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All capital assets ( including cattle)

99,9

99,5

99,0

Capital assets of industries producing goods

99,2

97,8

96,4

industrial sector

100,0

99,5

99,0

agriculture

96,8

92,1

87,7

Construction

97,9

96,5

95,1

Capital assets of industries delivering market and non-market services

100,6

101,0

101,4

Transport and communication

100,1

99,6

99,1

Trade and public catering, wholesale trade with production and technical merchandise

98,9

98,0

97,1

Source: Goskomstat of RF

The reproduction of capital assets also finds itself under the impact of the trend to raise in costs for capital repair. The calculations covering the period between 1995 through 1999 showed that the costs for capital repair roughly accounted for 20% of the volume of investment in capital assets. Such a high share of repair proves the thesis on the focus of the investment process on cheap and short-term methods of production apparatus renewal. As a result, there is investment demand for the components of technological equipment that can be replaced without long-term investment in capital assets, i.e. using liquid assets, which forms a specific feature of the investment process in the national economy. However, from a longer-term perspective such a practice leads to technological and economic stagnation. The production apparatus created over the previous decades has been focused on production in the conditions of a closed economy that did not imply any competition, while at present there is an urgent need in renewal of an active part of capital assets, qualitative changes in technological level of production and raising its efficiency.

The technological structure of investments in capital assets experiences changes: during the initial stages of reform one could note a rise in the share of costs for construction and assembly works, while since 1995 there has been noted a gradual growth in the share of expenses on purchasing machinery and equipment in the overall volume of investment in capital assets. The growth in spending on machinery and equipment was determined by the shifts in the investment reproduction structure. The period between 1995 through 2000 was characterized with the expansion of the work on enterprises modernization and reconstruction. In 2000, the spending on machinery and equipment in the overall of investment rose up to 35.7% vs. 30.8% reported in 1998.

Whilst estimating the current state and prospects of the national economy’s development one should take into account that the surge of investment activity in 2000 to a significant extent should be attributed to the market situation. With a 20.4% increase in investment in the industrial sector relative to 1999, hte investment in the oil sector showed a. 65.0% growth. In fact, the investment demand in 2000 practically fully was generated by the oil sector whose share in the total amount of investment in industrial sector accounted for over 30%. Comparing with 1999, the fuel sector reported a 2.2-fold rise in its profits and a 3.4-growth in income denominated in foreign exchange. Though the national exporters have raised their investment spending on development of their profile production, they are not going to invest their free resources in the economy. Hence, the gap between producers (exporters) of energy resources and the other part of the economy tends to widen.

From a long-term perspective, the current heavy structure of the national economy would not be able to ensure high steady growth rates. In addition, the economy’s excessive dependence on external conditions poses a serious threat. Because of that, the industrial policy should be focused on changing the sectoral structure of the economy, its modernization, and raise of the share of industries with a high level of value – added. The effective changes in the economy and its sustainable growth necessitate an inflow of long-term investments based upon the system of credit and financial institutions.

Foreign investment

The national economy showed more favorable conditions for attraction of foreign investment in 2000 relative to 1999. Russia’s climbing to the 32nd form the 49th the position1 worldwide in terms of attractiveness to investors testifies to the improvement of its investment climate.

As of 1 January 2001, the foreign capital accumulated in the non-financial sector of the national economy accounted roughly for USD 32 bln. In 2000 the total volume of foreign investment inflow made up almost USD 11 bln., or at 15% more than in 1999.

Table 2.17

Structure of foreign investments in Russian economy

Total, USD mln..

Direct

Portfolio

Others

USD mln.

As % to result

USD mln.

As % to result

USD mln.

As % to result

1996

6970

2440

35,01

128

1,84

4402

63,16

1997

12295

5333

43,38

681

5,54

6281

51,09

1998

11773

3361

28,55

191

1,62

8221

69,83

1999

9560

4260

44,56

31

0,32

5269

55,12

2000

10958

4429

40,4

145

1,3

6384

58,3

Source: Goskomstat of RF.

The volume of FDI in 2000 practically remained unchanged (+1%) relative to 1999.

Figure. 2.35

The major part of foreign investment in Russian economy (60%) comprises other investments that are formed mainly from trade credits, credits of foreign governments issued under guarantees of the RF Government, and credits disbursed by international financial organizations – The World Bank, the IMF, and EBRD. In January 2001 the World Bank announced the raise of Russia’s credit rating. Between 2001 to 2002 the country would receive a. USD 600 mln. worth credits (instead of 150 mln., as announced previously in 2000). Should Russia succeed in promoting economic reforms, the credit amount may be increased up to USD 1 bln.

Between 1994 through 2000 the Fund for Crediting the Russian Small Businesses run by EBRD disbursed over 32,000 loans worth a total USD 400 mln.

Table 2.18

Foreign investments in Russian economy between
1998 through 2000, as USD mln.

1998

1999

2000

Investment accumulated as of the beginning of the year

33 942

35 338

29 253

Investment inflow over the year

11 773

9 560

10 958

Investment withdrawn (redeemed) over the year

10 377

15 645

8206

Investment accumulated as of end-year

35 338

29 253

32 005

Source: Goskomstat of RF

The sectoral structure of foreign investment in 2000 testifies to the largest volume of foreign investment forwarded to the industrial sector (USD 4,721 mln., or 43.1% of the aggregate volume of foreign investment). Given an insignificant change in absolute indices of the foreign investment inflow in industrial sector in 2000 relative to 1999, in terms of investment sectoral structure, the proportional weight of industrial sector slid from 51.5% in 1999 to 43.1% in 2000. That can be attributed to the growth in investment in other spheres of the national economy over the period in question. Thus, in 2000 foreign investment in the communication sector showed a 3-fold rise, while that in the sphere of credit, finance, insurance and pension provision- 2.3-fold growth.

Table 2.19

Sectoral structure of foreign investment
in Russian economy

As USD mln.

Change relative to the prior year, as %

1997

1998

1999

2000

1997

1998

1999

2000

Industrial sector

3610

4698

4876

4721

58,5

30,1

3,8

-3,2

Transport and communication

194

589

907

1947

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