Companies indisposed to plow proceeds back into themselves, analysts found
1 Aug '19
Rosstat, the national statistics agency, earlier this week reported a 36.5% yoy increase in Russian companies’ total net financial results (profits before taxes) to $36.25bn in January-May. At the same time, the Central Bank estimated a 1.3-1.8% yoy decline in capital investment in 2Q 2019.
The U.S.-Russia Business Council quoted the Center for Macroeconomic Analysis and Short-Term Forecasting (SMASF) as pointing out that “a sharp slowdown” in investment activity in 2Q was accompanied by a 30% yoy increase in the total value of companies’ bank deposits.
According to SMASF, investment activity in 2Q was the lowest in electric power generation, oil refining, manufacture of construction materials, transport, and healthcare. Investment was sluggish in the food and light industries, machinery and equipment manufacture, and education. SMASF noted relatively high investment activity in the extractive sectors, electrical equipment and automobile production, retail trade, and financial services.
Companies’ own funds provide more than half of all investment in the Russian economy. In addition to weak domestic and external demand, SMASF attributed the decline in investment activity in 2Q 2019 to the completion of large projects in electrical power generation and pipeline construction. SMASF also noted that government-owned companies are often prevented from investing in “non-core assets” outside their industries.