In 2009, the reduction in absolute terms of the volume of banks’ credits granted for the purpose of making investments was determined entirely by the shrinking scale of activity of Russian banks. The increased amount of credits attracted from foreign banks and active borrowing of funds from other organizations were the factors that helped to prevent any further deepening of the crisis on the investment market. In 2010, the situation changed for the better:
after the banking sector had adapted to the new realities and the business activity revived, growth of crediting granted by domestic banks fully compensated for the diminishing volume of credits provided by foreign banks (Fig. 24).
As a result, the share of investments in fixed assets received from abroad in the total volume of investments in fixed assets made in 2010 dropped to 3.8 % against 4.3 % in the previous year. A significant influence on the volume of investments was exerted by changes in the structure and dynamics of foreign investments. Although, as seen by the results of the year 2010 reported by Rosstat, the amount of foreign investments received by the Russian economy reached 114.7 bn USD, and thus rose by 40.1 % on 2009, the share of direct investments in the structure of received investments declined to 12.1 % against 19.4 % a year earlier. Direct foreign investments in 2009 dropped by 13.2 % on the previous year.
The Real Sector of the Economy 2007 2008 2009 404 541,5 385 429,credits received from Russian banks 56,3 152,6 159,3 credits received from foreign banks 301,6 408,3 616,6 367,borrowed funds received from other organizations 224,7 288,9 263,8 245,Out of total volume of investments in fixed assets, foreign investments Source: Rosstat.
Fig. 24. Dynamics of Funding Attracted for Financing Investment in Fixed Assets in 2007 – 2010, in bn Rb The situation was aggravated by an increase in net capital outflow. According to the preliminary estimated published by the RF CB, in 2010 net export of private capital amounted to 38.3 bn USD (Table 15).
Table Net Capital Import/Export by the Private Sector, According to Balance of Payments Data, bn USD Including:
Net capital import/export by private net capital import/export by nonnet capital import/export by banks sector, total financial enterprises & households 2007 82.4 45.8 36.2008 – 132.8 – 56.9 – 75.Q I – 23.7 – 9.9 – 13.Q II 40.7 22.1 18.Q III – 19.3 – 13.5 – 5.Q IV – 130.5 – 55.6 – 74.2009 – 56.9 – 30.4 – 26.Q I – 35.0 – 6.9 – 28.Q II 3.4 – 5.9 9.Q III – 33.8 – 27.5 – 6.Q IV 8.5 10.0 – 1.2010 (estimate) – 38.3 11.4 – 49.Q I – 14.7 0.8 – 15.Q II 2.8 6.8 – 4.Q III – 3.7 10.0 – 13.Q IV – 22.7 – 6.2 – 16.Source: CB of Russia.
RUSSIAN ECONOMY IN trends and outlooks Given the general trend toward the weakening of investment activity, the role of institutional investors underwent certain changes in 2009 and 2010. As the share of investments in state property continued to decline, the share of investments in private property rose in by 3.0 pp and 7.7 pp on 2009 and 2008 respectively. Apparently, private domestic businesses focused on preserving their positions on the domestic and foreign markets, all the more so because the development of this trend was taking place against the background of a decline in both the volume and the share of investments made by enterprises under foreign or joint ownership (between Russian and foreign partners) in the total volume of investments (Table 16).
Table Structure of Investments in Fixed Assets, by Type of Ownership, in 2008 - 2010, as a Percentage of the Total (Less Small-sized Businesses and Informal Activity and Investments Unobservable by Direct Statistical Methods) 2008 2009 Investments in fixed assets 100 100 Including by type of ownership:
Russian 79.4 80.8 83.state 23.3 24.9 23.federal 13.3 15.4 15. subjects of Russian Federation 9.9 9.4 8.private 37.5 42.2 45. mixed Russian 12.8 8.8 9. ownership of state corporations - 1. foreign 9.6 8.9 6. joint ownership between Russian and foreign partners 11.0 10.3 9.Source: Rosstat.
