Two different paths: how the economies of Tatarstan and Russia diverge
The economy of Tatarstan has been growing for the nine months in 2016, in contrast to the situation in other regions of Russia
The economy of our Republic is showing steady growth, while the economic situation in other regions of Russia is far from optimistic. 'We pump oil' — that's the secret of economic success of the Republic of Tatarstan, believes a columnist of Realnoe Vremya newspaper Albert Bikbov. Indeed, in a difficult time (especially at the beginning of the year) it is oil extraction that has acted as a buffer, backing up from severe economic shocks. However, today other industries of the Republic have also caught up with flourishing oil industry and begun to grow.
Dear mom and dad, we are ok here in Prostokvashino, just wonderful
Three quarters of the year have passed, and many things about the year have become clear. In the economy of the Republic it will be a year of growth — from the beginning of the year it was a good start and a gradual build-up of momentum. Yes, the increase is not so substantial, but still, if to recall the disastrous beginning of the year, when the oil price fell sharply, that's something at least. In 9 months of 2016, compared to the corresponding period last year, the industrial production index of Tatarstan has increased by 3,6%, despite the fact that in the whole Russia the index of industrial production for 9 months of 2016 has risen only by +0,3%. A statistical error, that's it!
Industrial production index of Tatarstan
As you can see, the industrial production is gaining speed like a slow positive flywheel: better and better with a monthly increase by 0,1-0,2%. September was better than August, August was slightly better than July, and July, in its turn, was better and June and so on. October certainly will be better than September because the prices for oil have grown. And November and December will not spoil the picture of the year. This grace has allowed the Ministry of Economy to forecast a growth of industrial production index in 2017 at the level of 5,1%. Overall, we expect that in 2016 a growth of the industrial production index will be at the level of 4,0-4,2%.
Even low oil prices (given terribly low levels in January 2016) were unable to stop the growth of the industry: an average price of Russian oil Urals in January-September 2016 fell by 27% to $39,92 per barrel. In January-September 2015, an average price of Urals oil was $54,41 per barrel. This decline in world oil prices has only partially been compensated by the devaluation: an average nominal USD exchange rate in January-September 2016 rose by 15,6% compared to the figures in 2015 and amounted to 68,22 rubles. The Euro growth is almost the same (+15,5%).
Nevertheless, this insufficient compensation has had a serious impact on financial results for oil producers: in January-August 2016, the amount of profit in the Republic of Tatarstan in the oil production sector amounted to 102,7 billion rubles, and profit in the same sector a year earlier – 111,6 billion rubles. As you can see, there is a shortfall of 8.9 billion rubles of profit, compared with the previous period!
In total, the total profits of enterprises of Tatarstan in the period January-August 2016 (230,5bln rubles) compared to January-August 2015 (237,0bln rubles) decreased by 6,5 billion rubles. As you can see, the fall in oil revenues has been slightly offset by other industries. However, only two sectors of the economy (oil production and chemical production) provided 66% (or two thirds) of all profits of the generated profit in the economy of the Republic. Such unevenness in industrial development we have.
The main profit generators
Gross loss has decreased almost twice and amounted to 26,2 billion rubles against 45,2 billion rubles of loss a year earlier. So, hard times for added value, we can assume, are over.
The main loss generators
The main generators of loss are made by wholesale and retail trade (8,9 billion rubles) and the production of vehicles and equipment (5,3 billion rubles), which together generated almost half of the total economic loss in the economy of the Republic.
Pump oil — the main muscles of our economic growth!
We have repeatedly written about the fact that the explanation of such survivability of our economy lies in a strong increase in oil production and, consequently, export volumes. If dollar oil prices fall and the devaluation does not compensate it properly, how do the exporters react in order to close the fall in revenue? The answer is simple: they try to maximize the physical volume of production (extraction). Our oil companies have tried their best. So, the group of Tatneft for 9 months of 2016 produced 21,1 million tonnes of oil (+4,9% by 2015, +990 thousand tonnes).
