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      Reaching Out To Emerging Markets:
Do The Opportunities Warrant The Business Risk?
                    Wednesday 7th March 2007



  Terry Alexander Head of Capital Markets and Country Risk
       Nick Jotischky Head of Industry Research
         Matt Brooks Head of Energy Research
    Lyndsey Anderson Head of Food & Drink Research

         Business Monitor International
   www.businessmonitor.com
                         Opportunities Are Out There


 •            The opportunities do warrant the business risk
 •            Growing importance of EM in the global economy
 •            Dramatic increase in EM forex reserves
         A Growing Share                                      A Growing Share
 BRICs – Percentage of Global GDP                   BRICs – Share of Global Forex Reserves
                                                6
                                  2000   2006

                                                5


                                                4


                                                3


                                                2


                                                1


                                                0
     Brazil      China    India     Russia

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    Frontier Economies Making An Entrance


                                                  The World’s Fastest Growing Economies
                                                      Real GDP Growth, % chg y-o-y
• Fastest growing
  economies in 2008
                       25.0
                                                                           Forecasts - Real GDP Growth 2008 (% chg y-o-y)

• Only two are BRICs   20.0
                                                                           Global Average: 3.8%


  economies            15.0

• Emerging EM
  economies are fast   10.0


  playing catch up      5.0



                        0.0




                                                                                                           Turkmenistan
                                                                  Kazakhstan




                                                                                                                                                                                      Uzbekistan
                                                                                                                                                                         Tajikistan
                              Azerbaijan



                                                  Sudan

                                                          China




                                                                                                                                     India



                                                                                                                                                       Angola
                                                                                                 Vietnam
                                           Iraq




                                                                                       Armenia




                                                                                                                                             Estonia



                                                                                                                                                                Latvia




                                                                                                                                                                                                   Pakistan
                                                                               Qatar




                                                                                                                          Cambodia
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               Investment Having An Impact

                                                                              Capital Investment Counts
                                                                  Real GDP Growth and Capital Formation (% chg y-o-y)
• Gross fixed capital
  formation (GFCF) is                                                                   Real GDP Growth and Fixed Capital Formation


  driving growth.                                                 30


• Economies which grew                                                                                        Azerbaijan




                             Real GDP Growth 2005 (% chg y-o-y)
                                                                  25

  by more than 8.0% in                                            20

  2005 experienced
  average levels of GFCF
                                                                  15        Cambodia                Armenia

                                                                             Estonia   China Latvia

  over 2000-2005 in excess
                                                                       Ethiopia                     Venezuela                                   Belarus
                                                                  10          Georgia                         Kazakhstan
                                                                                              Argentina
                                                                                  Dom Rep                   Myanmar

  of 8.0%, and averaging                                           5
                                                                        Botsw ana Pakistan Vietnam




  22.8%.                                                           0
                                                                       0        10        20         30          40        50         60   70             80
                                                                                               Average GFCF 2000-2005 (% chg y-o-y)




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                 Infrastructure Is key


• Investment in infrastructure and productive goods is
  fundamental to driving economic growth in
  industrialising countries.
• High levels of GFCF are associated with strong growth
  in most of these fastest growing economies.




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                       The Return Of Volatility

                                                                                                                                                                                                             50
                                                                                                                                             9/11
                                                                              Russia debt                                                                                                                    45
                                                                                                                                                                         Lula
•   China sell-off triggers global                                            default
                                                                                                                                                                         effect
    markets volatility, as reflected by                                                                                                                                                                      40

    VIX index.                                                         Asia crisis
                                                                                                                                                                                  Gulf war                   35
•   Index spikes significantly during                                                                                                                                                                        30
    financial market and economic
    turbulence                                                                                                                                                              Fed                              25

•   VIX has moved from all-time lows                                                                                                                                        fears
                                                                                                                                                                                                             20
    to a nine-month high amidst
    current equity market declines.                                                                                                                                                                          15

