RUSSIAN ECONOMY IN trends and outlooks The rates of growth displayed by nearly all the extensive components (with the exception of fixed assets) were changing in a similar way: a negative rate of growth in 2009 followed by a shift towards positive values in late 2009 – early 2010.
On the average, in 2009 – 2010 the contribution of productivity factors to GDP growth amounted to approximately 18 % without oil prices (– 42 %), after the estimates of the contribution of price fluctuations on international raw materials markets were excluded. In this connection, it should be noted that in Q IV 2009 – 2010 the estimates of technology-related productivity were demonstrating a negative rate of growth.
4.1.4. The Dynamics and Structure of Production, by Type of Economic Activity During the 2008 crisis, a decline in the rate of production was first recorded in the exportoriented industries, and then it spread into the processing industries whose development had been demonstrating a high rate of growth for a number of years. In Q IV 2008, for the first time after the 1998 crisis, a negative rate of development was observed in industry. The crisis in industry was marked by a rapid production decline in the processing industries. Until mid2009 the situation was determined by the influence of inertia and the factors that had emerged during the acute phase of the financial crisis in 2008. The deepest slump in production with regard to the main types of economic activity was recorded in the first half-year 2009, when it amounted to only 13.9 % of the level recorded in the same period of the previous year. The drop in industrial production in the first half-year 2009 amounted to 14.5 %, including 22.3 % in the processing industries. Investments in fixed assets in that period dropped by 10.5 %, and those in the consumer market shrank by 2.5 %. The unemployment indices at that time reached their historic high – 8.8 % of the total number of employed.
From the second half-year 2009, in response to a revival of the external demand coupled with the anti-crisis measures, the situation began to improve, and so the year’s results on the whole demonstrated that industrial production dropped by 9 % of the previous year’s level, including by 0.6 % in the extracting industries and by 15.2 % in the processing industries.
However, the situation was complicated by the persisting downward trends on the consumer and investment markets. As seen by the results of the year 2009, retail turnover dropped by 4.5 %, and investments in fixed assets – by 16.2 %.
With the rebound in demand on the international and domestic markets for energy carriers, the growing rate of extraction of mineral resources in Q IV 2009 once again triggered development in the processing industries. Growth of industrial production in the first half-year 2010 amounted to 110.2 %, including by 105.8 % in the extracting industries and by 114.3 % in the processing industries.
In Q III 2010 there occurred a slowdown in the rate of economic growth as a result of a drop by 18.6 % on the same period of the previous year in the volume of agricultural production. as well as a slower growth of exports. The industrial production index in Q III amounted to 106.3 %. However, in Q IV, alongside a sufficiently high growth rates displayed by investments and the consumer market, the rate of growth in industry was recorded at the level of 6.5 %, including 9.9 % in the processing industries (Fig. 6).
The Real Sector of the Economy 1 2 3 4 1 2 3 4 1 2 -2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 // 2008 2009 -----Extraction of mineral resources Processing industries Production of electric energy, gas and water Industrial production volume Fig. 6. Changes in the Rate of Production Growth in Industry, by Type of Economic Activity, in 2000 – 2010, as % of the Same Period of a Previous Year The rate of development in the processing industries differs rather significantly depending on the type of economic activity, with the strongest influence on the specificity of rehabilitative growth being exerted by the ratio between the rates of production of capital and consumer commodities. While the rates of production of foodstuffs, leather products and footwear, coke and petroleum products, chemicals, and rubber and plastic products in 2010 rose above their pre-crisis level, the production of machinery and equipment, means of transportation and metallurgical products were below their 2008 indices (Table 10).
In view of the sufficiently strong fluctuations of the rate of growth between different types of activity across the processing industries, the plummeting rate of output in machine-building became a dominnt factor that negatively influenced the level of business activity in related industries (construction materials and other types of intermediate commodities). The slump in the machine-building complex from Q IV 2008 onwards entered an acute phase, and the rate of production there throughout the year 2009 was far below the average level production in the processing industries.
In 2010, the rate of development in machine-building shifted towards positive values.
