Roots for Investment Activity Growth in Russia in 1998-1999 and
Prospects for the Year 2000
Modern condition of the Russian productive assets doesn't correspond to the market demand. Fixed capital, which has been created during last twenty-thirty years, was oriented for military production and was in the basis of Soviet Union economic capacity. After the Second World War it was also formed under cooperation with East European countries. It should be pointed out, that in 70s the first features of the Soviet Union productive assets degradation appeared and this process accelerated in 80s: the level of deterioration of the assets in the industry increased on 25%, renovation of the fixed capital fall on 30%. (We should define the level of assets deterioration as the ration of accumulated amortization to the total assets. The renovation level can be defined as the ratio of amortization to the fixed capital formation). Rapid market reforms in Russia during last decade could not change either productive assets condition or tendencies in investment activity. During 90s it was no attempts to recover economic relations with the former Soviet Union and COMECON countries. At the same time no new sectors or production activity was created, which can substitute losses from the crash of the SU and East Europe economic cooperation and formed the assets to produce the competitive goods.
The level of deterioration of productive assets increased on 20% in 1997 compare with 1990, assets renovation rate in industry fall up to 1.2 in 1997 (against 6% in 1990), including on equipment - 0.73% (against 4.7% in 1990). Together the share of equipment immature than 5 years dropped to 5.4% from total (against 30% in 1990) and the average lifetime reached 15.88 years (10.8 years in 1990). Note that recommended indicator was equaled 7 years.
Some polls' data in Table 1 illustrates this problem. According to this data the decrease of productive assets volume take place if the depreciation is higher than fixed capital investments. Productive assets had dropped within 7 years (1991 - 1998) on 27.7% in average. This failure fluctuated from 10% in the food industry to 40 -- 42% in the fuel sector and construction materials sector. The share of the equipment in industry, which is older than amortization limits' level, is 31.4% from total. At the same time, as can be seen in Table 1, the share of the productive assets, which couldn't be used for competitive goods' output, is also high. Under such low level of good quality fixed capital it is impossible to suggest, that some very progressive technologies are still exist. That's why the top managers of industrial enterprises assess the possibility of enlargement output only by the traditional commodities, but not the new ones.
Table 1. The Productive Capacity Conditions by Sectors of the Russian Industry (quarterly assessments of the enterprises' top managers IVQ 1998 - IQ 1999)
| Sectors |
Share of the Productive Capacity Replacement in 1991 – 1998 (%) |
Share of the Productive Capacity, which is not fit the competitive goods production (%) |
Share of the Productive Capacity with life exceeds standard level (%) |
Share of the Productive Capacity, which can be used under the Growth Demand on Competitive Goods (%) |
| Industry, Total |
27.7 |
30.6 |
53.2 |
24.8 |
| Fuel |
42.5 |
31.2 |
3.8 |
24.4 |
| Ferrous Metallurgy |
11 |
33.8 |
54.4 |
36.5 |
| Non-ferrous Metallurgy |
25.6 |
29.5 |
44.9 |
14.4 |
| Chemical and Petrochemical |
25 |
25.5 |
58.3 |
27.5 |
| Machinery |
25 |
31.6 |
60 |
25.1 |
| Forestry and wood processing |
24.3 |
31.1 |
54.1 |
16.4 |
| Construction Materials |
39.5 |
24.1 |
58.8 |
26.3 |
| Light Industry |
33.4 |
40.1 |
52.1 |
32.7 |
| Food Industry |
10 |
27.6 |
42.8 |
22.3 |
|
| Source: Center of Economic Conjuncture
|
Thus, the conditions of all productive assets can not provide the basis for the economic growth in near future. The key factor to solve this problem is investment activity stimulation. However during last decade fixed capital investments dropped 4 times. Only in 1999 some positive futures of investment activity appeared after financial crises in August 1998. Investments increased on 1.3% for the first three-quarters of 1999, and increased on 9% between large and medium size enterprises. The improvements of investment activity follow by increase of output of the domestic goods (6-7 months lagged). Descriptive data of this process present in Table 2. (The enterprises' order portfolio can be defined as the orders for certain production from customers and can be on the normal level, below or above one according to the assessments of the enterprises' top managers. Thus the orders' portfolio can indicate the changes in the final demand for products.)
