Over the period between January- to April this year, the volume of investment in capital assets made up almost Rb. 207 bln. thus showing a 13.1% growth compared with its respective period of the prior year. The rise in investment activity noted yet in the Ivth Quarter 1999 has initiated the acceleration of the growth rate of industry branches of the machine- building and construction sectors, which are main consumers of metal products in the domestic market. When compared with April 1999, the increment in the output in the former sector made up 14.1%.That became possible thanks to the growth in the scope of output practically in all the sub-branches of the machine- building sector.
The growth in the volume of output was accompanied by improvement of the machine- building enterprises’ economic and financial state, chiefly at the expense of the growth in liquid assets in monetary form and reduction in the number of unprofitable enterprises as well as the implementation of restructuring programs at the enterprises of the sector. The continuation of the work on optimization of capacities and restructuring of enterprises’ assets, conduct of certification and mastering new kinds of equipment allowed growth in output of import- substituting kinds of equipment and machinery, such as carriages of electric trains, passenger carriers, devices, and electric engines.
The dynamics of output of the machine- building produce finds itself under the impact of the factors that determined the growth in the production volume last year: the demand for technological kinds of the domestic machinery and equipment grows, while their import declines ( by 20% relative to the Ist Quarter of 1999); investments in capital assets grow; regional funds are attracted for the purpose of buying agricultural machinery as well as for highway repair and construction and house building.
Dynamics of output by industry branches of the machine- building sector, as % to the prior period
Out of which
Chemical and petrochemical machine building
Device- making industry
The industry of communication means
Tractor and agricultural machine building
Machine- building for food- processing and light industry, home appliances
*) January to April 2000 relative to January to April 1999
Source: Goskomstat of RF
Despite the fact that the machine- building sector generally shows its growth potential, the sector’s share in the industrial sector continues to decline, being supplanted by the sectors manufacturing intermediary produce. The decline in the share of capital industry branches in the structure of output also substantially constrains the possibilities for capital accumulation, and that is the factor that affects the investment environment in the national economy.
Foreign investment in the Russian economy
In 1999, there was no activation of investment processes in the national economy. The investment sphere is still characterized with the growth in the volume of exported capital. Thus, given that in 1999 the Russian economy received USD 9.56 bln., more than 1.5 times bigger volume of capital was withdrawn from the economy in a form of the transfer of revenues of foreign co-owners of enterprises and other foreign investors to abroad, as well as the interest payments on and paying off credits ( in 1998 the respective index made up 88% of the overall volume of foreign investments in the Russian economy)
Foreign investments in the Russian economy in 1998- 1999, as USD mln.
Investment accumulated as of the beginning of the year
Investment received over the year
Investment withdrawn ( paid off) over the year
Investment accumulated as of the end of the year
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The analysis of the situation in the investment market shows that foreign investment still maintain their interest in the fuel and energy sector, food- processing industry, trade and public catering.
In 1999 notable changes took place in the structure of foreign capital attracted to the fuel, light, wood- working and paper and pulp sectors, and to forestry. Thus, in 1999 the share of FDI in the fuel industry grew up to 70%, while in 1998 it was accounted for 17.5% ( 1997- 17.8%). The analogous index for the light industry for 1999 made up 52% ( 1998- 37.3%), forestry, wood- working and paper and pulp sector- 72.5% ( 22.5%), respectively. In all by the sectors of industry the share of foreign investment in the aggregate volume of foreign investment in the industrial sector grew from 31.4% in 1998 up to 53.4% in 1999 ( 1997- 30.2%)
The participation of foreign capital in the banking sector grows. Thus, as of January 1, 2000, the share of non- residents in the aggregate authorized capital of the Russian banks made up 10.71% ( 6.35% as of January 1, 1999). There are 21 banks with the 100% participation of non- residents in their authorized capital ( in the first Quarter 2000, the number of such banks grew by 1- OOO Commercial bank “Pervy Czeshsko- Russky Bank” became a bank with 100% foreign investment due to alienation of residents- participants in the bank of shares in favor of a non- resident. In the territory of RF 4 subsidiaries of banks with the 100% authorized capital of non- residents were established. The credit institutions with foreign capital operate in Moscow, the Moscow Oblast, St. Petersburg, Kemerovo, Orenburg, Tver Oblasts, Primorsky Krai and Republic of Udmurtia.
Should the State Duma pass the bill “ On exceptions of restricting nature to the national regime for foreign investments conducted in the territory of RF” elaborated by the State Duma Committee for economic policy, which contains the list of industry branches, production and territories in which foreign investors’ activities are prohibited or constrained, it may affect the process of attraction of foreign investment. In compliance with the bill, it is necessary to constrain foreign investments in the following spheres of business: transmission and distribution of electric power, transportation of gas through long- distance pipelines, construction and use of oil and gas pipelines. The bill also suggests to impose constrains on production of alcohol, in the sphere of audit services and in banking, and a number of other sectors. The Committee also suggests to prohibit foreign investments in the development and production of special materials used for the production of nuclear weapons.
In May 2000 the State Duma also received for its consideration the bill “On introduction of amendments to the Law “On production- sharing agreements”. The bill specifies the procedures of the transfer of rights and obligations under PSA in the course of implementation of reorganization of legal entities which are contracting parties of under agreements. The investor has to provide for guarantees of the rights of the government as creditor, while in the event of reorganization the government would have a right to claim for an early cancellation of the agreement. The issuance of license for the use of depths in the case of succession in the course of reorganization of the investor is to be accomplished within 30 days upon the moment of completion of such a reorganization.
IET monthly trends survey: May 2000
Unfortunately, the results of the survey on 1,000 largest industrial enterprises held in May proved pessimistic forecasts of the prior survey. The growth in effective demand has slowed down sharply, and the estimates of the stock of fiished products does not instil any optimism as well. One can just hope that, like in January, the reason for that is seasonality.
In May, the survey registered a sharp slowdown in the growth in effective demand. The balance of responses ( growth- decline) dropped to 2 points after 21 reported in April. It was January 2000 that showed such a slow growth in monetary sales last time, which was attributed chiefly to seasonality. The same factor is also in place in the national industry in May, however a year ago the growth in demand slowed down by just 2 points, while this May- by 19 points. The volume of sales of industrial produce declined in all the sectors, but the industry of construction materials. The absolute construction in this regard was noted in the wood- working sector, forestry, food- processing, and electric power.
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