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									       Marketing management of Strategic development and marketing department


Ukraine and the world in 2011: forecasts and trends of
development




Content:



1. Ukraine

                                                                                Page



     1.1. Macroeconomic indicators                                                 2

     1.2. Main trends of banking system development, expert estimations            3

     1.3. Prospects of industries                                                  6




2. The World

                                                                                Page



     2.1. Macroeconomic indicators and forecasts                                  11

     2.2. Vectors of development and problems of financial sector                 13

     2.3. Prospects of industrial sectors                                         15
                           Marketing management of Strategic development and marketing department

          Ukraine. Macroeconomic indicators of Ukraine

                                  Rating of Ukraine on obligations (Source: Reuters, Cbonds)

      Source:                      S&P              Moody’s          Fitch
                                                                                      Grounds for stabilization for
                           Rating in national currency                                sovereign ratings of Ukraine:
      Long-term                     ВВ-               В2               В
                                                                                     ·   Improvement of position with
      Short-term                     В                 _               _
                                                                                         external liquidity due to the new
                                                                                         loan agreement with IMF;
      Forecast                    Stable             Stable          Stable          ·   Successful issue of Eurobonds;
                                                                                     ·   Narrowing of macroeconomic
                           Rating in foreign currency                                    disbalances (substantial balance
                                                                                         of payments adjustment and
      Long-term                     В+                В2               В                 renewal of economic growth)

      Short-term                     В                 _               В                             Source: Moody’s
      Forecast                    Stable             Stable          Stable

      Revision date              29.07.10           11.10.10        15.09.10




                                      Summary table of macroeconomic forecasts in 2011

         Forecast     Growth          Inflow of        Balance of     Inflation,   Unemployment,    Growth of    UAH/USD
      parameters      GDP,%        foreign direct       current           %             %           the real*    exchange
                                    investment,        account of                                  income, %    rate at the
                                       $billion        payments                                                 end of the
Source                                                  balance,                                                   year
                                                       % of GDP
Cabinet of
Ministers                 4.5                                              8.9                        4**
Ministry of
Economy
                                                                                                                   7.94
(consensus-
forecast)                 4.6              6               -1,1            10.8
IMF                       4.5                              -1.3            9.8           7.7                       7.95
EBRD                      4.0
Fitch Ratings             4.5                                              10.8                                    7.7
Erste Group               4.5                                               10
IC "Troika Dialog
Ukraina"                   4               6               -2.8            10.5          7.5           5
IC BG Capital             4.8             6.8              -2.5            10.1                       8- 9
IG "Sokrat"                5              6.7              -0.8            10.5
ING Bank of
Ukraine                   4.6             7.9              -2.4        10.5- 11
ICPD                      4.4             5.2               0.6          9.9             8            4.8
IC Dragon
Capital                   4.5             5.5              -2.5            10.5          8
International
labor
organization                                                                             7.7
The Economist
Intelligence Unit          3.9                                             11.6
* Inflation adjusted      index
** Official profits are   taken into account only


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                    Marketing management of Strategic development and marketing department


       Positive assumption of macro forecast:                  Main risks of macro forecast:

·    renewal of internal demand growth;                   ·   macroeconomic and currency risks (UAH
·    investments in Euro-2012 infrastructural                 devaluation);
     projects;                                            ·   growth of prices for raw material; absence of
·    renewal of lending to corporate sector by                diversified channels of energy resources
     international financial institutions and Ukrainian       deliveries;
     banks;                                               ·   legislative and fiscal risks due to the new tax
·    investments in agribusiness development;                 code adoption;
·    cooperation strengthening on large projects          ·   political risks (growth of mistrust to the
     (atomic energy, aircraft and shipbuilding, space         government);
     exploration industry) with Russia;                   ·   credit risks;
·    continuation of collaboration with IMF;              ·   new wave of international crisis (overheating
·    increase of production efficiency; improvement           of Asian economy, budget problems of the
     of product quality;                                      number of European countries);
·    business diversification;                            ·   diminishing of purchasing power as a result of
·    development of internal market, expansion of             inflation
     sale markets




