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The interest to an analysis of the efficiency of labor utilization in the period of recovery growth is determined by the widening gap between the dynamics of real wages and salaries and productivity of labor in favor of the former. The support of the dynamics of domestic demand based on the growth in real wages, salaries, and household incomes results in redistribution of earnings from enterprises to the population, what initiates a growth in production costs. In 1999 through 2002, the share of expenditures for remuneration of labor in the structure of production costs in the economy at large increased by 1.3 p. p., while the respective indicator registered in industry made 2.2 p. p. The systematic growth in expenditures for wages and salaries negatively affected the dynamics of profitability of production. In 2003, at the background of an intensive growth in production the were observed converging dynamics of real wages and salaries and labor efficiency. However, at the moment the impact of this process on the changes in indicators of efficiency of enterprises and organizations is extremely weak and unstable.

O. Izryadnova IET Business Survey: Industry in December The results of the December survey of 2003 unfortunately demonstrate that the negative trend observed in the dynamics of the Russias industry over the last few years still persists. At the end of the year, there was again registered an absolute decrease in sales and decelerating rates of growth in output.

The balance of changes in effective demand further decreased by 10 points in December and became negative as in the Russias manufacturing industry there was registered an absolute decline in cash sales.

Since August of 2003 this indicator has decreased by 26 points. In 2002, a decline in sales started yet in November, and while in December of that year the balance made 13 per cent, at present it makes 7 per cent. It proved to be the best result in the three last years (see the Figure). No decline in sales was registered only in power engineering, forestry, wood working, pulp and paper, and food industries. Reports on decreasing demand prevail across other industries. Especially significant prevalence of negative answers was registered in construction industry, metallurgy, and light industry.

However, in 2003 enterprises principally changed their attitude to cash demand. Over the year, the balance of assessments of effective demand increased from 65 per cent to 39 per cent (August), the share of answers normal from 32 per cent to 55 per cent (September, December 54 per cent). The best results registered this year were the best also in the last ten years (see the Figure). At the same time, the balances of demand evaluation have always been and remain negative: assessments below norm still prevail across industries. Enterprises still experience lack of effective demand to utilize all their preserved and idle capacities.

However, non-cash payments gradually become less important in the Russias industry (see the Table). In 2003, the share of cash in payments made, on the average, 84 per cent, barter 6 per cent, and promissory notes and offsets 9 per cent.

Table The share of cash, barter, promissory notes, and offsets in sales of products in 2003 (%) Shares I quart. II quart. III quart. IV quart.

Cash 84 82 84 Barter 7 6 5 Promissory notes and offsets 8 10 9 Source: IET Industrial Surveys.

In the situation where capacities are excessive and cash sales are instable, in the Russias industry there persists a lack of non-cash transactions. Enterprises believe that they need greater amounts of barter, promissory note, and offset transactions. This year, there were registered no principal changes in enterprises attitudes to such transactions. In 2003, surveys registered lack of barter, promissory notes, and offsets across practically all industries. Only in power engineering, chemistry, and petrochemistry the annual balances were positive in these industries there prevailed enterprises where amounts of non-cash transactions were excessive.

However, in December production failed to follow demand. While the balance of changes in demand constantly declined and became negative this month, the December balance of changes in output ceased to decrease and remained at + 14 per cent to + 15 per cent. Output grows at the background of declining demand. This conclusion was also confirmed by calculations based on micro-data. The share of enterprises where production outpaced demand increased up to 32 per cent, while the average value registered over the preceding 11 months made 25 per cent. In December of 2002, this indicator made 27 per cent, as at that time enterprises followed demand more accurately. At present, the most significant gap between output and demand is registered in metallurgy (51 per cent), forestry complex (50 per cent), mechanical engineering (per cent), and light industry (32 per cent).

The outpacing rates of growth in output has not yet resulted in excessive overstocking of finished goods.

