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O. Shick IET Business Survey: Industry In November, the growth in effective demand stopped completely, as it was the case a year ago. After the October decline in growth rates by 12 balance points, in November the balance dropped further by 4 points and at the moment makes 1 %. In November, cash sales declined across all industries with the exception of non-ferrous metallurgy (balance is + 15 %), forestry and woodworking (+ 10 %).

However, the halt of growth in sales does not trouble Russias enterprises as yet. The share of responses evaluating cash demand as normal decreased only by 3 points and makes 39 %. The maximal values of this indicator are registered in power engineering (76 %), non-ferrous metallurgy (88 %), and the forestry complex (62 %).

In spite of the apparent problems related to effective demand, enterprises have not yet increased amounts of non-cash transactions. Moreover, in November the amounts of promissory note and offset payments declined most intensively since the beginning of the year. At present, this decline is registered across all Russias industries. A similar situation is observed as concerns barter transactions. Since March of 2002, the intensity of decrease in barter operations has been relatively stable in an interval from 10.. to 7 %. No industry demonstrated a growth in barter transactions in November. The most active decline was registered in the forestry complex (-16 %), and chemistry and petrochemistry (-12 %). As a result, about 80 % of industrial output were sold via cash operations. The largest volumes of cash sales were observed in power engineering (93 %), while chemistry and petrochemistry accounted for the smallest volumes of such sales (74 %). This indicator makes 80 % for mechanical engineering, 89 % for light industry, and 86 % for food industry.

The rates of growth in output, similarly to demand indicators, continue to decline for the second month running. After the maximum registered in September, the balance dropped by 16 points in two months, however, it remains positive, mostly due to the situation in power engineering and ferrous metallurgy. Growth in output was also registered in mechanical engineering (+ 7 % in terms of the balance) and food industry (+ %). Other industries demonstrated either zero or negative growth in output.

Enterprises consider low demand and lack of working capital as the main constraints on the growth in output. About 55 % of enterprises constantly reported the lack of working capital in 2000 through 2002. At the same time, insufficient demand, which in the beginning of the year went up to the pre-default 65 % declined to 58 % in the 4th quarter in terms of its constraining influence on output. The third most frequently reported constraint was payment arrears (mentioned by one third of enterprises). Among six major constraints on increase in output, competing imports are reported least frequently. Only 16 % to 17 % of enterprises men tioned this factor in the end of this year, while in early 1998 it was a constraint on output of 13 % of domestic producers.

Enterprises adjusted their output taking into account the dynamics of sales, what allowed them to prevent excessive increase in finished stocks. In the four last months, balances of evaluation of finished stocks made from + 9.. to + 11 %. It seems probable that this level is most acceptable for Russias enterprises as it is the same as in 2001, when the necessity to work out a new policy of management of finished stocks became apparent. At present lack of finished stocks is registered only in the forestry complex and construction industry.

The rates of decline in profits were registered at a somewhat lower level, however, real profits continue to fall in the industry on the whole and across individual industries. The most intensive decline in profit rates was registered in construction industry, chemistry, petrochemistry, and light industry. Growth in profits was registered only in power engineering.

Purchases of domestically manufactured equipment began to decline again in the end of the year. Although in the 3rd quarter the decline in this type of investment seemed to stop (the balance stabilized at zero), at present the balance again became significantly negative, and what is more, across all industries. At the same time, no decline in purchases of imported machinery was registered for the second quarter running.

Fuel energy is primarily responsible for the fact that the balance of this indicator remains at zero in the industry at large. A minimal increase has been registered in mechanical engineering.

Estimates of changes in effective demand gathered 7 points in terms of optimism after in October they fell by 2 %. Power engineering, mechanical engineering, and the forestry complex accounted for this growth. Estimates remain negative across other industries where expectations of decrease in cash sales prevail.

