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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

Poor Infrastructure a Pothole for Russian Economy

August 27, 2009

Russian Economy 082709The deadly collapse of a freeway bridge in Minneapolis in 2007 brought to national attention that our vital infrastructure was falling apart.

Perhaps last week’s disaster at a major hydroelectric power station in Siberia that killed 69 people will get Russia moving to update its crumbling infrastructure. But the challenges are many.

The vast majority of Russia’s roads, bridges, railways and power grid date back to the Cold War era, and it’s estimated that more than 60 percent need to be replaced.

Heat and power outages during winter months are common, and Moscow is plagued with world-class traffic-jams. But at least Muscovites have places to drive—as of last year, more than 10 percent of the country’s population had no access to roads at all.

And while other BRIC (Brazil, Russia, India and China) nations have rapidly expanded their highways and rail systems over the past several years, the length of Russia’s usable roads actually declined by 31,000 kilometers (19,375 miles) from 2000 to 2006.

Roads in Russia Graph 082709

Safety and quality of life aren’t the only reasons Russia should invest heavily in its infrastructure. Looking at the economics, estimates are that annual GDP growth is reduced by up to 6 percent by the country’s poor infrastructure.

One infrastructure challenge facing Russia is its government incompetence and “unfathomable levels of corruption” that add huge cost to projects, according to the Moscow-based Center for Research of Post-Industrial Studies.

It cites figures that the cost of building one kilometer of a four-lane highway in Russia is about $13 million, about four times that of Brazil or China. For some sections of a highway connecting Moscow and St. Petersburg, the construction cost exceeded $130 million per kilometer due to government waste and palm-greasing.

Another problem is finding the big sums needed to get the work done. Prime Minister Putin proposed a 10-year, $1 trillion plan last year but that was prior to fallout in global markets and commodities.

Since then, more than $13 billion in infrastructure projects have been delayed or canceled, with the government spending most of the money earmarked for infrastructure on shoring up the country’s banking system instead. Rather than embarking on a comprehensive upgrade program, Putin now pledges to address “vital parts” of Russia’s infrastructure.

This means much of the funding for Russia’s infrastructure repairs will need to come from public-private partnerships (PPPs) and other innovative non-government sources. But these projects too will be vulnerable to costly corruption demands involving political entities and bureaucrats that would cut returns to investors.

09-581

Net Asset Value
as of 11/19/2019

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