The Real Sector of the Economy 4.3. Investments in the Real Sector of the Economy 4.3.1. Domestic internal investments in fixed assets As the domestic economic situation improved in 2010, some gradual changes to the better were also occurring in the investment sector. The first half-year 2009 saw the peak of the investment crisis, and then from Q III onwards there emerged a trend towards a slowdown in the rate of decline in the investment sphere which was due, among other things, to the improving financial situation of businesses. In 2009 the volume of the investment activity had plummeted – while GDP dropped by 7.9 %, investments fell by 16.2 %; however, in Q II – IV 2010 the dynamics of investments became positive, and its rate outstripped that of GDP growth. On the whole, over the year 2010 the rate of growth of investments in fixed assets was 6.0 %, while GDP rose only 4.0 % on the previous year (Fig. 22). The dynamics of investments in fixed assets differed rather significantly between big and small-sized enterprises.
The 2008 crisis in its initial phase resulted in some critically low investment activity indices displayed specifically by small-sized enterprises; in 2009, however, it was the investment activity in the small business segment that served as a factor that was playing down the scale of decline in the volume of investments across the entire economy. The government financial support granted to small and medium-sized businesses in 2010 was one of the established priorities. In 2010, the overall volume of budget allocations received by way of government support by small and medium-sized businesses amounted to 17.97 bn Rb. The main emphasis in the government program for supporting entrepreneurial activity was placed on the development of innovation-oriented small-sized enterprises and organizations, as well as those oriented towards modernization of their production facilities. Another direction of support provided to small and medium-sized businesses was the anti-crisis program of crediting through Vneshekonombank. Over the year 2010, investments in fixed assets in the small business segment rose by 8.0 % (in 2009 they dropped by 13.5 %), while their share in the total volume of investments across the national economy increased to 32.1 % against 27.2 % in the previous year. It should be noted that growth of investments in fixed assets made by big enterprises in 2010 amounted to 5.1 %. While in 2009 the volume of big enterprises’ investment activity dropped by 17.5 % on the previous year, the volume of investments in fixed assets in 2010 amounted to 86.7 % of the 2008 index.
RUSSIAN ECONOMY IN trends and outlooks I II III IV I II III IV I II III IV 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2008 2009 ---investments in fixed assets volume of construction work residential buildings put into operation GDP Source: Rosstat.
Fig. 22. GDP Growth Rate, Investments in Fixed Assets, Volume of Construction Work and Residential Buildings Put into Operation in 1999 – 2010, by Quarter, as % of Same Period of Previous Year A typical feature of 2009 – 2010 was a decline in the total gross floor space of dwellings put in operation. The decline of that index began in Q II 2009, and amounted to 6.5 % by the year’s results. In 2010 it dropped on 2009 by 3.0 % and amounted to 58 mln square meters.
The situation in 2010 was negatively influenced by the rapid decline in the number of new housing construction projects that had occurred in 2008 – 2009. Besides, the situation with regard to financing allocated to housing construction was also deteriorating. In 2009 the funding received to cover share construction dropped by 74.3 bn Rb, including the population’s investments – by 32.0 bn Rb on 2008.
In 2010, the share of investments in housing construction in the overall structure of investments in fixed assets across the economy shrank to 1.9 % against 2.6 % and 3.3 % in 2009 and 2008 respectively. While the volume of investments in housing construction in dwindled, that year, in contrast to 2009, saw an increase in both the volume and share of the population’s investments in the total amount of financial assets invested in share housing construction, while the investments made by organizations declined. In 2010, the population’s investments in share housing construction amounted to 69.6 bn Rb and thus by 10.3 bn exceeded the previous year’s index, while the volume of investments made by organizations dropped by 21.9 bn Rb. In this connection it is noteworthy that in 2010 the overall index of gross floor space of dwellings put into operation as a result of investments made by the population (which included both their own and borrowed funds) amounted to 25.3 mln square meSection 4.
The Real Sector of the Economy ters, which is by 3.2 mln square meters below the previous year’s level, while the same index with regard to investments made by organizations rose by 1.5 mln square meters.