Table 2. Selected Indicators of Investment Activity in Industry (%)
| |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
Year |
| Share of the Enterprises, which orders' portfolio is growing (diffusive index ) |
| 1998 |
42 |
42 |
41 |
41 |
37 |
38 |
36 |
38 |
40 |
45 |
46 |
52 |
42 |
| 1999 |
50 |
58 |
60 |
56 |
54 |
60 |
58 |
62 |
|
|
|
|
|
| Share of the Enterprises, which expect orders' portfolio to be growth in the next 3 months (diffusive index) |
| 1998 |
37 |
48 |
54 |
61 |
54 |
59 |
54 |
51 |
50 |
49 |
33 |
36 |
49 |
| 1999 |
46 |
47 |
55 |
63 |
59 |
56 |
59 |
58 |
56 |
57 |
51 |
|
|
| The level of Orders Portfolio (normal monthly level = 100) |
| 1998 |
67 |
66 |
65 |
67 |
60 |
61 |
65 |
62 |
66 |
66 |
70 |
70 |
65 |
| 1999 |
70 |
77 |
74 |
78 |
75 |
81 |
82 |
81 |
|
|
|
|
|
| Employment of the Productive Capacity (normal monthly level = 100) |
| 1998 |
55 |
55 |
57 |
55 |
53 |
55 |
53 |
53 |
53 |
55 |
57 |
57 |
55 |
| 1999 |
56 |
58 |
60 |
61 |
59 |
64 |
63 |
63 |
|
|
|
|
|
| The Share of the Enterprises, which Financial Condition is "Normal" or "Good" |
| 1998 |
24 |
19 |
21 |
17 |
16 |
18 |
20 |
13 |
16 |
22 |
26 |
32 |
20 |
| 1999 |
30 |
41 |
41 |
41 |
45 |
48 |
47 |
49 |
|
|
|
|
|
| The Share of the Enterprises, which Financial Condition Would be Improved within next tree months (diffusive index) |
| 1998 |
31 |
34 |
41 |
44 |
45 |
43 |
45 |
38 |
40 |
33 |
24 |
28 |
37 |
| 1999 |
34 |
36 |
41 |
44 |
46 |
47 |
48 |
48 |
50 |
47 |
43 |
|
|
| The Share of the Enterprise, Which Purchase the New Equipment (diffusive index) |
| 1998 |
18 |
19 |
17 |
16 |
16 |
16 |
18 |
13 |
12 |
14 |
17 |
19 |
16 |
| 1999 |
20 |
18 |
20 |
23 |
25 |
27 |
24 |
28 |
|
|
|
|
|
| The Share of the Enterprise, Which Would Purchase the New Equipment within next 3 months |
| 1998 |
23 |
22 |
26 |
25 |
23 |
22 |
21 |
19 |
21 |
21 |
13 |
14 |
21 |
| 1999 |
20 |
19 |
22 |
28 |
26 |
28 |
26 |
29 |
29 |
27 |
27 |
|
|
|
| Source: Russian Economic Barometer. Vol. VIII, ¹3, summer` 99, Moscow 1999
|
First positive features in the Russian economy were registered in October-November, 1998, when the orders portfolio of domestic enterprises began to rise. After that the indicator of employment of the productive capacity increased and the improvement of enterprises' financial condition was observed. First signs of increase investment activity appeared only in the beginning of the second quarter of 1999. If we consider the volume of the equipment purchases as an indicator of investment activity, than (as shown in table 2) the share of the enterprises, which will buy the new equipment during next 3 months, exceeded pre-crises level exactly in April-May 1999 and had been growth during the summer 1999.
The improvement of investment activity started from deep depression. The share of the gross investment in GDP was relatively small. The comparative dynamic of GDP and investments present Table 3. Note, that the share of investments, which equaled 15-17% GDP, not so small in general, but very small for transition to the economic growth.
Table 3. Gross Domestic Product and Capital Investments
| |
Units |
1996 |
1997 |
1998 |
1999 * |
| Gross Domestic Product |
| in current prices (denominated rubles) |
bln. RUB |
2145.7 |
2521.9 |
26.84.5 |
|
| in constant prices (YOY) |
% |
96.6 |
100.9 |
95.4 |
|
| in USD (market exchange rate) |
$ bln. |
418.6 |
435.9 |
276.5 |
|
| in USD (PPP exchange rate) |
$ bln. |
1017.4 |
982.4 |
991.3 |
|
| Capital Investments |
| in current prices (denominated rubles) |
bln. RUB |
376 |
408.8 |
402.4 |
395 |
| in constant prices (YOY) |
% |
82 |
95 |
93 |
101.3 ** |
| in USD (market exchange rate) |
$ bln. |
73.4 |
70.6 |
41.4 |
16.2 |
| in USD (PPP exchange rate) |
$ bln. |
90.2 |
85.7 |
80 |
61.7 |
| Share of Capital Investments in GDP |
| in current prices (denominated rubles) |
% |
17.5 |
16.2 |
15 |
|
| in constant prices (YOY) |
% |
14.7 |
16.5 |
15.8 |
|
| in USD (PPP exchange rate) |
% |
8.9 |
8.7 |
8.1 |
|
* – IQ - IIIQ 1999.
** – in % to IQ - IIIQ 1998 |
|
| Source: Goskomstat RF
|
Structure of the investment by sources has been stable after the middle of 90s. Data presented in Table 4 shows that the key source of the investments is enterprises' float capital and off-budget funds - more than 83% from total. (Float capital includes amortization and net profit, off-budget funds can be federal, local and formed from the special taxes). Note that only 13-15% of total investment finances from profits and this fact defines the low investment activity. Under the stable structure of investments by sources the shares of private and foreign direct investments increased (Table 5), which is the evidence of continuos institutional reforms.
Table 4. Structure of the Capital Investments by Sources of Finance (in % to total)
| |
1996 |
1997 |
1998 |
1999 * |
| Capital Investments – total |
100 |
100 |
100 |
100 |
| Including:
|
| Including by the source of financing: |
|
|
|
|
| Enterprises' Float Capital |
52.3 |
60.8 |
53.6 |
53.5 |
| Including the net enterprises profit (the saving fund) |
15 |
13.2 |
13.3 |
14.2 |
| Outside money |
47.7 |
39.2 |
46.4 |
46.5 |
| From which budgetary funds (consolidated budget), including, |
20.1 |
20.7 |
19.2 |
17.6 |
| Federal Budget |
9.9 |
10.2 |
6.6 |
7.0 |
| Territorial and Local Budgets |
10.2 |
10.5 |
12.6 |
9.7 |
| * – IQ - IIIQ 1999. |
|
| Source: Goskomstat RF
|
Table 5. Structure of Capital Investments in Industry by Property (in % to total)
| |
1996 |
1997 |
1998 |
1999 * |
| Capital Investments – total |
100 |
100 |
100 |
100 |
| Including by property: |
| Russian |
97 |
95.7 |
93.8 |
90 |
| Including: |
|
|
|
|
| State |
27.1 |
24.5 |
22.3 |
21 |
| Municipal |
5.3 |
5.4 |
5.1 |
4.6 |
| Public Unity |
0.1 |
0.1 |
0.1 |
0.1 |
| Private |
16 |
22.7 |
25.7 |
26.4 |
| Joint (without foreign property) |
48.5 |
43 |
40.6 |
37.9 |
| Foreign |
|
1.2 |
2.2 |
2.9 |
| Joint (Russian and Foreign Participation) |
3 |
3.1 |
4 |
7.1 |
| * – IQ - IIIQ 1999. |
|
| Source: Goskomstat RF
|
The new structure of investments by sectors was formed in the beginning of 1999. The major part of investments, as can be seen in Table 6, belongs to three branches of the national economy - industry, transportation and housing. Agriculture, forestry, communications, construction, trade and whole social sphere received investments on the residual basis. Situation is the same in industry - fuel-energy and metallurgy received 70% of total investments (Table 7). It is natural, that sectors oriented to natural resources need significant investments, but in Russia's case the concentration of investments in exportable sector lead to the further degradation of others.
