Most of the Russian companies continue to make profit

Despite of negative external climate and complicated economic situation, business in Russia continues to make profit for owners and shareholders. This statement is reasonable for companies operating in various sectors of industry and services. Following the results of the first half-year of 2016, 69% of companies in Russia made net profit. In comparison with the I half-year of 2015, the increase in profit-making companies is 0,4 percentage points (p.p.).

Totally for 2015, the number of profit- and loss-making companies, compared to 2014, stays at the same level – 71,9% and 28,1% relatively. It should be noticed, that the number of companies with positive results is, as a rule, higher for the whole financial year than for the I half-year. In view of this, it is reasonable to speak about keeping or even some enhancement of business efficiency.

As a comparison: the number of profit-making companies in 2003 was at the lower level than today – 57% (see picture 1). This indirectly indicates the higher vulnerability of the Russian economy even some years back, when there was no serious geopolitical confrontation with the Occident, sanction pressure and overt discrimination of the Russian business and the country in general. Being stronger today, Russia gives an opportunity for several millions of companies not only to stay in the course, but to make net profit.

Share of profit- and loss-making companies in Russia of total number of companies, %Picture 1. Share of profit- and loss-making companies in Russia of total number of companies, %

For an understanding where the company accumulates profit or loss, it is necessary to take a sectoral look at the economy.

According to the analyses, prosperous companies are concentrated in various sectors of the economy and there is no field-specific distribution of profit- or loss-making business: wholesale (excluding sale of motor vehicles), pulp and paper production, agriculture, chemical industry are the sectors with the overwhelming number of profit-making companies.

For the examined period (first half-year of 2016 to the first half-year of 2015) the increase in the number of profit-making companies in the pulp and paper sector amounted to 6,2 p.p. (see table 1), but the sector of transportation by pipeline lost profitable companies (-4,5 p.p.). Wholesale companies (-0,5 p.p.), the companies for production and distribution of fluid fuel (-1,1 p.p.) also sustain losses. Crisis in supplies of energy to the Ukraine and consumer resistance make clear the process of reduction of the number of profit-making companies in the mentioned sectors.

Table 1. Share of pofit-making companies by sectors of the economy for the first half-year of 2016, Top-10 of sectors
Sector Share of profit-making companies, % Increase/decrease in the share of profit-making companies compared to the I half-year of 2015, percentage points
1 Wholesale (excluding sale of motor vehicles) 83,1 -0,5
2 Production of pulp, paper, cardboard 82,9 6,2
3 Agriculture 82,8 0,5
4 Chemical production 82,1 2,2
5 Transportation by pipeline 81,7 -4,5
6 Production of leather and goods thereof 81,5 2,9
7 Fishery 80,9 0,7
8 Production of food products, beverages and tobacco 80,0 0,6
9 Production of rubber and plastic goods 79,1 4,7
10 Production and distribution of fluid fuel 78,7 -1,1
  Total for the economy 69,2 0,4

At the other side, following the results of the I half-year of 2016, 30,8% of total number of companies in Russia sustained losses (see picture 2). But this indicator is lower than in the relevant period of 2015, when 31,2% of loss-making companies were recorded.

Comparing the actual data for 2015 with the indicator in 2003, the positive trend is observed: the number of loss-making companies for the past 12 years reduced from 43% to 28,1% or by 14,9 p.p. Recently, either of the four companies in the country haven’t made profit.

The largest share of loss-making companies is observed in transport and in housing and communal services, as well as in services for population (hotels, cafes, restaurants, tourism). These sectors are traditionally supported by the state and decrease in demand directly indicates decrease in real income of the population (see table 2).

Table 2. Share of loss-making companies by sectors of the economy for the first half-year of 2016, Top-10 of sectors
Sector Share of loss-making companies, % Increase/decrease in the share of loss -making companies compared to the I half-year of 2015, percentage points
1 Activity of other land transport, except railroad 51,6 -3,1
2 Extraction of mineral resources, except fuel and energy 47,1 -2,4
3 Production and distribution of gas, steam and hot water 46,4 -1,6
4 Production of other non-metallic mineral products 42,5 7,9
5 Housing stock management 41,2 -0,3
6 Recreational, tourism, culture and sports activity 40,3 -2,5
7 Hotels and restaurants 37,3 -3,2
8 Printing and publishing 36,8 -4,4
9 Production of vehicles and equipment 34,3 -2,9
10 Research and development 33,0 4,5
  Total for the economy 30,8 -0,4

The forming way of the economic development for potential investors is an evidence of stability of the Russian economy even under the negative external climate. The situation is not as catastrophic as it is covered, especially in the foreign publications. Handling the quite wide-spread and overworked ideas on crucial role of resourcing rent in the development of Russia, the part of the western political establishment and leading economists set their minds on the beginning of breakdown and fast close of business. However, a large part of the EU and even the USA business community understand the absurdity of an obvious fact denial – it is worth to work in Russia, there is a possibility to make profit in the sectors not related to oil and gas extraction. Here are some sustaining examples:

  • After almost a century, last year Russia took back the status of the leading grain (including wheat) supplier to the world market (30,7 mln tons in 2015) and left acknowledge leaders – Canada, the USA and France – behind. Probably this year Russia will achieve a historic record in gross grain harvesting for the whole post-Soviet period: agrarians expect harvest of about 120 mln tons (110,4 mln tons of grain were harvested as of September 28, 2016);
  • National weapon is in higher demand in many countries not included in NATO. For already several years Russia has been taking a second position after the USA by a scale of supplies;
  • Following the results of 2015, economy of the Russian Internet (content and services) amounted to 1 355,38 bln RUB and 588 bln RUB – to the volume of the electronic payment market, that is totally an equivalent to 2,4% of the GDP of Russia. In monetary terms, so called “Internet-dependent markets” are equitable to 19% of the GDP of Russia. Contrary to traditional manufacturing, this sector is on the fast track. Representatives of the IT-industry, famous for their brands “Yandex”, “Kaspersky Lab”, “1C”, “Lanit” entered the international arena;
  • “Uralkali” company is the largest manufacturer of potassium fertilizers in the world;
  • “Corporation ROSATOM” implements the energetic projects of immense complexity for the creation of the nuclear industry in Iran and Turkey from the ground.

Taking into account all drawbacks, Russia created diversified economy; there is a potential (deferred by various crises) to further development and profit-making.

On economic situation in seaports of Russia

Ports of Russia always play an important role in the economic development of the country. The reason for this is geography of Russia: the country borders on 12 seas of three oceans and the Caspian Sea. Today the Register of seaports of Russia includes 67 ports located in Arctic, Baltic, Azov-Black Sea, Caspian and Far East basins.

Following the results of January-August 2016, cargo turnover of seaports amounted to 468,6 mln tons, increased by 5,7% compared to the same period of the previous year. The highest percent improvement was shown by ores – 5,7 mln tons (+35,2%), coal – 89,3 mln tons (+12,0%), grain – 20,6 mln tons (+10,6%), crude oil – 146,4 mln tons (9,8%).

The largest volume of cargo in January-August 2016 was handled by the ports of the Azov-Black Sea basin. The ports of the Baltic Sea are slightly behind since 2015. This is due to the economic and geopolitical factors, resulting in sharp reduction of containerized cargo handling; the influence of the situation in the inland waterways; the turn in economic cooperation to the South and East, which led to a change in the geography of cargo routes. The cargo turnover of seaports for January-August 2016 by the basins is presented in Table 1.

Table 1. Cargo turnover of seaports of Russia for January-August 2016.
 Arctic basinBaltic basinAzov-Black Sea basinCaspian basinFar East basin
Total, mln tons 30,0 155,3 158,0 3,7 121,5
change, % + 28,3 +2,1 +4,7 - 19,6 +8,1
Dry cargo, mln tons 17,5 58,3 67,6 1,8 73,1
change, % + 8,8 +0,6 +12,3 - 14,0 +13,6
Bulk cargo, mln tons 12,5 97,0 90,4 1,9 48,4
change, % + in 1,7 times +3,1 - 0,3 -24,2 +0,8

As for the Azov-Black Sea basin, the largest amount of cargo was handled by Novorossiysk seaport – up to 85,8 mln tons (+1,9%). Increase by over 10% was observed in Kerch – up to 6,2 mln tons (+35,2%), Rostov-na-Donu – up to 8,5 mln tons (+27,7%), Yeisk – up to 2,5 mln tons (+13,0%), Temryuk – up to 1,9 mln tons (+12,4%) and Taman – up to 8,5 mln tons (+10,8%). As of the Baltic Sea, the most effective ports are Ust-Luga with 60,3 mln tons (+5,1%) and Primorsk with 43,3 mln tons (+11,7%).

Development of ports in various regions depends on the geopolitical trends. Taking into account the current anti-sanctions policy, exploration of Arctic and South-East direction is a matter of priority for the state. Transport infrastructure or nets of ports are planned to be created in these regions, that is why cash flows will be primarily directed there. Ports of the Baltic basin will unlikely have to rely on the inflow of investment.

Nevertheless, according to the analysts, Baltic ports will keep leadership by total cargo turnover. However this indicator can be shortly reduced in case of round of crisis or devaluation of rouble. Russian ports in the North-West have an opportunity to pick up cargo from the ports of the nearby Baltic States. Russia plans to continue the reorientation of petroleum products export through its own ports. Multipurpose Sea Cargo Complex (MSCC) Bronka located at the administrative territory of Saint-Petersburg near Lomonosov was commissioned this year to increase in container traffic.

It is important to create the most favorable conditions relating to customs procedures, tariffs, capacity, storage, etc. Since August 1, 2016 the Electronic Declaration Center has been starting to operate in an experimental mode. Back in their day, Russian businessmen have invested in the development of Baltic ports, that is why they will continue cargo handling using their own capacities.