In 2010, the structural shifts in investments in fixed assets were determined by the increasing share of industry in the total volume of investments in fixed assets (less small-sized businesses) – to 45.1 % against 43.2 % in 2009 and 40.9 % in 2008. In this connection, one could observe a rather noticeable differentiation by type of economic activity in the growth rate of that index. In the extracting industries the volume of investments in fixed assets rose in by 8.9 %, in the processing industries – by 3.3 %, and in the sector of production and distribution of electric energy, gas и water – by 24.1 %. For the majority of types of economic activity, the levels of investments remained far below their pre-crisis indices (Table 17).
With regard to the processing industries, the noteworthy phenomena are the rise, on 2009, in the volumes of investments in the production of coke and petroleum products by 31.5 %, in the production of metal products by 35 %, and in the production of cellulose by 23.7 %. The specific feature of 2010 was an upsurge of the investment activity in the production of textiles and leather as a result of an altered customs regime for importing relevant equipment and raw materials.
A low investment demand for capital commodities and construction materials coupled with a low load on the existing production capacities resulted in a drop, on 2009, in investments in metallurgical production by 11.2 %. As a consequence, in 2010 the volume of investments in this sector amounted to 63.3 % of its pre-crisis level in 2008. A difficult situation also persists with regard to the production of construction materials, where investments dropped by 31.5 % over the period of 2008 – 2010.
The specific feature of the investment activity in 2010 was the reestablished positive growth rate of investments in the machine-building complex. The rise on 2009, as demonstrated by investments in the production of machinery and equipment, was 17.8 %; the same Section 4.
The Real Sector of the Economy index for the production of electrical, electronic and optical equipment amounted to 1.7 %, and that for the production of means of transportation – to 4.4 %. At the same time, our analysis of the dynamics and structure of investments points to a lower share of investments in machine-building – 2.4 % of the total volume of investments across the entire economy and 5.% of investments in industry. The revival of the investment activity in the machine-building complex occurs at a much slower rate that in the other sectors. As seen by the results of 2010, the volumes of investments in the machine-building complex with regard to some specific types of economic activity were at the level of 68 – 82 % of their 2008 indices.
One positive factor was the rise, by 8.1 % on 2008, of the volume of investmens in the development of transport in 2009 – 2010. However, it should be noted that the dominant influence on the character of investments, by type of transport activity, was exerted by the increasing investments in the development of pipeline transport – by 1.67 times as compared to the 2008 level, while investments in the development of railway transport over the same period dropped by 8 %. The changes in the dynamics and structure of investments in transport require further careful observation, given the fact that in 2010, in terms of the national economy’s openness to international trade, Russia ranked 48th on the availability and quality of transport infrastructure, 33rd on the quality of railway infrastructure, 82nd on the quality of aquatic ports, 87th on the quality of airports, and 111th (near the bottom of the list) on the quality of motor road infrastructure.
Table The Volume and Dynamics of Investments in Fixed Assets in 2008 – 2010, by Type of Economic Activity (Less Small-sized Businesses and Informal Activity) 2008 2009 2010 2008 2009 bn Rb as % of previous year Total 6,272.1 5,769.8 6,413.7 105.6 82.5 105.of these: 243.0 192.6 190.9 95.7 75.2 88. agriculture, hunting and forestry extraction of mineral resources 1,040.9 967.8 1,109.8 103.9 88.3 108.including: 950 893.5 1021.5 104.8 89.1 108.extraction of fuel-and-energy mineral resources processing industries 1,034.0 881.9 993.7 107.8 78.2 103. Production and distribution of electric energy, 558.2 585.6 786.3 111.3 99.8 124. gas and water construction 91.7 162.7 194.1 91.7 66.1 117. wholesale and retail trade; repairs 168.7 138.4 158.4 95.6 75.7 108. transport and communications 1,628.0 1,624.6 1,696.1 112.4 99.1 109.including communications 257.4 180.6 207.3 95.1 66.6 108. financial activity 74.7 74.6 77.2 95.6 99.4 107. Operations with immovables, lease, services 733.8 558.2 658.3 100.9 70.8 92.of these: research and development 31.9 48.9 62.8 101.9 131.9 114. state administration and military security; mandatory 128.2 133.0 120.5 109.7 89.5 87.social security education 162.9 117.4 142.9 96.9 78.7 113. health care and social services 188.0 145.7 161.3 116.0 82.1 105. other communal, social and personal services 128.8 168.6 185.8 127.9 85.1 102.Source: Rosstat.
