(% of the previous year figure) In the past six years, low key dynamics of the output of capital goods as compared to the rates of industrial growth was registered in 2002 where growth in output of the invest ment sector hit its minimum level and amounted to 2.2% against 6.8% in 2001 and 18.9% in 2000. However, as early as 2003 the situation changed radically. As in the 2000–period, the investment sector responded to speed up of growth in output and income of the export oriented sector by an intensive increase in production of capital goods. In 2003, output volumes in engineering industry grew by 9.2%, as against 1.9% in 2002, while in building materials industry, by 6.4%, as against 3.0%. Better conditions of trade in Rus sian made high tech products on international markets were an additional factor behind growth in engineering industry.
In 2004, growth in output of the investment sector amounted to 11.7% (an increase of 1.9%) on the 2003 figure. As regards growth in output, engineering industry preserved its leading positions among other branches of industry. At the same time, there were con siderable fluctuations in outputs of individual branches of engineering industry. Negative factors which affected the dynamics of engineering industry in the 1999–2004 period in cluded sporadic crises of overproduction in auto industry and fuel industry’s unstable in vestment demand in Russian made equipment in a situation of growth in import volumes of Section 3.
The real sector machinery and equipment and higher income from exports. High growth rates of machin ery and equipment were primarily ensured through expansion of demand in products meant for the domestic market (railway engineering, instrument making industry and communication industry). In addition to the above, in the past few years there was sus tained expansion of demand in machinery and equipment for branches of the consumer’s sector.
Analysis of the specifics of formation of the capital goods market is of principal im portance, since in the past two years growth in investments in fixed capital was faster than that in ultimate consumption. That factor had a considerable effect on structural changes in the GDP. As regards the rates of output of capital goods, in engineering industry they were faster than those of growth in investment in fixed capital, however, as regards struc ture and volumes of such output engineering was behind changes in reproduction and technological structures of capital investments in production. In addition to the above, faster growth rates of imports as compared to those of domestic production still had a considerable effect on development of engineering industry. It can be explained by the fact that many types of machinery and equipment were noncompetitive as compared to their foreign analogs (as regards the “price/quality” criterion) and lack of production capacities needed for manufacturing of modern machinery limited to a great extent the market of domestic engineering. With an increase of 11.7% in output of engineering industry, growth in imports of machinery and equipment amounted to 46.2% (Table 6).
Table Dynamics of production by the branch of engineering in the 1999–2004 period (% of the previous year figure) 1999 2000 2001 2002 2003 Industry – total 108.1 109.0 104.9 103.7 107.1 106.Engineering 115.9 115.5 107.2 101.9 109.2 111.Including :
Railway engineering 108.9 107.4 126.0 121.7 135.8 122.Metallurgical engineering 91.8 130.2 86.1 82.6 94.0 123.Electrical engineering industry 127.0 130.1 112.6 93.8 105.5 106.Chemical and oil engineering 120.7 119.5 121.6 96 93.0 105.Machine tool industry and toolmaking 99.6 111.5 99.4 81.7 100.5 95.industry Instrument making industry 140.8 118.4 98.0 90.9 144.8 112.Auto industry 114.7 103.3 101.7 97.8 106.0 109.Communications industry 95.7 330.0 90.0 174.6 118.0 193.Tractor and agriculture engineering 159.3 148.4 129.1 77.6 76.4 130.Engineering for light industry, food 115.8 109.5 107.1 115.9 106.6 119.industry and household appliances Source: the Federal Service of State Statistics.
The condition of branches of investment engineering is a key technological factor, which hinders modernization and upgrading of production on a new technical base. Due to prolonged recession trends in machine tool industry and low rates of renewal of capital in engineering industry, in particular, servicing of the investment process was carried out on the basis of traditional standard technologies. Though in the 1999–2004 period an in crease in investment in engineering industry amounted to nearly 41.8% on the 1998 figure, it did not have a significant effect on technical and economic parameters of fixed capital of engineering industry and industry as a whole. With the average norm of renewal of capital funds in the past three years in engineering industry at the level of 0.9% and in industry, at RUSSIAN ECONOMY in trends and outlooks 1.8%, in the structure of machinery and equipment fleet there was a drop in the share of equipment under the age of ten years old.
