The dynamics of single sectors’ development was determined by the impact of a whole range of specific factors and conditions, of which, however, it was the real depreciation of the Rb. which unquestionably provided for the most significant effect. The favorable combination of factors of the change in the price situation for fuel and mineral goods in the world market plus the said depreciation effect have generated a substantial growth in the profitability of export- oriented sectors of the mining industry and sectors related to the primary processing of raw materials. In the domestic market, there was a similar vector of development thanks to the trend to advancing price rise for intermediary goods relative to the price dynamics for capital and consumer goods.
The renewal of a positive dynamics in the mining sector was related to the growth in domestic demand for domestic products and the intensive development of import- substitution processes. That determined a substantial growth in profitability rate in the machine- building sector, food- processing sector and allowed the light industry to regain its profitability.
The improvement of the industrial enterprises’ financial state and the growth in the production’s profitability rate were also determined by positive shifts in the production and technological sphere- lowering production costs, introduction of resource- saving technology, restructuring, and production of competitive products. The lowering of costs per 1 Rb. of goods produced and the positive dynamics of the production profitability rate were characteristic of the majority sectors of the national economy in 1999. By the results of 1999, the production costs by the industrial sector fell by 13.7% compared with the prior year. Of the industrial sector it was the fuel industry in which production costs were lowered at most- by 24.8%.
The effect of the production renewal and growth in profitability rate determined the change in proportions of the formation of GDP by income- the share of the economy’s gross profit grew by 5.7 per cent points.
The structure of formation of gross domestic product by sources of income, as % to result
Salaries and wages of employees, including latent
Net taxes on production and import
The economy’s gross profit and gross combined revenues
Source: calculations are based on the data of Rosstatagentstvo and the RF Ministry of Economy
The economy demonstrates a mass flow of financial capital to the limited circle of industry branches. The growth in profitability rate in the export sector was accompanied by the re-distribution of profit in favor of those. According to some calculations, the share of mining industry branches and the production related to the primary processing of raw materials grew by almost 15 per cent points. In addition, as long as the profit of enterprises- exporters maintains its value in foreign exchange equivalent, the enterprises stand high at the securities market, thus enjoying an additional opportunity to attract domestic and foreign investors. That creates conditions for the increase in investment activity at the expense of enterprises’ own capital, in possibility to attract banking loans under a higher interest rate, and generates the growth in tax revenues in budgets of all levels.
Situation in industry
Results of the survey on 1000 largest industrial enterprises testified that the trends noted over the prior year remained unchanged in March. The enterprises respond to the growth in effective demand with an increasingly intensive growth in output. The constant reduction in barter transactions normalizes the non- payment problem in the Russian industrial complex. Enterprises’ forecasts remain very optimistic.
By enterprises’ estimates, the effective demand for industrial products continues its growth. In March the growth intensity rose by yet 3 points and became the highest value registered over the last seven months. The growth in monetary sales was registered in all the industry branches, except the electric power and food- processing sectors.
During the last months, the volume of barter transactions’ reduction shows a constant intensity. In March, the reports on a fall of barter still prevail in all the industry branches.
As a result, the aggregate (effective + barter demand showed a higher growth rate in March relative to February. The growth in the respective index was reported by 27% of enterprises, while only 13% reported its fall. The better difference ( 25 to 9) in reports was noted only once- in March 1999. In the meantime, the most intensive growth in the aggregate demand was noted in the food- processing, construction, chemical and petrochemical sectors, while the minimal fall- in the electric power and construction sectors.
In March, a half of enterprises reported growth in their output, which is an absolute record value for all the 94 surveys. The share of reports about fall in output also broke record: only 7% of enterprises reported a drop in output in March, provided that this index has never dropped below 11% before. In March, the growth in output was taking place in all the industry branches, and it was most intensive in the metallurgical, construction sectors, and chemicals, petrochemicals, and machine building.
As our log-linear computations show, during the last 1.5 years the change in output is determined by the dynamics of effective demand, while barter demand does not have any substantial impact on the industrial output. A thorough analysis shows that the growth in effective demand entails only the growth in output. Should the demand remain the same, the enterprises may increase or decrease, or keep it unchanged, while the fall in demand, as a rule, exclude any growth in output.
In March, the lack of the stock of finished products came back to practically the previous level. In February, the survey registered a 8- point drop in the index, while in March the excessive stock was reported only by chemicals, petrochemicals, and construction sector, and the other sectors mostly reported a lack of finished goods. The lack is especially significant in the machine- building sector, non- ferrous metallurgy, and light industry.
In March, the price rise slowed down slightly, however, the balance of reports ( up- down) has not left the corridor margins within which it has been fluctuating since mid- 1999. The reports on a 30-35-point price rise prevail over the reports about a price decrease. During the last 12 months, a. 60% of enterprises reported their prices being unchanged.
In March, the projections of change in output dropped once again. After the peak value reached in January, the overall fall made up 9 points. At the sectoral level, the improvement of projections was registered only in the non- ferrous metallurgy, while the other sectors demonstrated less optimism. However, the absolute fall in the output is projected only by the electric power, wood- working, forestry and paper and pulp sectors.
The projections of the change in effective demand remain at the highest level. Only 5% of companies envisage a drop in their monetary sales, and the growth in the monetary demand is projected by all the sectors. The most intensive growth in monetary demand is projected by the chemicals, petrochemicals, construction and metallurgical sectors.
In March, the projections of change in barter demand did not change. The balance of reports proves the prevalence of expectations of a contraction in the number of direct barter transactions, which has already been in place for 11 months. The fall in barter is still projected by all the sectors, except the construction industry.
Oil and gas sector
The oil and gas sector finds itself under the impact of the state of affairs in the international market. Whereas 60% of the Russian oil is exported as crude or refined oil, the external demand and the price level for oil are de-facto main factors that determine the level of the domestic production and the financial state of the oil sector. Between 1999 through early 2000 the situation in the world market was characterized with the overcoming of an intensive price crisis observed since 1998. In 1999, the average world price for oil made up USD 17.4/barrel, i.e. at 44% more than the level of the prior year. During the first months this year, the world oil prices reached the level of USD 28-30/barrel, which sharply increased the revenues from the Russia oil export.
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