                                                                                                                                                                                                             10

                                                                                                                                                                                                             5
                                          Jan-90
                                                   Jan-91
                                                            Jan-92
                                                                     Jan-93
                                                                              Jan-94
                                                                                       Jan-95
                                                                                                Jan-96
                                                                                                         Jan-97
                                                                                                                  Jan-98
                                                                                                                           Jan-99
                                                                                                                                    Jan-00
                                                                                                                                              Jan-01
                                                                                                                                                       Jan-02
                                                                                                                                                                Jan-03
                                                                                                                                                                         Jan-04
                                                                                                                                                                                  Jan-05
                                                                                                                                                                                           Jan-06
                                                                                                                                                                                                    Jan-07
      www.businessmonitor.com
            Riding The Coat-tails of the US

• As US equities rise so do EM   414                                                                                                                                           1,500

  bond prices                    410
                                 406
                                                         JPM EMBI+ LHS
                                                         S&P Correlation RHS
                                                                                                                                                                               1,450
• Higher US stocks reflects a    402

  buoyant US economy,            398
                                 394
                                                                                                                                                                               1,400

  important for EM               390
                                 386                                                                                                                                           1,350
• Correlation of VIX index to    382
  rally in emerging markets      378                                                                                                                                           1,300

  assets over past four years
                                 374
                                 370
                                                                                                                                                                               1,250
                                 366
                                 362
                                 358                                                                                                                                           1,200


                                                                   Apr-06




                                                                                                       Aug-06
                                                          Mar-06




                                                                                                                                                                      Mar-07
                                                                                                                         Oct-06
                                       Jan-06

                                                Feb-06




                                                                            May-06

                                                                                     Jun-06




                                                                                                                                  Nov-06

                                                                                                                                           Dec-06
                                                                                                                Sep-06




                                                                                                                                                    Jan-07

                                                                                                                                                             Feb-07
                                                                                              Jul-06
    www.businessmonitor.com
     Weaker emerging markets growth ahead?


• Are equity declines a precursor to slower US and
  Chinese growth?
• If so, this would hit commodity prices and by
  consequence, EM assets and EM economic
  performance.
• Risks outlined in BMI special report of January 2007 -
  ‘Caveat Emptor’




   www.businessmonitor.com
     Unwinding of Speculative Positions


• BMI conclusion: slight slowdown in Chinese growth
  and soft landing for US economy will not derail EM
  economic activity
• Current market moves are more of an unwinding of
  speculative excesses than a sign of severe global
  economic downturn




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         No Real Change In Fundamentals


• A re-pricing of the convergence trade
• Improved fundamentals assisted by globalisation
• The rapid growth of globalisation has allowed for an
  improvement of the growth dynamics of many
  emerging countries – predominantly China




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    EM Governments Capitalising on Good Times


                                                   An Impressive Turnaround
                                              Brazil – Public External Debt (% of GDP)
• At the same time, EM
  governments have become      20


  more fiscally astute         15


• They have become more        10

  proactive with regards to     5

  debt management
                                0
                                     2000   2001   2002    2003    2004    2005   2006f   2007f

                                -5


                               -10




     www.businessmonitor.com
                   The Perfect Balance

• Strong growth in EM
  economies has been                     Selected Emerging Markets – CPI, % chg y-o-y
  accompanied by low inflation
• This has been due not only      70.0

  to the China effect, but also                                                     Romania
  to inflation-targeting by EM
                                  60.0
                                                                                    Russia
                                                                                    Turkey
  central banks, allowing for     50.0
                                                                                    Brazil
  lower interest rates across     40.0                                              Mexico

  EM                              30.0


                                  20.0


                                  10.0


                                    .0
                                          2000   2001   2002   2003   2004   2005   2006   2007f




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              Favourable Global Conditions

• Commodities can fall further
  from current levels, but still                                    CRB Commodity Index, 2000-2007
  high historically, acting as a
  positive influence on                                                                                                                                             360

  emerging economies                                                                                                                                                340

                                                                                                                                                                    320

                                                                                                                                                                    300

                                                                                                                                                                    280

                                                                                                                                                                    260

                                                                                                                                                                    240

                                                                                                                                                                    220

                                                                                                                                                                    200

                                                                                                                                                                    180
                             Jan-00



                                               Jan-01



                                                                 Jan-02



                                                                                   Jan-03



                                                                                                     Jan-04



                                                                                                                       Jan-05



                                                                                                                                         Jan-06



                                                                                                                                                           Jan-07
                                      Jul-00



                                                        Jul-01



                                                                          Jul-02



                                                                                            Jul-03



                                                                                                              Jul-04



                                                                                                                                Jul-05



                                                                                                                                                  Jul-06
    www.businessmonitor.com
                Reduced Vulnerabilities


• External positions, fiscal            Selected EMs – Forex Reserves (US$bn)
  dynamics and forex reserve
  levels have improved          160.0