Table 6. Capital Investments by Sectors of the Russian Economy 1
| |
1998 |
1999 * |
1998 |
1999 ** |
1998 |
1999 ** |
| bln. RUB (in current prices) |
in % to total |
in % to the previous year |
| Total |
318.8 |
332.8 |
100.0 |
100.0 |
90.1 |
109.3 |
| Industry |
127.2 |
136.4 |
39.9 |
41.0 |
87.6 |
108.8 |
| Agriculture |
10.4 |
9.4 |
3.3 |
2.8 |
84.1 |
95.8 |
| Forestry |
0.3 |
0.5 |
0.1 |
0.2 |
93.1 |
194.7 |
| Transport |
45.9 |
66.8 |
14.4 |
20.1 |
82.3 |
129.7 |
| Communications |
11.7 |
12.5 |
3.7 |
3.8 |
113.8 |
106.1 |
| Construction |
10.8 |
7.7 |
3.4 |
2.3 |
90.7 |
91.8 |
| Trade and Food |
6.4 |
6.1 |
2.0 |
1.8 |
98.5 |
46.3 |
| Housing |
65.8 |
59.8 |
20.6 |
18.0 |
91.3 |
99.2 |
| Health, Social Security |
9.5 |
7.7 |
3.0 |
2.3 |
87.0 |
93.7 |
| Education |
5.8 |
5.4 |
1.8 |
1.6 |
94.5 |
97.5 |
| Arts and Culture |
3.0 |
3.4 |
0.9 |
1.0 |
87.9 |
115.8 |
| Science |
1.3 |
1.5 |
0.4 |
0.5 |
84.4 |
145.1 |
| Finance, Banking, Insurance |
7.0 |
4.3 |
2.2 |
1.3 |
108.1 |
90.9 |
| Governmental Management |
8.5 |
6.8 |
2.7 |
2.0 |
109.4 |
93.8 |
* – IQ - IIIQ 1999.
** – in % to IQ - IIIQ 1998 |
|
| Source: Goskomstat RF
|
Table 7. Capital Investments by Sectors of Russian Industry
| |
1996 |
1997 |
1998 |
1998 * |
1999 ** |
1996 |
1997 |
1998 |
1998 * |
1999 ** |
1996 |
1997 |
1998 |
1999 *** |
| Bln. RUB (in current prices) |
In % to total |
in % to the previous period |
| Total |
130.7 |
148.9 |
135.2 |
127.2 |
143.9 |
100 |
100 |
100 |
100 |
100 |
86.7 |
98.1 |
87.6 |
108.3 |
| Electricity |
22.7 |
28.4 |
24.9 |
24.2 |
17.3 |
19.0 |
18.4 |
19.0 |
12.0 |
19.0 |
95 |
106.9 |
95.4 |
78.6 |
| Fuel |
56.0 |
63.0 |
49.3 |
51.4 |
55.9 |
42.3 |
36.4 |
40.4 |
38.8 |
42.3 |
85.4 |
96.5 |
79.1 |
97.8 |
| Oil Extracting |
30.0 |
34.9 |
29.5 |
- |
32.8 |
23.4 |
21.8 |
- |
22.8 |
23.4 |
- |
- |
- |
- |
| Oil Refining |
4.6 |
3.7 |
4.5 |
- |
35.5 |
2.5 |
3.3 |
- |
24.7 |
2.5 |
- |
- |
- |
- |
| Gas |
15.1 |
17.8 |
10.2 |
- |
15.4 |
11.9 |
7.6 |
- |
10.7 |
11.9 |
- |
- |
- |
- |
| Mining |
6.2 |
6.6 |
5.0 |
- |
4.2 |
4.4 |
3.7 |
- |
2.9 |
4.4 |
- |
- |
- |
- |
| Ferrous Metallurgy |
6.9 |
6.8 |
7.7 |
7.5 |
8 |
4.6 |
5.7 |
5.9 |
5.6 |
4.6 |
76.2 |
85.2 |
104.8 |
100.2 |
| Non-ferrous Metallurgy |
5.8 |
8.0 |
6.7 |
6.3 |
10.3 |
5.3 |
5.0 |
5.0 |
7.2 |
5.3 |
68.6 |
110.4 |
81.7 |
168.1 |
| Chemical and Petrochemical |
6.2 |
6.9 |
6.6 |
4.5 |
7.3 |
4.6 |
4.9 |
3.5 |
5.1 |
4.6 |
86.1 |
95.7 |
89.3 |
126.5 |
| Machinery |
12.8 |
12.5 |
12.1 |
9.9 |
14.1 |
8.4 |
8.9 |
7.8 |
9.8 |
8.4 |
106.9 |
85.5 |
96.1 |
136.9 |
| Forestry and Wood Processing |
3.6 |
3.7 |
3.9 |
3.2 |
5.5 |
2.5 |
2.9 |
2.5 |
3.8 |
2.5 |
67.8 |
88.9 |
100.1 |
216.3 |
| Construction Materials |
3.0 |
3.0 |
2.2 |
1.9 |
2.1 |
2.0 |
1.6 |
1.5 |
1.5 |
2.0 |
67.2 |
87.3 |
68.4 |
98.9 |
| Light |
1.0 |
1.0 |
1.0 |
0.4 |
0.5 |
0.7 |
0.7 |
0.3 |
0.3 |
0.7 |
77.3 |
88.1 |
95.3 |
91.6 |
| Food |
10.0 |
12.7 |
17.4 |
15.2 |
21 |
8.6 |
12.9 |
11.9 |
14.6 |
8.6 |
86.6 |
109.7 |
123.9 |
132.2 |
* - for large and medium size enterprises
** - data for IQ-IIIQ 1999
*** - in % to I-IIIQ 1998 |
|
| Source: Goskomstat RF
|
Foreign investments appeared after 1992 in the Russian economy and they reached 12.3 $bln. up to 1997, but the foreign direct investments not exceeded 45%. The foreign investments were targeted to the most profitable projects – fuel-energy, food and banking sectors. After the financial crises in the middle of 1998 the foreign investments dropped on 25%, but its' share in the real sector (industry, transportation, communications and trade) increased from 55% in 1998 to 75% in the first three quarters of 1999. Foreign investments into banking sector fell from 57% in 1997 to 3.3% in 1999 (table 8).