Estimates of trends in barter remain practically without change since August of 2002. Enterprises expect a decline in this type of transactions at about 10.. to 7 % (in terms of balance). No industry anticipates a growth in barter. Estimates of change in promissory note and offset transactions have again become negative.

In a few next months, enterprises expect the most intensive decline in these types of transactions in the last 18 months. A growth in the amount of promissory note and offset transactions is possible only in power engineering and food industry. At the same time, enterprises demonstrate propensity to more often use promissory notes and offsets than barter operations in order to compensate the declining cash sales. Compensation forecasts are determined as the share of reports on increase in barter, promissory notes, and offsets in response to actual decrease in effective demand. The average share of such forecasts related to promissory notes and offsets was at 18 % in 2000, while it was at 14 % for barter operations.

Estimates of changes in output continue to loose optimism. In the last three months the balance dropped by 16 points. A decrease in optimistic reports was registered across all industries with the exception of power engineering and ferrous metallurgy, while non-ferrous metallurgy, chemistry, petrochemistry, construction industry, and light industry already anticipate a drop in production.

In a few next months Russias enterprises plan to decrease purchases of both domestically produced and imported equipment. However, the purchases of domestic machinery will decline more intensively. A growth in purchases of imported and domestic equipment is probable only in food industry.

S. Tsukhlo Foreign Trade In September of 2002, the Russias foreign trade turnover grew by 11 % in comparison with the figures registered in the respective period of the preceding year and made US $ 15.1 billion (according to the balance of trade methodology). As compared with last August figures, this indicator increased by 3.4 %. In the situation of recovering world economy and improving world business situation observed since March of 2002 (especially, as concerns oil prices), in the few last months there was registered a recovery of the positive dynamics of export of goods. In September, exports made US $ 9.9 billion (the record high in the last months). The September imports also grew considerably and made US $ 5.2 billion, what is by 23.8 % above the levels registered in the respective period of the preceding year.

The active balance of trade made US $ 4.7 billion, what is by 9.3 % more than in the respective month of the preceding year. However, this indicator grew less considerably as compared with the figures observed in August of 2002 (by 2.2 %).

Figure 1. Main indicators of Russias foreign trade (in US $ bln.) -1997 . 1998 . 1999 . 2000 . 2001 . 2002 .

Balance Export Import Source: RF Goskomstat In September, the external business situation was rather favorable. The trend towards an increase in prices prevailed on the market of energy resources. For instance, the average world price of oil (Urals) made US $ 18.3 per barrel in January, while in June it was at US $ 23.0 per barrel (a growth by 25.7 %) and in September US $ 27.1 per barrel (a growth by 48 % in comparison with the January figures). However, in January through September of 2002, the average monthly price of this sort of oil was at US $ 23.0 per barrel, what is by 5.7 % below the level registered in the respective period of 2001.

In September, a major factor behind the growth in oil prices was the refusal of OPEC member countries to increase oil extraction quotas. Besides, the danger of the US action against Iraq facilitated the growth in oil prices.

Russia has increased export customs duties on oil and oil products from US $ 26.2 per metric ton to US $ 29.8 per metric ton in connection with the growth in oil prices since December 1, 2002.

The price situation on the world market of non-ferrous metals only slightly differed from August figures, however, as concerns certain metals, it considerably improved in comparison with last September. For instance, in September of 2002, the average price of aluminum increased by 0.9 % in comparison with the August figures, while it decreased by 3.7 % as compared with the figures registered in September of 2001. At the same time, the average copper price did not change in comparison with the August figures, while it increased by 3.1 % as compared with prices observed in September of 2001. As concerns nickel, its average price decreased by 1.3 % in comparison with August prices, while growing by 30.8 % as compared with the figures registered in September of the preceding year. Therefore, the overall situation on the market of nonferrous metals is better than in the preceding year, however, in the 3rd quarter there was observed its deterioration in comparison with the situation existing on the market in the past months of this year.

