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Thursday, March 15, 2018

The Russian economy is changing

The Russian economy is experiencing serious structural changes over the past 15 years, state the Western agencies. This is confirmed by not some empty slogans, but real processes that affect the largest Russian manufacturers. Several industries show a sharp increase. Thereby they managed it?

The Russian economy is undergoing the most serious during the reign of President Vladimir Putin’s restructuring, Bloomberg says. Moreover, such important changes take place in Russia without that sensation with which, for example, announced plans in Saudi Arabia in preparation for the completion of the oil era.

“New drivers of growth have already appeared in the economy: agriculture, food industry, chemical industry, domestic tourism”

After the fall of the Russian economy due to the collapse of oil prices in Russia, there were whole industries that continue to demonstrate successes against the background of the General decline. “New drivers of growth have already appeared in the economy: agriculture, food industry, chemical industry, domestic tourism,” – said in an interview with the Deputy Minister of Finance Maxim Oreshkin. At the same time, they have been unable to cover the decline in export industries, which were one-time structural in nature, recognizes….

However, thanks to new growing sectors of the Russia’s GDP decline is generally slowing down. So, in the first quarter the reduction of the Russian economy was lower than expected. The fall in GDP of 1.2% compared to the previous year was the lowest since the start of the recession in 2015.

Moreover, the longest recession in the last twenty years can be completed in Russia in the third quarter, says Bloomberg. Inflation in annual expression has also slowed to 7.3% against a maximum value of 16.9%, which was recorded in March of 2015.


The contribution of agriculture to GDP increased to 4.4%, the highest figure since 2003, Bloomberg reported. Significant breakthrough this industry is the fact that in 2015 pre-tax net profit (RAS) of agriculture increased by 45% to 272 billion rubles.

After growing fertilizer market. Just two months this year, farmers purchased by 27.5% more than mineral fertilizers, reported the Ministry of agriculture. One of the world’s leading producers of phosphate fertilisers, PhosAgro reported an increase in the supply of goods to Russia almost in two times – up to more than 500 thousand tons.

The success in agriculture was achieved through the devaluation of the ruble, and, of course, at the expense of the food embargo, which Russia imposed in response to the introduction against Western sanctions.

An important factor of success lies in the fact that even before 2014 in agriculture flowed investment: the Russian business began to develop new industries and modernize old ones with government support of the industry (e.g. preferential loans). The agricultural sector began to develop, in fact, since 2005. So when in 2014, imposed an embargo, the industry was ready to leap and managed to shoot instantly.

Food sanctions have greatly simplified access to retailers, and it is the main channel, which is the mouthpiece of increasing production volumes. Earlier in the fierce competition to break into retail was a hard and costly affair. Retailers behaved like dictators, but now they had to restrain their Imperial ways.

Devaluation helped export-oriented agricultural sectors, in particular, cereal crops and vegetable oil. Russia not only regained the leading position in the export of wheat in the world, has turned from an importer to an exporter of vegetable oil, but went further. Russian companies have begun to substantially expand the geography of their supplies. For example, has begun exports of corn to Japan.

In the 2015/2016 marketing year Russia is ready to supply the absolute record for exports of grain. Even the USDA is forced to admit that this year Russia, apparently, for the first time in many years will be the global leader wheat market, ahead in terms of sales and the United States, and Canada. Russia is expected to sell 23.5 million tons, USA – 21,8, Canada is 20.5 million tons. For Russian grain falling oil prices and ruble devaluation – the only benefit. The first reduces the cost of transportation of the goods, the second is the Russian product at the most competitive price.

Successes are also visible in the meat industry. Meat imports began to slowly fall until 2014. But in 2015, Russia has managed to achieve full self-sufficiency in poultry meat. Soon the same should happen for the pork. Moreover, now Russia is ready to increase exports of its meat products, mainly to the East.

An important factor in the development of this sector of the Russian economy is state support. The profitability of the industry including subsidies in 2015 amounted to 20% against 16.1%, whereas without subsidies it would have amounted to 11,5% against 6.3% respectively.

It is not surprising that, for example, the agricultural holding company Rusagro, which includes agricultural companies, a few sugar factories and oil extraction plant, brags that by the end of 2015, has become one of the most profitable companies in the world. And one of the largest Russian agro-industrial holding “Miratorg” in 2015, increased its net profit under IFRS for the quarter (up 21.5 billion) and expects its growth in 2016.

What are the plans for the replacement of imported Russian products”Miratorg”, despite the crisis, continues to expand its line of products. For example, the other day he announced that soon the stores will be branded a fat – fat of two varieties. But most importantly, he is building huge plans for the development of new territories, not afraid of any crises. On the eve of the Minister of agriculture of Tula region said that “Miratorg” has acquired 42 thousand hectares in different parts of the region, where it plans to open 10 new “meat” farms with processing, investing 10 billion rubles. By 2020, Tula region promise to create a cluster on cultivation of cattle of meat breeds to 70 thousand heads.

