*) Preliminary data from the Ministry forEconomic Development
Over the last two years, investmentactivity has been determined not only by the scale of the funds used, but alsorationalization of resource flows used for reproduction of fixed capital. In achanging market situation, the enterprises are geared toward expanding theirposition in the domestic market both by enhancing competitiveness of theirproducts compared with domestic like goods, but also by intensive developmentof import substituting production. Investment activity motivation is alsochanging. With financing resources severely limited, investment decisions aredetermined by the tasks of improving product quality and their compliance withmodern standards, expanding a product range as well as the technologicalaspects of cost cutting.
In the structure of investments inequipment, expenditure on purchasing technological lines and complexes formanufacturing new products amounts to about 10-15 percent, while the main partis spent on purchases of individual installations. It should be emphasized inthis connection that such investment structure, determined by the financialconstraints, leads to a conservation of outdated technologies, failing tocontribute to manufacture of competitive high tech products.
With a revival of investment demand, onecan observe an anticipatory growth of machine building compared with the trendsin industrial production. This testifies to a fairly flexible and promptproducer response to a changing situation in the domestic market.
The issues of financinginvestment expenditure
The share of investments in fixed capitalin GDP grew to 17.7 percent in 2000 against 14.1 percent in 1998. Insofar,increased investment activity of enterprises against the backdrop of continuedshrinkage of budgetary financing of investments has been characteristic of thelast three years. Own funds of enterprises remain the key source of financinginvestments in fixed capital.
Anticipatory growth of investments in fixedcapital in 1999-2001 was accompanied by increased profitability of the economy.In 2000, the profitability of products in the economy as a whole grew to 18.9percent and of the assets – to 7.8 percent. An improved financial position of the enterprisesand a growing effective demand became the factorswhich stimulated an increased share of the accumulation fund in the sources offinancing investments in fixed capital. In 1996-1998 profit accounted for lessthen ¼ ofenterprises’ ownfunds used for investments, however, its share surgedto 50 percent in 2000-2001.
Product profitability by key sectors of theeconomy and industry, in percent
Total for the economy
Trade and public catering
Wholesale trade in products
*Computed on the basis of preliminarydata
It is noteworthy in this connection thatthe structure of sources forming investment funds of enterprises has undergonechange in the conditions of economic growth. Over the last few years a practicebecome widespread of non-designated use of the amortization fund for consumerpurposes. Productive changes in the economy and an economic growth revivalrequired changing the mechanism of investments in fixed capital reproduction.2000-2001 witnessed an increased share of amortization deductions in thestructure of financing sources.
The Government’s further distancing from thecapital market became one of the key factors. Investments of Government-runenterprises in the total volume of investment expenditure in the nationaleconomy amounted to 23.1 percent in 2001, having dropped by 17 percentagepoints compared with 1993. Almost 3/5 of investment expenditure was formed bythe enterprises and entities with private or joint stock type of ownership.Changes in favor of the non-government sector of the economy were accompaniesby a decline in the share of government investment expenditure in the budgetsof all levels. The share of budgetary expenditure of all levels on investmentsin fixed capital dropped in 1993-2001 from 5.4 to 3 percent of GDP. Thebudgetary funds accounted for a mere 20.0 percent of the total investments infixed capital in 2001. It should be emphasized that the shrinkage of budgetaryfinancing was accompanied by a change in the functions of the budgets of alllevels in investment program financing. In 1999, the federal funds accountedfor 37.6 percent of the budgetary sources of financing, however, their sharedropped to 28.0 percent in 2001. Government capital investments, financed forthe account of the federal budget in 2001, totaled.0.41 percent of GDP, or 2.2percent of the total investments in fixed capital. Most of government capitalinvestments were allocated to resolve topical social issues without alternativesources of financing.
Though own funds of enterprises stillretain a dominant position, the share of raised funds among sources ofinvestment financing is gradually growing. The ratio between own and raisedfunds varies substantially by sectors of the economy and industry. Overall forthe economy, less than half investments in fixed capital in 2001 were financedfor the account of enterprises’ own funds. However, own funds accountfor ¾ of investmentexpenditure for the reproduction of fixed assets in such highly profitablecomplexes as fuel and energy and metallurgy.Production profitability in these complexes significantly exceeds this valuefor the economy as a whole and industry, they generate almost 1/3 of grossprofits in the economy and 3/5 – in industry. High concentration of revenues in theexport-oriented sectors significantly impacts on the nature of investmentactivity in the processing sector of the economy. Given that the profitabilitylevel in machine building and construction materials industry is substantiallylower than the average values in industry, the potentialities of financinginvestments programs for the account of own funds are limited. In theinvestment complex as a whole, approximately 1/3 of expenditure on thereproduction of fixed capital is financed for the account of raised funds.Taking into account the high cost of credit resources and the irregular natureof fund transfers from the budgets for financing investment expenditure, thetrend, manifested over the last few years, to a dwindling share of investmentsin this complex in the total volume of investments in the national economy,becomes understandable. The same factors explain a low investment activity inthe consumer sector of the economy. Food industry, with highly competitivedomestic products and quick payback of investment projects, is characterized byan expanding participation of loaned capital.
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