Technological structure of investments (defines as the share of buildings, equipment and others) also has changed. The share of equipment had been decreased during first half of 90s and reached 1994 20% in total investments (38% in 1990). Change of the trend in investments return back the share of spending on the equipment in 1999 to the beginning of 90s - 34.4%, it growth on the 10 percentage points compare with year early (Table 9). It is important, that the share of spending on equipment in total investments increased in all sectors. Even in sectors, where the investment growth was not observed the share of expenditures on equipment increased in 1999. Increase expenditures on machines and equipment formed the demand on the investment goods - both imported and domestically produced.
Table 8. Foreign Investments by Sectors
| |
1996 |
1997 |
1998 |
1999 * |
| $ mln. |
in % to total |
$ mln. |
in % to total |
$ mln. |
In % to total |
$ mln. |
in % to total |
| Total in National Economy |
6970.0 |
100.0 |
12295.0 |
100.0 |
11773.0 |
100.0 |
6467.0 |
100.0 |
| Industry |
2278.0 |
32.7 |
3610.0 |
29.3 |
4698.0 |
39.9 |
3333.0 |
51.5 |
| Including: |
| Fuel |
513.0 |
7.4 |
1677.0 |
13.6 |
1880.0 |
16.0 |
1568.0 |
24.2 |
| Machinery |
194.0 |
2.8 |
274.0 |
2.2 |
305.0 |
2.6 |
191.0 |
3.0 |
| Chemical and Petrochemical |
103.0 |
1.5 |
82.0 |
0.7 |
52.0 |
0.4 |
78.0 |
1.2 |
| Wood Processing |
313.0 |
4.5 |
203.0 |
1.6 |
240.0 |
2.0 |
129.0 |
2.0 |
| Food |
779.0 |
11.2 |
704.0 |
5.7 |
1473.0 |
12.5 |
830.0 |
12.8 |
| Construction |
96.0 |
1.4 |
268.0 |
2.2 |
237.0 |
2.0 |
87.0 |
1.3 |
| Transport |
86.0 |
1.3 |
50.0 |
0.4 |
318.0 |
2.7 |
307.0 |
4.7 |
| Communications |
183.0 |
2.6 |
145.0 |
1.2 |
271.0 |
2.3 |
298.0 |
4.6 |
| Trade and Food |
375.0 |
5.4 |
733.0 |
6.0 |
1201.0 |
10.2 |
1091.0 |
16.9 |
| Banking, Insurance |
2024.0 |
29.0 |
4763.0 |
38.7 |
900.0 |
7.6 |
82.0 |
1.3 |
| Market infrastructure |
1629.0 |
23.4 |
2299.0 |
18.7 |
1426.0 |
12.1 |
129.0 |
2.0 |
| Other Sectors |
299.0 |
4.2 |
427.0 |
3.5 |
2722.0 |
23.2 |
1139.0 |
17.6 |
| *- IQ-IIIQ 1999 |
|
| Source: Goskomstat RF
|
Box A. Phases of economic growth in Russia.
The economic growth in Russia, which was the first time since the market reforms were launched, can be split into three phases. First phase - the intensive post crisis recovery - was in IVQ 1998. The key feature of this phase was irregular either in time or by sectors output growth. On the one hand, the set of factors as sharp devaluation, decrease of production costs, increases the payment capability of industrial enterprises stimulated production activity. On the other hand, the influence of these positive factors was local and limited. The growth rates higher than 3% per months took place only in some sectors, such as metallurgy, chemical industry, machinery and food. The limited effect of positive factors defined by fall of final demand, low level of inventories, and natural time lags, which is necessary to enter new market segments.
Table A.1. Key Indicators of Industrial Output in 1998-99 (%)
| |
IVQ 98 |
IQ 99 |
IIQ 99 |
IIIQ 99 |
| Production Growth Rates: |
| Last months of the quarter to the previous period |
109.3 |
105.7 |
103.6 |
100.4 |
| YOY |
90.8 |
98.4 |
105.0 |
116.3 |
| Share of the Enterprises, marked the Production Growth (CEC polls) |
50.0 |
55.5 |
54.0 |
55.5 |
|
| Source: Goskomstat RF, Center of Economic Conjuncture
|
Table A.2. Indicators of the Demand on Industrial Goods (final and intermediates) in 1998 - 99 (poll's data, %)
| |
IIIQ98 |
IVQ98 |
IQ99 |
IIQ99 |
IIIQ99 |
Oct.99 |
Nov.99 |
| Share of the Enterprises Marked the Growth of the Demand on its Products (CEC) * |
48.3 |
51.0 |
51.2 |
53.2 |
53.5 |
53.0 |
52.5 |
| Enterprises Orders Portfolio (normal months level=100, REB) * |
64.3 |
68.7 |
73.7 |
78.0 |
81.5 ** |
n.a. |
n.a. |
* - in average for quarter
** - in average for July-August 1999 |
|
| Source: Center of Economic Conjuncture (CEC), Russian Economic Barometer (REB)
|
The second phase - the total moderate growth, - was defined by withdrawn the factors, which affect the output increase. The growth rates were not so high, but output growth was registered in all sectors of the national economy.