Thus, in particular, the measures undertaken by the government in order to support the motorcar industry, including those designed to promote demand, resulted in a revival of domestic production growth.
RUSSIAN ECONOMY IN trends and outlooks Table Production Indices, by Type of Activity, in the Processing Industries in 2008 – 2010, as % of the Same Period of a Previous Year 2008 2009 Q I Q II Q III Q IV 2010 Q I Q II Q III Q IV Processing industries 100.5 76.1 79.3 85.0 100 111.8 112.1 116.3 112.6 109.Production of foodstuffs, 101.9 99.4 97.5 97.5 97.8 103.9 105.4 103.8 106.4 105.4 105.including beverages and tobacco Production of textiles and 94.6 83.8 79.1 78.0 82.6 95.9 112.1 110.2 115.6 111.4 111.garments Production of leather, leather 99.7 99.9 85.8 97.3 104.5 112.3 118.7 126.3 120.0 111.4 118.products and footwear Timber processing and timber 99.9 79.3 71.7 74.7 79.8 92.4 111.4 111.1 112.6 111.4 110.products Pulp and paper production, 100.3 85.7 78.1 82.9 86.3 96.5 105.9 106.7 109.3 106.7 97.publishing and printing Production of coke and petro- 102.8 99.4 95.8 99.8 100.2 101.6 105.0 104.7 105.3 103.5 106.leum products Chemical production 95.4 93.1 77.9 86.4 91.9 123.1 114.6 123.8 115.7 112.5 108.Production of rubber and 122.8 87.4 72.7 84.7 89.3 101.4 121.5 122.8 119.2 121.9 122.plastic products Production of other non-metal 72.5 72.5 63.5 66.6 75.0 85.1 110.7 104.9 114.2 109.1 113.mineral products Metallurgy production and 97.8 85.3 70.0 75.2 86.3 114.4 112.4 118.8 119.6 107.3 104.production of finished metal products Production of machinery and 99.5 68.5 56.5 62.5 70.7 87.8 112.2 109.1 130.5 101.4 110.equipment Production of electrical, elec- 92.6 67.8 56.8 61.3 69.9 82.4 122.8 130.4 127.5 117.3 119.tronic and optical equipment Production of means of trans- 100.4 62.8 61.0 59.2 56.7 74.3 132.2 113.3 141.2 138.1 135.portation and transport equipment Other industries 98.3 79.3 67.3 70.7 82.7 98.5 117.7 130.7 135.4 117.1 111.Source: Rosstat.
Over recent years, imports have continued to significantly influence the rate and character of development in the machine-building sector. This phenomenon occurred due to the fact that the very low competitive capacity of many types of machines and equipment by comparison with their imported foreign counterparts in terms of the price/quality criterion, as well as lack of proper capacities for the production of state-of-the-art technologies imposed considerable restrictions on the market available for the domestic machine-building products. The influence of imports varies significantly between different sectors of the economy and commodities markets. Growth of imports on the market for investment-linked machine-building products was one of the main factors that promoted investment projects, modernization of production the implementation of technological innovations. At the same time, imports competition became more acute, in particular in sectors like machine-tool manufacture, agricultural machine-building, production of construction machines and the motor car industry.
These industries were characterized by low levels of investment activity, high rates of depreciation of fixed assets, backward technologies; one of the promising areas of development there was the transfer of foreign companies manufacturing facilities into Russia’s territory (assembly plants). An accelerated output growth demonstrated by companies with the participation of foreign capital was altering the competitive environment and promoted the tradiSection 4.
The Real Sector of the Economy tional types of production. However, it were those types of production that proved to be the most vulnerable ones in crisis conditions, because for many years no relevant steps had been taken in order to promote the production of parts by domestic enterprises. Given the welldeveloped network of inter-branch links in machine-building in general and in the motor-car industry in particular, the plummeting output there had a very painful effect on related industries and the infrastructure, as well as the employment level.