The problems associated with this country’s exit from the investment crisis in 2010 had originated mostly from the extremely difficult basic conditions of the previous year. The changes occurring in the structure of investments in fixed assets in 2009 were determined by the rapid decline of the scale of business activity in the sectors of construction, operations with immovables, trade and communications. While there existed a general downward trend RUSSIAN ECONOMY IN trends and outlooks in the volume of investments in industry, that process was influenced in particular by the drop in investments in the processingее industries by 20.6 % on 2008. Besides, the situation was further complicated by the decline in the volume of investments in agriculture – by nearly % on 2007 over the period of 2008 – 2009. The year 2010 saw a continuing downward trend in the volume of construction work. Growth of both investments and the volume of work in the construction sector occurred in Q IV 2010. On the whole, in 2010 the volume of investments in fixed assets remained 11 % below the pre-crisis level registered in 2008.
As demonstrated by a sample study (conducted by Rosstat) of the investment activity demonstrated by organizations operating in the sector of extraction of mineral resources, in the processing industries, and in the production and distribution of electric energy, gas and water, the main purpose of investing in fixed assets in 2010, just as in the previous years, was the replacement of deteriorated technologies and equipment. Investments aimed at performance improvement (automation and mechanization of the current production process, implementation of new production technologies, improved cost-effectiveness of production, and energy saving) were made by 32 – 46 % of all organizations; 32 % of organizations were aiming at increasing their production capacities without changing their product assortment; and 29 %, in addition, were aiming at expanding their product assortment.
The bulk of investments in fixed assets in 2010 was earmarked for purchases of new machinery and equipment. Among the organizations included in this study, the share of machinery and equipment aged under 10 years was 37 %; over 10 and up to 20 years – 40 %; over and up to 30 years – 14 %. In the organizations operating in the spheres of production of means of transportation and equipment, chemical production, production of electrical, electronic and optical equipment, machinery, metallurgical products, cellulose, pulp, paper, and cardboard, the mean age of machinery and equipment was greater than that for the total number of organizations observed in this study.
The share of means of transportation aged under 10 years was 51 %, of those aged over and up to 20 years – 33%. This index was above the mean value displayed by the organizations operating in the production of means of transportation and equipment, and in metallurgical and chemical production.
Table Distribution of Organization by the Estimated Age of Their Fixed Assets in 2010, as % of the Total Number of Organizations Machinery Means Buildings Structures and equipmentе of transportation Under 3 years 2 2 4 Over 3 and up to 5 years 3 5 11 Over 5 and up to 10 years 5 7 22 Over 10 and up to 15 years 6 8 26 Over 15 and up to 20 years 9 12 14 Over 20 and up to 30 years 25 24 14 Over 30 years 38 27 5 Mean age (years) 26 21 14 Source: Rosstat.
The withdrawal from operation of machines, equipment and means of transportation in 2010 due to their long service life and high rate of wear and tear was pointed to by 68 % of the organizations’ directors, while 10 % pointed out as the cause of their withdrawal the low economic efficiency of their use.
The Real Sector of the Economy The study has shown that new domestically produced machinery and equipment were acquired by 88 % of all organizations, imported products – by 35 % of organizations; domestic equipment on the secondary market was bought by 22 % of organizations, imported equipment – by 7 % of organizations. In the main, they purchased computer technologies, industrial complex and assembly lines, some separate technological units and means of transportation.
Shortage of their own financial means was the principal factor that suppressed, in 2010, the investment activity of organizations operating in the sector of extraction of mineral resources, in the processing industries, and in the production and distribution of electric energy, gas and water.
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