The highest rates of growth were in the sectors, which had been affected by the negative factors, first of all, light industry and wood processing industry. But the some negative factors were not overcome. The growth of industrial output was under the stagnation of the final demand (both consumption and investment). Because of this fact the key role played import substitution effect on the domestic market and fall of production cost of exportable goods - on the external market. It is clear, that substitution effect and the capacity of the world market are limited. Moreover, the real ruble exchange rate appreciation stabilized the volume of imports and increased the production cost. Thus the wholesale price growth equaled 54% for January-August 1999, and exchange rate growth was 16% for the same period. This means, that the competitiveness of Russian goods fell approximately on one third and on the same value the imports increased.
Table A.3. Indicators of the Financial Conditions of the Industrial Enterprises in 1998-99.
| |
IIIQ98 |
IVQ98 |
IQ99 |
IIQ99 |
IIIQ99 |
| Profits, bln. RUB |
-27.9 |
-12.4 |
60.2 |
95.2 |
103.5 * |
| Debt Burden (consumer's arrears, months of production) |
11.9 |
8.4 |
8.1 |
7.6 |
5.8 |
| Share of the Enterprises, which Working Capital is growing, % (CEC polls) ** |
37.7 |
40.4 |
43.2 |
47.0 |
48.3 |
| Share of the Enterprises, which are in "good" or "normal" financial conditions, % (REB polls) ** |
16.3 |
26.7 |
37.3 |
44.7 |
48.0 *** |
| Share of the Barter in Total Sales, % (REB polls) |
52.0 |
49.7 |
46.3 |
41.0 |
37 *** |
* - estimates
** - in average for quarter
*** - in average for July-August 1999 |
|
| Source: Goskomstat RF, Center of Economic Conjuncture, Russian Economic Barometer
|
Table A.4. Industrial Output Growth by Sectors (monthly average growth rates index)
| |
Phase I IVQ98 |
Phase II I-IIQ99 |
Phase III IIIQ99 |
| abs. |
rel. |
abs. |
rel. |
abs. |
rel. |
| Industry |
103.0 |
100.0 |
101.9 |
100.0 |
100.0 |
100.0 |
|
- fuel-energy sectors |
101.9 |
99.0 |
101.4 |
99.5 |
100.5 |
100.5 |
|
- final goods sectors |
103.2 |
102.0 |
102.8 |
100.8 |
99.1 |
99.1 |
| Including by sectors |
| Electricity |
101.3 |
98.4 |
100.4 |
98.5 |
100.0 |
100.0 |
| Fuel |
100.8 |
97.9 |
100.2 |
98.3 |
100.3 |
100.0 |
| Ferrous Metallurgy |
103.5 |
100.5 |
102.4 |
100.5 |
101.2 |
101.2 |
| Non-ferrous Metallurgy |
103.2 |
100.2 |
100.3 |
98.4 |
99.7 |
99.7 |
| Chemical |
103.4 |
100.4 |
103.5 |
101.5 |
101.6 |
101.6 |
| Machinery |
106.8 |
103.8 |
102.3 |
100.4 |
100.1 |
100.1 |
| Forestry and Wood Processing |
101.7 |
98.7 |
103.4 |
101.5 |
100.8 |
100.8 |
| Construction Materials |
100.6 |
97.7 |
102.1 |
100.2 |
98.9 |
98.9 |
| Light |
98.4 |
95.6 |
107.1 |
105.1 |
101.1 |
101.1 |
| Food |
103.1 |
100.1 |
102.6 |
100.6 |
97.8 |
97.8 |
| abs - nominal growth rate, rel - growth rates relatively average on industry |
|
| Source: Goskomstat RF
|
As a result, the main feature of the third phase was the transfer the role of “growth locomotion” from domestic processing sectors to the export sectors, mainly to the natural resources exports. Note that the total industrial output during this phase (IIIQ 1999) remained unchanged YOY.
Key factors of industrial output growth in Russia
Post crises industrial growth, which started in October 1998, turned to be enduring and steady. The growth rates of output were on the record level in transition period. As a result, the production level increased on 25% in July 1999. Hereby the economic growth was out of the “post crises” definition and in all sectors output exceed YOY level on at least 5-7%.
The important feature of the economic growth was the fact that the output increased on the wide list of goods. During three quarters (IVQ98-IIQ99) the share of products, on which the output growth was fixed, was above 90%. This witness, that the growth had a system character and have developed in some directions.
1. Final demand growth on domestic goods and services due to ruble devaluation and money supply increase.
According to the poll's data, presented by the Center of Economic Conjuncture (CEC), the demand growth on domestically produced goods marked 54% managers of Russian enterprises in the beginning of the III quarter of 1999. For the same post crises period the number of enterprises affected by the limitation of final demand decreased on 33-35%. Final demand growth was along with the increase of enterprises' order portfolios. Poll's data, produced by Russian Economic Barometer (REB) shows, that 80% manager of Russian enterprises assess their portfolio as normal.
2. Improvement of enterprises financial conditions, mainly due to profitability growth and change the structure of the working capital.
