Again perestroika: why rapid investment growth is another false signal of the Russian economy

In Russia, according to the results of 2023, an increase in investment in Russia will become a record over the past 12 years, in peaceful years the economy could only dream of it. But, like unexpectedly high economic growth rates in the middle of the war and sanctions, the growth of investments does not indicate its development. The increase in investment in January - September 2023 amounted to 10% of last year - a record 20 trillion rubles. At the same time, the main sources of investment were its own funds of enterprises and the budget, while the share of “market” means was reduced. The industry analysis of the investment structure shows that the 2023 investment boom serves not so much the growth of the economy as its structural restructuring-the replacement of drop-down imports, the expansion of the military-industrial sector and the creation of parallel transport and logistics infrastructure, as well as the transfer of an emphasis from some sectors to other, often less profitable. The situation will change as the share of companies with high profit is reduced and the economy will completely feel the consequences of increasing the Central Bank rate. As a result, the growth of the economy associated with the structural maneuver is highly likely to exhale if it does not receive additional investment doping from the budget. But such a development of events is fraught with a weakening of macroeconomic stability and a new increase in prices.

Military Sanction boom

In January - September 2023, investments in fixed assets in Russia increased by 10%, and in a circle of large and medium -sized companies - by almost 11% compared to the same period last year, follows from the data of Rosstat . At the same time, in the first quarter, the dynamics was near -Stoleva (0.7%), in the second, the growth amounted to 12.6%, and in the third - 13.3%. Even the Russian authorities did not expect such a sharp growth: the Ministry of Economic Development only in September 2023 revised its forecast according to the results of the year from 0.5 to 6%. Now it is already clear that this is too conservative forecast, and experts expect an increase in investment at the end of the year at the level of 10%, which will become a record over the past 12 years.

However, the quarterly dynamics of investment is largely explained by the effect of the base: in the first quarter of 2022, investments were still “pre-war” (+13.8% year by the year), and therefore their growth in the first quarter of 2023 was less than a percent; After the start of the war, in the second and third quarters of 2022. They sharply compressed (+3.3 and +2.3%, respectively) and the results of the second and third quarters of the 2023th play the effect of this compression.

Dynamics of investment in fixed assets, 2010–2023, % to the previous year

The main factors of investment activity in the conditions of the ongoing war in Ukraine and broad sanctions were the “steady growth” of internal demand for the products of Russian enterprises as a result of the departure of foreign companies from Russia and, as a result, the implementation of projects for import substitution, the authors of the investment review included in the next report of the Central Bank “Regional Economy” . At the same time, state support measures played an important role, which were just aimed at import substitution, as well as the expansion of release in the military-industrial complex (in 2023, the budget expenditures for national defense amounted to 6.4 trillion rubles after 4.68 trillion rubles in 2022). It was these factors that primarily made it possible to surpass the investment effect of the post -shoe recovery of 2021 and achieve the level of investment activity, which the economy could only dream of in the previous decade.

Where did the money come from

At the same time, the structure of investment on the sources of their financing has significantly changed compared to “peaceful times”. The share of its own funds of companies increased to 57.5%, although on average for 2017-2019 (before anomalous covid-military years) it was 53%. In addition, the share of budget funds has significantly increased, while the share of credit decreased from 11.4 to 9.2%, experts of the Central Bank clarify. This structural perestroika contributed, firstly, the growth of the profit of companies. For nine months of 2023, salted profit (profit minus) of large and medium -sized enterprises increased by 24.3%, to 26.07 trillion rubles, Rosstat reports. Such dynamics, obviously, is associated with a low base of last year and a sharp decrease in the ruble course.

On the other hand, the share of bank loans in general investments was reduced primarily due to a sharp fall in the borrowing of foreign banks - six times, from 2.5 to 0.4%. Contributed to a reduction in the share of borrowed funds and which began in the third quarter, after increasing the key rate of the Central Bank, the rise in the cost of loans. This, as noted in the investment review of the Central Bank, has already affected those sectors where profitability is not too high, in particular in agriculture. The share of investment from the budget nominally even slightly reduced compared to the three quarters of 2022 (from 17.8 to 17.3%), but at the same time, the level of loans from other companies, among which the state -owned company occupies almost one and a half times, from 5.4 to 7.7%. As follows from the data of Rosstat about the form of investors' ownership for 2022, state -owned companies contributed to the growth of state investments approximately along with the federal budget. In the “peaceful” 2017–2019, the share of budget funds in the total investment was 15.9%, and the share of other organizations (private and state) - 4.8%. That is, in combination, they accounted for a little more than 20%, now - 25%.

Thus, the military-surgical investmentbum occurs due to the growth of government departments and the investment of its own funds of enterprises, including state-owned companies, while the share of “market” credit funds in investments is reduced.

