The leading workers are no longer the same as earlier: Sanctions have reshaped Russia's industrial production

Yekaterina Maximova

Experts of the Gaidar Institute of Economic Policy analyzed the dynamics of industrial production in Russia in January-October of this year.

The authors of the study clarified that the study was based on the trend component - with the cleaning of the indices of all industrial production sectors (for 2003-2021) from seasonal and calendar components.

In general, industrial production showed slow growth in ten months. There were not many advanced manufacturers, due to which a slight, but positive dynamics was achieved. Experts, assessing each industry, more often used words such as recession, slow decline and stagnation.

Heroes of the Year

The undisputed leader is mechanical engineering.

Thus, the production of vehicles showed a dizzying jump from 90.64% to 103.98%. "Due to the growth in the production of tractors for agriculture (due to the increase in demand for them due to high yields) and forging machines, mainline electric locomotives (due to the replacement of part of the demand for imported products)," the Institute's economists explain the metamorphosis. At the same time, the production of machinery and equipment increased (slow growth) - from 96.98% to 100.92%.

Metallurgists by September showed an increase of 111.60% (slightly reduced in the period from June to September - 104.28%). The industry has "shot up" due to the growth of aluminum processing, the production of pipes and aluminum structures necessary for the construction of heating mains and the restoration of energy infrastructure in the annexed territories. "And also due to the growth in the production of non-ferrous metals, in particular gold (the increase in demand for precious metals is due to the Ukrainian crisis and the high inflation rate of almost all the world's leading currencies," the report says.

The index of output in the food industry by September 2022 increased to 109.36% (102.63% September to June 2022). Analysts explained the growth of the food industry partly by the fact that foreign producers left the Russian market. An increase in the production of various types of canned food, cereals and other durable goods has also been recorded. "The latter circumstance is most likely due to the growing demand for these products among the population of the regions bordering the territory of the SVO," the authors of the study add.

Light industry (textile and clothing production) showed an increase of 102.40% (104.22% September 2022 to June 2022). Here, the statistics were also affected by the departure of international brands and competitors. The second reason cited by the authors of the study is "the growing demand for workwear, suits and men's sets made of textile materials, bags and travel kits used for personal hygiene, sewing or cleaning clothes or shoes".

The leaders also include the construction sector (106.76%), the production of rubber and plastic products (102.19%). Trade (both wholesale and retail) showed slow, but growth.

Fall of the Year

But in the fall of the year nomination, "wood processing and production of wood products", pulp and paper production, cargo turnover, production of non-metallic mineral products will be delayed.

"In January-October, there was an increase in a number of other industries: in trade – due to the departure of major players in the non–food segment of Russia and sales of their products; in construction - due to the repair and construction of infrastructure in the annexed territories. Cargo turnover is falling due to restrictions on transshipment of fuel and energy products by sea and the low capacity of railway tracks in the eastern direction. We can expect that in 2023 the dynamics of Russian industry will be largely determined by the oil and gas sector," the economists of the Institute of Economic Policy of the Russian Academy of Sciences summarize. Gaidar.

But the prospects of the Russian hope and support - the fuel and energy sector - are not encouraging. Mining, with its significant share in the industrial production index (34.54%), showed "slow growth" (100.93%) at the end of incomplete 2022. But this is taking into account the fact that gas exports to Europe were practically reset only in the second half of the year, the embargo on Russian oil supplied by tankers came into effect on December 5. Importers abandoned Russian coal in August.

The report clarifies that the volume of oil production and exports grew until September, in October, black gold production decreased by 0.6% compared to the same period last year, exports – by 1%. The volume of gas exports to the far abroad, according to Gazprom itself, decreased by 45.1%. Russian gas exports to Europe "shrank" to supplies via one of the branches of the Turkish Stream (33 million cubic meters m per day) and transit through Ukraine (43 million cubic meters. m per day).

The CIA knows, but we don't

Economist, analyst Mikhail Khazin noted that, in general, the decline trend has not been reversed, and it is impossible to draw conclusions about how its impact on certain industries has affected.

"For example, the fact that the garment industry has grown is, perhaps, what is called import substitution. Or maybe it's an order from the Ministries of Defense. Or something else. It is impossible to draw general philosophical conclusions based on these data. We will not calculate the impact of the special operation, because we do not know which enterprises have grown significantly, for which orders there has been an increase. The CIA knows that, but we don't. I can say one thing: the investment process has grown slightly compared to last year. Not enough, but still. Accordingly, we can expect that the economic downturn will not be so strong. But we have not reversed the trend of decline - we are still in the red", - Mikhail Khazin commented to Novye Izvestia.

Doctor of Economics, Professor, Corresponding member of the Russian Academy of Sciences Sergey Bodrunov also notes that it is not necessary to directly link the growth and decline in some industries with a special military operation. He agrees with Khazin that the light industry has waited for its finest hour because of the departure of foreign players.

"A large number of brands have left us with what is called an open market, and this market needs to be filled. Before the SMO, it was very difficult for textile industry enterprises to break into their own market. This was a big problem and it is being removed today, which is already evident in figures and concrete indicators", - Sergey Bodrunov believes. And he adds: if there is an increase in orders from the Ministry of Defense, then, statistically speaking, it will be a percentage share in the total growth of textile products.

The expert also points out that the growth of industrial production in 2022 also occurred in industries that are not tied to the military-industrial complex.

"I can't say that it has brought absolutely no impact, but our economy has definitely begun to show growth where real import substitution began", - Sergey Bodrunov added.

The leap in mechanical engineering, Bodrunov noted, of course, is not related to the domestic automotive industry, but Russia has begun to supply itself with machine tools. "Until 2014, the situation with machine tool construction in general was very difficult, we produced 5-8% of the needs.

And because of the sanctions, a large amount of such equipment is no longer supplied. And thank God that the opportunity to develop our own machine tool industry has been preserved, and this is the basic sub-branch of mechanical engineering. And the growth of this sector has nothing to do with the fact that it is necessary to produce more military equipment, because this equipment occupies only percentages in the machine-building complex," the expert explained.

As for the dynamics that the defense industry enterprises should have already demonstrated, then, Sergey Bodrunov reminds, the state defense order is formed in advance and it is impossible to increase it quickly in the middle of the year.

"The fact that some defense industry enterprises have switched to work in three shifts does not mean an increase in the output of final products at all. We will see the data only next year. But even this will add only a fraction of percent to the total pot. We do not have such a large military-industrial complex that it has such a powerful impact on indicators across the country. A huge amount of all kinds of equipment is produced in Russia, including for the road construction industry. And, for example, infrastructure projects are ten times more significant than the costs that go through defense orders", - Sergey Bodrunov summed up.