruption ranking has declined (worsened). Government has set fighting corruption as key priority. 160 One of the Largest Underbanked Markets in the World. Improving Risk Profile Bank Assets / GDP, 2006 200% Standard and Poors Rating Bank Assets as % GDP COUNTRY 150% 31 DEC, 2004 CURRENT Russia BB+ BBB+ Kazakhstan BBB- BBB- B+ BB- 100% 50% Ukraine 0% Brazil Source: EIU Russia India China Source: S&P Sovereign Ratings History Since 1975 Consumer banking market growth at 50+% per annum SME untapped by international players, 50+% growth Competition for Top Tier corporate names increasing 12 Strong Fundamentals Despite Market Turmoil Comparative CDS Spreads Equity Market Performance 200 1000 Brazil 5yr CDS (Ba1/BB+) Price (bps) 150 125 900 Mexico 5yr CDS (Baa1/BBB+) Percent Increase since Jan 2002 175 SOAF 5yr CDS (Baa1/BBB+) Russia 5yr CDS (Baa2/BBB+)

100 75 50 25 600 500 400 300 200 0 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Russian Credit Overview Despite the widening credit spreads since H2 2007, the year has been very strong for Russia in terms of both issuance volumes in the syndicated loan and Eurobond markets Although appetite for EM debt has been affected by the deteriorating credit environment, a large pipeline of both bonds and loans from investment-grade names will keep supply strong into 2008 13 700 100 0 Jan-07 800 RTS Index S&P 500 Bombay SENSEX Shanghai Brazil BOVESPA Jan 02 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Russian Equity Market Over the last few years, Russias equity markets have shown stunning growth with the RTS Index growing by nearly 900% since 2002 While easily outperforming indices from developed markets, Russias performance has even dwarfed other fast-growing emerging markets such as India, China and Brazil In line with the developments in the credit markets, equities have similarly seen a difficult start to the year. However, Russias solid fundamentals and further upward potential are expected to mitigate any potential riskaversion Russian Sovereign CDS Levels 250 1yr CDS 3yr CDS 5yr CDS 200 7yr CDS Price (bps) 10yr CDS 150 +106 bps 100 +97bps +88 bps +79 bps +62 bps

50 0 Jan - 05 Jul - 05 Source: Bloomberg as of 31.12.2007 14 Jan - 06 Jul - 06 Jan - 07 Jul - 07 Jan - 08 Russia FCY Loan Market Update Russia Loan Market Volumes Value No. of deals 100 90 2007 was a record year for syndicated loans, the total more than doubling to US$87.9bn 87.9 The big driver behind the substantial increase were capex and acquisition related financings in the Oil&Gas and Metals & Mining sectors 80 US$ billions 70 60 50 Hence, Oil&Gas as a sector represented with US$47.2bn, 53.7% of total volumes or an increase of 3.7x vis--vis 2006 40.1 38.2 112 132 153 2005 2006 2007 40 30 20 15.0 10 8.3 62 74 2003 2004 However, on the back of recent market dislocation and a huge pipeline of syndicated loans out of Russia, pricing has slowly started to creep upward 0 Volumes By Sector 47.2 Oil & Gas Other 15 100 20.4 Basis Points

6.8 10.6 12.4 Finance Telecoms 120 12.7 Metals & Mining Utility & Energy EMEA Pricing Trends 1.2 0.4 60 40 20 0.4 2.2 8.0 3.6 80 2007 2006 0 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 4Q04 4Q05 4Q06 A excluding ACQ A including ACQ BBB including ACQ BBB excluding ACQ 4Q07 Russian Eurobond Market Overview 45,000 Russia 40,000 Ukraine 35,000 No Deals 40,013 Kazakhstan Others 120 121 15,000 80 60 13,587 8,580 100 97 15,887 25,000 140 35,397 30,000 20,000 Russia Eurobond Volumes