In December, the balance of evaluations of finished stocks increased only by 5 points and was close to the average level observed in January through September. It should be noted that in October there was registered a untypical for the last three years disposal of finished stocks. Therefore, what occurs at present is only the recovery of the preceding (traditional) stocks of finished goods used to rapidly meet new orders.

Estimates of changes in demand stabilized at the level from 0 to + 1 per cent after having declined to the minimal (for 2003) values. I.e., Russian enterprises on the whole expect no growth in sales in early 2004. A growth is probable only in metallurgy. In other industries it will either decrease (light and food industries, forestry, construction industry), or remain at the same level (power engineering, chemistry, petrochemistry, mechanical engineering).

Although plans of output seem more optimistic in comparison with forecasts of changes in demand (+ + 21 per cent), they also were at the years minimum. In the nearest future, the absolute decline in output is possible not only in the industry of construction materials (the seasonality factor), but also in food industry. The most optimistic plans were registered in power engineering and non-ferrous metallurgy.

S. Tsukhlo Oil and natural gas sector The price situation on the world oil markets determined the development of the oil and natural gas sector of the Russian economy in 2003. Since over 60 per cent of the oil produced in the country are exported (including both crude oil and oil products), while domestic prices are significantly below the level of world prices, exactly world prices are the key factor determining the earnings and financial standing of the Russian oil industry. Due to the fact that production of oil in Iraq decreased in the result of the war and OPEC member countries had in place the limitations on oil extraction, the world oil prices were at an exceptionally high level. In October and November, the average price of the oil basket of OPEC member countries was above the upper target price threshold (US $ 22 to US $ 28 per barrel) set by the organization. The average price of Russian Urals oil was close to US $ 28 per barrel on the world (European) market (see Table 1).

Table World oil prices in 1999 through 2003, US $ per barrel 1999 2000 2001 2002 2003 2003 2003 2 2003 1 quart 2 quart quart October Novemb er Brent, UK 17,97 28,50 24,44 25,02 31,49 26,03 28,38 29,65 28,Urals, Russia 17,30 26,63 22,97 23,73 29,24 23,86 27,05 27,99 27,OPEC oil basket 17,47 27,60 23,12 24,34 30,45 25,87 27,43 28,35 28,Source: OECD International Energy Agency.

The development of the oil and natural gas sector of the economy in 2003 is characterized by persisting trend towards an increase in extraction of oil and oil products formed in 2000 through 2002. In January through November, the total volume of oil output increased by 11.1 per cent in comparison with the figures registered in the respective period of the preceding year reaching the record high in the post-reform period, while the output of primary processed oil increased by 2.9 per cent. An increase in extraction of natural gas first registered the last year, continued (see Table 2). There was observed a certain increase in investment activity, especially in the natural gas sector: in January through October the volume of oil production drilling grew by 3.9 per cent as compared with the respective period of the preceding year, while natural gas production drilling increased by 40.9 per cent in January through September of 2003. At the same time, due to a certain decline in the volume of drilling observed last year, the commissioning of new oil wells was down by 5.1 per cent. The decline in the volumes of oil surveying drilling continued (oil drilling decreased by 10.7 per cent in January through October in comparison with the figures registered last year), what may be explained by sufficient levels of available reserves, while natural gas drilling increased (by 11.9 per cent in January through September in comparison with the figures registered in the respective period of the preceding year). The degree of processing of oil in the oil processing industry increased from 70.2 per cent in January through October of 2002 to 70.5 per cent in the respective period of this year. The share of high octane gasoline in the total amount of motor gasoline increased from 49.3 per cent in January through October of 2002 to 51.6 per cent this year.

Table Oil, oil products, and natural gas output, in % of the respective period of the preceding year 1999 2000 2001 2002 2003 January -October Oil 100,3 105,9 107,7 108,7 111,Gas condensate 104,7 103,8 106,7 112,8 108,Primary oil processing 102,9 102,7 103,2 103,3 102,Motor gasoline 102,2 103,6 100,6 104,9 101,Diesel fuel 104,2 104,9 102,0 104,7 101,Furnace fuel oil 94,8 98,3 104,2 107,1 100,Natural gas, cub. m. billion 99,7 98,5 99,2 101,9 103,Oil gas, cub. m. billion 103,2 102,5 105,0 110,5 120,Source: RF Goskomstat.

