Cash outflow in Russia: problem, benefit or necessity

Analysis of cash flows shows that practically there are normal and illegal cash outflow. Cash flows fall in the category of normal cash flow and are necessary, because they help export-import operations and financial activity of transnational corporations (TNC). Moreover, cash outflow is a benefit while incomes of the Russian TNC`s external assets and export operations are the source of cash inflow in Russia.

Illegal cash outflow (look «Reference information», table 1) is understood to be: use of illegal business schemes for capital outflow; cases of overcoming customs barriers; instruments of thin capitalization; facts of non-repayment of export income or non-payment of import contract and others.

According to the Central Bank of the RF (CB RF), cash outflow in Russia in 2014 was 153 billion USD (picture 1). During 15 years (2000-2014) cash outflow was predominant in Russia. Up to the year 2005 inclusive it was minor/ insignificant, especially on the back of the period of 2008-2014 and outbursts of financial crisis in 2008 and 2014. Cash inflow was in 2006-2007, when Russia seemed to be relatively stable amid the global financial crisis and probably became a place of financial capital maintenance.

Picture 1. Cash outflow (inflow«-»/outflow«+») by private sector in 2000-2014 and 2015-2016 (* - estimate), billion USD

Cash outflow

Reasons behind such significant volume of cash outflow are following: Necessity of payment of external debt in 2014 in an amount of 180 billion USD that made this reason the key element of cash outflow;

  • Decrease in possibilities for debt refinancing, lack of access to the foreign markets financing because of economic sanctions imposed on Russia;
  • Rouble devaluation, especially on December 2014, increased demand for hard currency, USD in particular, that became an impulse for cash outflow;
  • Disinvestment in Russian markets on the back of unstable economic climate;
  • Out of total sum of cash outflow in 2014 (the fourth quarter) about 20 billion USD accounted for REPO bargains with banks, however the money should be paid back.

The Ministry of Economic Development and Trade forecasts cash outflow in an amount of 93 billion USD at the end of 2015, and 70 billion USD - at the end of 2016. Predicted values are diminished, because external debt payments are planned to be measurably reduced, e.g. at the end of 2015 – 120 billion USD. Moreover, fall in oil prices in the world market may help. In this case a smaller source level will be required for such purpose. Also business may use tax amnesty that remains in force up to December 31, 2015.

Significant cash outflow is a big problem for the state, especially in respect to illegal cash outflow, because funds at the state`s disposal are decreased. Such situation leads to the investment reduction; slowdown in economic development; reduction of cash deposit in human capital assets by means of development of educational system, medicine, culture; prevention from social programs accomplishment and, finally, worsening of food supply security and country`s defense potential.

Reference information.

According to Russian analysts, who used balance of payment the CB RF data, for the period 2008-2013 cash outflow in Russia was 416.9 billion USD more than cash inflow. Almost 60% of this sum (about 249 billion USD) were accounted for illegal outflow (table 1).

It worth mentioning that illegal cash outflow significantly decreased because of the measures taken by the government, compared to 2001.

Table 1. Illegal cash outflow
Illegal cash outflow – total, billion USD   15 416 44 230 30 953 49 187 37 998
Illegal cash outflow, % of net cash outflow 76,2 16,2 56,9 28,1 21,9
Receivables turnover of paper and cardboard manufacturers

Information agency Credinform prepared a ranking of companies in the RF engaged in paper and cardboard manufacturing.

Companies with the highest volume of revenue were selected for this ranking according to the data from the Statistical Register for the latest available period (for the year 2013). The enterprises were ranked by increase in receivables turnover. 

Receivables turnover is short- and long-term receivables for the period to sales revenue. It shows the average number of days required for debt recovery. The less is the number, the faster receivables turns to the monetary funds; therefore liquidity of working capital increases.  

The ratio shows the efficiency of resources usage by taking the time factor into account.

For the most comprehensive and fair view on the company’s financial condition it is necessary to pay attention not only to the average values in the industry, but also to the whole presented set of financial indicators and ratios.

Table 1. Revenue, receivables turnover and solvency index GLOBAS-i® of the largest paper and cardboard manufacturers (top-10)
NameRegionRevenue, mln. RUB,  2013Receivables turnover, daysSolvency index GLOBAS-i®
1 CJS National Enterprise Naberezhnochelninsky paperboard plant S.P.Titov
INN 1650017638
the Republic of Tatarstan 6 256 25 181 the highest
INN 7842315276
Saint-Petersburg 3 524 31 195 the highest
3 Mondi Syktyvkar LPK OJSC
INN 1121003135
the Republic of Komi 31 818 35 241 high
INN 5321070760
the Novgorod region 6 004 40 206 high
INN 7840346335
Saint-Petersburg 53 940 45 294 high
INN 6929000141
the Tver region 2 623 49 247 high
INN 5244009279
the Nizhniy Novgorod region 9 736 54 281 high
INN 7706017070
Moscow 27 513 65 213 high
INN 5919470121
the Perm Territory 8 146 97 237 high
INN 4633000037
the Kursk region 6 416 159 289 high
Receivables turnover of the largest paper and cardboard manufacturers (top-10) varies from 25 days (CJS National Enterprise Naberezhnochelninsky paperboard plant S.P.Titov) to 159 days (GOTEK JOINT-STOCK COMPANY). 

paper and cardboard manufacturing

Picture 1. Receivables turnover and revenue of the largest paper and cardboard manufacturers (top-10)

According to the latest published annual financial statements (2013), annual revenues of the top-10 market leaders amounted to 156 bln. RUB, which is higher than for the previous period by 3.9%.
Receivables turnover of the revenue leader OPEN JOINT-STOCK COMPANY ILIM GROUP is lower than average and stays within 45 days.
Ilim Group is the largest pulp and paper company in Russia.
The strategic partner of Ilim Group and the owner of 50% of its shares is International Paper, the world’s largest pulp and paper company.
The Company’s business assets located in the Leningrad, Arkhangelsk and Irkutsk Oblasts are the largest mills in the Russian forest products industry accounting for more than 70% of the total pulp production in Russia and 20% of the Russian board production. The total annual pulp and paper production volume of the Company is more than 2.96 million tons.
Mondi Syktyvkar LPK OJSC leads Ilim Group in receivables turnover rate (35 days).
Mondi Syktyvkar is one of the leaders in pulp and paper industry and the biggest paper producer in Russia. The company’s core business is the production of office and offset paper. It also manufactures newsprint and white-top kraftliner.
"Snegurochka" is the leading office paper brand in Russia. It is the first Russian brand of office paper to be FSC certified and is part of Mondi’s Green Range of sustainably produced papers.
All Top-10 companies got high and the highest solvency index. This indicates the ability to timely and fully fulfil the liabilities with minimum default risk.