It was rapid growth of enterprises' gross profits in 1999 (Table A3). Increase of profitability and stimulate monetary policy changed the structure of the working capital toward cash money. The share of cash in working capital increased from 1.4% in August 1998 to 4.2% in August 1999).
3. Decrease the volume of inter enterprises arrears (in real terms).
High inflation and devaluation rates depreciated enterprises' arrears in real terms. The growth rates of arrears in nominal term also decreased. The transactions between enterprises shifted from barter to the cash basis.
Financial crises in August 1998 and sharp ruble devaluation changed Russian enterprises' priorities on the investment market. The volumes of imported equipment have fallen on 40% for the first three quarters of 1999. The share of investments into imported equipment was 30% in total capital expenditures. Taking into consideration the ruble price growth on the imported goods (due to devaluation) it is possible to assess, that the volume of imported equipment in constant prices fell in 2-2.5 times. This means, that the change in technological structure of the investments should create the demand for domestically produced investment goods. (Table 9)
Table 9. Technological Structure of Capital Investments by Sectors
| |
1998 * |
1999 * |
| Total, bln. RUB. |
Including in % to the total investments |
Total, bln. RUB. |
Including in % to the total investments |
| Buildings |
Equipment |
Buildings |
Equipment |
| Total |
205.0 |
64.6 |
24.7 |
332.8 |
56.7 |
34.4 |
| Industry |
85.4 |
49.7 |
34.2 |
143.9 |
40.0 |
48.2 |
| Electricity |
15.9 |
73.5 |
24.4 |
17.3 |
65.0 |
33.3 |
| Fuel |
35.7 |
42.4 |
22.6 |
55.9 |
44.6 |
29.6 |
| Oil Extracting |
22.4 |
34.5 |
18.8 |
32.8 |
37.7 |
27.0 |
| Oil Refining |
2.2 |
59.9 |
36.0 |
3.4 |
52.8 |
44.5 |
| Gas |
7.5 |
62.2 |
12.5 |
15.4 |
60.6 |
21.9 |
| Ferrous Metallurgy |
5.4 |
50.3 |
46.9 |
8.0 |
43.6 |
53.7 |
| Non-ferrous Metallurgy |
4.0 |
62.0 |
36.9 |
10.3 |
35.4 |
63.6 |
| Chemical |
2.8 |
48.2 |
50.3 |
5.6 |
37.1 |
60.7 |
| Machinery |
7.6 |
48.9 |
49.6 |
14.1 |
26.9 |
71.6 |
| Forestry and Wood Processing |
1.7 |
33.8 |
61.5 |
5.5 |
26.2 |
71.1 |
| Construction Materials |
1.2 |
44.2 |
49.2 |
1.7 |
36.0 |
51.6 |
| Light |
0.3 |
36.3 |
61.4 |
0.5 |
33.5 |
63.7 |
| Food |
8.5 |
36.1 |
60.6 |
20.3 |
23.9 |
73.5 |
| Milling industry |
0.4 |
44.3 |
53.6 |
0.7 |
31.1 |
66.5 |
| Medicine Industry |
0.4 |
33.2 |
60.8 |
1.2 |
18.0 |
79.7 |
| Agriculture |
5.7 |
31.3 |
24.4 |
9.0 |
23.6 |
38.5 |
| Transport |
19.9 |
68.4 |
27.9 |
42.8 |
61.4 |
33.3 |
| Railroad Transport |
5.9 |
74.6 |
23.4 |
11.2 |
67.4 |
31.3 |
| Communications |
7.0 |
30.8 |
65.7 |
11.3 |
22.4 |
71.5 |
| Electronic and Radio Communications |
6.7 |
30.8 |
65.6 |
11.0 |
22.3 |
71.5 |
| Construction |
37.3 |
86.4 |
9.2 |
52.8 |
84.0 |
13.0 |
| Trade and Food |
2.9 |
55.6 |
40.4 |
4.5 |
55.1 |
41.8 |
| Housing |
5.7 |
65.9 |
23.7 |
6.8 |
67.0 |
24.1 |
| Public Health and Social Security |
1.3 |
64.5 |
28.2 |
2.0 |
54.8 |
31.0 |
| Education |
0.4 |
74.6 |
21.0 |
1.2 |
79.6 |
18.6 |
| Culture and Arts |
0.3 |
72.4 |
21.9 |
0.5 |
61.9 |
35.2 |
| Science |
1.2 |
45.6 |
46.9 |
2.3 |
43.3 |
40.0 |
| Financial Services, Banking, Security |
3.7 |
70.3 |
28.2 |
5.3 |
55.5 |
43.2 |
| Government Management |
31.0 |
92.8 |
3.2 |
44.6 |
90.1 |
5.1 |
| * – IQ - IIIQ of the previous year |
|
| Source: Center of Economic Conjuncture, 1999
|
Table 10. Assessments of the Capital Investments by Sectors of the National Economy in the year 2000 (according to the polls' data of the Russian enterprises top managers, in % to total)
| |
Industry - Total |
Chemical and Petro Chemical Industry |
Machinery |
Forestry and Wood Processing |
Construction Materials Industry |
Light Industry |
Food Industry |
| 1999 |
2000 |
1999 |
2000 |
1999 |
2000 |
1999 |
2000 |
1999 |
2000 |
1999 |
2000 |
1999 |
2000 |
| Investments, total |
74 |
76 |
88 |
82 |
75 |
81 |
88 |
63 |
62 |
71 |
47 |
58 |
73 |
73 |
| The increase of investments compare with the previous year |
36 |
29 |
46 |
35 |
44 |
38 |
36 |
13 |
29 |
19 |
29 |
13 |
34 |
25 |
| Targets of the Investments |
| Equipment replacement |
51 |
50 |
53 |
53 |
46 |
51 |
75 |
38 |
43 |
43 |
37 |
37 |
50 |
52 |
| The increase of the productive capacity: |
| With the same set of the products |
18 |
19 |
24 |
24 |
22 |
22 |
- |
- |
14 |
10 |
3 |
8 |
16 |
21 |
| With the wider set of the products |
21 |
22 |
24 |
24 |
35 |
38 |
25 |
13 |
19 |
10 |
8 |
13 |
25 |
21 |
| With the new technological lines |
21 |
27 |
24 |
29 |
32 |
35 |
13 |
- |
19 |
29 |
3 |
16 |
18 |
27 |
| With the investments in the environment |
17 |
17 |
29 |
29 |
24 |
22 |
- |
- |
14 |
19 |
5 |
3 |
11 |
13 |
| Install new productive capacity at the expense of: |
| New construction |
14 |
14 |
24 |
24 |
13 |
6 |
- |
- |
14 |
10 |
- |
3 |
25 |
21 |
| Reconstruction and development of the enterprises |
42 |
48 |
65 |
65 |
49 |
60 |
75 |
38 |
24 |
33 |
13 |
26 |
43 |
43 |
| Type of purchased equipment |
| New enterprises |
5 |
6 |
6 |
- |
5 |
6 |
- |
13 |