       Main development trends of banking system, expert estimations

                                 Main trends of financial market in 2010
    Positive:
       · decline of worsening of loan portfolios quality due to the stabilization of financial position
           of existing borrowers and moderate activation of lending with more competent risk
           assessment, than in pre-crisis period; issue of short-term loans to corporate clients for
           trade and working capital finance;
       · activation of problem assets sales to debt collectors;
       · decline of Banks’ losses more than three times: if in 2009 the total NBU loss made UAH
           38,5 billion, by the results for November 2010 it reduced to UAH 9,4 billion; growth of
           collateral value after economic rise will bring to reduction of reserved provisions that are
           the main reason of bank’s losses; by forecasts, the BSU will reach the break-even activity–
           2-d Q 2011;
       · improvement of clients payment discipline due to their financial stabilization and need for
           new loans in future;
       · stability of UAH rate during 2010;
       · slowdown of retail deposits outflow and renewal of their growth: portfolio increase
           exceeded UAH 50 billion for 11 months of 2010;
       · course on consolidation of banking sector: NBU resolution №273 and draft law №0884
           stipulates obligatory increase of regulatory banking capital.
    Negative
       · increase of loan exposure (information for 3 Q 2010):
       $111,623 billion – gross external debt of Ukraine;
       $28 billion – debt of banks, mainly with foreign capital
       $40 billion – debt of Ukrainian corporations;
       $3 billion (UAH 180 billion) – debt of borrowers to banks;
       · expensive and ineffective governmental support to problem banks;
       · reduction of real economy lending (only 20- 25% of loans were granted to real sector).
           Banks buy governmental bonds actively, covering the budget deficit; i.e. government is
           competitor to the economy;
       · refinancing of commercial banks by NBU in amount of about UAH 80 billion, greater part of
           which is not returned by the banks;
       · high risks of reputation: Ukrainian banking system takes 137-th place in reliability among
           139 participants of competitiveness rating of the World Economic Forum;

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                     Marketing management of Strategic development and marketing department

      ·    increase of Russian capital share: four Russian banks (VTB, PIB, Alpha, subsidiary bank of
           Sberbank Rossii) hold more than 10% of assets of the Ukrainian banking system, more
           than 8% of own banking capital, more than 14% of corporate loan portfolio, 7% of retail
           loan portfolio.

                     Presence of banks with Russian capital in Ukrainian banking System

          Bank            Shareholders   Position in   Assets (UAH, billion)     Invest.                  Notes
                            (Russian      rating of                            companies
                           Federation)    National
                                          Bank of
                                          Ukraine

VTB                    VTB                   7                 30,8            VTB         Total group portfolio in Ukraine is
                                                                               Capital     $10 billion

Prominvestbank         Vneshekonombank       8                 28,9                        Leader on size of equity among
                                                                                           Russian banks

Alpha Bank             Alpha Bank            9                 27,1            Alpha       Leader on size of retail loan
                                                                               Capital     portfolio among Russian banks

Affiliated Bank of     Sberbank Rossii       25                8,4                         Increase of loan portfolio in 2010
Sberbank Rossii                                                                            made more than UAH 2,5 billion
                                                                                           due to large projects

BM Bank                Bank of Moscow        54                2,8

Energobank             NRK                   62                1,8

Petrokommerts          Petrokommerts         96                0,92
Ukraina Bank

Bank «Russian          Bank «Russian        140                0,25
Standard»              Standard»

                                                             100,97
                                                        (11% of assets of
                                                        banking system of
                                                            Ukraine)



       Largest funds areas – PFTS and Ukrainian exchange – belong to Russian players: Moscow
  interbanking currency exchange and Russian trade system.




      International experts estimations on prospects of development of the
                           banking system of Ukraine

     «Estimating nowadays situation in banking sector, I can say that liquidity is not a problem
anymore. Banks still work at problem solution concerning bad loans, which still make big share in
their portfolios. Second problem is that demand on banking loans is quite low due to the very few
companies to be invested nowadays".

                                                             Andre Kuusvek, EBRD Director for Ukraine



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               Marketing management of Strategic development and marketing department

     «Assets quality of Ukrainian banks in 2010 continued to be worsened. We expect that share
of problem loans (overdue loans plus restructured loans) by the end of the year 2010 will attain
very high level that is 40% of the total volume of given loans. In 2011 this share can decline
gradually. Funding base of the Ukrainian banks was improved in 2010 due to the inflow of
deposits, as a result the deposit base was restored to the pre-crisis level. In comparison with the
pre-crisis period banks have more considerable liquidity cushions that will allow them easier to
get along at any new market shocks. However banking system of Ukraine is still much disposed
to the loan outflow due to the low level of depositors’ trust, that was shown during world financial
crisis of 2008-2009».

                                     Moody's «Forecast for banking system of Ukraine»



    «Ukraine is among the outsiders by the index of assets quality along with Kazakhstan, Latvia
and Lithuania. Ability of the Ukrainian banks to resume crediting is limited because of their
current focus on the work with loans, limited access to the UAH long-term financing and quite
high level of loans in economy».

                                         Fitch Ratings «Research of banking system of CWE»



       «Liquidity of banking sector grew considerably, but mainly in short-term segment. Long-
and medium-term liquidity is still in a large deficit at the market. In this connection, the gradually
lengthened terms of corporate and retail deposits are very positive signal».