Engineering industry is characterized by high fluctuation of workers. In the 1998 period, the number of industrial personnel went down by 8.4%. The industry badly needed skilled workers. With average wages and salaries in engineering industry amounting to 80% of the average level of labor remuneration across industry, engineering industry was not seen on the labor market as an attractive employment opportunity.
Dynamics of building materials industry closely correlated with the volume of building works. In the 2001–2004, commissioning of new housing increased by nearly 35.3%. In 2004, with an increase in building works by 10.1% on the 2003 figure, growth in output of building materials amounted to 5.3%. An increase of 11.3% in growth rates of cement in dustry was accompanied by higher energy saving; per unit weight of cement production on the basis of energy saving technologies in the total output of industry grew from 13% in 1998 to 14.3% in 2003 and 14.7% in 2004. Intensive growth in output of building ceramic (an increase of 115% on the 2003 figure) and building materials produced out of polymer resources (109.9%) was maintained thanks to modernization and upgrading of produc tion. In 2004, the volume of investment in building materials industry increased by 140% on the 1998 figure.
Industries producing consumer goods were unable to maintain high rates of growth during a long period, which factor was related to a great extent to lack of quality changes in technologies and the structure of production. In 2004, growth in the consumer’s sector hit the minimum level in six years and amounted to 2.9%, as against 4.3% in 2003. A reces sion trend in light industry (registered in 2003) affected to a great extent the structure of production of consumer goods (a decrease of 4% a year). In 2004, investments in the con sumer’s sector kept going down.
It is to be noted that branches of manufacturing industry (including light industry) are all characterized by a high wear ratio of capital funds. The ratio of disposal of capital funds due dilapidation exceeded by 300% that of renewal of capital funds. In light industry, abso lute decrease in the volume of capital funds was registered. The crisis in light industry re sulted in a radical drop in demand in labor force. In the past three years, annual average number of industrial personnel in light industry decreased by more than 12%. Light indus try became less attractive due to a low level of labor remuneration. Wages and salaries in light industry amounted to nearly 40–45% of the average level of labor remuneration across industry in general. Due to incompatibility of a technical base and labor skills with market criteria, domestic products of light industry were getting less competitive and in a situation of appreciation of the RUR exchange rate more niches opened up for foreign goods. As a result, removal of domestic products from the market intensified.
Factors which neutralized a negative effect of light industry on formation of the mar ket of domestic non food products included a speed up of rates of growth in output of household appliances, furniture and other goods for home. Growth in output of furniture and building materials correlated with intensive growth in housing construction. Introduc tion of new technologies and growth in output of assembly unit products on the basis of import accessory parts had a positive effect on the above industries and their competitive advantages.
No doubt, sound positions of food industry on the domestic consumer’s market was a positive factor. In the volume of food products resources, the share of domestic products in the 1st quarter, 2nd quarter and 3rd quarter of 2004 amounted to 66%, 67% and 68%, re spectively. At the same time, there was a number of factors which had a negative effect on development of the industry. In the 1999–2004 period, there was a gradual decline in Section 3.
The real sector growth rates of food industry (Fig 11). In the 2001–2003 period, intensive flow of invest ments in fixed capital and creation of new jobs contributed to strengthening of positions of food industry on the Russian market. In the above period, investments in fixed capital in food industry increased by nearly one third. With growth in the ratio of renewal of machin ery and equipment up to 4.2% in 2003, as against 2.4% in 1998, in the above period the wear ratio of funds decreased by more than 10% and amounted to 35.7%. However, the created potential was insufficient. In 2004, due to reduction in investment support growth rates of production in food industry fell to 3.7%.