                                               Argentina          Brazil
  dramatically                  140.0
                                               India              Mexico
                                               Malaysia           Thailand
• Floating currencies –except   120.0
                                               Turkey
  in the Middle East – and      100.0


  rapidly developing capital     80.0


  markets should also            60.0


  cushion future problems        40.0

                                 20.0

                                   .0
                                        2000   2001        2002      2003    2004   2005   2006




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               Rewards In The Ratings


• This has caused rating
  agencies to up their       Ratings
                             Brazil
                                            Moody's
                                             Ba2
                                                      S&P
                                                       BB
                                                             Fitch
                                                              BB
                                                                     BMI
                                                                     A-
  credit ratings towards     China            A2       A      A      A

  EM.                        Czech
                             Republic
                                              A1       A-     A      C+

• This in turn has fuelled   Ecuador         Caa1     CCC+    B-     D

  increased investment       Hungary          A2      BBB+   BBB+    D

  into EM, both FDI and      Indonesia
                             Philippines
                                              B1
                                              B1
                                                      BB-
                                                      BB-
                                                             BB-
                                                              BB
                                                                     C+
                                                                     D
  portfolio, improving       Russia          Baa2     BBB+   BBB+    B+
  capital accounts           South Africa    Baa1     BBB+   BBB+    B
                             Turkey          Ba3      BB-    BB-     C
                             Venezuela        B2      BB-    BB-     D+



   www.businessmonitor.com
                Medium-term Positives

• But overall, significant    EM Private Equity/Venture Capital Fundraising
  improvement to                                (US$mn)
  underlying EM macro
  fundamentals                            2003        3,373


• Despite headwinds, much
  greater participation of                2004            5,836

  EM in global economy
  going forward                           2005                                           22,135




                               YTD 2006 (Nov.1)                                          21,907



                                                  0   5,000   10,000   15,000   20,000     25,000




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                                                    Food For Thought

       •          In US$ terms, the income of the middle 60% of earners will rise by
                  93% in China, 89% in Russia, 55% in India and by 16% in Brazil by
                  2010.
       •          Huge implications for consumer goods, banking and insurance
                  industries, property and commodities.

       Average Disposable Income of Middle 60% of                                  Average Disposable Income of Middle 60% of
                Population in BRICs, US$                                                    Population in China, US$
6000                                                                      1400

                  India                                                   1200
5000
                  China
                  Brazil                                                  1000
4000              Russia
                                                                          800
3000
                                                                          600

2000
                                                                          400


1000                                                                      200
                                                                                                                       China

                                                                            0
  0
           2003     2004   2005   2006f   2007f   2008f   2009f   2010f
                                                                                 2003   2004   2005   2006f   2007f   2008f    2009f   2010f




                  www.businessmonitor.com
Global Emerging Telecommunications Markets
              Nick Jotischky




 www.businessmonitor.com
             Global Telecommunications Markets - The BMI Angle

           BMI Telecommunications Coverage: Why the Emerging Markets Bias?


     World’s Largest 10 Mobile Telecoms Markets                                 World’s Largest 10 Mobile Telecoms
         by Subscriber Numbers (Est 2006)                                           by Net Additions (Est 2006)

1      China                                  461mn                  1       India                            72mn (13%)

2      USA                                    234mn                  2       China                            66mn (35%)

3      Russia                                 154mn                  3       Russia                          29mn (108%)

4      India                                  148mn                  4       Pakistan                         27mn (31%)

5      Japan                                  101mn                  5       USA                              26mn (79%)

6      Brazil                                 100mn                  6       Brazil                           15mn (54%)

7      UK                                         70mn               7=      Ukraine                        14.5mn (97%)

8      Indonesia                                  60mn               7=      Indonesia                      14.5mn (28%)

9      Mexico                                     55mn               9       Nigeria                        13.5mn (25%)

10     Germany                                    54mn               10      Bangladesh                         10mn (7%)

