O. Izryadnova IET Business Survey: Industry in May of The first results of May demonstrate the persistence of positive trends in the dynamics of Russia’s industry. The increasing rates of growth in demand occurring at the background of slightly decelerating rates of increase in output made producers to use their finished stocks. In a few next months, a decline in the volumes of finished stocks should result in an intensification of growth in output aimed at the replenishment of stocks and satisfaction of current demand.
According to the Federal Statistics Service, in April of 2004 the upward trend in the growth in industrial output resumed. After the pause observed in March, according to the evaluations of the Center for Macroeconomic Analysis and Short Term Prognostication (CMASTP), in April the average daily output increased by 0.8 per cent, what was twice as much as the average rate of growth registered in the 1st quarter. In the case the present trend persists, the CMASTP estimates that the index of industrial production in 2004 will be at 106.5 per cent to 106.7 per cent. According to the data presented by the Ministry of Economic Development and Trade, in January through April of 2004 industrial output increased by 7.4 per cent in comparison with the figures registered in the respective period of 2003. In April of 2004, the growth made 6.7 per cent. Developments in April of 2004 were characterized by intensifying growth across all sectors of the economy.
Powerful growth was observed in mechanical engineering and production of construction materials; at the same time, in light industry there was registered a certain stagnation. Over four months, exports made US $ 51 billion (a 23 per cent increase in comparison with the figures observed in January through April of 2003), while imports increased by 21 per cent and made US $ 27 billion.
The first results of May demonstrate the persistence of positive trends in the dynamics of Russia’s industry. The dynamics of effective demand were very stable in May. In spite of traditional long holiday period, the results of surveys did not registered any growth in cash sales both in the industry at large, and in the majority of individual industries. The only exceptions were light industry and the forestry complex. However, the results of surveys adjusted for seasonal factors demonstrated an intensive increase in demand at the rates last registered in 2000.
However, enterprises were not satisfied with even such positive dynamics. Evaluations of demand demonstrated that enterprises expected even more intensive growth. In May, the share of “normal” evaluations of demand again declined and were below 50 per cent, while the share of evaluations “below norm” increased.
The most significant downward reevaluation of demand occurred in mechanical engineering and light industry.
In May, the rates of growth in industrial output decreased by several balance points in comparison with April figures in spite of persisting rates of growth in sales. However, taking into account the fact that in April both IET surveys and official statistics registered high rates of growth, a slight decline in May results is not alarming. It is not surprising that these developments resulted in the phenomenon, which has been rarely observed over the last years, i.e., the growth in the share of enterprises where changes in output lagged behind changes in demand. In May, there were registered 23 per cent of such enterprises, while in the last few months there were registered from 9 per cent to 13 per cent of such enterprises. This indicator was most significant in electrical power engineering and fuel industry (62 per cent), as well as in metallurgy and food industry (33 per cent each).
The outpacing rates of growth in sales made enterprises to resort to their finished stocks. These developments resulted in a further decline in the balance of evaluations by 5 points. As a result, in April through May the redundancy of finished stocks decreased by 11 points. At the same time, a shortage of finished stocks was already registered in chemistry, petrochemistry, and construction industry.
The post-default industrial growth allowed enterprises to put idle capacities in operation. In 1996, redundant capacities were registered at 63 per cent of enterprises. However, by 2004 this reserve for expansion of production appeared to be exhausted. In the last 2 quarters, the share of enterprises reporting about idle capacities because of insufficient demand has stabilized at 24 per cent level, while the share of enterprises with a lack of capacities on the contrary increased and made 12 per cent to 13 per cent.
The of the most recent (April of 2004) survey of competition and the share of competitive markets characterized by competition with producers from countries outside the NIS did not show growth in these indicators. Since October of 2003, the share of competitive markets has declined by 2 p. p. (see the Figure below).
At present, the share of such markets according to enterprises’ assessments is at 60 per cent, while the respective maximum was registered in April of 1998. The share of competitive markets characterized by domestic Russian competition remained at the same level (91 per cent).
As a result, the index of competition against producers from countries outside the NIS declined from 3.to 3.10. Therefore, the stable increase in this indicator registered in April of 2002 through October of has stopped. The index of domestic Russian competition continues to grow. In April of 2004 its value exceeded the “moderate” level for the first time since the start of monitoring.
The decline in the values of indicators characterizing competition with producers from countries outside the NIS at the background of increasing volumes of import may be explained by the growing gap in quality between domestic and imported products. This fact is demonstrated by enterprises’ evaluations of factors behind the non-competitiveness of their products. Obsolete equipment (1st place, 71 per cent), high energy consumption (high (!) prices of energy resources were ranked 2nd, 54 per cent), and low level of research and development of new products (3rd place, 45 per cent) result in low quality of domestic products in comparison with imported analogues (4th place, 30 per cent). In this situation, operations involving Ruble exchange rate factors may help only 8 per cent of Russian enterprises. Exactly this number of enterprises believe that Ruble appreciation against the US dollar negatively affects the competitiveness of their products.
The forecasts of changes in demand in creased by 4 p. p. in May after two months of decline. In the few next months, a growth is possible in all industries with the exception of electrical power engineering, nonferrous metallurgy, and light industry.