                                                                                 Standard & Poor’s




Prospects of Industries




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                    Marketing management of Strategic development and marketing department

                                       Short-term run:

                                       Ш Steel production will raise by 11- 14.4%; consumption by 5.3%;
                                       Ш Export of steel products to the markets of the South-Eastern Asia will
                                       make 18% (due to the limit on flat rolled products export by China);
                                       Ш Deficit of ore and coking coal (profitability of ore and coking coal
                                       production grew substantially in 2010 by 13% in connection with increasing
                                       of its price);
                                       Ш Activation of investments in modernization of metallurgical combines;
locomotive1
                                       Ш Revival of internal market due to the preparation to Euro-2012
                                       (modernization of infrastructure);
                                       Ш Acquisition and pushing out of weaker competitors from the market
         Forecast for 2011             (bankruptcy claims to Alchevsk Steelworks and Dnipropetrovsk
                                       Dzerzhynskyi Steelworks).
                                       Mid-term run:

                                       Ш Adjusted export structure of the industry (percentage is 40%) covers
                                       demand in the countries of CIS, Asia and Middle East.

                                       Ш Priority areas:
                                               · growth of carriage and diesel engine building at the 10% level
                                       (share of export to Russia is 80% of total volume);
                                               · aviation building grew by 25- 30% (Ukrainian and Russian
                                       project on АN- 148);
                                               · growth of power mechanical engineering by 25- 30% (turbines
                                       for power-stations and airplanes, aggregates for gas pumping). Main
                                       representatives – Zaporizhzhia Transformer Factory, Frunze Sumy Scientific
    locomotive                         Production Association, Turboatom. During modernization of the gas-
                                       transport system of Ukraine, the key company is Sumy Scientific Production
                                       Association (the profit of company can make USD 630 million during 7
         Forecast for 2011             years*, by Foyil Securities forecast);
                                       *term according to the plan of government for Ukrainian GTS modernization

                                       Ш forecast of car building growth (existent effect of the deferred demand
                                       in Ukraine together with the renewal of consuming lending).


                                              Important event in 2011 is privatization of the energy generating
                                       company and further privatization of Oblast Energy Companies
                                       («Dniproenergo»,    «Zakhiddenergo»,            «Donbasenergo»      and
                                       «Centerenergo»).

                                       Ш Demand for electricity will grow by 4- 4.5% (due to industrial users,
                                       transport);
      locomotive
                                       Ш Increase of share of power-stations in the structure of power production
                                       (reconstruction of atomic blocks in connection with expiry of exploitation
       Forecast for 2011
                                       period);
                                       Ш Two-stage increase of rates for population (double increase of prices
                                       since April and by 39% since August 2011).
                                       Mid-term run:
                                       Ш Transition of the Ukrainian energy market to direct agreements** till
                                       2014 (by forecast of the National Commission for Energy Regulation).
                                       ** choice of electric power producer on the basis of the lowest price.




1
   Industries of locomotives – form considerable part of GDP and export potential of economy.
Ukrainian companies of these industries lose world producers on the level of operating efficiency in terms of growing
competition, and their modernization requires considerable investment. Mastering of new productions is being broken due
to the absence of large internal customers with developed necessities. Main task for branches is activity expansion in
segments of deeper processing and products sale.


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                 Marketing management of Strategic development and marketing department

                                       Ш Main risk of the industry – price growth for natural gas;
                                       Ш Growth of world demand for fertilizers by 3- 5%;
                                       Ш Growth of ammonia production +12,5% and carbamide +6%;
                                       Ш Further consolidation of chemical industry assets;
                                       Ш Possible privatization of Odessa Port Factory is a catalyst of Ukrainian
                                       ammoniac market redistribution.

  locomotive


   Forecast for 2011



                                       Ш In 2011 the domestic market will reach the pre-crisis level of sales
                                       +15%        (+$0.6        billion    in      comparison       with  2010):
                                       medications will rise in price by 20%;
                                       Ш Generic medications are main driver of domestic market (rise of generic
                                       world market);
                                       Ш Promotion of the products by large international companies – increase of
                                       the need in modern methods of treatment (for instance, biotherapy);
prospective 2                          Ш Expansion on the fast-growing distribution markets: Asia, Middle East
                                       and Africa (deficit of inexpensive, but high quality medications).
     Forecast for 2011




                                       Ш Main factor of development is further entering of agricultural holdings to the
                                       capital market;
                                       Ш Growth of sugar market by 27- 34% (small crop in India and Brazil can
                                       result in increase of prices in future);
                                       Ш Extension of quotas on export of corns till 31 March 2011 (total size of
                                       quotas is 4.2 m. ton (corn, wheat, barley) that resulted in price reduction for
                                       corns by 15- 20%);
                                       Ш Creation of state corn trader on the basis of state joint-stock company
                                       «Khlib Ukrainy»;
                                       Ш Further consolidation in sector of plant breeding;
prospective
                                       Ш Increase of own infrastructure for corns storage and transporting;
                                       Ш Strengthening of positions in export markets of sunflower-seed oil and
                                       eggs;
                                       Ш Favorable export markets: EU, Middle East, China.