2007 2008 2009 year 161,9 207,3 133 121,funding received for share construction - total 50,9 91,3 59,3 69,population’s investments 111 116 73,7 51,organizations’ investments Source: Rosstat.
Fig. 23. Funding Received for Share Construction in 2007 – 2010, bn Rb Given the existing dynamics of investments and volume of work in the construction sector, the expenditures on housing construction in 2010 amounted to 372.3 bn Rb alongside a persisting downward trend displayed by their share in the structure of investments in fixed assets.
Simultaneously with a growing volume of industrial construction, the share of spending on the construction of buildings was also increasing, while the share of spending on the acquisition of machinery and equipment became stabilized (Table 11). It should be noted that, in face of an instable rate of domestic production of capital commodities, investments in the acquisition of imported machinery, equipment, and means of transportation (less those made by small-sized businesses and the indices of informal activity) amounted to 378.9 bn Rb in 2010, or to 18.0 % of the total volume of investments in machinery, equipment, and means of transportation (against 371.8 bn Rb, or 20.7 %, in 2009).
The trend towards a reduction, in absolute terms, in the volume of budget funding allocated to investments in fixed assets which was visible in 2008 - 2009, came to a halt in 2010, but the decline in the share of investments made by the Federation’s subjects continued (Table 12). In 2010, budget funded investments in fixed assets amounted to 1,242.7 bn Rb, or by 1.9 bn more than in the previous year. In this connection, the volume of federal budget resources allocated to investments rose by 19.2 bn Rb on 2009 and thus amounted to 642.1 bn Rb which, in fact, compensated for the losses resulting from the cuts made by subjects of the Russian Federation in their own budget funding allocated to investments.
RUSSIAN ECONOMY IN trends and outlooks Table Structure of Investments in Fixed Assets, by Type of Fixed Assets, in 2008 – 2010 (Less Small-sized Businesses and Informal Activity), % of Total Bn Rb % of total 2008 2009 2010 2008 2009 Investments in fixed assets – total 6,272.1 5,769.8 6,413.7 100 100 including:
in dwellings 467.2 343.5 372.3 7.5 6.6 5.in buildings (except dwellings) and struc- 3,286.8 3,221.2 3,495.8 52.4 53.8 54.tures in machinery, equipment, means of transpor- 2,071.3 1,798.2 2,109.6 33.0 32.2 32.tation other 446.8 406.9 436.0 7.1 7.4 6.Source: Rosstat.
Table Structure of Investments in Fixed Assets, by Source of Financing, as % of Total (Less Small-sized Businesses and Informal Activity) Including 2008 2009 January - Q I 1st half-year September Investments in fixed assets – total 100 100 100 100 100 including by source of financing:
companies’ own funds 39.5 37.1 41.2 45.1 44.9 43. of these:
banks’ credits 11.8 10.3 8.7 9.5 9.2 9. including those provided by foreign banks 3.0 3.2 2.0 3.2 2.8 2. borrowed funds from other organizations 6.2 7.4 5.6 6.4 6.6 6. budget resources: 20.9 21.9 19.4 12.9 15.5 17. federal budget 8.0 11.5 10.0 5.5 7.6 8. budgets of subjects of Russian Federation 11.3 9.2 8.2 6.6 7.1 7.Other 21.2 23.0 24.8 25.9 23.4 23.Of these: funding received as share in construction 3.5 2.6 1.9 2.0 2.2 2.including population’s funds 1.9 1.3 1.1 1.0 11 1.Share in total volume of investments in fixed assets 4.3 4.3 3.8 5.8 5.3 4.received from abroad Source: Rosstat.
The government’s demand for the products and services of Russian enterprises was sustained through the implementation of the planned investment projects in the fields of transportation, telecommunications, etc. being materialized within the framework of the Federal Targeted Investment Program (FTIP), federal target programs (FTP), and the big infrastructure projects launched by the RF Investment Fund. It should be noted that expenditures within the framework of federal target programs were either preserved at the previously planned level or insignificantly reduced.