                                   Source: Business Monitor International Forecasts


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Global Telecommunications Markets - The Need For Mobile Telephony

             Mobile Telephony As An Aid To Emerging Markets Development



Universal Access
   2.7bn global mobile subscribers - Where is the next billion coming from?
   Mobile networks cover 80% of world population; by 2010 this will be 90%
   Global mobile penetration of 40% - in most African countries, this is below 10%
   Mobile Substitution - fixed line telephony is an irrelevance in many Asian/African countries

Growth of m-commerce
   About 10% of Philippine mobile subscribers make financial transactions via mobile handset
   Birth of m-banking services (India, Kenya) providing opportunities for banks and operators

Micro finance Projects
   260,000 Village operators in 50,000 villages in Bangladesh - GrameenPhone Village Project




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                    High-Growth Telecommunications Markets - Low Penetrations

                                     Key Investor Opportunities: Asia Still Offers Greatest Potential


1,000,000                                                                                                    120   1,000,000                                                                                                  140

                                                          No of Subscribers ('000)                                                                                          No of Subscribers ('000)
                                                          Penetration (%)                                                                                                   Penetration (%)
                                                                                                                                                                                                                              120
 100,000                                                                                                     100    100,000



                                                                                                                                                                                                                              100
  10,000                                                                                                     80      10,000


                                                                                                                                                                                                                              80

   1,000                                                                                                     60       1,000

                                                                                                                                                                                                                              60


     100                                                                                                     40         100
                                                                                                                                                                                                                              40



      10                                                                                                     20          10
                                                                                                                                                                                                                              20




       1                                                                                                     0            1                                                                                                   0
                                                                                    Bangladesh
                                                               Pakistan




                                                                                                 Sri Lanka
            China




                           Germany




                                                                          Vietnam
                                                   Indonesia
                     USA




                                              UK
                                      India




                                                                                                                                                                                                        Vietnam
                                                                                                                                               USA
                                                                                                                                       India




                                                                                                                                                                            Germany
                                                                                                                                                                Indonesia
                                                                                                                               China




                                                                                                                                                                                      UK
                                                                                                                                                     Pakistan




                                                                                                                                                                                                                  Sri Lanka
                                                                                                                                                                                           Bangladesh
      www.businessmonitor.com
    High-Growth Telecommunications Markets - Mobile Substitution

                 The Factors Behind Growth and Why it is Set to Continue



Rise in Consumer Interest
   In rural areas of India or Uganda, voice becomes the killer app
   Rise of Non-Voice services - SMS, m-Commerce, mobile broadband services

Government Investment Programmes
   USO Funds originally launched for fixed line telephony switched to mobile
   National Plans to raise penetration levels in mobile telephony
   Pakistan government’s approach to inward investment

The Impact Of Competition
   Introduction of Mobile Number Portability Schemes giving consumers more flexibility
   Aggressive promotional strategies (Philippines, Thailand, Indonesia) on prepaid service
   Raises service levels in climate where only those who invest survive (Pakistan, Bangladesh)




www.businessmonitor.com
       Asia Telecommunications Markets - A New Wave Of Investor

    Growing Significance Of The Regional Carrier, Domestic Vendor and Equity Funds



The Regional Powerhouse
   SingTel/Telekom Malaysia: Diversifying from saturated domestic markets
   Telenor/Warid Telecom: Investors in regional pockets
   Vodafone/Altimo: The Partnership Makers

The Domestic Manufacturer
   Huawei/ZTE: Low cost infrastructure and handset manufacturers - Developed markets next?
   Nokia/Motorola: Transferring R&D bases to China and India

The Equity Fund
   Equity Funds: Warburg Pincus success from Bharti - Providence, ChrysCapital, GLG acquire Idea




www.businessmonitor.com
            High Growth Markets - Where Is The Risk? (1)

   BMI Monitors Market Opportunities Through Business Environment Rankings




www.businessmonitor.com
                  High Growth Markets - Where Is The Risk? (2)

            Emerging Market Telecoms Investment Potential: No Pain, No Gain



Political/Economic Risk
   Thailand; AIS still suffering from impact of coup

Consumer Affordability
   South Asia: Is there room for anything more than ultra low-cost handsets
   Operator Profits: Effects of low ARPU

Ownership Limits
   SE Asia (Thailand/Malaysia): Is there the possibility for majority ownership?