                                       Ш Increase of capitalization level of banking system;
                                       Ш Stabilizing and reduction of problem debt level;
                                       Ш Optimization of own retail networks;
                                       Ш Banking system of Ukraine is expected to become profitable in 3-3 quarters
                                       (gradual increase of lending, reduction of provisions);
                                       Ш Increase of share of Russian state banks (mainly is Sberbank Rossii).


prospective




         2   Prospective Industries         have good possibilities of development in short-term run (2011- 2012),
         possess sufficient potential of labor increase without considerable attraction of additional resources.




                                                                                                                     7
                  Marketing management of Strategic development and marketing department

                                   Ш Increase of price on bakery products (due to the low wheat quality of
                                   harvest 2010 and price rising on wheat in the world markets);
                                   Ш Demand for organic food products at 1- 3% level of the total volume.




prospective




                                   Ш Increase of mobile operators rates;
                                   Ш Auction on 3G license sale, investment in building and active promotion of
                                   networks (market pioneer will get powerful customer base and income).
                                   Prospective additional services:
                                   · Content, data transfer;
                                   · Increase of mobile Internet speed.


prospective                         Internet access is a basic driver of telecommunication sector growth. Provision
                               of services of mobile communication and access to the network, aggregate turnover
                               will rise by 11,9% (by $4.7 billion).

                                   Ш Recovery of the Ukrainian IT market and growth of sales; volume of IT-
                                   market will make $3 billion;
                                   Ш Mobile PC is a catalyst of computer consumer market; Volume of PC*
                                   market will make $1.75 billion (sale of notebooks amounts to more than 50%),
                                   rate of growth will make +37.8%.
                                   * PC market occupies 1-st place among TOP 5 market leaders that have overcome crisis.


prospective3                       Internet- commerce:
                                   Ш Withdrawal of provisions of Tax Code that prohibit single tax payers to be
                                   engaged into Internet commerce;
                                   Ш Growth of Internet commerce +25- 30% (up to $0,37 billion).

     Forecast for 2011
                                   Popular directions:
                                   · Household appliances;
                                   · Consumer electronics and computers.




                                   Ш Increase of goods turnover in 2011- 2012 in synergy with growth of the real
                                   incomes of population by 12-15% per annum;
                                   Ш Main risk is absence of dynamics of actual demand growth;
                                   Ш Wages growth can make 12- 13% ( in fact +12% in 2010);
                                   Ш Growth of retail turnover due to inflation and not due to amount of sold
                                   goods;
                                   Ш Half of market (50%) will be under the control of national companies
prospective
                                   instead of expected expansion of the large foreign networks;
                                   Ш Growth of restaurateur market will make +13,6% up to $2.5 billion.
    Forecast for 2011
                                   Average bill in establishments of public catering will grow by 15- 20% in UAH.




                                       3
                                        prospective industries- industries that have high potential of development in mid-
                               term prospect (till 2014) due to economy growth in general or due to favorable geographic
                               factors.


                                                                                                                8
              Marketing management of Strategic development and marketing department

                               Ш   Main risk is rising in price of Euro (2/3 autos are imported from Europe);
                               Ш   Increase of turnover by 23,1% that is $4 billion*, 170- 190 thousand autos;
                               Ш   Sales growth directly depends on the growth of crediting volume;
                               Ш   Reduction of credit by 1.5- 2% to the level of 17- 20% in UAH;
                               Ш   Expansion in import markets of Dollar areas such as China, Korea, USA;
                               Ш   Adoption of a law on trade- in.

                               Medium-term prospect:
prospective
                               ·   In 2014 sale of autos will make up to 260 thousand;
                               ·   In 2015 sale of autos will rise up to 300 thousand.

                               Prospective direction is provision of services by service stations:
                               · There are 700-1000 autos for 1 service station in the country;
                               · Market is not saturated (as well as it was 3 years ago);
                               · Profitability makes 60%;
                               · Growth amounts to +24.3% that is $4.6 billion.
                               *60% of purchased autos in 2010 were EUR 15 thousand cheaper. The share of purchase
                               of autos at the cost lower than EUR 10 thousand made 40%.

                               Ш Market growth will not exceed 10%;
                               Ш Concentration of market by the leading companies, sifting out of small
                               players;
                               Ш Cutting of prices on services (aggressive strategy of clients capture);
                               Ш Achievement of crisis indicators as far as crediting will renew till the year
                               2012.

prospective                    Basic constituents of insurance companies portfolios:

                               · For retail clients – CASCO, OSAGO, DMS insurance and property (growth +
                               5- 7 %);
                               · For corporate clients – corporate voluntary medical insurance.