Over the last few months, there was observed a significant growth in prices of oil and oil products occurring on the domestic market. In November, the average domestic oil price (producers price) in dollar terms increased to US $ 70.7 per metric ton. The average motor gasoline price has reached US $ 231.2 per metric ton, what is the record high over the whole post reform period. In the last few months, prices of natural gas demonstrated a downward trend (see Table 3). Figures 1 and 2 present the dynamics of oil, natural gas, and oil products prices on the domestic market. As the graphs demonstrate, domestic prices of oil and motor gasoline in dollar terms reached the historical maximum over the last few months.

Table Domestic oil, oil products, and natural gas prices (in US $) in 1999 through 2003 (average wholesale prices of enterprises, US $ / metric ton) 1999 2000 2001 2002 2003 2003 2003 2003 Dec. Dec. Dec. Dec. March June September October November Oil 37,0 54,9 49,9 60,7 54,3 53,8 67,5 73,0 70,Motor gasoline 171,9 199,3 151,5 168,8 192,4 191,9 223,6 228,9 231,Diesel fuel 125,0 185,0 158,5 153,8 201,9 182,2 205,5 211,8 209,Furnace fuel oil 46,1 79,7 47,1 66,1 78,2 59,9 90,4 88,9 79,Gas, US $ / thos. c. 2,2 3,1 4,8 5,9 6,2 6,2 6,1 4,9 4,m.

Source: calculated on the basis of RF Goskomstat data.

In January through September of 2003, the oil exports increased by 17.1 per cent in comparison with the figures registered in the respective period of the preceding year, while export of oil products grew by 3.3 per cent (see Table 4). In January through September, the share of exports in commodity resources of diesel fuel made 57.1 per cent, furnace fuel oil 56.4 per cent, motor gasoline 14.3 per cent. The high level of world oil prices was the factor behind the significant growth in export proceeds. In January through September of 2003, the amount of oil exports increased by 34.9 per cent as compared with the figures registered in the respective period of the preceding year.

The import of oil products increased. For instance, in January through September of 2003, imports of motor gasoline grew by 70.7 per cent in comparison with the level registered in the respective period of the preceding year, while the share of imports in the gasoline resources increased from 0.1 per cent to 0.2 per cent. However, the specific weight of imports remains rather low. For instance, in the first six months of 1998, i.e. before the Ruble devaluation, the specific weight of imports in the gasoline resources made 8.7 per cent, while in 2001 it was at 0.4 per cent.

At the same time, there was registered a decline in natural gas exports in comparison with the figures registered last year, what was caused by low effective demand on the part of CIS member countries (in January through September of 2003 natural gas exports to these countries fell by 8.9 per cent).

Table Export of oil, oil products, and natural gas from Russia, in % of the respective period of the preceding year 2002 January through September January through September Oil, total 113,2 117,including:

Export to non-CIS countries 108,1 117,Export to CIS countries 145,6 114,Oil products, total 116,7 103,Including:

Export to non-CIS countries 117,3 102,Export to CIS countries 101,9 116,Natural gas, total 103,4 101,Source: RF Goskomstat.

At the OPEC December summit, the member countries of the organization decided to retain the quotas on oil extraction set on November 1 of 2003, which envisaged a decrease in oil extraction by 900 thousand barrels a day. This development allows to expect that the world oil prices will remain at a rather high level in the short term, and, accordingly, the rather favorable external conditions for the Russias oil industry and the national economy on the whole will persist.

Fig. 1. Average wholesale oil and natural gas prices set by enterprises in US $ terms in 1992 through 2003, US $ / metric ton, US $ / thous. c. m.

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