The estimation of the physical volume growth of fixed assets in 2007 is based on the assumption of the constancy of the coefficient of fixed assets withdrawal and the constancy of the share of investments allocated to their upgrading.
The estimation of AFP in the extractive and processing sectors in 2007 is biased due to the absence of data needed for estimating the degree of production capacities loads of the enterprises belonging to these types of economic activity.
The growth rate of GVA at enterprises involved in the extraction of mineral resources became lower:
while in 2006 the growth rate of value added in the extracting sector amounted to 2.1 %, in 2007 it was already 0.3 %. Similarly to processing industries, the input of labor costs to the output growth rate by this type of economic activity in 2007 remained negative. Such a situation is determined by the diminishing number of employed at mines, coupled with a slight growth in their accrual working time, this increment being insufficient for the transition of labor input into the space of positive values. Besides, in 2007 there was an a trend of a more rapid reduction in the number of employed in this sector, in face of a slower rate of growth in the amount of actual working time, which determined a negative input of labor costs to the output growth rate of mines in 2007, by comparison with 2006.
In 2007 the only remaining significant component of GVA growth by this type of economic activity was growth of capital stocks (fixed assets volume), responsible for a positive contribution of the main cost factors to the rate of growth of enterprises involved in the extraction of mineral resources. And the main cause of the significant drop in the value added growth by this type of economic activity in 2007 was diminished aggregate factor productivity. It is noteworthy that, across industry as a whole, only the sector of mineral resources extraction displayed a negative AFP growth rate in 2007.
Besides, if the changes in prices on international raw materials markets are taken into account, whose contribution is determined on the basis of a given period’s average fluctuation of oil prices, the “technological” component of AFP18 in the extracting sector, which is characteristic of changes in the level of applied industrial technologies and management efficiency, will also become negative. A drop in “technological” productivity, despite the substantial investments in this type of economic activity, may be associated with a lag (of several years) in the response of its dynamics to investments growth, which corresponds to the period needed for the actual implementation of accumulated inputs.
The sole industrial type of economic activity demonstrating a negative rate of GVA growth by the results, amounting to -0.3%, was the production and distribution of electrical power, gas and water. The main cause of the diminishing value added for this type of economic activity was the reduction in the inputs of main factors, whose negative growth rates were determined by the diminishing labor inputs, coupled with the similarly diminished (against that in 2006) growth rate of fixed assets. The reduced labor inputs at the enterprises engaged in the production and distribution of electrical power, gas and water were produced both by the diminishing numbers of employed at the enterprises belonging to this type of economic activity and by the reduction in their actual working time. Besides, approximately 30 % of the drop in the output growth rate in this industrial sector in 2007 occurred due to the lowering AFP growth rate, which by comparison with that in 2006 decreased nearly twofold.
Fig 1. Growth structure of industrial production’s gross value added in 2006 - Промышленное производство Производство и распределение электроэнергии, 2006 газа и воды Обрабатывающие производства Добыча полезных ископаемых -6 -4 -2 0 2 4 6 8 СФП Загрузка мощностей Основные фонды Отработанное время Занятость The “technological” component is understood as the final residual value obtained after exclusion from the productivity estimation of the component describing the changes in international oil prices.
The aggregate data by type of economic activity have demonstrated that, on the whole, the growth rate of industrial production’s value added in 2007 increased by 0.9 p.p., amounting to 4.65 % (against 3.74 % in 2006). This rise is totally determined by AFP’s accelerated growth rate in face of a slowing-down growth rate of main factors’ inputs. In 2007 the growth rate of industrial output, which depended on changes in capital stocks, fell to nearly a half of its previous level, and the changes in actual working time diminished by nearly 5 times. According to preliminary estimations, in 2007 the growth rate of AFP was responsible for 79.6% of industrial production’s growth rate of GVA, whereas in 2006 its contribution amounted to 45.1 %.
The subtraction from the AFP index of the component characterizing the redistribution of value added, labor and capital inputs by type of economic activity19 resulted in a reduction in the productivity-determined component of industrial production’s GVA growth rate to 72 % in 2007 (against 186 % in 2006). The smaller differences between the estimated AFP values based on aggregate data and on those computed by each sector point to a diminishing intensity of the redistribution of resources between industrial types of economic activity in 2007.
Thus, on the basis of the analysis of the structure of economic growth in the industrial sector in 2007, it can be said that the trends of recent years are still present, and that all the types of economic activity have displayed two facts common to them all: first, a reduction in labor input determined as a diminishing number of employed and a declining growth rate of actual working time; and second, a substantial positive contribution of capital stocks to the output growth rate of industrial enterprises.
In 2004 – 2006, aggregate factor productivity (AFP) demonstrated slowdowns in the growth rates of all types of economic activity in the industrial sector. In 2007, according to preliminary estimations (when the indices of the intensity of exploitation of available production capacities were still unknown), the structure of AFP’s growth rates across the industrial sector was uneven: while in respect of the enterprises involved in the extraction of mineral resources the growth rate of AFP was decreasing, similarly to those engaged in the production and distribution of electrical power, gas and water, the processing enterprises, on the contrary, were displaying an increasing growth rate of AFP, which in 2007 was the dominating factor responsible for output growth in this industrial sector. At the same time, both in the extractive and the processing sectors AFP was the most significant component, which determined the changed output growth rate in 2007 by comparison with that in 2006.
