Foreign companies continue to push the domestic manufacturer
Despite the fact that the previous year turned out to be extremely successful for the Russian construction industry (most experts noted record housing commissioning rates), today there is little doubt that business is in for hard times. The latest data suggests that in about half of Russian cities construction has almost stopped, and in Moscow more than 10 million square meters have not yet found their owners. meters of built and only yet erected living space. The authorities still continue to subsidize mortgage loans, which play an important role in supporting demand, but one should not hope for a repeat of last year's results.
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The slowdown in construction gives rise to new problems and tensions in related industries. Construction is one of the most important sectors of the Russian economy, which creates up to 5.5% of gross value added and employs almost 2.4 million people; at the same time, the production cycle here is one of the longest, and the impact of construction on subcontractors is difficult to overestimate (for example, the construction industry last year provided up to 76% of domestic steel consumption, while engineering, including the defense industry, accounted for less than 10%). However, the biggest blow from the slowdown in construction is inflicted on the building materials industry, which in Russia has shown relatively low rates in recent decades and has only set its sights on growth in the 2010s (it should be noted that in Russia in 2019, 26% less cement was produced than than in the RSFSR in 1990, while in China its output increased by 11.3 times over the same years).
In the first months of this year, the cement industry has already recorded an 8.5% decline in production, and forecasts for the year allow us to talk about a 20% drop in output and reaching pre-crisis volumes by 2030 at best — and against this background, problems become especially noticeable, caused by competition from foreign companies. It would seem that the Russian economy is rapidly shutting down, and the state is increasing support for national producers, but the reality looks somewhat different.
Cement production in Russia last year amounted to just over 60 million tons, and not all products were sold out — however, even against the backdrop of declining demand, imported building materials continue to enter the country. Moreover, in order to “help” the builders, the Russian authorities ordered to ease the conditions for imports, and from January 2022 they canceled the inspection control of cement imported into the country, despite the fact that industry representatives warned about the negative consequences of such a decision. The result was not long in coming: if in 2021 cement imports did not exceed 2 million tons, then this year it is expected to be at a level three times higher — moreover, at least 5 million tons of raw materials will come from Iran and Belarus, «super-friendly» to Russia, which may lead to the shutdown of several Russian factories.
Domestically, the situation also remains difficult. As you know, against the backdrop of the economic boom of the 2000s, large European companies — Swiss, German, Italian — came to our market and became leaders in this process. They modernized the enterprises they bought, bringing modern technologies there, but did not build a single new one (the only cement plant that appeared in Russia from scratch was built in the early 2010s in the Leningrad region). As a result, by the beginning of the 2020s, foreign companies controlled about a quarter of the Russian cement market — and, it should be noted, did not go away at all: sanctions were not imposed on the construction industry, and the plants were safely working on Russian raw materials, which did not arouse indignant desire among their owners. leave the market. At the same time, some of the foreigners reluctantly announced the “transition to the Russian brand” — but before that, in 2022, French and German companies produced 13 million tons of cement in Russia, and among the customers were many state-owned companies, including military-industrial complex enterprises.
Actually, it was the high demand for products from domestic consumers and the profitability of the Russian business that led Western cement companies not to close their production facilities and sell them to competitors. For example, the Holcim company said that more than a dozen bids were submitted for the purchase of its facilities last year. However, the management preferred to transfer the asset to Russian managers who intend to maintain both the current structure of presence in the Russian market and, probably, close ties with the parent company. In this case (as in others related to the building materials industry), we see a classic example of how foreign companies formally “leave” the Russian market in order to save face in front of their Western partners and regulators, but at the same time continue to earn money in Russia, including including on orders paid from the budget at the expense of the money of domestic taxpayers.
At the same time, the example of the cement industry today shows several «inconsistencies» in Russian economic policy. On the one hand, the main declared task is “support for domestic producers” — however, even against the background of the current extraordinary situation, the authorities have only partially revised their decisions on import liberalization (since April 2022, control has been restored — but only for supplier countries that are not members of the EAEU ). On the other hand, the government is imposing more and more draconian fees on outgoing foreign companies, as if wishing to forever discourage them from working in Russia — but at the same time continues to work as usual with those of them that simply changed their signage, not really by changing the control schemes for Russian units. Both of these will undoubtedly result in a further deterioration in the working conditions of domestic companies: imports will continue to grow, since both in Belarus and Iran, manufacturers enjoy significant budget support, and in the domestic market, «former» foreign companies continue to push our own — all the more so in the new conditions it will be even easier for them due to the abolition of royalties for the use of Western technologies and the termination of depreciation payments for the equipment installed on them.
In the new conditions for the Russian economy, regulatory authorities obviously faced with the problem of defining «domestic» companies, which is fundamental for making decisions on providing them with this or that support. Should the attitude towards productions created and modernized by Russian investors be the same as towards those that Western corporations have given to their managers for trust management? Is it worth it to protect both of them as Russian employers and taxpayers from Belarusian manufacturers, or should the latter be recognized as equal rights as residents of a country that is a member of the Union State? The answers to these questions, in my opinion, should be given as soon as possible — before the decline in the building materials industry reaches a critical level…