Industrial production shows signs of recovery?

Following the results of the 1st quarter 2014 the growth of industrial production in the RF made 1,1%, what is by 0,3 percentage points less, than in the 4th quarter 2013. The industrial production index, taken as a whole for the year 2013, was about zero values – 100,4% - the most limited success for all time after financial crisis of the year 2008. Thus, the stagnation in domestic economy persists. However, there is a number of criteria at the present time, which point indirectly at the breaking of negative trend.

In Russia in the 1st quarter 2014 the mining of subsoil resources increased by 0,8%, manufacturing - by 2,4%, and in the sphere of the distribution of electricity, gas and water there was fixed the decrease by 3,7%. Considering that in the 1st quarter 2013 the industry showed the negative result (-1,2%), then present figures should be considered with cautious share of optimism. Firstly, it is observed a positive trend in the dynamics of the manufacturing industry, what on its own is a positive sign, and considering unstable external-economic background, connected with events in Ukraine and later sanctions from the side of a number of countries, the growth in these conditions is an achievement; secondly, the significant decrease of power-generating sector during three straight quarters has had an impact on limited success in industrial production, that is explained by lengthy and warm autumn and a short winter period, when in November-January in the European part of Russia the positive temperature regime was observed most of the time.

Regarding positive figures of the growth of manufacturing industry, it may be noted the significant increase of production output in the segment of paper and cardboard, the growth made 530%, organic pigments – 120%, bodies for vehicle - 93,8%. The highest decrease is ever fixed in the supply of combine harvesters (-58,2%), gas turbines (-48,2%) and AC generators (-44%) to the market.

In the mining of subsoil resources the growth was noticed in the production of bauxite – 4,3%, and oil – 0,7%, gas recovery decreased by (-1,4%), coal - by (-1,7%).

growth of industrial production

Picture. Growth of industrial production to the relevant period of the previous year, %


The future of the dynamics of the manufacturing will depend mainly on tempo of the arrangement of the conflict in Ukraine, because Russia is the main foreign trade partner for this state, the reduction of our export by the collapse of Ukrainian economy will have a direct impact on us; there is a risk that the uncertainty over payments for gas leads to significant decline of energy supply to the country, by that the importance of transit role of Ukraine in gas providing for European continent must be considered. Sanctions of western countries will lead to increase of capital outflow and scare away potential investors, and the devaluation of the rouble, remarkable since the beginning of the year, will have an effect on accelerating inflation, the fight with which has been set as high-priority problem for the whole economic bloc of the government and the Central Bank for a number of recent years. 

On the other hand, the annexation of Crimea has already showed, that for integration of the half-island it will be necessary to carry out a number of large infrastructure projects (bridge building trough the Kerch Strait, building of new generating capacities, fresh water delivery etc.), what, finally, will give a new impulse to the industrial sector. The policy on isolation of Russia, conducting by the USA, will backfire – foreign trade cooperation with neighboring China will grow rapidly, including on gas supplies from Eastern Siberia, as well as with such large countries as India and Iran. Diversification of market outlets and decrease of import dependence on a number of key products, what they have been talking about in governmental authorities for all recent years, will go on this background at a growing rate.

In summary, Russia has come into the area of increased external political and economic risks today, which will have its effect on industrial development of the country more or less. But, having high human potential and unique natural and geographical location, Russia remains to be an attractive market for long-term investments, what must have an impact on volumes of industrial production soon or late.

Corporate bankruptcies

According to the data of the Federal Tax Service over the past year 2013, the amount of insolvent legal persons and individual entrepreneurs reduced by 4% in comparison with the year 2012 and made 11,3 thousands bankruptcies.

Total in 2013 there were registered about 540 000 legal entities in Russia, that is by 23% more, than in 2012. By that the amount of registered commercial organizations was approximately 500 000, increased by 24%. Along with that, the amount of registered individual entrepreneurs (IE) and farm enterprises for the similar period decreased by 18% and made only 472 000.

At the present time almost 40% of legal persons register in Central Federal District (approximately 200 000 enterprises), Volga and Northwestern Federal Districts are also among popular regions for business dealing.

Amount of registered legal entities in 2013, on federal districts, %

amount of registered legal entities

Together with the reduction of the amount of registered individual entrepreneurs and farmers, it is observed the increase by 37% of the amount of IE and farm enterprises, went out of their business, at year-end 2013. By that the share of entrepreneurs is 97% or 933 000, 1,5 thousands among them went out of business because of bankruptcy, that is by 4,3% less, than in 2012. At the present time the leading region on the amount of insolvent businessmen is Volga Federal District, approximately 30% of bankruptcies of IE are registered here.

The major part of individual entrepreneurs (98%) went out of business on own motion. The experts associate similar results with the abolishment of the reduced rate of insurance payments.

Relating to legal entities it is observed the contrary trend – the reduction of the amount of organizations now defunct. So that, a bit above 460 000 companies folded their operations in 2013, that is by 18% less, than in 2012. By that it is observed the increase of liquidations of enterprises by the decision of their members (by 4%) and the reduction of cases of termination of the activity due to reorganization and bankruptcy - by 1,3% and 4,6% respectively.

The overwhelming majority of bankruptcies falls traditionally on limited liability companies and superadded liability companies (LLC and SLC), though at year-end 2013 their amount decreased by 12% in comparison with the year 2012 and made approximately 6,5 thousands.

Share structure of bankruptcies in Russia on the types of business organisation, %

share structure of bankruptcies in Russia


Among the largest constituent entities of the RF on the Gross national product (GNP) index the highest number of bankruptcies at year-end 2013 is registered in Saint-Petersburg – 375 companies, in Kemerovo region – 307 enterprises, in Sverdlovsk region – 297 organizations and in Moscow – 293 firms.

It is worth specially noting, that one of the most common causes of bankruptcy proceeding declaration, as well towards legal persons, as towards IE, is finding in the course of field tax inspection of facts of dealings with «fly-by-night companies» during last three years. That’s why it is worth choosing and checking your contractors at most carefully for avoiding additional tax assessment in the future.

The expansion of mortgage and consumer finance market, the increase of the volume of loan arrears have determined the necessity in the legislative regulation of cases of bankruptcy of ordinary nationals, not being individual entrepreneurs. The bill was passed in the first reading by the State Duma, but at the moment the work on it is going slowly. The question about the low threshold of liability, by the reaching of which it could be possible to initiate bankruptcy procedures, has become the «stumbling point». In the first variant of the bill the threshold value was set at the level of 50 000 RUB, but firstly this sum is comparable to the amount of expenses for the bankruptcy proceeding itself, and secondly too low threshold value will act as a peculiar kind of collapse of the judiciary, which may just fall down on the amount of bankruptcy cases. As of today the creators lean to the sum of 300 000 RUB. In this case the holders of mortgage and automobile loans will fall under the force of new law.

Note that according to the data of the Central Bank for January-February of the current year the volume of loans, provided to natural persons by Russian banks, increased by 1,4% and made more than 10 tln RUB.