In January 2008 the drop of demand growth rates was greater than a year ago being –23 b.p. against –b.p. according to initial data. Exclusion of seasonality factor demonstrated growth of sales of low intensity (+4 b.p. after +6 b.p. in 4 quarter 2007 and +8 b.p. in 3 quarter) in January. As a result demand growth rates in January were the lowest for the last seven quarters. This caused continuous decrease in satisfaction with sales. In January 2008 65% of enterprises consider demand for their products as normal, whereas the record level for this figure that was observed in August 2007 was 72%. The lowest satisfaction with January sales was registered, according to surveys in ferrous metallurgy (48%) and light industry (47%).
Similar growth rates at the beginning of 2007 and 2008 were demonstrated by the output dynamics, according to initial data before exclusion of seasonality: -23 balance points at present and –7 points a year ago.
On exclusion of seasonal factor, output growth rates in January 2008 remains at the level of December 2007, though it is the lowest (not taking into account September drop in 2007) for the last 24 months. The picture does not change after exclusion of occasional fluctuations as well. To put it in another way, the industrial production growth rates, according to the estimations of the enterprises’ executive managers, has stabilized at decent level, that is however lower than in the second half of 2006 – first half of 2007.
The dynamics of the output that was chosen by the Russian enterprises for the end of 2007 enabled them to “forestall” the sales growth slow-down that went on during the second half of the year by the beginning of 2008. At present the situation in the industry is unusual since there are more enterprises whose output dynamics is behind the demand dynamics than enterprises with the opposite ratio of output and demand. In other words, the considerable part of the enterprises made the decision to play safe and held the output to a greater extent than it was required by the demand or had to act this way in the environment of continuous staff lack and increasing capacities shortage. The growth of prices that started in Russia enabled the industry to achieve good financial results in such a situation (fig. 2).
Fig. DYNAMICS OF MAIN ESTIMATIONS OF SOLVENT DEMAND % BELOW THE NORM NORMAL 1/94 1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 1/03 1/04 1/05 1/06 1/07 1/Fig. ESTIMATIONS OF ENTERPRISES’ ECONOMIC SITUATION % SATISFACTORY BAD GOOD AWFUL 1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 1/03 1/04 1/05 1/06 1/07 1/This is testified by the sharp increase of the share of estimations “good” up to 21% after 8% in 4 quarter 2007. Mainly this is due to the decrease in the share of “satisfactory” estimations. Such a sharp rise of this index has not been registered by the surveys ever before. As a result it has reached the absolute maximum level in the industry on the whole. Improvement of the enterprises’ financial situation of the enterprises was characteristic for all industries except the light one.
However it seems that the growth of prices played a trick with the Russian industry: its production has lost competitive advantages over import. The latter at present hinders output growth at 26% of enterprises, whereas in 4 quarter 2007 the frequency of this obstacle citing was equal only to 17%. Such a sharp rise in this obstacle citing has not been registered by surveys in 1996-2008. But it is the shortage of staff that is still considered as the biggest obstacle for output growth. This obstacle has been holding the first place two quarters in the row even though frequency of its citing decreased in 1 quarter 2008 by 2 points and the extent of other obstacles’ citing has increased. The second place is still held by the shortage of liquid funds and the third – by low demand whose frequency has increased by 4 p.p. over the last two quarters.
% BALANCES OF STAFF AND FACILITIES ESTIMATIONS (BALANCE=EXCESS -- SHORTAGE) FACILITIES STAFF --1/93 1/95 1/97 1/99 1/01 1/03 1/05 1/The biggest shortage of staff in connection with the expected growth of demand Russian industry experienced in the middle of the current year. Then 27% of enterprises considered that they did not have enough staff to satisfy expected demand, while 6% of enterprises had excessive number of employees. By the end of the year against the background of sales growth rates deceleration and lowering of optimism of forecasts for it the shortage of specialists began to decrease and is registered at present at 23% of the enterprises, excessive number of staff remaining at the former 6% level. The shortage of production facilities, on the contrary, is increasing. At the beginning of 2008 the shortage of equipment is experienced by 19% of enterprises against 11%, which experience its excess. Resulting balance is –8 points, which is the absolute minimum for the period of 1993-2008.
Forecasts for changes in the demand that remained in the second half of 2007 at the same and quite optimistic level despite gradual decrease of the real sales growth rates, increased by 4 points in January. In January of the last year the forecasts were reconsidered in the opposite direction by 5 points. Enterprises’ output plans have also been reconsidered towards more optimistic ones and went up by 6 points in January 2008 as compared with 5 points slide a year ago. It seems that the main reason for such corrections is just the necessity to overcome decreasing sales growth rates and low output growth rates of the second half of 2007.
Formation of Competitive Environment in the Russian Industry in 2000-Analysis of formation of the real competitive environment is very complicated task since necessary statistics data are absent and it is impossible to develop adequate (direct and functioning) indices for the majority of factors. However, the issue of what influence existing agreements between the enterprises on price policy and division of sales markets have on the level of competition is still important in the economic analysis.
Analysis of the contribution of different factors in the formation of the total (aggregated) level of competition in the Russian industry is possible on the basis of surveys of enterprises’ executives. Taking such an approach lifts a number of problems and allows receiving totally new data that can serve as a basis for the correction of the government policy in the field of competition development. A substantial advantage of such an approach is its efficiency and regularity.
To put the approach mentioned in practice starting with 2000 with the interval of 23-26 months, that is in a two-year cycle, the questions on direction and the effect of the main factors influencing competition, outlined by the economic theory, were asked to the executives of enterprises that participate in regular IET’s business surveys.
