Column by Gleb Pokatovich on the need to maintain support for capital investment growth

The observations of the Central Bank’s DIP that the increase in capital investments in 2023 is largely due to the implementation of previous investment plans in the context of rising prices for investment goods with excessive government incentives for investment are argued in a column for Kommersant by the First Deputy General Director of the Center for Social Development, Head of the Center for Economics, Social Development and Strategic Communications Gleb Pokatovich.

With the beginning of the new year, summing up the results begins, and in economic analysis and economic journalism it is time to guess how the past year actually ended – until the moment when official statistics for the past year are finally published. The main attention is usually focused on estimates of GDP dynamics, but no less interesting is the dynamics of investment in fixed capital – one of the key factors of economic growth.

The gap in the frequency of publication of official statistics is filled with research based on survey data. Analytical note by Bank of Russia specialists “Investment activity in industry in 2023: results of a survey of enterprises”, published in January, allows you to correlate the behavior of real enterprises and aggregated statistical data.

In 2023, investment activity continued to gain momentum: according to the survey, 88% of the 514 companies surveyed planned to invest in certain areas.

Investment statistics indicate significant growth in both nominal and real terms.

The weakening of the ruble and the effect of sanctions led to an increase in prices for technological imports and the cost of replacing equipment that had become unavailable with products from other suppliers. Among those companies that noted an increase in investments in machinery and equipment, 48% associated this with an increase in their cost, and 52% with an increase in the physical volumes of purchased equipment. If we compare the nine months of 2023 with the same period of 2021, investments nominally increased by 45% with an investment deflator index of 25%. Yes, investments have risen significantly in price, but despite this, there has been significant physical growth – almost 16% by 2021. Based on the results of three quarters of 2023, it turned out to be +10% in real terms – almost twice as high as the same figure a year earlier.

It was investments in machinery and equipment that provided the main growth in investment for the second quarter in a row, both in relation to 2022 and to the level of two years ago. In terms of industries, the greatest contribution to the overall dynamics was made by processing and the transport and logistics complex. High performance in manufacturing was achieved mainly due to the chemical industry, metallurgy, as well as mechanical engineering, and in civilian industries. This indicates effective import substitution in production.

The regulator’s analysts note that investment plans for modernization were not greatly limited by problems with the supply of equipment through alternative and parallel import channels. In addition, the note by regulator analysts, in particular, notes that in some industries there is a strong impulse to create their own capacities for the production of spare parts, repair of machinery and equipment in order to replace imported supplies.

Budgetary resources made a significant contribution to the investment process: although enterprises’ own resources dominate the structure of sources of financing investments in fixed assets, in 2022 the share of budgetary funds increased from 18.3% to 20.4%.

At the same time, enterprises are ready to invest resources in national production on their own: after this jump, the state’s financial participation last year returned to the levels of previous years, and organizations’ own funds accounted for almost 60% of investment financing over three quarters.

No less important is organizational and institutional support – from measures to improve the investment climate implemented at the federal level (including the relaunch of the SZPK mechanism, the introduction of a taxonomy of technological sovereignty projects and many others), to the implementation of an updated investment standard in 85 regions, ensuring standardization and “seamlessness” » investor’s client journey in each constituent entity of the Russian Federation.

Bank of Russia experts also note the state’s ability to act as a catalyst for investment. This is confirmed by the survey data: a third of the participants noted the opportunity to participate in government projects as a factor stimulating investment in conditions of uncertainty.

Therefore, creating and maintaining conditions for the development of private investment should remain one of the priorities of the state, which is designed to reduce uncertainty, create incentives in those sectors where private financing alone cannot ensure supply growth and meet demand in the domestic market, and remove key restrictions for investments.

Such limitations include the lack of labor resources – the third most important factor noted by respondents after the macroeconomic and geopolitical situation. Over the medium term, one of the key tools for meeting this need is increasing labor productivity. On the one hand, it is already happening in those industries where the greatest dynamics in investment is observed (mechanical engineering, complex chemistry), on the other hand, survey data confirm the existence of a request for the modernization of production facilities in the face of a shortage of personnel.