54 46 40 10,000 5,000 20 24 0 0 2003 2004 2005 2006 2007 Russia Eurobond Volumes by Sector (%) Bank/Finance Telecoms/IT Others Energy/Oil/Gas Local authority State Authority/Government Metals/Mining 90% Russian Bond Issuance (%) 25,000 Finance 27,730 Oil & Gas Metals & Mining No Deals Others 76 21,229 20,000 70 63 40 8,055 10,000 6,505 5,000 16 29 60 50 11,138 15,000 80 30 32 20 10 0 0 2003 2004 2005

2006 2007 Despite the difficult market conditions since the summers credit woes, issuance volumes in 2007 have surpassed the previous years record levels Since the difficulties in the credit markets started only investment grade names, with the likes of TNK-BP on Oct. 3rd (US$1.7BN 5 & 10-year dual tranche), Gazprom on Oct. 17th (1.2BN long 10-year benchmark) and VTB on Oct. 25th (US$2BN 2 & 5-year dual tranche) were able to print in H2 2007. 100% 80% 70% 60% 50% Since Gazproms issue in October last year, only Sovereign credits (Ukraine, City of Kiev) have been able to raise funds on the primary market 40% 30% 20% 10% 0% 1997 16 30,000 Issuance Volumes (US$ - million) Issuance Volumes (US$ - million) CIS Eurobond Volumes 1998 2001 2002 2003 2004 2005 2006 2007 Although a large pipeline is expected for 2008, this large supply is partly mitigated by the redemption of nearly US$2bn coming due in the next 4 months in CIS M&A Activity in Russia Historic M & A Volumes Sector Split 2006 (US$ mm) 848 140,000 800 644 100,000 600 492 402 461 394 390 129,080 418 3,010 8,801 34,146 25,907 2000 2001 2002 2003

2004 Amount (US$ mm) 39,866 4,853 40,000 2005 58,292 60,000 20,000 Trans. (ex Air), Other, 3,530 1,009 Investment Firms, 1,240 700 2006 500 400 Number Amount (US$ mm) 120,000 80,000 900 Food Products, 1,644 Mining, 2,361 300 200 100 2007 Metals, 2,833 FI, 4,312 Food Stores, 2,856 Telecoms, 3,076 Utilities, 3,815 Number Overview Total US$ value of M&A Transactions grew from US$ 58 bn in 2006 to US$ 129 bn in 2007 In 2006 the average deal size was US$ 90 mm, this grew to US$ 152 mm in 2007 The average deal size for 2007 was greatest in Utilities where the average deal size was US$ 463 mm, this compares to US$ 93 mm in 2006 In 2006 the average deal size was greatest for the Oil and Gas, US$ 181 mm compared with US$ 390 mm for 2007 17 Oil and Gas, 11,466 This year deal volumes have reached US$ 16 bn so far Despite the financial crises, deals are still being done So far Oil and Gas has been the biggest M&A sector, capturing around 45% of the deal flow Sector Split 2007 (US$ mm) Construction , 2,378 Insurance, 2,326 Fis, 3,074 Other, 16,672 Telecoms, 5,482 Mining, 9,622 Oil and Gas, 35,529 Utilities, 65,296 M&A Activity in Russia Top 10 M&A deals - 2007 Transaction Announcement Sector

Acquiror Name Nation Value of Acquisition Technique % of Shares Transaction ($mil) Acq. Russian Fed 7,608 Privately Negotiated Purchase 9.44 / Auction Mar 07 Oil and Gas RN-Razvitye Apr 07 Oil and Gas EniNeftegaz Italy 5,835 Privately Negotiated Purchase 20 LionOre Mining May 07 Mining OAO MMC Norilsk Nickel Russian Fed 6,287 Tender/Merger 100 Yukossibneft Oil -Lot 10 May 07 Oil and Gas LLC Neft-Aktiv Russian Fed 6,814 Divestiture / Auction 100 Yukossibneft Oil -Lot 11 May 07 Oil and Gas LLC Neft-Aktiv Russian Fed 6,407 Divestiture / Auction 100 Yukos Oil Co Certain Assets May 07 Oil and Gas OOO Paran Russian Fed 3,877 Divestiture / Auction