                               Ш Preparation to Euro-2012;
                               Ш Railway communication Kyiv-Boryspil (budget makes UAH 7.2 billion);
                               Ш Expansion of airports capacities;
                               Ш Privatization of passenger transportation market (Group “Privat” plays a key
                               role);
                               Ш Continuation of ports modernization along with their subsequent
                               privatization;
prospective                    Ш Probability of “Ukrzaliznytsia” transformation into corporation (state joint-
                               stock company).


                               Ш Market situation depends on crediting to developers and retail clients;
                               Ш Fall in branch by -1.4% (to $2.7 billion);
                               Ш Prices for new built housing will rise by 10- 15% (limited proposals and
                               growth of demand on housing)*.

                               *Buyers are ready to invest into new buildings when objects are ready by 75%



prospective




                                                                                                              9
                     Marketing management of Strategic development and marketing department

                                            Ш Uniting of the Ukrainian and foreign operators for joint sales
                                            Ш Reorientation on distribution network channels (own retail networks and
                                            partners) in segment of retail sale of tourist packages;
                                            Ш Euro-2012 – turnover increase of the domestic hoteliers, restaurateurs and
                                            souvenir sellers;
                                            Ш Prospective direction– medical tourism.

prospective




   The World. Macroeconomic indicators and forecasts

                                                                      Global GDP growth, which increased by 3,9%
                GDP Forecast for 2010- 2012
                                                                    in 2010, will slow down to 3,3% in 2011 and to
        7.0%                                                        3,6% in 2012.
                               6.0%                6.1%
                                                                       GDP growth in developing countries should
    3.9%                                      3.6%                  make 7% in 2010, 6% in 2011 and 6,1% in
                           3.3%
              2.8%                                      2.7%        2012, in future the GDP growth will exceed the
                                    2.4%
                                                                    level of the countries with high profits, the latter
                                                                    should make 2,8% in 2010, 2,4% in 2011 and
                                                                    2,7% in 2012.
        2010                   2011                  2012


    Global           Developing countries     Developed countries


       (Source: World Bank)




                                                                                                                10
                Marketing management of Strategic development and marketing department

                                                              Transition from stimulation to the strict
                                                          saving will substantially result in growth slow
                                                          down of world economy in 2011 to 3.6% (in
                                                          comparison with 4.4% in 2010). Clients
                                                          concerns, financial limitations and debts will
                                                          struck on economy growth of developed
                                                          countries (totally 1.6%). Central banks in
                                                          America, Europe and Japan will retain the
                                                          interest rate at low level; the growth is expected
                                                          only in 2012.
                                                               Growth of the world trade in 2011 will make
                                                          5.7% (in 2010 – 11.5%). The developing Asia
                                                          will become leader in growth of export, in spite
                                                          of anti-dumping measures introduction within the
*Worldwide information for 60 countries, which            World Trade Organization.
hold more than 95% of world GDP

                                                                  In 2011 the reduction of difference in
                                                          indexes of GDP growth between China and India
                                                          is forecasted. In 2010 these indexes grew in
                                                          India, and went down in China in order to avoid
                                                          the market overheat.
                                                               For major of other countries the economy
                                                          growth is forecasted due to the raw materials
                                                          export (carbohydrates – Qatar, Uzbekistan,
                                                          Ghana; natural resources – Eritrea, Laos and
                                                          Liberia) and agricultural products (Ghana,
                                                          Ethiopia and Laos), rubber (Liberia). Qatar –
                                                          growth of gas market.



                                                                   Regional trends in 2011:
                                                             Ш Europe – high risks in countries with the
                                                               debt load (Greece, Ireland, Spain, Italy,
                                                               Portugal);
                                                             Ш Asia – slow down of rates of growth
                                                               China’s GDP;
                                                             Ш Latin America – strengthening of
                                                               economic positions of Brazil among the
                                                               countries of BRIC (Brazil, Russia, India,
                                                               China);
                                                             Ш North America – Prevention of second
                                                               wave of crisis in the USA;
                                                             Ш Middle East – rate adjustment related to
                                                               decrease of demand on oil.