Regulator Independence/Impact
   Vietnam/Thailand: State-run regulator and weak regulator dominated by government




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          High-Growth Markets - Is There Life After Mobile Voice?

                    Connecting A New Generation of Mobile Technologies



Growth of Non-Voice Services
   S-E Asia: Where penetration is around the 40% mark, non-voice services bringing in 20%+ of revenues

3G Mobile Telephony: Licensing Rounds
   3G Mobile Telephony a failure in Western Europe but pockets of resistance in Asia
   Japan/Korea factor is spreading: Early signs are good in Malaysia and Indonesia
   India/Pakistan/Vietnam: What are the chances for 3G replacement?

The China Conundrum
   The promise: billions of dollars of contracts up for offer before Olympic Games
   The reality: No news on 3G licensing - will TD-SCDMA standard miss its own launch party?




www.businessmonitor.com
           Global Telecommunications Forecasts - The BMI View

    A Slowdown in Growth: Emerging Technologies and New Market Opportunities



Broadband Migration
   Operators increasingly using broadband revenues to offset fading fixed line revenues (SE Asia)
   Birth of Mobile broadband services - WiMAX auctions
   High-Speed Data Services - Restoring ARPU

New Market Opportunities
   Slowdown in China, saturation in SE Asia and limited growth in Vietnam, Pakistan: Where next?
   FSU & Central Asia: Liberalisation encouraging new investment opportunities
   Africa: The great unknown? Potential investors could learn from Celtel experience




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Middle East Infrastructure: Opportunities & Risks
                   Matthew Brooks




  www.businessmonitor.com
                        Context: Oil Prices


                                                                The New Paradigm
                                                        Oil Prices, OPEC Basket, US$/bbl
•   OPEC basket to average
    US$45/bbl to 2011                   80

•   Sustained - Asia and MEA led -      70

    demand growth.                      60
                                        50
•   Non-OPEC output to rise slowly.     40

•   Structural shift in industry cost   30

    base due to strong E&P activity –   20
                                        10
    especially in marginal areas.        0   Jan-97

                                                      Jan-98

                                                               Jan-99

                                                                        Jan-00

                                                                                 Jan-01

                                                                                          Jan-02

                                                                                                   Jan-03

                                                                                                            Jan-04

                                                                                                                     Jan-05

                                                                                                                              Jan-06

                                                                                                                                       Jan-07
                                        Source: Reuters



    www.businessmonitor.com
                  Gulf Economies: The Windfall


                                                            The Changing Picture
                                                        Aggregate Gulf Economic Data
•   Rapid (6%) economic growth
•   Gulf nominal GDP doubled 1998-                              1996    2000    2005    2010f
    2006. 50%+ rise to 2011                 GDP, US$bn          404     706     834     1,372
•   Gulf economy now roughly                GDP per capita,     3,203   5,136   5,473   8,094
    equivalent to Russian and Spain         US$
•   Strong intra-regional capital flows     Real GDP, %         2.4     5.5     5.9     5.0
•   Rising imports of capital goods         CA, US$bn           28      89      205     153
                                            CA, % of GDP        7.0     12.6    24.6    11.1
                                            Exports, US$bn      165     250     495     600
                                            Imports, US$bn      86      106     226     364
                                          Source: BMI

      www.businessmonitor.com
           Infrastructure: The Existing Deficit

                                         Gradual Electricity Growth
                                             Power Generation
•   Electricity generation up
    49% 1998-2005                  650                                                                                         8.0

•   Dubai power demand rising      600                                                                                         7.0

    at 15% pa                      550
                                                                                                                               6.0

•   Kuwait brownout/blackouts      500
                                                                                                                               5.0

    in 2006/7                      450
                                                                                                                               4.0


