In June 2006, industrial output kept growing, according to the data produced by official statistical agencies. Taking into account the seasonal and calendar factors, the average daily production output grew by 0.5%, according to the estimates of the Center for Macroeconomic Analysis and Short-Term Forecasting. The monthly industrial out grew by an average of 0.6% in 2Q of 2006.
The previously recorded downward trend for inflation resumed in July 2006, reaching 100.3%, which is far below both the corresponding parameters in last May and in June of the previous year.
There are two factors which are responsible for such a very low rate of inflation in Russia in June 2006, namely monetary inflation slowdown and season-related cheapening of specific types of food products, according to experts of the Center for Macroeconomic Analysis and Short-Term Forecasting.
In general, taking into account the results of the first half of the year, consumer costs are expected to reach a 108.5 – 109% peak over the entire year.
The demand for industrial products decline by all parameters in July 2006. Initial data ( prior to excluding seasonal and random variations ) showed a reduction from 28 до 17 percentage points in sales balance movement ( growth rate). The latter parameter, however, should not be considered a ‘downfall’ for 2006, because it is very close to the average sales growth rate over the last six months. The June parameter was found to be absolute maximum for the entire monitoring. Growth rates in the demand for industrial products declined insignificantly by 5 percentage points ( from 21 to 16 ) after exclusion of the seasonal factor. Exclusion of random variations shoed the previous record high growth rates in sales. Hence the decline in growth rates should not be alarming.
The conclusion and estimates of sales volumes made by enterprises are alto supported if assessed by a above/ below standard scale. Most ( 54% ) of the Russian industrial enterprises are satisfied with the effective demand for their products, as was the case in the pervious month. Building industry ( 80% ), non-ferrous metallurgy ( 71% ), fuel industry ( 70% ), chemical and petrochemical industries ( 62% ) remain most satisfied with the demand. This parameter stabilized at a level of 50% in machine building industry in the period between June and July 2006. Those enterprises which currently remain unsatisfied with the demand account for 40%.
The fact that demand was less referred as a drawback to industrial output growth became another case in favor of increased restraints on demand, which, however, are insignificant for enterprises. In 3Q of 2006, it is only 38% of the enterprises that consider insufficient domestic demand as a drawback to industrial output. In 2005 and 2004, such enterprises accounted for an average of 50% and 45% respectively. The enterprises believe that the demand, which has gradually been ‘giving ground’, is the key drawback to industrial output.
The same is the case with ‘current assets shortage’, which is reported a drawback to output by only 40% manufacturers. The ‘lack of qualified personnel’ is the third in the list of frequently referred to drawbacks, which is reported as a drawback to output by one third of the Russian industrial enterprises. Even more enterprises are expected to face more problems with the lack-of-qualified- personnel issue than that of ‘poor demand’, if the previous policy in the fields of demography and human resources is the same.… Regarding the issue of the lack of equipment, enterprises seem to be able to solve by using their own resources. At least, this type of drawbacks is less referred to ( 14% ), against up to 20% in the period between 2000 and 2005. Twenty per cent of enterprises reported imported products to be an obstacle to increase their production in 3Q of 2006. The frequency of references to this type of drawbacks increased five times in the post-crisis period ( against 5% in 1999). The precrisis maximum of this parameter was 16%. Hence, unlike in 1998, more of the enterprises now consider competing import products as a drawback to their output.
It should be kept in mind, however, that 30% of Russian industrial enterprises reported facing no problems with competition with import products in 2006. They either reported no such competition at all, or find difficulty in its assessment. A ten-year monitoring of competition shows that the Russian industry felt most comfortable in 2000, when markets free from competition with imports accounted for 50%. Prior to the 1998 crisis, 35% of the markets for the Russian industrial products were free from competition with imported products. A drastic reduction of the markets free from such competition took place in the period between 2005 and 2006. Prior to 2005, not more than 60% of Russian industrial product markets were involved in competition with import goods, as compared to 70 to 72% in the period after 2005.
In general, industrial production responded adequately to a decline in growth rates: in July 2006, production output growth intensity ( change balance ) decreased according to initial data by 12 percentage points to amount to bare 1 percentage points exclusive the seasonal factor. Hence production output growth rates decreased insignificantly in July 2006, though it had an effect on all industries subject to metallurgy, building industry and light industry. However, by comparing the changes in demand and output at a micro-level, it was revealed that changes in output and demand coincided for only 61% of enterprises. In the previous months such coincidence was recorded at 66 to 70% of enterprises. It seems that enterprises found themselves a bit disoriented by contradicting data on the trends in the Russian industry. As a result, a share of enterprises, whose output production was outstripping the demand, increased up to 25% ( against 23% in the previous periods ). A share of those, whose out production was falling behind the demand, increased up to 14%, against 9% in the previous periods.
End product stock in storage has been losing its excess since the beginning of the year, i.e. enterprises have been losing their ability to quickly meet new ( unexpected ) requests. Furthermore, this tendency is quite sustainable as compared to various ‘downfalls” in the pervious years. As a result, the balance of estimates of stock in storage declined from +16 to +8 percentage points over seven months.
It is neither the unfavorable outlooks for the Russian industry, nor the desire to minimize the accumulated stocks ( as was the case in the 90’, times of counter trade and non-payments ) that are responsible for that. It seems that enterprises have to prudently use their depleting production resources, so they prefer to reduce their stocks to the normal ( as they may think appropriate ) level.