As concerns the plans of changes in output, there is also observed the recovery of optimism (which declined before the May holidays). Again, more than half of enterprises intend to increase their output. A decline in production is possible only in timber, wood working, and pulp and paper industry.
S. V. Tsukhlo Russia: Draft Law on Regulating Agriculture A group of RF State Duma deputies headed by G.V.Kulik has introduced a draft Law on regulating agriculture.
At present there are some agricultural development issues in Russia that are not regulated by the effective legislation. In particular as different from most other countries there is no legal definition of an agricultural producer: each normative act contains its own definition and this is not convenient for laws’ execution. The competence of federal and regional authorities in supporting agriculture is not delineated. As a result regions implement support programs that disrupt the country’s common market space and actually launch trade wars between regions. There is also no clear delineation of agricultural regulation competence between federal agencies leading to long-lasting coordination of efforts and as a result – to their being late, to the loss of regulation flexibility and to poorer responsibility for agrifood policies carried out in the country. The applying for humanitarian aid in 1998 caused serious damage to the Russian agrifood sector demonstrating that this issue is non-elaborated as well. The lack of legally guaranteed equal access to market information becomes a factor of unfair competition on the agricultural and food markets: large companies able to collect their own market information or companies having access to official information get market advantage over the rest. Besides, non-equal access to official information becomes a factor of corruption in agencies administering the agrifood sector.
The second factor necessitating a Law on agricultural development and agrifood policies is the need for longer termed budget planning in the sector. On the average in the current macroeconomic situation farm and food sector entities plan their operation for 3-4 years ahead while the state agrarian policy is formulated only for one year. This destabilizes business environment in the sector. In view of the above it’s urgent to elaborate regular laws on state support to the agrifood sector for 3-4-year term encompassing approximate budget projections that could be revised in the framework of annual budget procedure but would still enable market agents to make medium-term business plans.
The introduced draft law consists of two parts. The first part includes permanent statutes while the second establishes the actual regime for agrifood sector regulation in 2005-2007.
The key novelties of the first part of the Law are:
1. Definition of an agricultural producer.
For the first time the Law gives a uniform definition of an agricultural producer irrespective of its organizational and legal status, size and registration.
2. State programs for regulating agriculture and agrifood market.
It’s specified that federal agrifood policies are carried out through State programs. The Law defines the State program for regulating agriculture and agrifood market as a complex of measures targeted at the solution of specific social and economic problems in the agrifood sector, consistent with the goals of state agrifood policies, having time limits, discontinued after the proclaimed goals are attained and executed by state governing bodies.
Each program should contain specified goals, basic measures for attaining them, the amount and sources of financing in each year, requirements to program participants, mechanisms of budget funds’ distribution between participants, qualitative and quantitative indicators of attained goals. Such programs make the es sence of the second part of the Law. They substantiate expenditures on the agrifood sector in the Budget Law.
3. Medium-term planning of agrifood policies.
The second part of the Law is adopted for the period not shorter than three years enabling market agents to adjust their operation to medium-term policies of the federal government.
Besides, the legal adoption of State programs enables to expand the competence of authorized federal executive bodies in taking decisions under the implemented programs. Many measures of market regulation require prompt response of the regulating body. Under the current legal system an authorized body has to coordinate its actions with other agencies and as a result the taken measures are not enough prompt and efficient. On the other hand, more freedom in decision-taking raises the authorized body’s responsibility for the conducted agrifood policies.
4. Examination of results of implementing State programs for regulating agriculture and agrifood market.
The Law envisages an independent examination of agrifood policy results. On the basis of this examination State programs for the following period are worked out, the decisions are taken for each program whether to prolong, to modify or to discontinue it, other programs are adopted.
Such an examination should be done by an Independent commission including representatives of federal executive bodies, regional authorities, independent experts, associations of agricultural producers and consumers of agricultural and food products, other non-commercial organizations. The share of state officials in the Independent commission should not exceed thirty percent. Such a composition of the commission is to ensure its real independence and due respect to opinions of all market agents and experts.
Until now the efficiency of support measures was actually evaluated by their elaborators and executors that is surely not optimal.
5. National report on results of agrifood policies and performance of the agrifood sector.
Each year the Minister of Agriculture presents a National report on results of agrifood policies and performance of the agrifood sector, giving a public account of execution of all programs for supporting the sector in the past year.
The National report should contain the description of agrifood policies’ general results as well as the assessment of effect of specific programs implemented in compliance with the Federal Law on regulating agriculture and agrifood market, and proposals for modifying agricultural policies.
The National report is examined and adopted by the Russian Federation’s Government and then is introduced to the RF Federal Assembly.
6. Competence of the authorized executive body.
The adoption of regular Law “On regulating agriculture and agrifood market” makes the authorized executive body fully responsible for the implementation thereof endowing it with certain competence. Besides, in order to prevent the disruption of common agrifood markets in the country the federal governing bodies are granted the exclusive right to regulate them.
7. The state system of informational support to the agrifood sector.
The Law principally changes the role of informational support to the agrifood sector. It is declared one of the priorities of state agrifood policies aimed to ensure fair competition between agrifood market agents. The Law creates legal pre-requisites for equal access to information for all of them.
The Law establishes a list of data that the state undertakes to gather and disseminate among market agents and guarantees to them equal and single-moment access to information.
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