100 Jul 07 Power Generation Shareholders Russian Fed 12,382 Divestiture / Spinoff / Privatization 100 RAO Unified Energy System Jul 07 Power Distribution RAO Unified Energy Russian Fed 4,172 Self-Tender / Tender Offer 7.43 OGK-4 Sep 07 Power Distribution E ON AG Germany 3,947 Golden Telecom Dec 07 Telecoms Vimpel Communications Russian Fed 4,232 OAO Rosneft Gazprom Neft HydroOG K 18 Privately Negotiated Purchase / Privatization 47.43 Innovative Approach to Corporate Finance Management Traditional Economic Development Scheme Growth->Optimization->Cost-Saving->Investment Turned into Growth/ Investment->Optimization/ Cost-Saving in Russia Russia Economic Development Growth/ Investment Optimization/Cost-saving Product Fin. Markets Corporates Funding, Leasing Short term FX & Money Market/ Stock Exchange/ Bond Market Funding/ Funding/ Funding Hedging, Insurance Long term FX & Money

Market/ Derivatives Market Hedging/ Alternative Funding/ Risk Management New Methods of funding introduced, e.g. Synthetic RUR Funding -> USD Libor Linked Loans + Cross Currency Swap -> Synthetic Fixed RUR Funding Market Indices introduced: Derivatives Market and Money Market Benchmark (MosPrime) Becoming More Important Local Derivatives Law in place: All Long-Term Derivatives Were Previously Booked in London Starting This Year Local Law Supports Derivatives ( Local ISDA under Development) Investor base diversification (Samurai bonds) 19 Key drivers for the Russian economy in 2008 remain positive Clarity on the political front. The future configuration of power in Russian has finally been clarified. We believe that it indicates reduced political risks and therefore consider it positive for the Russian market Macro story is still highly appealing. Russian economy has stayed immune to the global liquidity crunch, as evidenced by continued strong rates of GDP expansion. The current positive macroeconomic trends in Russia to continue in 2007-08, backed by favourable external economic conditions, in particular resilient oil price, which should support further growth, a stronger ruble and falling inflation Strong investment and consumption growth. Market is defensive to global slowdown. One of the positive attributes of the Russian market is that it is less exposed to a slowdown in the global, and especially the US, economy unless that slowdown leads to sharply lower oil prices. Even one of the more exposed sectors, Russian banks, is unlikely to get into significant trouble over the global credit crunch due to massive central bank and government ability to provide liquidity if needed. 20 Risks for the Russian Economy in 2008 Global sentiment. In some ways, Russia is more integrated than ever into the global financial system, global concerns about subprime, credit and debt can have an impact on the Russian market. A bigger risk is a global economic slowdown resulting in reduced demand on commodities (above all oil) Rouble strength. Better-than-expected performance on the current account side and strong inflow of private capital combined with an attempt of the CBR to ease inflationary pressures may result in a rouble appreciation ahead of the market expectations. This will put further pressure on margins of commodity exporters Cost inflation. Inflationary pressures are unlikely to ease in 2008, supported by wage increases, government spending, tariff increases for natural monopolies and global price increases. These may result in rising operating costs and capex overruns for Russian companies 21 Longer Term: Key Questions for the Russian Economy Future investment and long-term growth in Russia will be dependent on: Further reforms progress. Reform vs. Stability? Productivity and Efficiency of Russian enterprises vs. the world competition and WTO Diversification of Russian Industry Addressing the demographical challenges Declining population Limited skilled professionals force Low mobility Promotion of Rule of Law, Decreasing Corruption Investment into infrastructure Accelerating the growth of the Russian smaller and medium sized (SME) enterprise sector Growing middle class and its positive effects Food! 22 Questions Answers

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