The 2008 crisis hit hard the Russian motor industry: domestic producers were forced to temporarily halt their conveyer belts and to cut their personnel. The dramatic drop in demand negatively influenced production development (among other things, because of the unattractive terms of consumer credits, declining incomes of the population, and overproduction which resulted in increased stock reserves, as well as difficulties experienced by domestic companies when trying to attract credits for replenishing their current capital). The foreign producers operating in the territory of Russia suffered from the instability of the currency exchange rate, because the bulk of spare parts (80 – 100 %) was being imported from the far abroad. Thus, the once very promising Russian market for motor vehicles quite soon began to resemble the stagnating European market, the only difference being that the number of passenger cars per capita in the Russian Federation had never reached the indices typical of West Europe. As a result of the crisis, in 2009 the production level in the Russian motor industry dropped by 60 %, including a drop in the production of domestic brands by 36.7 % as compared to the pre-crisis year 2008, in the production of foreign brands by 47.2 %, and in the import of new cars by 39.7 %.
The roles of raised import duties and the ruble’s depreciation were roughly equal, in that the expenditures of Russian sellers rose by nearly 50 % (ruble-denominated). As a result, import of second-hand cars became unprofitable, because their price was higher than that of the foreign-brand cars manufactured in Russia. In this connection, while total sales of imported cars dropped by more than 3.7 times, the sales of new cars dropped 2.5 times, and those of second-hand cars – more than 25 times. The leader in the decline of motor car sales became the passenger car segment as a result of increased import duties.
The program of anti-crisis measures adopted by the Government of the Russian Federation for 2009, including the measures designed to regulate customs tariffs, made it possible for Russian car manufacturers to overcome the consequences of the economic crisis and to avoid bankruptcies and production stoppages through increasing their market share and thus compensating them for their losses resulting from the general drop in sales on the market. Besides, it created additional incentives for the founding of strategic alliances between biggest Russian and foreign producers.
In order to promote investments and the general financial rehabilitation of enterprises, government guarantees were granted to motor car manufacturers. The Open-end Joint-stock Company Avtovaz received financial support. Besides, companies’ debts were restructured and the interest rates on credits attracted for the purposes of technological upgrading were subsidized.
In 2010, in addition to the previous decisions, the following measures were planned:
• continuation of the program for granting preferential credits to individuals willing to purchase motor cars of the Russian make;
• prolongation of the mechanism for government purchases of motor cars from Russian producers recognized as ‘sole suppliers’;
• launching of the program that envisages the purchase by individuals, with a discount of 50,000 Rb, of new Russian motor cars in return for old cars submitted by them for dis RUSSIAN ECONOMY IN trends and outlooks posal; the funding allocated for the program amounts to 11.05 bn Rb; it is planned to utilize up to 200,000 cars in this manner;
• the decision concerning the continuation of subsidizing Russian motor car manufacturers in order to compensate them in part for the payment of interest on credits attracted for the purposes of technological upgrading.
The government anti-crisis measures stabilized the situation, and so motor car output growth in 2010 was 1.7 times higher than the same index for 2009, including a twofold growth of output of passenger cars, a 1.65 times increase in the output of freight motor vehicles and a 1.26 increase in that of buses. Experts predict that the pre-crisis level of the motor vehicle market will be once again achieved by 2013 – 2014.
Nearly all the newly introduced measures had a positive effect on production and the situation on Russia’s motor vehicle markets, and also moderated the negative processes on the labor market. While recognizing the significance and efficiency of the short-term anti-crisis measures, it should be emphasized that the stability of development on the motor vehicle market will depend on adequate solutions to the existing fundamental problems and on the implementation of an equally adequate strategy for developing the motor car industry.
The current situation in the Russian motor industry is rather controversial. The rapid growth of the domestic market in the period prior to 2008 sustained by the increasing incomes of the population and expanding consumer crediting as well as by the strengthening of the national currency was accompanied by structural changes in demand, when the share of domestic producers on the motor car market was shrinking alongside a simultaneous intensification of competition inside certain price segments between the foreign-brand cars assembled in Russian territory and imported new motor cars.
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