Vladimir Borisov and Olga Pochukaeva

T

he main restraining factor in Russia’s steel production growth is the insufficient capacity of the domestic market. At present, the aggregate need of the Russian economy for steel products only a little exceeds 70% of their output volume. At the same time, over 20% of this aggregate need are covered by import shipments. In other words, only half of steel being made in Russia is consumed in the country itself as the rest goes to foreign markets, although a notable growth in the engineering production and construction allowed recently to somewhat reduce the export’s share.
The study of the structure of the steel product consumption in Russia shows that over a third of demand accounts for the intra-sector turnover, i.e. steel consumers are steel industry’s enterprises themselves. The share of the engineering’s sectors comes to no less than 30%, while in the years before reforms this sector of the industry accounted for about 50% of the domestic market’s volume.
As compared with other sectors of the industry, the machinery one is developing quite dynamically. It is obvious that there is a big growth potential there since by the volumes of production output most of the engineering’s sectors have not reached the level of 50% yet that was registered in 1990. But the nature of growth has been significantly changing. If just about 5 years ago the chief factor of success was a price competitiveness, then, already between 2002 and 2003 this advantage was practically lost. Due to the quick growth of tariffs for energy sources and transporting as well as of prices for components and costs related to the low level of capacities’ use, Russian machinery and equipment are facing a harder competition with the similar foreign-made products as far as prices are concerned.
The sharp growth of prices for steel has led to the reduction of profitability in the Russian engineering production to the critical level. The trend in the foreign trade turnover has changed: the import shipments of machinery and equipment are growing by accelerated rates as compared with the export ones.
Large companies of the steel industry and engineering, probably, will have to develop a new strategy aimed at coordinated development of these two sectors because only such an interaction is capable of ensuring the expansion of the market’s capacity through increasing demand for innovation equipment and, accordingly, for steel.
How is to assess the mid-term outlook for the Russian engineering sector taking into account the demand for innovation machinery-technical products and innovation activity of the economy’s sectors? In the conditions of high wear of the production equipment and, simultaneously, its low loading, the major task of the technical-and-technological re-equipment is the concentration of investments on introducing innovation machinery without increasing production capacities. The optimal option seems to be the innovation renewal of the active part of the basic assets in the industry by 10% annually. That will allow to completely renew production capacities in 10 years.
By estimates, the amount of investments necessary for accomplishing this task amounts to $9.4 billion a year. In the different sectors of the industry the needs for innovation-and-technological re-equipment are assessed differently: depending on the structure and the state of capital assets, volumes of annual investments should be increasing from 14.8% in the fuel industry to 150.2% in the electric power engineering sector. As for the engineering sector, the average level of investments should amount to 147.2% as compared with the investment volumes in 1999 and 2002.
An additional demand for innovation machinery-technical products to renew capital assets in 2005 can be met through products of Russian enterprises no more than by 25%. Accordingly, import equipment will account for the two thirds of supplies. It should be noted that Russian producers of innovation machinery will be able to satisfy the increasing demand only in case, if they raise the output of products by between 20% and 30% year-on-year. Technically, such rates are quite realistic, if one is to take into account that loading of production capacities in the engineering sector averages 35 % and even less, about 17%, in the machine-tool industry. Already today some sectors of the engineering are showing sufficiently high dynamics. For example, in 2004 the production of machinery and equipment for the metallurgical complex increased 24% and that proves again the validity of cited estimates.
The depression still persists in the machine-tool and tool-making sectors, which are considered basic for developing the whole engineering complex. Making of machines in Russia went down 12 times as compared with 1990. Although Russian tool-making plants are still capable of putting out their products, which are no worse than the foreign ones, the shortage of investment resources does not allow to develop production by the required rates. If the renewal of the machine-tool stock really amounted to 10% in 2005, then, Russian makers of machine-tools could satisfy the need for innovation machinery only by 17%. When necessary, the rest would have to be bought through import shipments. However, in practice the volume of machine-tool import shipments is not big: as estimated, it is no more than $300 million.
By our expectations, till 2010 the stock of innovation equipment will be growing from 10% to 20% year-on-year. The potential to intensify production through increasing the coefficient of the production capacities’ use will be realized between 2005 and 2008 and the further growth of labor productivity will take place on the basis of using innovation technologies. Of course, determining these two periods by time frameworks is quite conditional. In fact, the transfer to mainly innovation growth in different industries will depend on many factors: production, investment, technological.
As a whole, by 2010 supplying the industry’s sectors with Russian-made innovation machinery may go up 70%, while import shipments of the similar foreign products may fall down by 18%. By our forecasts, in the instrument-making, chemical and road-building engineering the production of equipment and machinery to replace the foreign ones will be especially successful and export shipments of products of these industries may grow $225 million. Labor productivity in the engineering sector will increase 63 % on average.
Between 2011 and 2015 the growth of production in the engineering sector will be determined chiefly by the innovation-and-technological factors. The renewal of capital assets by 10%, which has provided basis for the forecast, as well as an annual 10% increment in production of innovation equipment are not maximum. That is why, if all requirements to considerably increase investments in 2005 and 2006 are met, further fluctuations of the market economic conditions will not be capable of negatively affecting development of production in the engineering sector. Under our scenario, by 2011 the production capacities’ stock of the industry’s sectors should get renewed by half (approximately). This could ensure a dominance of the innovation-and-technological factors that promote the growth of labor productivity and energy-saving efficiency. In favorable market economic conditions these factors influence the growth of labor productivity by 90% and by 95% the increase of the energy-saving efficiency.
By 2015 there should be a complete renewal of the production capacities’ stock of the industry’s sectors. The forecasted growth of putting out innovation equipment will exceed the 2005 level by 4.5 times. In the chemical engineering, instrument-making and road-building engineering the increment initiated by the renewal of capital assets in the consuming sectors will let replace imported products. The production volumes will exceed the domestic market’s demand and that will mean growth of exporting this machinery. As for supplies of metallurgical equipment, volumes of import shipments will decrease 60% and will account for 37% of existing needs.
The output of the innovation equipment designed to renew the industry in the innovation respect will stimulate growth of demand in metals. An additional demand of the engineering sector for steel caused by this factor will increase over 60% in 2010 as compared with 2005 and it will double in 2015 as against 2010. Consumption of non-ferrous metals will increase in the same proportion.
The forecast-oriented analysis of development of the Russian industry’s key sectors proves their high dependence on purchases of machinery and equipment on the foreign market. There is no way to avoid it. That will be impossible to maintain sufficient rates of renewing capital assets without it neither today nor in the distant future. At the present stage, the country’s own production capacities allow to meet needs for innovation machinery for only 24.5%. By 2010 this index should amount to 42% and 72% by 2015. But even such a dynamics is possible only on the basis of the efficient inter-sector interaction. For this purpose it is necessary to have coordinated investment projects aimed at the innovation-and-technological re-equipment of the Russian industry.