Mineral Extraction Index in Tatarstan
As you can see, the growth in extraction of minerals has stabilized, what is more — at a very high level. If you look at the data of the last years, such a powerful level of production can be characterized as 'unprecedented'. Tatarstan oil production did not see such 'stakhanovite' pace in the last 10 years. However, for the last 4 months the stabilisation of production at the level of 4,0% is clearly observed. Apparently, such pace can be retained until the end of the year.
Annual Growth Rates of Mineral Extraction in Tatarstan
It is due to the growth of the mineral extraction index in January-September 2016 by 4,0% (in Russia +2,4%) and also associated with the oil production industries the economy of our Republic is growing, showing a resilience to external shocks.
It is more or less ok in the industries related to the oil industry in the technological conversions: in the oil refining industry of Tatarstan there is a reduction (-5,7%) and in Russia — a decrease of 3,4%. The reduction in the regional oil refinery is caused by the scheduled major overhaul at TAIF-NK PSC in July 2016. In the chemical industry of Tatarstan the volumes have increased by 2,7%, but here, in addition to a growth in physical volumes, it should be taken into account a large domestic price increase for the products of the chemical industry. One of the main reasons for the growth of the chemical industry, as well as last year, remains a factor of import substitution. This year there is a profound decline in the import of chemical products, which expanded the domestic market for domestic producers. At the same time, domestic demand in some sectors of the market of chemical products has increased, although the situation in the Russian economy is still difficult.
Due to these 'three pillars' (oil production, chemicals and oil refining), we look much better (+3,6%) than other regions of Russia, where the index of industrial production is worse than in Tatarstan (+0,3%).
The situation in this sector for the next month is forecasted only with the '+' sign: in February-June it was an upward rally in the world oil market, and in July-August it was a small dip in prices to $42 a barrel, but then again a rolling back in September to a comfortable corridor between $46 and $49 per barrel, but in October prices have risen and have become stable in the corridor between $52 and $53 per barrel, — so, everything will be ok.
Brent Crude Oil Price Dynamics
Is there life in Tatarstan without oil? Yes, it is!
There is great news in the manufacturing sector — the index of the manufacturing industry entered a positive zone in May and has maintained there for 5 consecutive months (in September it was +3,1%)! So we do not live by oil alone!
In the 'processing' sectors, the industries are rapidly growing that are focused on import substitution — food, textiles, wood processing, agriculture, manufacture of rubber and plastic products and even (!) production of vehicles and equipment. KAMAZ PJSC for the 9 months sold 21, 499 cars, which is by 23% more than last year…
Process Industry Index in Tatarstan
Production Indexes (January-September 2016 against January-September 2015)
TATARSTAN | RUSSIA | |
Processing industries in general | 3,1% | -0,9% |
Production of food products, including tobacco and beverages | 5,7% | 2,2% |
Textile and clothing manufacture | 16,7% | 4,0% |
Manufacture of leather, products of leather, footwear | 23,8% | 6,4% |
Wood processing and manufacture of wood products | 22,1% | 1,6% |
Production of rubber and plastic products | 5,6% | 5,8% |
Production of machinery and equipment | 0,2% | 3,7% |
Production of vehicles and equipment | 4,0% | -4,5% |
The situation in Tatarstan looks much better than in the whole Russia almost in all economic indicators (except mechanical engineering).
TATARSTAN | RUSSIA | |
The production and distribution of electricity, gas and water | 6,7% | 0,7% |
Housing construction | 2,4% | -5,5% |
Agriculture | 6,5% | 3,0% |
Freight turnover of motor transport | 8,6% | 0,4% |
Retail turnover | -1,8% | -5,4% |
A good thing — a growth and stabilization of retail turnover at decent levels: in general, it has been seen a consolidation at a good level in the past 7 months.
This most striking indicator of consumer demand can quickly enter a positive zone soon.
Monthly retail turnover, million rubles
A slight increase and stabilization at good retail levels — a very good sign, it is largely due to the stopping of falling of real money incomes and wages relative to the corresponding period last year.
Real incomes in January- July 2016 in Tatarstan compared to the corresponding period last year almost unchanged (-0,4%). This stabilization begins to encourage the population to increase consumption, so that in the near future the problematic retail market will continue to thrive.