•   IMF estimates US$700bn
                                                                                                                               3.0
                                   400
    projects pending
                                                                                                                               2.0
                                   350                                                                                         1.0
•   Potable water, electricity,    300                                                                                         0.0
    transport
                                          1995

                                                 1996

                                                        1997

                                                               1998

                                                                          1999

                                                                                 2000

                                                                                         2001

                                                                                                   2002

                                                                                                          2003

                                                                                                                 2004

                                                                                                                        2005
                                                                      Electricity, Twh          % y-o-y


                                  Source: BP Statistical Review of World Energy, June 2006




    www.businessmonitor.com
           Diversification: The Key Challenge

                                                    Leading The Pack
                                                 Economic Diversification

•   Energy sector investment – oil                  Energy, % of    Non-Energy
    & gas (LNG) capacity expansion                     GDP          GDP, US$bn
•   Downstream – refining, Gas-to-                2000     2005     2000    2005
    Liquids, chemicals                 Bahrain    17.8     11.1     8.0     13.4
•   Non-energy                         Kuwait     46.3     52.9     38.6    80.0
     – Energy Intensive – petrochems   Oman       35.3     24.5     19.9    30.7
       (SABIC), industry               Qatar      59.1     52.9     17.8    42.5
     – Non-Energy Intensive -          Saudi      33.4     31.1     118.7   309.8
       tourism, finance expansion      UAE        38.9     26.7     70.3    132.2
                                       Total      38.0     33.8     273.2   608.6




    www.businessmonitor.com
                 Infrastructure: Selection of Projects


Project                         Cost    Duration    Project                         Cost    Duration
                                US$bn                                               US$bn
Rail transport                                      Power and Water
Urban Rail and Metro (Kuwait)   5.0     Na          National Water Project (KSA)    5.3     Na
Dubai Light Railway             4.1     2005-2010   Jubail power and desalination   3.4     2007-2009
                                                    plant (KSA)
North-South Railway (KSA)       2.0     2005-2011
                                                    Taweelah B water and power      3.0     2005-2005
New Cities/Construction
                                                    project (UAE)
Yanbu Industrial City (KSA)     31.0    2005-2019
                                                    Al-Zour power plant (Kuwait)    2.3     2006-2010
Burj Dubai                      20.0    2005-2008   Subiya power plant (Kuwait)     1.1     2005-2008
Fahaheel – city development     5.5     2005-       Tourism
(Kuwait)
                                                    Al-Raha Beach (Abu Dhabi)       14.7    Na
Expansion of Yanbu Industrial   3.2     2005-2019
City (KSA)                                          Oqvana (Dubai)                  3.5     Na
Kuwait University               3.5     2005-       Failaka Island (Kuwait)         3.3     Na
Exhibition City (UAE)           2.2     2005-2008   Dubai Park Square Tower         1.3     Na
City of Arabia (UAE)            2.0     2005-2008

     www.businessmonitor.com
                       Managing The Boom


                                                         Pushing Up Costs
•   Availability and cost of raw           35.0
                                                    Capital Investment, % of GDP
    materials
•   Limited spare capacity within
                                           30.0


    construction industry – no. of         25.0
    companies/trained workers
•   Evolution of contract structure        20.0

•   Partial privatisation of service
    provision                              15.0


•   Synergistic evolution of regional      10.0
    banking sector                                 2000      2001     2002     2003      2004        2005e

                                                  Bahrain   Kuwait   Oman    Qatar    Saudi Arabia    UAE



                                        Source: IMF, National Statistical Agencies




    www.businessmonitor.com
                            Future Risks

•   Short Term:                                                         Structural, or Cyclical?
     – Profit margins and project                                     Oil Price Index (2000 = 100)
       cancellation.                 300



•   Long Term:                       250


      – Oil prices                   200

          • An Iraqi peace
             dividend?
                                     150


          • Higher global interest   100

             rates?
                                      50
•   True diversification
•   Darwinian expansion – three        0
                                           1970Q1
                                                    1972Q2
                                                             1974Q3
                                                                      1976Q4
                                                                               1979Q1
                                                                                        1981Q2
                                                                                                 1983Q3
                                                                                                          1985Q4
                                                                                                                   1988Q1
                                                                                                                            1990Q2
                                                                                                                                     1992Q3
                                                                                                                                              1994Q4
                                                                                                                                                       1997Q1
                                                                                                                                                                1999Q2
                                                                                                                                                                         2001Q3
                                                                                                                                                                                  2003Q4
                                                                                                                                                                                           2006Q1
    financial hubs

                                     Source: IMF


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         The Beer Industry and
 The Commonwealth Of Independent States
          Lyndsey Anderson




www.businessmonitor.com
                               The Missed Opportunity?

