Economic Growth Program

The research conducted by SBS Consulting analyses Russia's economic growth over the last two decades. The report examines key economic indicators such as gross domestic product (GDP), fixed capital investment, industrial production and real household income. It pays special attention to analysing the impact of the tax burden and structural problems on economic development, as well as the role of large companies and regional policies.

Dynamics of economic growth

Average annual growth rates of the main economic indicators:

• Real household disposable income: A 2.6% drop in 2016-2018, reflecting the decline in the purchasing power of the population.
• Industrial production: A 5.6% increase in 2001-2005, slowing to 2.4% in 2016-2018.
• Physical volume of GDP: A 6.1% growth in 2001-2005, slowing to 1.2% in 2016-2018.
• Fixed Capital Investment: A 10.8% increase in 2001-2005, decreasing to 2.8% in 2016-2018.

Financial sector and lending

Decline in the number of banks:

• Number of operating banks: Halved between 2015 and 2019, from 783 to 424.
• Volume of loans granted: Most loans are granted to large businesses, the share of lending to small and medium-sized enterprises (SMEs) remains low.
• Share of top 5 banks: Increased from 59.1% in 2015 to 70.1% in 2019 in total loans to non-financial organisations.

Tax burden and profitability

Impact of tax burden on companies:

• Oil and gas sector has 53.5% tax burden and 35.3% profitability.
• Textile manufacturing has 11.9% tax burden and 8.7% profitability.
• Machinery and equipment production has 12.6% tax burden and 4.8% profitability.
• Metallurgy has 6.2% tax burden and 26% profitability.

Large business concentration and monopoly

Dominance of large companies in the economy:

• Oil and gas sector:

—Rosneft - 34.5% of the market, Lukoil - 14.9%, Surgutneftegas - 11.1%.

• Chemical industry and timber industry:

—PET: Polyef - 38% of the market, Alco-Naphtha - 32%.

—Containerboard: Ilim - 21%, Arkhangelsk Pulp and Paper Mill - 15%.

Regional economy and subsidies

Regions' level of subsidisation:

• Division of regions by level of subsidising:

—13 regions do not receive subsidies.

—35 regions receive subsidies under 10%.

—28 regions - subsidies between 10% and 40%.

—8 regions - subsidies of more than 40%.

• Low fiscal capacity:

—Lack of incentives to actively boost budget revenues impedes the development and implementation of effective industrial policy at the regional level.

Competitiveness of Russian goods

Russian goods have high cost of production and low labour productivity compared to their international counterparts. Main reasons: high tax burden, high cost of labour and components, low labour productivity.

Priorities and actions for economic growth

Key priorities:

• Fostering entrepreneurship and competition: Should be a major driver of economic growth.
• Increasing the availability of borrowed funds: Increased lending to industry by small and medium-sized banks.
• Reducing the tax burden: Reduction of VAT rate to 10% with simultaneous elimination of all exemptions and VAT refund on export of raw materials.
• Development of critical technologies: Ensuring advanced development of 10-15 critical technologies and industries that strengthen the competitive advantages of the Russian economy in the global system.

Conclusion

The study emphasises the need for systemic changes in Russia's economic policy to achieve sustainable economic growth. Key recommendations include promoting competition, improving conditions for SMEs, reducing the tax burden and actively developing critical technologies. State support and effective regional policy also play a key role in ensuring growth in industrial production and increasing the competitiveness of the Russian economy in the international arena.