As it is shown by the results that are tracked in the course of monitoring the factors on the whole are divided in two groups (fig. 3). The first group (positive influence on the competition) consists of six factors:
the extent of demand satisfaction and presence of excessive facilities, ruble exchange rate, possibility to exit the market, agreements on price policy and sales market division, administrative protection of the markets, presence of the potential competitors. The second group (negative influence) consists of three factors: level of production concentration, the volume of transportations costs, problems with suppliers and consumers search for a new producer.
Fig. AVERAGE ESTIMATIONS’ BALANCE OF COMPETITION FORMATION IN THE RUSSIAN INDUSTRY OVER 2001-Potential competitors Administrative protection Producers’ agreements Easiness/difficulty of the market exit Ruble exchange rate Demand satisfaction Production concentration Transportation costs Impossibility to find suppliers and consumers -0.50 -0.40 -0.30 -0.20 -0.10 0.00 0.10 0.20 0.30 0.40 0.WEAKENS STRENGTHENS Extent of positive or negative resulting impact of the analyzed factors on the competition in the Russian industry was unstable, sometimes the sign of the effect changed (see table 1). The results obtained indicate the priorities of competitive policy in the Russian industry.
Resulting Influence of the Factors on the Level of Competition in 2000-Factors 2000 2002 2004 1. Level of production concentration -0.11 0.04 0.14 -0.2. Extent of demand satisfaction 0.05 0.14 -0.01 0.3. Agreements on price policy and markets division 0.38 0.50 0.13 0.4. Transportation costs -0.28 -0.02 -0.30 -0.5. Search for suppliers and consumers -0.69 -0.31 -0.38 -0.6. Administrative protection of the markets 0.31 0.41 0.48 0.7. Ease/difficulty of exit from the market 0.30 0.29 0.30 0.8. Potential competitors 0.25 0.46 0.34 0.9. Ruble exchange rate 0.22 0.13 0.Source. Calculations based on the IET surveys.
Note. Resulting influence of factors was calculated as difference between average reinforcing and average weakening influence. The more the value of difference is the more intensive is factor’s influence. Sign (+/-) demonstrates the direction of the influence on the competition (reinforcing/ weakening).
Оthe main obstacle for competition development the producers consider the problem of search for suppliers and consumers. The reason mentioned has the total negative impact on the competition in all branches of the industry. The impeding influence of this factor (that is both positive and negative effects taken into account) is especially high in metallurgy, wood processing complex, construction materials production and machine-building.
High transportation costs in total (that is as difference between reinforcing and weakening effects) are considered to be quite substantial obstacle for the competition. The transportation constituent of the costs has the biggest final impact in the construction materials production, ferrous metallurgy, timber and wood processing and pulp-and-paper industry.
The extent of production concentration has the most moderate negative influence on the level of competition. Though the average balance over all four surveys turned out to be negative (see fig. 3), its absolute value is quite small, and results of two of the surveys demonstrated positive though small, in opinion of enterprises, influence of concentration on the level of competition (see table 1). Thus, on the whole over the industry there is zero balance of negative and positive in this sphere.
Presence of potential competitors that are able to intrude attractive markets rapidly is the top of the list of factors that have positive influence on competition in the Russian industry. Absence (or low efficiency) of the administrative protection holds the second place as to the extent of the positive influence on the level of competition. This factor has resulting positive influence on competition in all branches of industry. It can be assumed that active struggle with regionalization of the markets and traditional Russian non-observance of decisions directed towards limitation of interregional export by the enterprises has played its role: producers got single national sales market, transfer of goods through which is limited mainly by transportation costs and not by administrative barriers. A small number or low efficiency of agreements between the enterprises on price policy and sales markets division have quite strong positive influence on the level of competition.
This factor is perhaps the most delicate in the issue under examination. The difficulty in exiting the markets (funds withdrawal) in order to create productions in more attractive sectors hold the fourth place by the extent of the positive influence on the competition and are only slightly behind the previous factor. This circumstance however is not to be estimated positively. The enterprises believe that in the existing conditions it is difficult to liquidate a non-competitive enterprise. They have to continue production of the unprofitable goods, “littering” the market with the unnecessary goods and using resources that could b used for production of normal goods inefficiently. High satisfaction of solvent demand and presence of excessive facilities are at the bottom of the list of factors having resulting positive influence on the competition.
In the end, under conditions of the economic situation of 2000-2007 the factors analyzed have positive impact on the level of competition in the Russian industry as a whole. This gives some grounds for considering of the government policy in this field as effective. Real competitive environment is formed under the influence of both the factors that are ultra vires (out of the zone of responsibility) of the antimonopoly department (potential competitors, possibilities to exit the market, ruble exchange rate, demand satisfaction) and the factors that are under governmental bodies’ control. At the same time absence of agreements between the producers can hardly be regarded as the consequence of antimonopoly department functioning, since to ascertain such collusions is extremely difficult and takes a long time. At present, perhaps, government bodies have neither the time not the experience of investigation of such collusions, which, it seems, are a rare case in Russian practice.
The main achievement of the antimonopoly department and government as a whole, which is recognized by producers themselves, as to the formation of competitive environment is absence of administrative protection of the markets. Negative influence of production concentration and transportation costs on the competition should certainly become the main task of the government in the nearest future.
Public Sector and Property Policy А. Radygin, G. Malginov Review of the main trends in government property policy. Particular attention is paid to the forecast for 2008-2010, quantitative and structural dynamicsin the development of public sector at the turn of 20072008.
The major document regulating public property policy in the new year is the Privatization Program for 2008 and basic trends in federal property privatization for 2008-2010, approved by the RF Government Resolution N 543-p dated April 29, 2007.
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