•     Russia: 9th largest alcohol market, 13th largest beer market
•     Double-digit annual growth to 2005, now tapering off
•     6 companies control 89% of the market
•     FDI: Heineken paid US$560mn for brewer with 4.5% market share
                                                          Russia Beer Market Share by
                                                              Manufacturer - 2005
    Russia Beer Industry FDI                                                           Baltika
                                                                                        36%
    Heineken → Ivan Taranov      US$560mn
                                                Other
    Heineken → Stepan Razin      US$100mn       11%                                              InBev
                                                                                                  19%
    InBev → Tinkoff              US$200mn
    Baltika → Vena               US$775mn*
                                              SABMiller
    Baltika → Yarpivo            US$600mn*      7%

    Efes → Krasny Vostok         US$390mn                 Ochakovo
                                                            7%
                                                                                     Heineken
                                                                      Efes
                                                                                       11%
                                                                      9%


                                             Source: BMI Research, Trade Press, Company Sales
                                             Figures
         www.businessmonitor.com
                   The Missed Opportunity?

The Option Of Late Entry?
                                                        Russia Beer Industry, Economic &
Is it worth it?                                          Population Growth (%) to 2011
                                         16.0
• Premiumisation                                                                            Beer Volume Sales Growth
                                                                                            Beer Value Sales Growth

• Culture for Consumption                14.0                                               GDP Growth
                                                                                            Population Growth

• Dynamism                               12.0

• Russian beer on the road               10.0

• The Siberia option                      8.0

No…                                       6.0
• Consolidation & cost of acquisitions    4.0
• Wealthiest cities saturated
                                          2.0
• Distribution challenges
• Regulatory interference                 0.0

                                         -2.0

                                                 2002

                                                        2003

                                                               2004

                                                                      2005

                                                                             2006

                                                                                    2007f

                                                                                             2008f

                                                                                                     2009f

                                                                                                             2010f

                                                                                                                     2011f
                                         e/f = BMI estimate/ forecast; Source: BMI Research, Rosstat,
                                         National Statistics Agencies




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                         The Closing Window
    Ukraine
                                             Ukraine Beer Sales (Left-side) & Consumption (Right-
•   Double-digit value and volume                              side) Forecasts
                                        4,500.0                                                                                       60.0
    sales growth over review period                             Sales (mn litres)
                                        4,000.0
•   Standard-priced, local beers        3,500.0
                                                                Sales (US$mn)                                                         50.0

    dominate                                                    Per-cap (litres)
                                        3,000.0                                                                                       40.0
•   Beer Industry houses around         2,500.0
    100 players                                                                                                                       30.0
                                        2,000.0
•   Four companies dominate:            1,500.0                                                                                       20.0
     2 MNCs: InBev, BBN                 1,000.0
     2 Locals: Obolon, Sarmat            500.0
                                                                                                                                      10.0


                                            0.0                                                                                       0.0
                                                  2001

                                                         2002

                                                                 2003

                                                                        2004

                                                                               2005

                                                                                      2006e

                                                                                              2007f

                                                                                                      2008f

                                                                                                              2009f

                                                                                                                      2010f

                                                                                                                              2011f
                                      e/f = BMI estimate/ forecast; Source: BMI Research, National
                                      Statistics Office




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                      The Closing Window?