Where is the money

A key contribution to the growth of investments in January - September 2023 made manufacturing, transportation and storage, including through large projects with state -party, as well as mining, transfers in its review of the Central Bank. Indeed, almost 20% of all investments of medium and large enterprises in Russia (3.1 out of 15.6 trillion rubles) are still concentrated in the mining sector, while 12% of all funds in oil and gas production. A year ago, the mining industry accounted for 20.4% of the investment costs of the economy, and only for oil and gas - almost 13%. But in nine months, the volume of investment in oil production increased by 15%, while in gas production, on the contrary, it decreased by 20%, the Central Bank noted. Thus, the compression of the gas industry in connection with the loss of export markets was compensated by intensive investments in Neftyanka, as well as in the extraction of metal ores, where the investment increase amounted to more than 25%.

Investments in the development of transport infrastructure and storage (warehouses and logistics) were equal to the investments of the production industry, exceeding 3 trillion rubles (+10.1% by nine months of 2022). The share of the sector investment amounted to 19.6% in the total volume of investments, while in the “basic” 2017-2019 it was 17%. This jump is associated with the need to provide the so-called economy to the east with transport and logistics infrastructure. However, it should be borne in mind that these investments can only be called productive with a stretch. For the most part, they are not aimed at creating additional capacities, but at the replacement of the previous ones: the volumes of export and transportation of goods have not changed significantly in comparison with the pre -war time, and these investments only ensure the implementation of non -market, political decisions. Moreover, massive investments in transportation are inevitably transferred to costs and, accordingly, lead to an increase in prices or a reduction in profit. So, at the beginning of 2023, freight railway tariffs increased by 8% (after 17% in 2022), and from December 1, 2023-by another 10.75% (including an allowance of 2% for overhaul infrastructure).

In third place - investments in the manufacturing industry (2.75 trillion rubles; +12.2%). Their share in the total volume compared to the “basic” 2017–2019 years increased from 14 to 17.6%, and more than half of them are concentrated in the production of oil products, the chemical industry and metallurgy. Here we also find the main spheres of abnormal investment growth in industries related to defense needs: the production of finished metal products (+73%), electrical equipment (+59%), machines and equipment (+44%), vehicles (+41%). In addition, investments in government, ensuring military security and social support in nine months increased by 61% to last year, to almost 300 billion rubles, Rosstat believes.

Thus, the Investment Boom of 2023 serves not so much the growth of the economy as its structural restructuring: the replacement of dropping imports, the expansion of the military-industrial sector and the creation of a parallel transport and logistics infrastructure. As well as the movement of the emphasis from some industries to another, sometimes less profitable, as happens when the investment from gas production in the extraction of iron ores is moving. From this point of view, investments in import substitution should also be evaluated: investments in their own production, which replaces imported products, apparently are less profitable than the alternative use of these agents. In any case, being in a state of pre -war and more market equilibrium, the economy preferred to purchase these goods by import, directing investment resources to other areas.

What's next

At the same time, the growth of investment activity of 2023 is concentrated in the above large industries, while in others - in retail trade, consumer services, agriculture and construction - on the contrary, their reduction is observed. For example, investments in wholesale and retail trading vehicles that were seriously sagged due to the departure of Western brands from the Russian market, fell by 17%. In agriculture and construction, investments were reduced by 4% over the same period last year. The main restraining factor in investment activity in these industries is the lack of own funds in the context of the increase in the value of credit. In January - September 2023, the salted financial result of enterprises in retail trade decreased by 5%, in agriculture - by 16%. Against this background, enterprises and industries indicate such factors holding investment activity as lack of personnel and complexity with the replacement of the supply of imported equipment and components. In industries with a good financial result, these restrictions are smaller.

These circumstances quite clearly indicate problems that can seriously affect the dynamics of investment activity in the future. As shown above, a decrease in the availability of borrowed funds of the company is compensated by their own or budget funds. At the same time, the growth of interest rates on loans as a result of increasing the key rate will lead to further compression of the share of market borrowing, and only companies that have high profit or access to budget funds can compensate for it. Meanwhile, the further expansion of the budget incentive is hardly possible, and the share of profitable companies will most likely be reduced.

As the firmation of the Central Bank show, enterprises have already lowered the assessments of their investment activity at the end of this year. The share of companies that intend to increase investment activity is 3 percentage points above the share of those who intend to reduce it; In the second quarter, the difference was 11 points. 9% of companies (and this is not yet many) claim that they reduced their investment programs by 2024. “These are mainly enterprises financing investments at the expense of borrowed funds,” the authors of the investment review of the Central Bank noted.

Meanwhile, according to Rosstat and expert centers, industrial production in Russia has already stagnated since July in the conditions of maximum production of production capacities (in the second quarter of 2023, the indicator reached a historical maximum of 80.9%), Raiffeisen Bank analysts noted . “To restore industry growth, further activation of investments is needed, which is now observed only in a number of large industries,” they add. The growth of the economy associated with the structural maneuver is highly likely to exhale if it does not receive additional investment doping from the budget. But such a development of events is fraught with a weakening of macroeconomic stability and a new increase in prices.