Investment boom at a low start – Newspaper Kommersant No. 67 (7512) dated 04/18/2023

Surveys of industrialists show that Russian companies in March-April entered a rare situation of growing demand for products in the absence of free labor and capacities. Almost zero unemployment makes investments in the expansion and modernization of production almost forced. The government is counting on an influx of investments this year with a multiple acceleration in the medium term — the regulatory framework designed to organize a capital investment boom in the Russian Federation, which was created even before the pandemic, has been de facto completed and can be tested in practice in the coming months.

Updated for mid-April, the market survey of industrial companies by the Gaidar Institute (IEP) recorded the release of estimates of current demand in the sector to the level of February 2022, in March-April the balance of the indicator added eight points, finally becoming positive. Companies are raising rates – stocking warehouses with finished products and increasing production plans. At the same time, the current IEP surveys record not only the largest labor shortage for the entire monitoring period in 1996–2023, but also a lack of capacity, which is recorded for the third time in the entire history of surveys (the first two episodes – 2007–2008 and the end of 2021 – the beginning of 2022). “If the problem of capacity shortage can be solved relatively quickly with investments (which the Russian industry is ready to do in the second or third quarters of 2023), then the shortage of personnel (primarily skilled workers) cannot be so easily eliminated,” says Sergey Tsukhlo, author of the study. His colleagues from the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF) in a recent macro review also record “growth in demand for jobs, in scale more like a period of intensive growth. As already noted, it is possible that the Russian economy (up to quite probable external shocks, of course) is ready for a new wave of economic growth.” The situation is actually unique – the need for capital investment is forced by the lack of reserves of workers for hiring, which can also stimulate the growth of labor productivity.

The government expects an increase in capital investments already in 2023 – according to the forecast of the Ministry of Economy, they should grow by 0.5% against the backdrop of a fairly high base in 2022 (4.6% growth due to budget infrastructure spending).

In the foreseeable future, investment, according to the forecast of the department, should grow faster than the economy – by 3.2% and 3.7% in 2024 and 2025 and 4.5% in 2026 – as private investments, “including thanks to the support measures implemented by the government” , and investments in large state projects, primarily in the transport and logistics complex. However, the CMASF notes that so far the structure of investment growth is very unstable: in construction it is high due to federal and regional support, and the purchase of machinery and equipment is stagnating at best due to sanctions and logistical problems. The Ministry of Economy, however, is counting on the restoration of investment activity in processing, including “due to programs for import substitution and reorientation of import supplies to friendly and neutral countries.”

Note that the White House has been planning an investment boom for several years, but it was prevented by high uncertainty during the pandemic, which was replaced by the current one after February 24, 2022. Meanwhile, by 2023, the state is ready to offer companies an impressive range of investment promotion tools that compensate for the peculiarities of the Russian business climate. These are agreements on the protection and promotion of investments, guaranteeing investors the stabilization of regulatory conditions and compensation for part of the costs of investment projects; also among the preferential investment regimes are all kinds of SEZs, TASED and industrial parks. The package of benefits is provided for innovative and high-tech companies that can replace imported production and technology. Systematic work to stimulate investment is also being carried out as part of the roadmap for transforming the business climate, and the system for providing tax investment deductions is also being reformed (see Kommersant of March 1). In addition, the government has made progress in reducing the administrative burden on business through regulatory and regulatory reforms, and now work is underway to reduce the criminal risks of business.

To what extent this regulatory structure will actually be able to support investment activity, judging by the surveys of industrialists, it will become clear in the coming months. “Kommersant” will follow the development of events.

Artem Chugunov, Diana Galieva