- |
- |
- |
5 |
9 |
7 |
| Technological lines |
17 |
20 |
18 |
18 |
22 |
24 |
13 |
13 |
5 |
14 |
8 |
16 |
23 |
25 |
| Single units |
41 |
41 |
53 |
53 |
48 |
46 |
75 |
25 |
33 |
33 |
21 |
24 |
45 |
48 |
| Computers |
41 |
38 |
47 |
41 |
56 |
51 |
38 |
- |
38 |
33 |
16 |
16 |
39 |
36 |
| Communications |
21 |
16 |
29 |
24 |
27 |
17 |
13 |
- |
10 |
14 |
5 |
3 |
20 |
14 |
| Equipment purchased by leasing |
4 |
3 |
- |
- |
5 |
3 |
13 |
- |
- |
- |
3 |
- |
5 |
5 |
|
| Source: Center of Economic Conjuncture
|
Accurate compare the lists of commodities, which production growth, and investments into machines and equipment shows, that any growth output of certain commodity leads to increase of investments in this technology. However and this is very important, the increase of investments is very limited in technological sense, because the target of investments is not the total replacement and renovation of production line, but only replacement of single units. This process is cheaper in short-term, but less efficient in medium and long term. According to the poll's data, in average one decision to change technology falls for 3-4 decisions to change single unit.
There is one more question - what kind of equipment is involved in the growing investment activity. We should take into consideration, that the import of metal processing units is falling as the domestic production of all types of metal processing units. The answer on this question is in sectoral analysis of the investments into new equipment. More than 50% of such investments are targeted in auto industry and military sector. Note that this sector always has its own capacities to produced investment goods. Such production activity can be booked for that sectors like intermediate production and be transferred without taxes, transportation and some other cost. It means, that such investments are higher in constant prices (physical terms) and price growth for such goods are not so high.
Table 11. Factors' Influence on the Capital Investment Decisions in the Sectors of Russian Economy (polls' data of the enterprises' top managers)
| |
Industry - Total |
Chemical and Petro Chemical Industry |
Machinery |
Forestry and Wood Processing |
Construction Materials Industry |
Light Industry |
Food Industry |
| IIIQ98 |
IIIQ99 |
IIIQ98 |
IIIQ99 |
IIIQ98 |
IIIQ99 |
IIIQ98 |
IIIQ99 |
IIIQ98 |
IIIQ99 |
IIIQ98 |
IIIQ99 |
IIIQ98 |
IIIQ99 |
|
Demand on Products |
15 |
63 |
18 |
65 |
19 |
62 |
0 |
75 |
10 |
76 |
13 |
45 |
16 |
68 |
| Working Capital |
54 |
29 |
41 |
18 |
44 |
33 |
38 |
38 |
52 |
48 |
74 |
26 |
54 |
32 |
| Interest rates on loans |
40 |
4 |
41 |
6 |
49 |
3 |
50 |
13 |
57 |
5 |
34 |
3 |
39 |
7 |
| Investment risks |
34 |
0 |
49 |
0 |
40 |
0 |
25 |
0 |
29 |
0 |
26 |
0 |
41 |
0 |
| Technological research activity |
4 |
37 |
6 |
47 |
3 |
59 |
0 |
25 |
5 |
38 |
3 |
21 |
5 |
29 |
| Technological base |
18 |
34 |
12 |
41 |
22 |
38 |
13 |
38 |
19 |
29 |
18 |
24 |
11 |
30 |
| Profitability of the capital investments |
11 |
27 |
6 |
35 |
10 |
30 |
0 |
25 |
5 |
29 |
5 |
16 |
13 |
27 |
| Economic and political situation in the country |
67 |
7 |
53 |
6 |
70 |
6 |
63 |
0 |
57 |
14 |
58 |
3 |
71 |
11 |
| Legal base of the investment activity |
35 |
4 |
29 |
6 |
41 |
8 |
38 |
0 |
29 |
10 |
32 |
0 |
34 |
2 |
|
| Source: Center of Economic Conjuncture
|
Table 12. Key Factors assessments, Which Limit the Volume of Investments
| |
period |
| IQ |
IIQ |
IIIQ |
IVQ |
Year |
| Factors, which limit investments: |
| - lack of financial resources |
| 1998 |
74 |
82 |
81 |
88 |
81 |
| 1999 |
84 |
81 |
85 |
|
|
| - high prices on the equipment and construction |
| 1998 |
46 |
42 |
39 |
57 |
46 |
| 1999 |
50 |
50 |
62 |
|
|
| - high interest rates |
| 1998 |
22 |
28 |
24 |
20 |
24 |
| 1999 |
22 |
25 |
23 |
|
|
| - high debts |
| 1998 |
47 |
38 |
38 |
31 |
38 |
| 1999 |
30 |
28 |
27 |
|
|
| - overstock of production capacities |
| 1998 |
19 |
16 |
19 |
10 |
16 |
| 1999 |
20 |
15 |
1 |
|
|
| - low profitability of the investments |
| 1998 |
4 |
4 |
2 |
5 |
4 |
| 1999 |
7 |
4 |
4 |
|
|
| Prospects for Capital Investments: |
| - share of the enterprises, which have made no investments in the past 6 months and don't expect the investments in the next 6 months |
| 1998 |
49 |
46 |
51 |
42 |
47 |
| 1999 |
38 |
38 |
|
|
|
| - the investments project realization (full realization = 100) |
| 1998 |
48 |
47 |
39 |
47 |
39 |
| 1999 |
48 |
53 |
|
|
|
|
| Source: Russian Economic Barometer
|
Thus, the improvement of investment activity followed by output growth. The share of the enterprises, which increase productive capital, increased from 12% in the second half of 1998 to 32% in the beginning of 1999. The main features of investment process for near futures show in tables 11 and 12 and will be:
- Low and unstable dynamic of the investment growth due to fundamental limitations, which still exist and include:
- - lack of working capital;
- - high interest rate on the loans;
- - relatively high price level on the equipment and construction services;
- - overstock of the productive capacity.
