Russia continues to diversify the economy

вестник 05.04.2018

Contrary to common belief, the Russian economy is successfully wending the way of business activity diversification and forming not only by means of oil and gas.

Tax collection to the RF budget system by sectors conforms changes in the economy: following the results of 2017, volume of tax collected from non-materials sector amounted to 70,8%, and 29,2% were recorded for basic materials sector. Totally 17 194 bln RUB, or by 19,5% more than in 2016 with total taxes amount of 14 388 bln RUB, were transferred to the budgets at all levels in the past year.

Taxes and duties paid to the budget at all levels represent total GDP structure of the country (see Picture 1). It is fair to say that business connected with non-renewable resources mining is still on leading position. However, other sectors increase assignments: the share of taxes of manufacturing exceeded 19%, wholesale and retail trade — 10,7% of total payments. Being a new but increasing experience for our country, share of obligatory payments of financial and insurance, as well as scientific and technological activity is 5%, while the same business in the Occident forms over 50% of GDP.

Picture 1. Structure of the Russian economy in terms of taxes and duties paid to the budget in 2017, % by major economic sectors Picture 1. Structure of the Russian economy in terms of taxes and duties paid to the budget in 2017, % by major economic sectors

At the same time, in the domestic economy there are structural problems, being well observed regionally:

1. Over-concentration

Main business activity and financial flows are concentrated in few regions: over 61% of all taxes are collected in 10 federal subjects (see Table 1), that largely explains the firmly held views of success, migration attractiveness and stable level of social and economic development of these regions. The rest of 75 subjects accumulate less than 39% of obligatory levies and charges to the budgets.

Moscow accumulates 18% of all taxes to the RF budget system, where 20% accounts for trade, 19% for financing and insurance, 13% for professional, scientific and technical activities.

Khanty-Mansi Autonomous district — Yugra, where 86% of economy accounts for mining operations, is ranked number two with 13% of taxes paid.

Yamal-Nenets Autonomous district, another mineral region, closes the top three with 7% of taxes.

2. Imbalance of economic development

Imbalance economy downsides are shown by single-industry cities, located around one large enterprise. If the employing enterprise is successfully operating, lack or insufficient provision of the region with own made products and food could be barely noticeable. Increased product prices due to additional delivery costs are compensated with high wages. High prices and the absence of alternative jobs are resulted in instability and risk, if any financial difficulties occur at the enterprise.

Region with balanced economy is able to reallocate jobs, prevent out migration, provide with payments to budget under unfavorable conditions of one of the industries and restore balance then.

The current economic structure is reflected in specialty of regions, which can be divided into 4 groups:

  • – Postindustrial Moscow with developed service sector, science and trade.
  • – Subjects with one prevailing industry — mining of recoverable resources — such as Khanty-Mansi Autonomous district — Yugra, Yamal-Nenets Autonomous district, Nenets Autonomous district where basic materials sector accumulates over 85% of economy. This is exactly the case of resource-based economy alone, but this statement is incorrectly extrapolated nationwide.
  • – Traditional industrial centers: Saint-Petersburg, Nizhniy Novgorod and Chelyabinsk regions leading by manufacturing.
  • – Regions with mixed economy: Moscow and Samara regions, Krasnodar territory where other realms are alongside with the developed production sector.
Table 1. Subjects of Russia (Top-10) by taxes and duties collected to the RF budget system in 2017, industry specialization of regions
Region Taxes and duties to the budget system of RF, bln RUB Share of the region in total taxes and duties across RF, % Specialization of the region, main sectors of receipts to the FR budget system Share of the sector on total taxes and duties of the subject, %
1 Moscow 3 060 18 Wholesale and retail trade 20
Financing and insurance 19
Professional, scientific and technical activities 13
2 Khanty-Mansi Autonomous district — Yugra 2 214 13 Mining 86
Other sectors 4
Transport 2
3 Yamal-Nenets Autonomous district 1 138 7 Mining 86
Wholesale and retail trade 7
Manufacturing 2
4 Saint-Petersburg 1 074 6 Manufacturing 44
Wholesale and retail trade 8
Professional, scientific and technical activities 7
5 Moscow region 830 5 Manufacturing 27
Wholesale and retail trade 23
Real estate operations 8
6 Republic of Tatarstan 557 3 Mining 53
Manufacturing 17
Wholesale and retail trade 6
7 Krasnoyarsk territory 472 3 Mining 48
Manufacturing 15
Electrical energy industry 11
8 Samara region 400 2 Mining 37
Manufacturing 31
Wholesale and retail trade 6
9 Krasnodar territory 338 2 Wholesale and retail trade 20
Manufacturing 19
Transport 12
10 Republic of Bashkortostan 336 2 Mining 51
Manufacturing 12
Wholesale and retail trade 7
  Total for Top-10 10 419 61  
  Nationwide 17 194 100

