The role of the manufacturing industry for Russian regions

Many people do not understand the role of the manufacturing industry in the Russian economy and how it varies by region. The research conducted by SBS Consulting is devoted to analysing the role of the manufacturing industry in the economy of Russian regions over the last ten years. Changes in the manufacturing industry's contribution to gross regional domestic product (GRDP), employment, tax revenues and other key indicators are considered. Particular attention is paid to the dynamics and current state of the manufacturing industry in various federal districts of Russia.

Historical context

In the 1990s, Russia underwent a period of ‘premature’ and excessive deindustrialisation, when the large-scale Soviet-era industrial complex shrank dramatically. The 2000s saw a revival in all spheres, including manufacturing. After the 2008-2009 crisis, the need for an active industrial policy at the federal level became apparent. In 2014, the Federal Law ‘On Industrial Policy’ was adopted.

Role of manufacturing in GDP/GRDP

Gross Value Added (GVA):

• In 2019, the manufacturing industry's contribution to gross value added was about 17%.
• Manufacturing has the largest share in the Volga Federal District (21%), the Siberian Federal District (21%) and the Northwestern Federal District (18.3%).
• Manufacturing has the smallest contribution in the Far Eastern Federal District (4.8%).

GVA dynamics (2010-2019):

• Overall, the contribution of manufacturing has remained stable since 2010, but in 2019 most regions have observed a decline in the role of manufacturing by an average of 1.6%.

Role of manufacturing in employment

Employment rate in manufacturing:

• Employment rate in manufacturing fluctuates around 14%.
• The largest decline in the employment rate occurred in 2014.
• The Volga Federal District has the highest employment rate, with almost 18% of the population employed in manufacturing.
• The Far Eastern Federal District has the lowest employment rate in the manufacturing industry - 8.23%.

Dynamics of manufacturing industry

GVA physical volume indexes:

• The dynamics of the manufacturing industry follows the trajectory of the economy.
• The index of physical volume of gross regional domestic product and gross value added averaged 103.6%.
• With the exception of 2014 and 2019, the index for manufacturing industries was higher than the economy as a whole.

Tax revenues from manufacturing

Share of taxes from manufacturing industries in total revenues:

• The share of taxes from manufacturing industries in total revenues to regional budgets is 20.4%.
• In the Volga Federal District, receipts from the manufacturing industry account for more than 30%, while in the Far Eastern District they account for only about 7%.

Property taxes:

• The share of property tax from manufacturing industries in total revenues for this tax decreased by 7.6 percentage points over the period under study.
• The refusal from taxation of movable property of legal entities from 2019 cost the regions almost RUB 70 bln in revenues.

Vehicle tax:

• The share of vehicle tax from manufacturing industries in total revenues from this tax decreased by 1.6 percentage points over the period under study and totalled 22% in 2020.
• Since 2015, vehicle tax revenues from the manufacturing industry have been steadily decreasing.

Profit tax:

• The share of the regional part of profit tax from manufacturing industries in total revenues from this tax increased by 1.4% over the period under study.
• The largest share growth was in 2015, when the share increased by 6.1%..

Personal income tax (PIT):

• Manufacturing industries account for 13.4% of all personal income tax revenues in the Russian Federation.
• In the Volga Federal District, manufacturing industries account for 22% of all personal income tax revenues in the region.
• In the North Caucasus and Far Eastern Federal Districts, the shares are at 5%.

Conclusion

The research shows that the manufacturing industry continues to play an important role in the economy of Russian regions, despite the general trend towards a decline in the share of industry in gross regional domestic product and employment. Tax revenues from the manufacturing industry remain significant for regional budgets, especially in the Volga Federal District. To improve the sustainability and competitiveness of the manufacturing industry, it is necessary to continue developing industrial policy aimed at supporting innovation, upgrading production facilities and improving conditions for attracting investment.