(Source: «The Economist Intelligence Unit»)

                           Forecast of basic macro indicators of CIS countries

   State         GDP            Nominal GDP*, $            Inflation   Population,    GDP per person*,$
                growth                                        **         million
                                                                         people
 Uzbekistan      8.5%         $44 billion ($94 billion)      14%           29            $1 510 ($3 260)




                                                                                                    11
                  Marketing management of Strategic development and marketing department

Kazakhstan         5.5%          $151 billion ( $209 billion)          6.6%              16.3             $9 250 ($12 78 )

  Russia           4.0%         $1737 billion ($2351 billion)          7.8%             141.5             $12 280 ($16 620 )

 Ukraine           3.9%          $165 billion ($323 billion)           11.6%             45.3              $3 630($7 130)

  Poland           3.4%          $469 billion ($751 billion)           2.4%              38.1             $12 310 (19 720)

  Slovakia         3.3%           $85 billion ($125 billion)           2.2%               5.4             $15 540 ($22 990)

  Estonia          3.2%            $18 billion ($25 billion)           2.6%               1.3             $13 500 ($18 970)

   Latvia          3,0%            $22 billion ($33 billion)           0.5%               2.2             $9 780 ($14 940)

 Lithuania         2.9%            $33 billion ($57 billion)           0.9%               3.3             $9 960 ($17 370)

 Romania           2.7%          $166 billion ($262 billion)           5.0%              21.4             $7 740 ($12 220)

  Bulgaria         2.6%            $46 billion ($95 billion)           2.4%               7.4              $6 270($12 790)

  Hungary          2.5%          $127 billion ($195 billion)           3.0%               9.9             $12 910 ($19 820)

  Slovenia         2.1%            $47 billion ($59 billion)           2.4%               2.0             $23 550 ($29 260)

  Croatia          2.0%            $57 billion ($81 billion)           2.4%               4.5             $12 670 ($18 160)

   Czekh           2.0%          $184 billion ($269 billion)           2.1%              10.2             $18 050 ($26 400)
  Republic
             * GDP in US Dollars is calculated on the basis of forecasts for 2011 taking into account the exchange rates
             of US Dollars (GDP at PPP (purchasing power parity) is indicated in brackets).

             ** Inflation: average annual level in comparison with the similar period of previous year.

             (Source: “Economist Intelligence Unit”).




                                         Economic forecast for Eurozone

                                                  2009         2010       2011        2012         2013        2014
 GDP                                                -4.0         1.7         1.4         1.7         2.0         2.0
 Consumption by households                         -1.1          0.5         0.7         1.2         1.4          1.5
 Investments in fixed assets                      -11.3         -1.3         1.7         2.7         3.6          3.6
 Accumulation (% GDP)                              -0.6          0.6         0.8         1.0         1.0          1.2
 Consumption by the state                           2.4          1.1         0.2         0.2         0.7          1.0
 Export                                           -13.1          9.6         5.7         6.0         6.6          6.0
 Import                                           -11.8          9.4         4.8         5.7         6.1          6.0
 Consumer prices                                    0.3          1.5         1.6         1.6         1.7          1.8
 Rate of unemployment                               9.4         10.0        10.0         9.8         9.4          9.0
 Current balance (% GDP)                           -0.8         -0.3         0.0        -0.1         0.0          0.2
 State budget (% GDP)                              -6.3         -6.5        -4.9        -3.9        -3.0         -2.3
 State debt (% GDP)                                81.8         86.7        89.6        90.9        90.9        90.2
 Euro/US Dollar exchange rate                      1.39         1.34        1.31        1.14        1.11        1.15


(Sourse: Ernst&Young, «Oxford Economics»)

                                                                                                                        12
                       Marketing management of Strategic development and marketing department




         Vectors of development and problems of financial sector




                                                               The general net flows of private capital into
                                                           developing countries increased by 44% in 2010, but
                                                           they remain considerably lower the level of the year
                                                           2007. According to forecasts the inflow of foreign direct
                                                           investment into developing countries will reach $590
                                                           billion (2,5 % of GDP) by 2012.




(Source: World Bank)

                                                                 Lending will not return to a former level and
                                                           will be far below the amount of own borrowed
                                                           funds of global banks.

                                                                Bank lending will grow only by 4.4% in 2011
                                                           (taking into account inflation it is 3.1% less than in
                                                           2010). Slow growth is resulted by more strict
                                                           requirements to the capital, restrictive regulative
                                                           reforms and debt in more than $3 trillion (payment
                                                           due in 2011- 2012). Further attempts to improve
                                                           the ratios of equity and limit the risks at the global
                                                           capital markets will result in hard competition for
                                                           retail deposits.
                                                           Securities markets will be oriented on economy
                                                           recovery and inflationary risks. Return on
                                                           dividends in Europe is forecasted to be higher than
(Source:»The Economist»)                                   the return on state bonds.




  Growth of money transfers volume: + 6,3% in 2011; +8,1% in 2012 up to $375 billion.
  Risks:
   · Unstable growth of economy in countries with high income, growth profile will appear to be lower than that
     in trend during several years;
   · Reduction of state budgets of countries will have negative impact on development of labour market and will
     complicate employment opportunities for immigrants in receiving countries;
   ·    Unstable currency and prices on raw materials, fall of US Dollar rate to currencies of money transfers from
       receiving countries.