Experts even state that this year agriculture though, and will show growth but will be limited to 2-3%. Just because there is already a market saturation in some categories. So, in the four largest sectors of crop production – the production of grain, oilseeds, potatoes and sugar beet, a relatively high base and will be difficult to exceed last year’s figures, said the General Director of the Institute for agricultural market studies (IKAR) Dmitry Rylko. Pig and poultry farming also does not give such a significant growth as in previous years, as their development is gradually slowing because of the proximity of the saturation of the domestic market, he adds. But expected growth in volume terms in the vegetables sector.

Food and chemical industry

In the food industry last year showed that it is best adapted to the crisis. According to calculations by the economic policy Institute named E. T. Gaidar on the results of surveys of enterprises, the index of adaptation of food industry has reached its absolute (for 1994-2016 years) high at 84%. This means that the vast majority of enterprises in the industry considers that they have a normal demand, capacity, number of employees and normal financial position. For comparison: the crisis in 2008-2009, this figure dropped to 66%. This low level was marked in the last quarter of 2013.

“Entrepreneurs look to the future much more optimistic – plan to expand their production in the next 3-4 months”

Overall the food and chemical industry became the flagship of import substitution. Now both of these sectors are leaders in the industry, 2016, they will end up not only positive, but can show the highest rates, with full confidence say the experts of the market research Center of the NRU HSE issek, analyzing the data of Rosstat for April and attitudes of entrepreneurs.

“They began to join, “although “timid” steps, other activities of the manufacturing industry. It is, first and foremost, machinery and machine tools, as well as predominantly state-owned enterprises working in the sphere of military-industrial complex”, – said the Director of the Center for market research issek HSE George Ostapkovich.

The worst for the industry and its manufacturing segment is over, the industry started from the bottom, according to the authors of the monitoring. This was directly revealed by changes in APR. Entrepreneurs look to the future much more optimistic – plan to expand their production in the next 3-4 months and became a bit of a positive assessment of their own financial resources and profit.

A very important positive sign is the scrapping of the negative trend effect on the production of the factor “uncertain economic situation”. Since February 2014, this factor is the progressive left in the first place, acted as the key limiting factor for the development of enterprises. However, in April the influence of this factor declined, says the HSE.

Thanks to the growth drivers – food and chemical industry – as a whole Russian industry this year is able to go to zero. In the HSE believe that, most likely, the decline still continues, but not so intense as last year.

Mechanical engineering

Last autumn was evident in the growth of output of machinery and equipment is largely due to activation of a large business, which receives support from the state. This year a new trend – for the first time in the last two years, notes the increase in sales of agricultural equipment, trucks and even passenger cars.

In particular, in the first quarter of 2016 shipment of combine harvesters of the Russian manufacturers has more than doubled (up to 705 pieces), four-wheel drive tractors – 45% (302 pieces), teeth of harrows – by 44.5% (up to 5 thousand units), cultivators – by 21% (to 978 units). Such data results in the Association “Rosagromash”.

Again, thanks for this need increased state aid, the devaluation of the ruble and, of course, the high demand from the growing agricultural industry. So, the government subsidizes producers localized 25-30% of the price of agricultural machinery. Subsidies received, in particular, “Rostselmash” and “evrotekhnika”. And allocated about 10 billion rubles exhausted by the middle of April, although were calculated for the year. Now agricultural engineering hopes to increase support.

There is something to brag about this year and KAMAZ. For the first time in two years there was an increase in the heavy truck market in Russia. So, for the first quarter of 2016, the sales of KAMAZ increased by 12% to 4.1 thousand cars, and in March was marked by unprecedented growth – nearly 40%. In April, the positive trend continued. In four months the sales of KAMAZ increased by 30%. Moreover, the share of the company on the Russian market increased from 54% to 65%. Especially popular now are the main tractors KAMAZ-5490.

“The plant is working actively, the technique goes well, now the sales Department sells something that will be produced in July. Wages are higher in the past year, the staff increased by 1,300 people. From suppliers, consequently, also growth. Thanks to the government for support,” – wrote in his LiveJournal, the head of the Association “Rosagromash” and “New Commonwealth”, the head of the Council on industrial policy and competitiveness of the economy Konstantin Babkin.

Domestic tourism

And, of course, the devaluation of the ruble, coupled with the closure of the popular summer destinations (Egypt and Turkey) have made a big nod in the direction of development of domestic tourism in Russia. The Association of Russian tour operators expect growth in domestic tourism by 20% in the fall of outbound tourism by 30%. Approximately 1.5 million tourists are planning to shift to Krasnodar Krai, 2 million tourists looking for alternative holiday options abroad. Moreover, Russian tourism will continue to grow and in the next, 2017.

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