Russian Electronics Market on the Brink
Russia showed strong growth in purchases of electronic goods over the last decade, by both private consumers and businesses. Over 2004-2014, private consumption in Russia and economic output grew fivefold and fourfold respectively, resulting in sales of electronics products surging fourfold. However, growth is shifting to decline in sales value, due to the poor performance of the ailing Russian economy.
Troubled Russian electronics sales
Russian sales of core electronics surged at 16% CAGR over 2009-2013, to reach an all-time high of US$40 billion in 2013. However, dynamic growth swiftly shifted to decline. In 2014, value sales experienced 7% slump, while 2015 decline is expected to increase to 26% in US$ dollars, as the Russian economy enters recession (see figure 1).
Figure 1. Accumulated Market Size of Core Electronics in Russia Over 2004-2015
Source: Euromonitor International
Note: Core electronics in Russia includes computers and office machinery, mobile phones, radio transmitters and television cameras, television and radio receivers, sound or video recording devices and electronic components, valves and tubes
The most significant area of decline in core electronics sales in Russia is being seen in purchases for business use. Both electronics purchases for further production (as components) and for investment use (as final products) dropped by 10% over 2014. Poor prospects for the Russian economy, continuing capital flight from the country and political friction between Russia and the West reached such a level by 2014 that electronics business expansion in the country appears uncertain. According to the Russian Central Bank, in 2014 overall net capital outflow from Russia reached US$154 billion.
In addition, personal consumption in Russia is declining, thus adversely affecting consumer electronics purchases. Over 2013-2015, the rouble is set to lose value by around 42% against the US dollar. With consumer electronics dominated by foreign companies, this will create a surge in prices. Overall inflation in Russia was 8% in 2014, similar to the growth of electronics prices during the year. In 2015, inflation in the country is meanwhile set to reach an extreme level of 17%, resulting in declining volume sales for consumer electronics.
Government could play increasing role in electronics
The rouble’s declining value and diminishing Russian purchasing power are resulting in electronics imports to Russia becoming less competitive. There is thus an opportunity for the Russian government to promote local electronics production, in order to supply cheaper domestic products. However, local electronics brands are little known and lack innovation, thus struggling to compete both in and outside of Russia. Data indeed shows that electronics production in Russia is stagnating, with volume index growth in core electronics industries at 0% during 2014, with this stagnation set to persist in 2015 and beyond.
To a certain degree, however, the Russian government benefits domestic electronics producers. The government primarily benefits via radio and related equipment purchases for military purposes, driven by the country’s US$700 billion rearmament programme. Notably, the aircraft and spacecraft industry, which is engaged in Russia’s air force fleet renewal, became the second heaviest user of radio equipment in Russia, adding 18% to its spending annually on such equipment over 2009-2014.
Despite efforts, Russian electronics set to stagnate
The future for electronics sales in Russia seems bleak. As long as the rouble’s value remains extremely low, inflation is high and financing is limited, Russian electronics is poised to remain in stagnation. Growth is only likely to occur if households are able to afford electronics and companies regain confidence in the Russian economy and start investing into production, thus driving up electronics purchases.
However, there are no signals that anything will change in the near future. The conflict between Russia and the West remains strong and even though cheaper local electronics production is in position to replace imports, this seems unlikely to happen. Therefore, even pricier imports are set to continue dominating sales, with these products becoming unattainable for an increasing number of Russians.