3. Disproportion of economic development

The volume of tax collection per capita indicates great disproportion of economic development among regions. National average amount of taxes and duties for 2017 comes out 117 RUB/person per annum. Maximum amount of 2 112 RUB/person was recorded in the Yamal-Nenets Autonomous district, and the minimum of 8 RUB/person — in the Republic of Ingushetia. The difference is 264 times.

Table 2. Maximum and minimum volume of tax receipts calculated per capita by regions, RUB/person in 2017
Region Volume of tax receipts to the RF budget system per capita, RUB
1 Yamal-Nenets Autonomous district 2 112
2 Nenets Autonomous district 1 657
3 Khanty-Mansi Autonomous district – Yugra 1 338
4 Sakhalin region 292
5 Moscow 245
6 Chukotka Autonomous district 236
7 Republic of Komi 212
8 Saint-Petersburg 201
9 Leningrad region 178
10 Republic of Sakha (Yakutia) 176
11 Krasnoyarsk territory 164
12 Tomsk region 159
12 Tyumen region 151
14 Republic of Tatarstan 143
15 Irkutsk region 133
16 Orenburg region 133
17 Samara region 125
18 Perm territory 122
19 Astrakhan region 113
20 Kaliningrad region 112
21 Republic of Udmurtia 111
22 Yaroslavl region 111
23 Moscow region 111
24 Murmansk region 104
25 Kamchatka territory 100
26 Ryazan region 99
27 Khabarovsk territory 93
28 Magadan region 93
29 Omsk region 91
30 Republic of Bashkortostan 83
31 Kaluga region 82
32 Nizhniy Novgorod region 79
33 Sverdlovsk region 72
34 Saratov region 68
35 Volgograd region 63
36 Arkhangelsk region 62
37 Novosibirsk region 62
38 Krasnodar territory 60
39 Chelyabinsk region 60
40 Vologda region 60
41 Belgorod region 59
42 Kemerovo region 57
43 Primorye territory 53
44 Ulyanovsk region 52
45 Vladimir region 51
46 Kursk region 51
47 Republic of Mordovia 50
48 Tver region 48
49 Smolensk region 48
50 Rostov region 47
51 Novgorod region 43
52 Tula region 42
53 Republic of Karelia 42
54 Voronezh region 42
55 Republic of Khakassia 42
56 Kostroma region 39
57 Penza region 38
58 Lipetsk region 38
59 Republic of Mari El 37
60 Republic of Adygea 37
61 Jewish Autonomous Region 37
62 Republic of Crimea 36
63 Republic of Chuvashia 35
64 Kirov region 35
65 Stavropol territory 35
66 Bryansk region 34
67 Oryol region 34
68 Altai territory 34
69 Kurgan region 33
70 Sevastopol 33
71 Zabaikalye territory 32
72 Pskov region 30
73 Republic of Altai 30
74 Republic of Kalmykia 29
75 Amur region 29
76 Ivanovo region 28
77 Tambov region 28
78 Republic of Buryatia 28
79 Republic of North Ossetia — Alania 25
80 Karachay-Cherkess Republic 20
81 Republic of Tyva 19
82 Kabardino-Balkar Republic 15
83 Republic of Dagestan 11
84 Chechen Republic 9
85 Republic of Ingushetia 8
Russian Federation 117

Regional economies development factor could be a transition from fiscal equalization, support of subsidized territories by means of federal transfers to promotional strategy based on investment raising, creation of favorable business climate, as well as on transferring a part of taxes from the federal center to the budgets of subjects and municipalities.

Guided by the existing tendency, further increase in share of non-materialssectors is expected. Despite of stabilization of the world oil market conditions, Russia will be under sanction pressure from Europe and the USA in themid-run: ban on purchasing thehi-techequipment for oil and gas extraction for instance. Moreover, devaluation of rouble and implementing import substitution programs stimulate the establishment of companies with high value added.