Unfortunately, investment programs on modernization and upgrading of production failed to ensure sustained growth in labor efficiency and effective use of material re sources. In a situation of growth in material and labor costs in food industry, profitability decreased by nearly 1.5% on the 2003 figure. In food industry, the index of output growth was somewhat lower than that across industry. In 2004, growth in output of food industry amounted to 4.0%, as against 5.1% in 2003 and 6.5% in 2002. Slow down of growth rates of food industry as compared to those of retail trade turnover was also registered.
--2000 2001 2002 2003 Fig. 11. Change in dynamics of production by the branch of industry in the 2000–2004 period (% of the same period figure in the previous year) The year 2004 was characterized by growing rates of inflation due to faster growth in producer prices in the industrial sector and building industry. According to the 2004 re sults, producer price index amounted to 128.3% (an increase of 15.2% on the 2003 fig ure), while in building industry, to 114.9%, as against 110.3%.
Changes in the price structure of the domestic market had a considerable effect on rates of industrial growth and outputs of financial activities. Though in 2003 growth rates of producer prices were higher than those of consumer prices, the gap was insignificant, since there was administrative regulation of prices and tariffs on products and services by natural monopolies. In 2002, the above factor helped overcome inflationary pressures, Light Fuel Food ferrous Building Electricity materials Machine metallurgy Industrial Chemicals metallurgy non-ferrous processing sector, total engineering Forestry and wood-working RUSSIAN ECONOMY in trends and outlooks which were caused by growth in natural monopolies’ prices and tariffs. In 2003, the price index in electric power industry exceeded by a mere 0.8% prices of manufacturers of in dustrial products, while in 2002 the gap amounted to 10%. In natural gas industry, a drop of 22.9% in producer prices was registered for the first time since the beginning of the re forms.
In 2004, changes in price ratios in industry were related to intensive growth in prices on products of fuel industry and ferrous industry. In 2004, price index in fuel industry amounted to 164.7%, as against 101.4% in the same period in 2003. Growth in prices on products of fuel industry took place in a situation of a change in the structure of pricing on energy resources. With an increase of 65.4% in oil prices since the beginning of the year, prices on the produce of natural gas industry increased by 90%. Change in gas prices was aimed to a certain extent at equation of price ratio in respect of hydrocarbons (with dynam ics of prices in domestic and international oil markets taken into account). In 2003, aver age gas prices amounted to 6.3% of oil prices, as against 8.5% in 2004 (which corre sponded to the ratios in the 2001–2002 period). Growth in gas prices stimulated increase in tariffs on electric power which is one of principal consumers of that fuel. However, in 2004 prices on electric power energy increased by 11.5%. A radical change took place in the ratio between prices on natural gas and electric power. In 2004, tariffs on electric power used by consumers exceeded average prices on gas by 190%, while in 2003 that ratio amounted to 480% and in the period of recovery growth, to 270% on average (Fig. 12).
1,1,1,1,1,1,0,0,0,0,12 1 2 3 4 5 6 7 8 9 1011 12 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 2002 2003 industry-overall pow er industry natural gas cargo treight Fig. 12. Dynamics of prices of natural monopolies in the 2002–2004 period as compared to that of prices of manufacturers of industrial products (% of the December figure of the previous year) (industry = 1) The year 2004 was also characterized by growth in prices on ferrous metals and invest ment goods. Higher growth in prices in ferrous metallurgy as compared to that in principal con sumer industries was observed since 2002. Extraordinary high demand in ferrous metals, as well as high international prices on such commodities gave an additional impetus to growth in Section 3.
The real sector prices in 2004. Equation of domestic and international prices resulted in growth in producer’s prices in ferrous metallurgy by 65.8% in 2004, as against 28.8% in 2003.
The investment sector was the first to respond to growth in prices on metals, since it was the principal consumer of engineering materials. Growth in prices in engineering in dustry amounted to 15.0% in 2004, as against 11.2% in 2003, in building materials indus try, to 16.2% and in building industry, to 14.9%.
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