TABLE The average monthly world prices in September of the respective year 1996 1997 1998 1999 2000 2001 Oil (Brent), USD / metric ton 22,9 18,12 13,1 22,6 32,15 26,18 28,Natural gas, USD / thous. m3 2,743 2,251 1,858 2,62 5,118 2,204 3,Gasoline, USD / metric ton 0,6484 0,579 0,4212 0,6825 0,9409 0,757 0,Copper, USD / metric ton 1932,6 2032,7 1676,4 1876,8 2037,5 1452,9 1498,Aluminum, USD / metric ton 1428,3 1544,6 1391,3 1493,6 1600,2 1342,6 1294,Nickel, USD / metric ton 7426,4 6523,6 4229,8 6932 8654,3 5040,9 6592,Source: calculated in accordance to the data presented by London Metal Exchange (UK), International Oil Exchange (London) Jul Jul Jul Jul Jul Jul Okt Okt Okt Okt Okt Jan Jan Jan Jan Jan Jan Apr Apr Apr Apr Apr Apr The world market situation has favorably affected the Russias foreign trade in the 3rd quarter of 2002. After a decline in exports observed in the first six months of this year, in the 3rd quarter exports grew by 12 % in comparison with the figures registered in the respective period of the preceding year.

The situation also improved as concerns imports. While in the first six months of 2002 rates of growth in imports were below those observed in the preceding year, in the 3rd quarter the dynamics of imports improved and they increased by 18.3 % in comparison with the figures registered in the respective period of the preceding year.

A factor behind the growth in imports was the real Ruble appreciation and, as a result, increased competitiveness of imports in terms of prices, as well as a growth in real disposable household incomes and investment demand on the part of enterprises and organizations, a part of which was satisfied at the expense of imports.

In September of 2002, imports from countries outside the former Soviet Union increased by 25.7 % in comparison with the figures registered in September of 2001. The increase in imports was observed across all major commodity groups: foods by 29.5 %, chemicals by 20.6 %, textile products and footwear by 37.4 %, and products of mechanical engineering by 32.4 %.

In September, the turnover of Russias trade vis--vis CIS countries made US $ 2.51 billion. Exports made US $ 1.48 billion increasing by 19.3 % in comparison with the figures registered in September of 2001, while imports grew by 10.4 % and made US $ 1.03 billion).

As concerns the sphere of exports, there was registered a growth in fuel and energy resources. Exports of crude oil and foodstuffs increased most significantly. At the same time, monthly exports of machinery and equipment continued to fall.

Imports from CIS countries were as before dominated by products of mechanical engineering, foods, and agricultural produce, which accounted for about 20 per cent of imported products. There was observed a growth in imports of quick frozen meats, quick frozen fish, and chocolate products.

At the same time, there was registered a decline in imports of dry and condensed milk, sunflower oil and butter from CIS member countries as a result of re-orientation towards Russia-produced goods.

In November, the RF State Duma ratified the agreements on the principles of collection of VAT and excises in bilateral trade Russia had made with Georgia, Moldavia, and Uzbekistan. The agreements envisage that participant states should use the principles of VAT collection in the country of destination. Goods, imported from the customs territories of participating states should be subject to excise taxes at zero rates. At the same time, natural gas, oil, and gas condensate should be excluded from this rule. Services related to freight and servicing of exported and transit goods, transport of passengers and baggage should be subject to zero VAT rates in the state whose taxpayers provide the respective services.

This year, the countries which are members of the Customs Union, for instance, Kazakhstan, completed the transition to collection of excise taxes on the country of destination principle. As a result, there was registered a natural decline in bilateral trade between Russia and Kazakhstan, which, it seems, is of a temporal nature. In the second half-year of 2002, there were already observed positive shifts in this sphere. However, in the first 9 months of 2002, the trade turnover of the two countries decreased by 15 % in comparison with the indicators registered in the preceding year and made US $ 3.12 billion. It shall be noted that Russian exports to Kazakhstan declined more (almost by 20 %).

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