Industrial growth in Tatarstan has slowed down

The first half of this year turns out to be less successful for production than a year earlier

Industrial growth in Tatarstan has slowed down

The industry growth rate in Tatarstan in the first half of 2023 is losing to the dynamics of the previous year. The industrial production index in June amounted to 106% compared to the same period last year. In June 2022, the index was 108,3%. The growth of industry in the republic is expected to be an insignificant 0,7% by the end of the year. Which industries showed growth in 2023, and where the decline was recorded, how the weak ruble and the increase in the key rate to 12% affect the industry, and whether the year 2023 is really more difficult for production than the previous one — in the review of the analytical service of Realnoe Vremya.

For half a year, Tatarstan shipped goods of its own production for 2,12 trillion rubles

In June 2023, according to Tatarstan Statistics, industrial production in the republic increased by 6% compared to the corresponding period last year. At the same time, in June last year, the industrial production index in Tatarstan was 108,3%, that is, production grew at a more dynamic pace.

In the six months of 2023, Tatarstan shipped goods of its own production for 2,12 trillion rubles. And in the six months of 2022 — by 2,4 trillion rubles (a drop of 12,5%). At the same time, the shipment of goods in the manufacturing industry decreased from 1,68 to 1,56 trillion rubles, in the production of coke and petroleum products — from 615,3 to 458,2 billion rubles, in the extraction of minerals — from 600,4 to 428,3 billion rubles, in the production of chemicals — from 317,1 to 233,7 billion rubles. At the same time, the production of motor vehicles increased from 181,3 billion to 252,7 billion rubles.

The top 10 industries in terms of the volume of goods shipped in the first half of 2023 included manufacturing, production of coke and petroleum products, mining, production of motor vehicles, production of chemical products, food production, production of rubber and plastic products, production of metal products, and production of electrical equipment.

The top 10 industries with the lowest volume of goods shipped in the first half of the year include the production of leather goods, furniture, textiles, clothing, medicines, beverages, paper products, as well as the production of other vehicles and equipment.

The top 5 fastest growing industries in the first half of 2023 include the production of computers, electronic and optical products, furniture, electrical equipment, motor vehicles and clothing.

The decline was recorded in the field of wood processing and the production of wood products, the production of textiles, paper products, chemicals and chemical products, the production of medicines, and the production of rubber and plastic products.

What hinders industrial development?

To a significant extent, the economic recovery and the implementation of long-term projects of technological sovereignty are hindered by the limited possibilities of importing technologies that are absent in Russia, for example, for the automotive and aviation industries, NKR analysts note. Currently, China is becoming the main supplier of technologies, parallel import continues, but large-scale import to create its own modern production facilities in Russia is hampered.

Sanctions restrictions on the oil and gas sector led to problems with logistics, which led to an increase in investments in the acquisition of its own fleet, which, in turn, allowed to support the volume of exports of oil and petroleum products. At the same time, oil companies will have to continue to solve the issues of finding alternative channels for settlements, expanding the currencies used, and supplying the necessary equipment and spare parts from “friendly countries”.

The main factors hindering the recovery of domestic economy remain the decline in exports and the deterioration of foreign trade conditions, taking into account the problems with the convertibility of currencies of “friendly countries”; technological, sanctions, and other restrictions; weak investment dynamics in the private sector, and a reduction in the workforce, especially noticeable in construction and engineering.

“Assessing the dynamics of industrial production in June this year, as well as in the first half of the year as a whole, we observe a slowdown in production growth compared to the same period last year (January-June 2022 — 108,2%, January-June 2023 — 103,1%)," said Dilara Iskhakova, analyst of the sovereign ratings group of Expert RA agency. “The main reason was the slowdown in production growth in the manufacturing sector (June 2022 — 113%, June 2023 — 107,4%), whose share in the structure of industry in 2022 is more than 70,0%.”

In June 2023, a decrease in industrial production compared to June 2022 was observed in the production of beverages (-9%), textiles (-5,1%), leather and leather products (-6,7%), wood processing and the production of wood and cork products, except furniture (-11,6%), paper production and paper products (-12,8%), as well as in one of the leading manufacturing industries in the region — the production of chemicals and chemical products (-3,9%), including synthetic rubbers in primary forms (-18,9%).

The main reason for the delay in production growth is the sanctions imposed against a number of companies in the region, as well as a wide range of goods. Besides, Tatarstan has a high dependence on imports of various components, says Iskhakova

By the results of the year, in accordance with the forecast of socio-economic development of the region for 2023 and the planning period of 2024 and 2025, Tatarstan expects a slight increase in industrial production compared to the results of last year (+0,7%).

“The growth rate of industrial production is slowing down somewhat, and there are a number of reasons for this," comments Natalia Pyryeva, an analyst at Finam. “Domestic demand has weakened due to the deteriorating economic conditions — rising inflation and the devaluation of the ruble. External demand also remains weak due to a slowdown in global economic growth, production costs are rising due to the weakening of the ruble and delays in deliveries.”

Today, according to Pyryeva, there are a number of companies that benefit from the weakening of the ruble: “First of all, these are exporters and companies whose revenue is denominated in foreign currency, for example, Sovcomflot," she explains. “At the same time, there are also affected parties who do not benefit from a weak ruble, in particular, developers who receive revenue in rubles and import the building materials. A weak ruble may affect a decrease in the profitability of developers.”

An increase in the key rate to 12% will entail an increase in the cost of loans, which will affect the profitability of the business, the expert says. Construction and metallurgy, which are among the most heavily indebted industries in Russia, will suffer the most. “On the other hand, such measures are necessary for the Russian economy now, and this will help stabilise prices, the ruble and increase domestic demand in the medium term," she said.

“An increase in the key rate by the Bank of Russia usually leads to an increase in interest rates on credit products of banks. Thus, in the near future, we can expect an increase in the expenses of enterprises for servicing their credit obligations," says Nariman Tayketayev, the director of the corporate ratings group of NKR Agency. “The expenses of borrowers whose interest rate in the loan agreement is directly linked to the indicator of the Central Bank's key rate will grow especially strongly. In general, the growth of the interest burden, as a rule, reduces the investment activity of enterprises.”

“The devaluation of the national currency increases the revenue of exporters in ruble terms. Also, with a weak ruble, import-substituting industries receive additional benefits due to the rise in price of similar foreign products," he commented on the current situation. “At the same time, with a high exchange rate of foreign currency, the costs of companies purchasing imported raw materials, equipment, and components increase. In turn, the increase in the costs of importers is an additional contribution to the increase in the rate of inflation in the country.”

Besides, companies with debt obligations denominated in foreign currency will also incur additional costs for their servicing and payment when the ruble exchange rate weakens, the expert notes.

Yulia Garayeva, Syumbel Gubaydullina

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