                                                                                                                 13
                 Marketing management of Strategic development and marketing department

       In 2011 European banks will solve the issues of refinancing. Agreements on repayment with volume
of more than $1,8 trillion can be extended. (Source: Moody’s). Competitive struggle for funds can result in
exclusion of companies with low investment ratings, the growth of cost of funds attraction for financial
institutions is possible.
      Expansion of the American, Chinese, Brazilian, Indian banks in the developing markets:
   ·    USA – interest in export increase and servicing of the developing markets by its financial institutions;
   ·    Banks from China, Brazil and India – grow as well their share in foreign capital in the world banking
sectors ( in Africa, Asia and Latin America), that previously was the prerogative of the Western companies;
   ·    More active participation of China in reforming of the international financial systems – advancement
of Yuan as an international and freely convertible currency. .
Basic instruments of reduction of banking systems risks:
    · Regulation;
    · Forced execution;
    · Taxation.
    Aim is to create the balance between the growth of financial system and growth of economy. Banks will
be focused on external client activity and will refuse from part of own trade operations – transition from
“casino style” work (investment banking) to more high-quality work.
    Reduction of banking risks level in industrial countries will turn into the less volume of the common
crediting and larger orientation towards crediting of large companies.
    Banks, head offices of which are located in the developing countries will gradually extend their activities
in global scale.


   Prospective of Industries

            Industry                                       Development forecast
                                        Ш Growth of consumer expenses on movies and subscription on
                                          television by 4.6% and 6.8% respectively (source:
                                          PricewaterhouseCoopers);
                                        Ш Predominance of online sales of music;
                                        Ш Sales of Blu- ray DVD discs will exceed the volume of DVD discs
                                          in 2013;
                                        Ш Proceeds (+6.6%) in cinemas (exceed almost twice earnings
                                          from home video sales).


                                        Ш Growth of sales in IT- industry worldwide by 4.6% that is $1.5
                                          trillion;
                                        Ш In 2011 Australia will join the group of states where the PC
                                          number exceeds the population quantity (this group already
                                          includes Canada, Hong Kong, Japan, Sweden);
                                        Ш IT distribution will be different: in Brazil it will be 327 PC per 1
                                          thousand persons, which is 1/3 more than in China (245) and in
                                          3 times more than in India (74).




                                    Prospective directions:
                                       · Clipboard computers (Apple will sell 28 million of iPad clipboard
                                                                                                             14
Marketing management of Strategic development and marketing department

                        computers and will occupy 70% of market).




                    Ш Retail sales growth:

                         ·     China +22%;
                         ·     USA +2.4%;
                         ·     Japan +1.1%.
                    Ш Sales reduction by 1.8% in Western Europe (reasons: slow
                      economy recovery and revenues reduction in state sector);
                    Ш Priority: online sale – annual growth of electronic commerce in
                      the USA (+10%) and Western Europe (+11%).


                    Ш In 2011 the USA expenditures will exceed 700 billion US Dollars
                      (+4.5%), that is two times less than average rates of growth in
                      previous decade;
                    Ш China will occupy the second place – about 116.7 billion US
                      Dollars;
                    Ш India: steady growth by 7% per annum till 2015 (source:
                      Deloitte);
                    Ш Russia – expenditures increase by 60% till the end of 2013;
                    Ш Europe: Great Britain, Germany, France will reduce their costs
                      due to the integration of defense systems.
                    Ш Worldwide energy consumption will increase by 2.9% in 2011
                      (consumption of oil products, coal, natural gas);
                    Ш Growth of coal consumption due to cheap coal from China and
                      India;
                    Ш Consumption of wind and sun energy will increase by 16% (less
                      than 0.5% of the world energy consumption).



                        Taking into account weak demand (+1.7%) the average cost of
                 Brent oil will fall down to 76 US Dollars per barrel.
                 Prospective direction– human body heat energy (on the average
                 human generates about 100 Watt of energy) – pilot project on
                 modernization of residential apartment house in Paris, which will
                 receive energy from thermal flow, generated by people on subway
                 platform.

                    Ш Banks will become safe and less profitable;
                    Ш Developing markets are prospective because of steady demand
                       on simple banking products. Fast-growing companies of SME
                       segment in these regions will afford the investment banks and
                       exchanges the opportunity to earn;
                    (See details on Page 13- 14).




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Marketing management of Strategic development and marketing department

                    Ш Steady growth of costs in health is conditioned by ageing
                      population and growth of costs for treatment.




                    Ш The expenses in the USA for health sector will grow by 16.2%
                      (substantially above the average world index in 9.9%);
                    Ш Due to saving the costs for health sector will be reduced (-2%)
                      in Western Europe:
                    Ш During the period till 2016 there will be medical treatments
                      patent protection in amount of $267 billion; peak of patent
                      defense loss in amount of $52 billion is extended in 2011 (Source:
                        Evaluate Pharma).


