And the quadrillion is inflated: what does the record revenue of the Russian business mean?

Yekaterina Maximova

According to the Federal Tax Service, the revenue of Russian companies by the end of 2022 turned out to be both record and gigantic. For the first time, it exceeded a quadrillion rubles (almost 1.3 quadrillion), which is almost twice the revenue of 2021 (655 trillion rubles).

At the same time, the RBC edition clarifies that with a twofold increase in revenue, the profit of companies increased slightly — from 29.4 trillion rubles in 2021 to 31.1 trillion rubles (+5.9%). And with average annual inflation (at the level of 13,8%) in real terms, profits actually decreased.

The underside of a fantastic sum with 15 zeros was explained by professor, economist Igor Lipsits. The main factor of record revenue is export earnings. All last year, when sanctions against Russia were introduced slowly and gradually, the prices of export goods from the Russian Federation rose sharply.

«And in A huge stream of income came to Russia, which was reflected in this figure. These are the super profits from which the government is now trying to remove the tax from Russian companies», — Lipsits clarifies.

But the increase in profits in 2022 was accompanied by an increase in costs. And according to Rosstat, the net result (the sum of losses of unprofitable companies is deducted from the profits of all profitable companies) fell by almost 13% by 2021.

«That is, the revenue is gigantic, and the total mass of profit generated by the manufacturing sector has fallen by 12,6%. Moreover, the number of unprofitable enterprises has increased. There are now 26% of unprofitable structures in Russia, that is, almost a third of Russian companies are unprofitable», — Lipsits continues.

What follows from this?

If costs are rising, and the profit is no longer the same, then the business, firstly, has no opportunity to develop. Secondly, we need to look for ways to reduce these costs.

The easiest thing is to raise prices. But companies cannot raise prices, because business structures are often bound by the terms of state contracts, and the population is not getting richer (there has not been a steady increase in income in the country for a long time, in fact, since 2014). The Central Bank of Russia is also afraid of the acceleration of inflation, which is inevitable when prices rise.

«What should a business do in such a situation? First, to dismiss people, and then, maybe, to close the business, » adds Professor Igor Lipsits.

Will the defense industry feed everyone?

In addition to last year's hype growth of export revenues (the flow of which, against the background of the sanctions, began to decline sharply from 2023), the Russian economy was also kept afloat by the defense complex (production of products related to the defense industry increased by almost 30%).

But, as economists have repeatedly explained in an interview with Novye Izvestia, it is impossible to feed the country with a defense complex. Because a normal economy produces goods in order to sell them on the market and make a profit. Profit ensures growth — taxes are paid from it and investments are formed for further development. But when the state is forced to mass produce weapons that are not sold on any market, then there is no need to talk about a «normal» economy: the costs of military production are growing, and incomes are zeroed out.

«We have already passed this in the USSR, when we raised the defense industry. But in order to raise the defense industry, money for it must be taken away from someone. Then they were taken away from the population. And as a result, they destroyed the economy of the USSR. It is impossible to develop the defense industry for a very long time — it takes money from the budget. And where the budget takes money — through taxes. And from whom will the state take them? The state budget has already begun to shrink. There remains the devaluation of the ruble and the unwinding of inflation. Only devaluation will lead to a rise in the price of goods, and inflation will „eat up“ all incomes», — Igor Lipsits summed up.

Economic geographer Natalia Zubarevich has already noted changes in two key sectors for the country — the extractive industry (the basis of exports) and the manufacturing industry (including the defense industry).

Thus, in January–April 2023, the dynamics of the extractive industry deteriorated (-2%). In the manufacturing industry, the trend is different. It grew by 3% from January to April 2023.

«The outpacing growth of regions with a large share of military-industrial complex enterprises began in the autumn of 2022, and in 2023 it became even more noticeable. This includes a third of the regions of the Center (Tula, Ryazan, Yaroslavl, Tver, etc. — growth by 9-19%), Udmurtia (21%), Penza (15%), Sverdlovsk and Chelyabinsk (10%), Omsk (9%) regions. The growth of manufacturing industries has also been maintained in regions with a high share of the food industry (Krasnodar Territory — by almost 13%)», — Natalia Zubarevich clarifies.

It is much more difficult for regions dominated by industries affected by sanctions — timber processing, ferrous metallurgy, production of mineral fertilizers, the automotive industry.

Publicist Anatoly Nesmian in his tg channel reacted to the news about the Russian quadrillion as follows: «There is an unrestrained flooding of the economy with money from previously accumulated and still remaining reserves. This has nothing to do with any economic recovery. China grew by tens of percent in the same way after 2008, throwing crazy money into the economy just as nonstop. But there is a difference. The Chinese poured their injections into the manufacturing economy and the construction of the real sector of the economy. Russian reserves are spent strictly on current consumption — in other words, on military exercises. The Chinese were left with monstrous debts, but with a powerful manufacturing economy».

And by the end of this year, economists have no doubt, there will be no quadrillions.