- Keeping the tendency of replacement single productive unit, not the whole technologies, which decreases the efficiency of investment process and forms the future instability in machinery sector.
- Ecological investments will be on the same low level, especially in the sectors, where it is extremely necessary. Between other problems, it means, that some types of Russian goods will be without certificates and can not compete on the world market.
- The number of the enterprises, where there is no investments, will be relatively high (according to different assessments 25-40% from total in industry).
- The decrease of any kind of inter enterprise arrears will have positive effect on the investment activity.
- The increase of the number of successful investment projects will stimulate this process.
Investment activity and Banking Loans Availability
Before the financial crises the share of the loans to the enterprises in banks' assets wasn't significant. During the second half of 90s the volume of the loans to the real sectors didn't extent, because of some reasons. On the one hand, there were the high risks of non-return loans. This is the traditional kind of risk for Russia and in the basis of this risk are the poor accounting enterprises' system, low level of the managers' skill, bad payments system and others. On the other hand, interest rates on the loans were high and significantly exceeded the average profitability.
Banking crises forced this negative tendency. But some changes were happen in IV quarter of 1998, which allowed the banks to increase the volume of the loans to the enterprises. First, the improvement of the enterprises' financial conditions, mainly due to output growth. Second the crash of the financial markets. The main characteristics of Russian financial markets in post-crises period (in the second half of 1998 and whole 1999) were low turnover and liquidity, high market and operational risks, low interest rates (sometimes negative real rates). Taking into consideration, that commercial banks had relatively expensive liabilities, this means, that it was no effective ways on the financial markets to place banking assets.
Third, the profitability of Russian enterprises increased in post-crises period. Moreover, the wholesales prices rates were much higher compare with consumer prices or ruble devaluation rates. So, the loans interest rates were not the obstacle for providing credits as for banks as for the industrial enterprises.
Table. 13. Key Price Indices, %.
| |
January-October 99 |
| CPI |
33,2 |
| PPI |
57,6 |
| Exchange Rate Appreciation |
26,2 |
| Agricultural Goods Price Index |
74,3 |
| Investments Goods Price Index |
37,5 |
| Transportation Services Price Index |
13,1 |
| Communication Services Price Index |
22,5 |
|
| Source: Goskomstat RF, EU “Vedi”
|
As a result, the volume of the loans to the enterprises significantly increased in 1999. Thus, the amount of banks' ruble loans to the enterprises increased on 63% from January 1, 1999 to September 1, 1999. The highest growth was in Sberbank - 171%, in other commercial bank the extension of the loans to the real sector was lower - 32%. The explanation of this fact is in the volume of the liabilities - partly state property Sberbank was attractive for individuals and legal entities, commercial banks were affected by decreasing the numbers of the clients.
Chart. The Volume of the Banking Loans to the Enterprises in nominal terms
 |
| Source: EU "Vedi"
|
Opposite situation was with the foreign currency loans, which was sharply decreased. Basically, two reasons can explain this phenomena. First are the high devaluation expectations of economic agents. The indefinite prospects in Russia's relations with international financial institution, political instability, and poor defined monetary policy - all these factors provoke speculative attack on the exchange rate. Consequentially, both the banks and enterprises preferred the ruble loans. The volume of foreign currency loans to the enterprises decreased on 29% (in USD term), including in commercial banks (except Sberbank) - on 34% from January 1, till September 1, 1999.
Conclusions
Investment activity followed by industrial output growth. The increase of industrial production improved the financial conditions of the enterprises. The main sources of the investments were enterprises' working capital. The volume of banking loans was quite stable in real or dollar terms - the ruble loans significantly increased, but the foreign currency loans fell. Investments from federal and local budgets were relatively small, financial crises affected foreign direct investments.
The main problems of investments, which will limit the possible economic growth, are
- - the major part of investments (up to 70%) is targeted to the fuel-energy and the metallurgy sectors;
- - there is no complex modernization of production technologies, but only the replacement of depreciated units;
- - there is unsatisfied environment for the foreign direct investment growth;
- - the banking crises is still exists, which is the obstacle for savings accumulation and transferring them into investments.
Upward trend in investment activity can be kept in the year 2000, but some changes in economic policy should be made rather than several microeconomic successful examples should be achieved.
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