                    Ш World incomes grew by 4.4% (due to mobile services +7.6%);
                      the growth is based on the services related to the Internet-
                      based technologies; on the average there will be 87 connections
                      of mobile services for each 100 persons in the world in 2011;
                    Ш Greece will gain the leading position in EU by use of mobile
                      telephones (almost 2 cells per 1 person);
                    Ш In 2011 in the USA the number of smart phone users will exceed
                      the quantity of classic mobile phone users. (Source: Nielsen);
                    Ш Demand for internet applications will become more active: total
                      volume of annual downloads will increase from 3 billion in 2009
                      to more than 25 billion in 2015 (Source: Juniper Research).



                    Ш About $2 trillion or 3% of world GDP is spent on infrastructure
                      development;
                    Ш In 2011 China will start its 5 year plan of infrastructure
                      development in amount of $1 trillion;
                    Ш In 2011 Brazil will start building railway of 511 km long with the
                      cost in $19 billion;
                    Ш The USA will spent about $530 billion on general development in
                      the period of 2011- 2014;
                    Ш Till 2012 India will launch its 5 year plan of development in
                      amount of $500 billion.


                    Ш In 2011 the international tourism will grow by 5%, thus bringing
                      the industry to the level of 2008. (source: World Travel and
                      Tourism Council);
                    Ш Directions of priorities in tourism:
                              Private trips – incomes of American and British hotels
                       (On the eve of Olympiad 2012) will increase by 6.7% and 5.4%
                       respectively (Source: PwC).




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Marketing management of Strategic development and marketing department


                    Ш Growth of indexes on nutrition products, forages and beverages
                      by 5%;
                    Ш Growth of prices on food products due to the deliveries
                      irregularity in the middle of 2010 (reasons: drought in Russia,
                      strong sinking in Canada);
                    Ш Growth of price on wheat, maize and soy-bean cultures will rise
                      by 8% in 2011 (because of the harvest irregularity);
                    Ш World consumption of meat will grow by 2% (under the
                      pressure of developing markets);
                    Ш Price-cutting on sugar - 8% and coffee - 3% (due to the buffer
                      Brazilian reserves).
                    Ш Strict measures in fiscal policy in 2011 will reduce demand on
                      raw materials and will result in higher prices;
                    Ш The best situation will be formed at the market of copper:
                      growth of prices by 7% (mainly due to limitation of offers);
                    Ш Market of aluminum will move from saturated quantity of offers
                      to the deficit (growth of prices will be small: +1%);
                    Ш Steel will become cheaper by 17%;
                    Ш In 2011 further rising twice in price of gold is expected due to
                      increase of deliveries deficit; investors who invested their funds
                      in gold will seek markets of sale.

                    Ш Irrespective of sharp fall of sales in traditional markets since
                        2007, none of large car factories was closed;
                    Ш Dynamics of auto sales:
                    2007- 71.4 million autos;
                    2008- 66.8 million autos (-6%);
                    2009- 63.9 million autos (-4,4%);
                    2010- 66.9 million autos (+4,7%).
                         Registration of new cars in 2011 will grow by 6.9% that is 65.8
                    million pieces.




                    Ш China is the largest automobile market in the world; sales level
                      will make 17.4 million autos till 2012;
                    Ш The USA is the leader in growth among the developed countries
                      (auto sales will grow by 8.5%);
                    Ш Decline is forecasted in Japan – the period of incentive program
                      for auto manufacturers expires;
                    Ш In Western Europe the sales will grow by 1%.




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              Marketing management of Strategic development and marketing department


                                  Ш Advertising costs in 2011 will grow by 4.5% (exceeding twice
                                    the index of 2010);
                                  Ш Advertisers for the first time spend more costs on advertising,
                                    aimed more at the Asian audience than the European one.
                                    (source:ZenithOptimedia).



                                  Ш In the USA: in 2011 the prices on housing will go down yet by
                                    2%, in connection with growth of loan default index in 2011; no
                                    growth in commercial sector is expected and diminishing of
                                    profits from real estate operations in all the categories
                                    (residential, commercial real estate) is forecasted (source:
                                    Mortgage Bankers Association);
                                  Ш Spain: fall of prices on real estate by -5%; reduction of prices in
                                    commercial sector by -15%;
                                  Ш Great Britain – prices will grow by 3% and attain the level of
                                    2007 only in 2013 (source: Centre for Economics and Business
                                    Research (CEBR));
                                  Ш China will be ahead of Great Britain and Japan and in 2011 it will
                                    become the second in the world, after the USA, market by
                                    volume of investment in the commercial real estate.

Sources: «The Economist», «Investgazeta», «Contracts», World Bank, NBU, Ministry of
Economy, PricewaterhouseCoopers, Deloitte, Nielsen.




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