Ukraine
Opportunities And Risks
Is it worth it?                          Ukraine Beer Industry, Economic & CPI Growth (%)

• Double-digit growth to 2011,    20.0
                                  18.0
                                                                                                                      Beer
                                                                                                                      Volume
     followed by premiumisation   16.0                                                                                Sales
                                                                                                                      Grow th
• Independents remain             14.0                                                                                Beer Value
                                                                                                                      Sales
                                  12.0
• Dynamism                        10.0
                                                                                                                      Grow th

                                                                                                                      GDP
• Fast-growing middle class        8.0
                                   6.0
                                                                                                                      Grow th

If you move fast…                  4.0
                                                                                                                      Inflation (y-
                                   2.0
• Consolidation underway
                                                                                                                      o-y ave)
                                   0.0

• Regulations likely


                                                                              2007f

                                                                                      2008f

                                                                                              2009f

                                                                                                      2010f

                                                                                                              2011f
                                           2002

                                                  2003

                                                         2004

                                                                2005

                                                                       2006
                                  e/f = BMI estimate/ forecast; Source: BMI Research, National
                                  Statistics Office



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                      The Next Big Thing?

Kazakhstan?
 Opportunities                                  Kazakhstan Economic Growth (%)
                                                          Forecasts
 • Region’s best-performing           50.0
                                                                                                         Real GDP
    economy                           45.0                                                               Grow th
                                      40.0
 • Government commitment to           35.0                                                               Per-capita
    diversification                   30.0                                                               GDP Grow th

 • Strong multinational presence      25.0
                                      20.0
    has led to establishment of       15.0
    industry best practices           10.0

 Risks                                 5.0
                                        .0
 • History of state intervention


                                             2002

                                                    2003

                                                           2004

                                                                  2005

                                                                         2006e

                                                                                 2007f

                                                                                         2008f

                                                                                                 2009f

                                                                                                          2010f
 • Large Muslim population,
    restricts potential audience   e/f = BMI estimates/forecasts; Source: BMI Research,
                                   National Bank of Kazakhstan, IMF




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                       The Next Big Thing?

Moldova?

Opportunities                                       Beer Consumption (litres) in Selected
• Culture for Consumption                   120
                                                              Markets - 2006

• Historic growth of 20% annually, set to   100
   continue at 11%                            80
• Multinational investment aided industry     60
   dynamism                                   40
Risks                                         20

• Efes domination, controls 70% of the         0




                                                                                       Uzbekistan



                                                                                                             Ukraine




                                                                                                                                    US
                                                                          Kazakhstan
                                                                Moldova




                                                                                                                       China
                                                                                                    Russia




                                                                                                                               UK
                                                      Belarus
   market
• Spiralling inflation
• Low disposable incomes
                                            Source: BMI Research, Trade Press
• Small population



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                         The Next Big Thing?

    Belarus                                  Belarus Beer Market Share (%) by
                                                   Manufacturer - 2005
•   Fragmented beer industry
                                                                       Rechit-
•   Minimal multinational                         Syabar
                                                 Brew ery
                                                                       sapivo
    involvement                                    16%
                                                                        13%            Lidskoe Pivo

•   Small industry, which struggles
                                                                                           12%

    for price competitiveness                                                             Olivaria
•   Ban on cheaper, higher-quality        Krinitsa
                                                                                           10%

    Russian imports now removed            34%
                                                             Dvinsky                   Brest Beer

•   BBH, SABMiller, Efes and                                 Brovar       Polotsk Beer
                                                                               5%
                                                                                          8%
                                                               2%
    Heineken all thought to be
    interested                        Source: BMI Research, Trade Press




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                             The Next Big Thing?

Belarus
Opportunities                                       Belarus Beer Output (mn dls) And
• Government targeting foreign direct                    Government Targets (t)
    investment
                                               70
• Fragmented industry, acquisition targets     60
    available                                  50
• High single-digit annual growth              40
• Fashionable among females                    30
• Strict counterfeiting laws                   20
Risks                                          10
• State intervention                           0




                                                      2004

                                                             2005

                                                                    2006

                                                                           2007t

                                                                                   2008t

                                                                                           2009t

                                                                                                   2010t

                                                                                                           2011t
• Local industry threatened by cheap Russian
    exports




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 With Greater Opportunity, Comes Greater Risk

Opportunities
• For the most part, immature markets
• Existing interest, even where quality is low
• Energy-dependent governments seeking diversification
• Common economic space – simplifies taxation, customs issues
Risks
• Poor infrastructure
• State interference in business
• Limited premiumisation opportunities
• Inflation threatens affordability
• Border disputes create some security issues and tensions




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