Institutional and Overall Economic Growth Constraints (results of industrial survey) V. Dshkeyev, L. Freinkman In December 2007, the IET department for market surveys has performed a survey across Russian industrial enterprises to identify the constraints in successful economic development. In the framework of the survey, heads of enterprises were asked to answer to the two groups of questions, concerning their assessment of firstly, the degree of government interference in decision-making process and secondly, the dynamics in various factors, that hinder steady production growth. 673 business leaders have provided either complete or partial responses to the questions. Herewith, 96.1 % of respondents answered to the questions of the first type, while the second array of questions was answered by 85.3 % of them.
According to the survey results, the process of decision-making in the industrial business is still not free from interference of the State: from 10.6 % to 32.2 % of respondents (subject to their decision-making authority) are faced with public officials’ interference in management process (see Fig. 1 and Table 1). However, such interference is not obligatory, as over 60 % of respondents indicated complete absence thereof.
Answers "affects any decision" or "often" were received less than in 10 % of cases, regardless the level of management decisions.
Most government agencies would often interfere in the issue of wages: answers "affects any decision" or "often" were received from 7.6 % of the respondents, as well as the answer "sometimes" was given in 24.4 % of cases. The lowest government involvement is noted in the processes of mergers and acquisitions (the share of responses "affects any decision", "often" and "sometimes" makes 10.1 %). However, the largest number of uncertain answer “difficult to assess” was received to this question (almost a quarter), which can indicate either relative rarity of such events, or the lack of relevant experience in the companies.
The contribution of the redistribution of output, labor input and capital inputs is determined as the difference between the estimated aggregate AFP growth rate and the weighted sum of AFP growth rates by type of economic activity.
Analysis of responses to the first type of questions, broken down by forms of business ownership has shown, as expected, the greatest government involvement in public companies activities. Thus, the answer "affects any decision" to the question on government involvement in the issues of mergers and acquisitions from public companies exceeds by 10 p.p. the number of the same answer, provided by private businesses. In the issues of wages that indicator makes 8 p.p., in regard to investment projects it makes 6.7 p.p. The answer “difficult to assess” was also provided to the question on mergers and acquisitions by 11 p.p. more of the heads of public companies, than private business leaders. Coupled with responses "affects any decision", the latter fact can be interpreted as follows: mergers and acquisitions are more rare cases to public enterprises than to private sector, but whenever they occur, the government is a key participant in those events.
Answers to the second type of questions on the major constraints in production growth of businesses within 2000 - 2007 are presented in Fig. 2 and Table 2. Reviewing the results by joining the answers “improvement” and “explicit improvement” in one group and “deterioration” and “severe deterioration” in another group (see Fig. 3), one can observe overall dissatisfaction among company leaders with the developments in business environment. Answers to the second group of questions, regarding the dynamics of the major obstacles to the development of production growth in enterprises between 2000 and 2007 are presented in Fig.2 and in Table 2.
Analysing the results by grouping the answers “improvement of the situation” and “explicit improvement” in one column and “deterioration” and “severe deterioration” in another column (see Fig. 3), one can see that in general the Russian company leaders are dissatisfied with the changes, occurring in business environment.
Thus, improvement in the situation was noted only in two indicators out of thirteen business environment components, included in the questionnaire (they are the indicators of an access to financial resources and labor legislation), whereas deterioration was noted in all other eleven components.
All businesses have provided by 21 p.p. more answers on improvement, rather than deterioration, in terms of an access to financial resources and the cost of credits. However, such an assessment of external finance accessibility is typical only for large and medium-sized enterprises, in particular the largest ones (see Table 4). There is no improvement for the time being to small businesses (with up to 100 employees); (balance of answers: -7.9 percentage points). Therefore, external finance is more accessible to the companies, involved in minerals extraction (balance of answers: +57.7 p.p., see Table 5), rather than in manufacturing industries (+22.4 p.p.)20.
Currently the major bottleneck in the development of all industries is the shortage of labor force: 50.4 % of respondents pointed out to the deterioration of the situation in this regard and only 8 % observed an improvement. The next significant factor, that hinders the growth is power supply (49.3 % of responses on deterioration versus 12 % on improvement). The third major factor of growth restriction, mentioned by business leaders is non-competitive behaviour of other companies: 25.6 % responses on deterioration of the situation against only 4.4 % on improvement thereof.
Companies are fairly unanimous in their negative assessment of the above three components of business environment. All enterprises, regardless their form of ownership, size or industry sector, have highlighted the particular importance of those three constraints in business development. It is worth noting, that the manufacturing industries are more sensitive to non-competitive behaviour in the market (the balance of their responses is -25.1 p.p.) as compared with minerals extracting businesses (balance: 0.0 p.p.).
Tax audits took the fourth place among the obstacles in business development (balance of responses: -15.p.p.). The fact, that the attitude to tax authorities was more negative than to other supervisory bodies (such as the courts and customs service) is not surprising. Actually, this is the only structure, which all businesses have to deal with rather often. The trend "against tax service" is typical to the majority of similar surveys worldwide. As to results of our survey, the degree of the tax service negative assessment is not extremely higher than assessments of other bureaucratic constraints.21.
Deterioration in the other components of the economic environment was less significant from the point of view of business leaders. However, in some cases, the answers of groups of companies were variable in a wide range. Thus, the overall situation with transport was rated as slightly deteriorated (balance of responses: -3 p.p.), but the assessments were highly volatile subject to the size of business. Small businesses (with less than 100 employees) gave more negative assessments to transport infrastructure as a constraint of All data and cross-group differences in business factors assessments, presented in the text below are valid at 1% level. Z-test was applied to verify balance of responses for 2 groups of enterprises.
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