Forecasts of changes in demand in July 2006 ( exclusive of the seasonal factor ) have reached another record high. The balance is expected to increase by 5 percentage points above that of the previous month, and by 2 percentage points year on year. None of the industries is expected to experience a decline in demand. Production plans remain unchanged for July 2006, i.e. most optimistic for the entire periods covered by the questionnaire. Output growth is expected to decline in all industries.
S.Tsukhlo The National Project on Agricultural Industry Development: implementation status and outlooks This document sets out the contents and advantages and disadvantages of one of the four currently implemented National Projects on Agricultural Industry Development. Proposals on its further development are also included.
Project’ s Summary The National Project on Agricultural Industry Development has turned out to be one of the four toppriority national projects for two years to come, the decision on which was made at the end of the preceding year. The Project is expected to last for a period of two years, its budgets amounting to more than Rb 30 billion ( see Table 1 ). This is a fairly substantial amount of funds, since financing of the National Project accounts for 20 per cent of the total federal funds allocated to the Russian agricultural sector.
Financing of the National Project on Agricultural Industry Development 2006 2007 TOTAL Advanced Development of Livestock Farming Subsidizing % 3.45 3.18 6.Authorized capital growth of OAO Rosagroleasing 4 4 Small Business Development Subsidizing % 2.9 3.67 6.Authorized capital growth of OAO Rosselkhozbank 3.7 5.7 9.Organizational, methodological and information support, and 0.15 0.15 0.monitoring TOTAL 14.2 16.7 30.Data source: the Ministry of Agriculture of the Russian Federation.
Project’s Objectives Feasibility Приоритетный the National Project on Agricultural Industry Development включает в себя три направления: Advanced Livestock Farming Sector Development, Promotion of Small Business Development and Provision of Young Specialists ( or their families ) with Affordable Housing at Rural Areas. This means that the following three objectives make the corn-stone of the National Project.
Objective 1. Advanced Livestock Farming Sector Development. It is the livestock farming sector that suffered most with the inception of free market reforms in Russia, like in most other post-Soviet countries. There are two reasons responsible for it. First, the fall of purchase power effected mostly such products as meat and dairy products, which are considered most flexible in terms of profit. Second, the Soviet-type livestock farming was distinguished by fairly poor effectiveness, low fodder conversion ( product output as per fodder unit ). With opened external markets, import of end animal products became much more profitable rather than fodder grain which used to be imported during the Soviet era. Growing imports committed domestic manufacturers to competition not allowing them to take time to be able to implement a pivotal modernization of the sector. A certain relief came after the banking crisis in 1998, when temporal cessation of imports provided the domestic livestock farming sector with a period of rest to be able to improve its competitive advantages. However, this period didn’t last long – about 3 years, after which imports resumed its presence in the Russian market, whereas normally it takes up to 5 – 8 years for major livestock farming projects to have been completed. Consequently, most of the commenced projects have been facing an intense competition with regard to imported products. In this context, public support to the sector in enhancing its modernization is a fairly reasonable objective.
Objective 2. Promotion of Small Business Development. The allocation of the task itself is arguable.
At the initial stage of the agrarian reform such definition of objective could be reasonable by the fact that special efforts were needed for small market-driven manufacturers, in other words, farmers to be able to develop, since the entire previous paradigm of the development of the agriculture didn’t provided for the existence of such sector. In addition, the issue of social and physiological non-confidence in farmers had to be resolved, which impeded the development of the small manufacturers sector as well. For the time being, the issue of manufacturers’ size is not the case, there is the need in effective manufacturers, while their organizational form – small or large, incorporated or individual enterprise – is not the issue of the state policy. However, a closer look on the contents of this part of the National Project, reveals that it is other objectives that are actually being worked out. Support to small manufacturers’ cooperatives and granting of beneficial loans to subsidiary husbandries is provided for. It is seen from the design that efforts have been made to resolve the issue concerning the improvement of rural population’s living standards by using this method, rather than through supporting their agricul tural business activities. The issue itself of maintaining living standards in rural areas is a vital issue of socioeconomic life of the country for the time being.
Objective 3. Provision of Young Specialists ( or their families ) with Affordable Housing at Rural Areas. For the time being, the rural industries are in desperate need for qualified personnel, because the professional standards have been declining in rural areas. Our surveys show that young specialists consider two key issues ( almost equally rated ) making them reluctant to get employed in rural areas, namely small wages and lack of housing. It is, however, not sufficient to resolve the entire issue only by resolving the issue of housing while putting aside decent labor remuneration, career development prospects, and developed social and utilities infrastructure in rural areas. This is why the current definition of the objective fails to be complete, comprehensive, and cover the issue in its entirety.
We therefore believe that it is only the first of the three objectives of the National Project on Agricultural Industry Development that provides comprehensive definition, while the other two should be revised. We propose the following ones:
Objective 2. To Improve Tangible Income of Rural Population Objective 3. To Engage Qualified Personnel for Work in Rural Areas.
Project Activities It should be emphasized that the approach to Project activities totally meets the requirements of the of program and objective oriented approach. It contains well-defined activities, arrangements of their implementation, which allow for reasonably estimated budget expenditures, as well as activity’s objective achievement indicators have been determined.
1. To improve availability of non-expensive long-term ( up to 8 years ) credit facilities for the purpose of construction and modernization of animal production units. The key implementation arrangement is subsidizing the interest rate equal to 2/3 of refinancing rate determined by the Bank of Russia for commercial bank loans ( for a period of up to 8 years ) extended for construction and modernization. The value is Rb 3,45 billion in 2006 and Rb 3,18 billion in 2007.
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