Increased investment activity to support economic growth in 2021

RUSSIA ECONOMICS - In Brief 07 Sep 2021 by Alexander Kudrin

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Rosstat reported that investment in production capacity increased by 11.0% and 7.3% y-o-y in 2Q21 and 1H21. In 1H20, investment was down by a mere 1.8% y-o-y, implying a steady rise of investments activity from 3Q20, not only y-o-y but q-o-q as well. Investment in residential real estate accounted for 6.0% of total investment, and 41.4% came to non-residential real estate. Investments in machinery and equipment accounted for 38.6% of the total. The remaining 14% were allocated via other channels, such as land recultivation, intellectual property. Despite increased bank lending, only 9.7% of investments were financed by bank credits, as 61.2% originated from retained earnings. Federal and regional budgets contributed 13.3%. The rest came from foreign investors, cross-company loans, and individual investors.Investment activity in Russia traditionally depends mainly on the profitability of the corporate sector. Bank lending and investments from the budgets play a secondary role. As lending rates are still high, while government spending policy remains quite conservative, investment activity in the country will be continuously determined by the corporate sector. It means not only that the profitability of the latter matters but the investment climate matters, as well. In 1H21, investments in agriculture grew by 8.6% and in manufacturing by 5.1% y-o-y. In the mining sector, growth of investment was almost non-existent (up by 0.3%). The transportation and storage segment increased investment by 16.5% y-o-y, trade – by 18.9%. Note that mining, manufacturing, and transport contributed 22.6%, 17.7%, and 16.5% of total investments. Given that the growth of investment was broad-b...