In accordance with the list of construction sites and objects to be used for federal government needs as of 1 January 2011 confirmed by Regulation of the RF Government, of 30 December 2009, No 2130-r and included in the Federal Targeted Investment Program for 2010, it was planned that government investments should be allotted to 2,039 construction sites and objects. It was planned that, in the year 2010, 1,036 objects would be put into operation. Only 254 of these objects were put into full-scale operation in January – December 2010, while Section 4.
The Real Sector of the Economy of them were put into partial operation. Besides these, 5 objects planned to be put into operation in later years were put into full-scale operation, and 25 such objects were put into partial operation.
With all the changes taken into account, the federal budget funding earmarked for the construction of objects and the implementation of the measures included in the FTIP amounted to 651.5 bn Rb, including 321.9 bn Rb to finance the investment-related costs of the FTIP (49.% of the total volume of the FTIP) and 231.9 bn Rb to finance the other expenses of the FTIP (35.6 %), and also 97.7 bn Rb to finance the special work included in the state defense order (15.0 %).
In comparison with 2009, the total growth of the sum of federal budget funding allocated for these purposes amounted to 50.2 bn Rb, including a 23.0 bn Rb increase in the financing of the investment-related costs of the FTIP and a 34.1 bn Rb increase in the financing of the other expenses included in the Program.
According to Rosstat, the budget means that were allocated in 2010 to the FTIP construction sites and objects (apart from the special work included in the state defense order) supervised by the RF Federal State Statistics Service amounted to 380.3 bn Rb, or to 71.3 % of the per annum limit (Table 13). In 2010, 1,341 objects were fully funded, and another 435 objects were 51.0 to 99.0 percent technically complete. The per annum limit of government capital investments in the transport, agro-industrial and special complexes was funded to a much higher extent (94.2 %, 77.9 %, and 79.1 %, respectively) than the limit of investments in construction sites and objects to be used for government needs. The social complex received 54.% of the budget funds earmarked for that item. In 2010, the customers purposefully spent 344.1 bn Rb in government capital investments or 62.9 % of the per annum limit of funds envisaged for their construction.
Table Objects Included in the Federal Targeted Investment Program and the Volume of Government Capital Investments in January – October 2010 (Apart from the Construction Sites and Objects Included in the State Defense Order) Put into operation in Limit of government Number of objects as January –October capital investments of 2010 Use of 2010 for investFunded ments Including from fedfrom all those eral budget Including sources of planned into full- into in from funding, Total for put- scale partial Total federal ting in operation operation budget operation in Units Bn Rb Total 2,039 1,036 259 56 547.7 531.3 380.3 344. including:
From a territorial point of view, the use of the established limit of the funds envisaged for financing the construction sites and objects included in the FTIP was above the Russian aver RUSSIAN ECONOMY IN trends and outlooks age in the North-Western, Urals, Siberian, Volga and Far Eastern Federal Districts. The use of budget investments was far below the national average in the Central Federal District.
Table The Use of Funds at Construction Sites and Objects to be Used for Federal Government Needs, by Federal District, in Actually used funds from all sources Limit of allocations Limit of government of financing from all sources, investments for year, As percentage of bn Rb bn Rb bn Rb per annum limit Russian Federation 62.547.5 531.3 344.Central Federal District 252.6 250.1 101.7 40.North-Western Federal District 64.2 63.9 64.9 101.Southern Federal District 72.0 70.8 44.1 61.North Caucasus Federal District 11.1 10.9 7.9 70.Volga Federal District 28.6 26.9 23.4 82.Urals Federal District 5.1 4.7 4.6 89.Siberian Federal District 21.7 21.0 20.5 94.Far Eastern Federal District 92.5 83.0 77.1 83.Source: Rosstat.
The slow recovery of both the domestic market and the incomes of the economy contributed to the preservation of the trend toward investment programs being financed with companies’ own resources. In 2010, their own resources used for investment purposes amounted to 2,644.7 bn Rb against 2,092.0 bn Rb in the previous year, while their share increased from 37.1 % to 41.2 %. The structure of the attracted resources used for financing investments in fixed assets demonstrated an intensification of the trend toward curbing the participation of banking and borrowed capital. In 2010, out of a total of 2,769.0 bn Rb of attracted funds, banks’ credits amounted to 559,2 bn Rb, or 14.8 % (against 18.4 % in 2008).
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