Victor Efimov, Georgiy Serebryakov, Oleg Shibalkin

Producer services and supply networks in the Russian energy and light industry sectors

Features of official modern Russian statistics and necessity of the coordinated statistical measurements

Comparing with the period of 1991-2000 the information available on Russia for the Soviet period was rather well coordinated. Attempts of the State Statistical Office of Russian Federation (Goskomstat) to improve quality of modern Russian statistics mean regular updating of the data and, as a consequence, absence of steady data base[IA1]. As an example of such updating we shall present the comparative table which contains the initial and improved (last) values of Goskomstat from the Generation of Income Account for the basic sectors for 1993 (Table 1). It is clear, that the parameters for industry and trade have undergone essential changes.

Table 1 Goskomstat statistics for value added and profits

Sector / Value added (bill. rub.). / Total profit (bill. rub.)
Initial values * / Last values ** / Ratio / Initial values * / Last values ** / Ratio
1 / 2 / 1/2 / 3 / 4 / ¾
Industry / 65203.0 / 55638.7 / 1.17 / 42144.2 / 32579.9 / 1.29
Agriculture / 13966.9 / 12667.5 / 1.10 / 9258.1 / 7958.7 / 1.16
Construction / 12460.4 / 12827.0 / 0.97 / 3505.7 / 3872.3 / 0.91
Transport / 12414.8 / 12132.4 / 1.02 / 5746.1 / 5624.7 / 1.02
Trade / 21955.1 / 30245.9 / 0.73 / 17933.7 / 25328.0 / 0.71

* - Russian statistical yearbook. - Moscow, 1995

** - Russian statistical yearbook. - Moscow, 1999.

Another serious problem related to the GDP measurement is the estimation of changes in stocks. The problem is that at almost double reduction of GDP[IA2] during the period of 1991-1997, the Goskomstat showed the positive changes in stocks.

The basic method of measurement of GDP, used in last years in the Russian Federation is the production method, i.e. GDP is estimated on a basis of comparison of output and inputs in branches[IA3]. Under inflation the size of expenses is constantly underestimated. It is connected with the fact that the purchase of resources and sale of products are carried out at the different moments of time under different price conditions. Thus the enterprises take into account the expenses, as a rule, at the price of purchase. As a result inflationary profit (or so-called holding profit) is formed. Actually this profit is a part of costs and it should be spent for payment for more expensive input elements during each following production cycle. This phenomenon at macroeconomic level leads to overestimation of value added and volume of GDP.

That’s why in the Account of GDP use, developed by Goskomstat of the Russian Federation, the volumes of changes in stocks during 1993-1994 years have turned out positive and have a significant value. Actually all researches show that exactly during these years the changes in stocks in Russian economy have been essentially reduced.

The analysis of data on stocks testifies that for this period the stocks in the constant prices were reduced approximately twice. It means, that changes in stocks for the years 1991-1997 should be negative and quite significant[IA4].

Development of input-output tables in constant prices and coordination of macroeconomic variables

The natural tool for balancing various parameters is the input-output (I-O) table. However, after 1992 the development of I-O tables has become more complicated. As a result Goskomstat has published to the present time I-O tables for 1991, 1992, 1995-1997 years in the current prices for 22 branches of economy. Data for “Gas and Oil production” sector were submitted as one sector.

Analytical and forecasting tasks require the development of I-O tables both in current and in constant prices for the period of 1980-2000 years.

Researchers of the Institute of Economic Forecasting, Russian Academy of Sciences elaborate I-O tables in constant prices by themselves. The technique of elaboration of these tables is not connected with calculation of deflator matrixes for the cells of the first and the second I-O quadrants. The problem is that it is practically impossible to develop such deflators for all cells of I-O tables on the basis of available statistics, moreover forces of rather small research groups cannot make it. The only acceptable solution of the problem is to construct I-O coefficient matrixes. It is known that these I-O coefficients are rather stable and basically vary in time insignificantly.[IA5] This derives from the facts that the production technologies are changing rather slowly and that I-O coefficients are constructed for rather aggregated economic sectors.

At the same time, significant production decrease in Russian economy, the sharp structural and price changes of last years could result to more essential, than it usually happens for such interval of time, changes in I-O coefficients. There were factors that influenced the values of coefficients in both directions during the years of 1991-1997. The increase of I-O coefficients was connected with decline of production and sharp reduction of investment activity and decline of production efficiency. At the same time change of price proportions (in particular, the growth of the relative prices on energy resources) could stimulate producers to reduce their costs and as a consequence could result in reduction of I-O coefficients in manufacturing sector of economy. The essential factor of decrease of some I-O coefficients could become diminishing of a share of products that were not demanded by consumers.

The procedure of I-O coefficient estimation is based on correlation between dynamics of I-O coefficients and dynamics of outputs and elements of the final demand. This approach was developed by N. Suvorov [1]. His research showed that in 1991-1992 happened some growth of the material/output ratio in the national economy. The adaptation of economy to new market conditions in 1993-1995 years was expressed in gradual decrease of a share of intermediate production. As a result, now the average material/output ratio in national economy (in the terms of the share of intermediate demand in total production volume) approximately corresponds to its level at 1990.

To estimate flows of intermediate demand (the first quadrant of I-O table) we used I-O coefficient matrix and sector outputs in constant 1997 purchaser prices. The available statistics of household and government consumption, capital investment and foreign trade allowed us to form values of basic elements of final demand (the second I-O table quadrant). The received values of elements of second I-O table quadrant finally were balanced with general volume of GDP and sector volumes of final demand accounted by means of I-O matrix and outputs using the formula (in a matrix form):

Y = X - AX.

Thus, the I-O approach allows to arrange basic macroeconomic variables and to generate estimations of GDP connected with all these variables.

The procedure of I-O balancing with the use of static I-O model allows in case of updating key macroeconomic variables (first of all production outputs) by Goskomstat to carry out recalculation and, as a result, to update GDP volume.

Actually output data are the most reliable official data in modern Russian statistics.

Reconstruction of SNA based I-O tables for the period of 1980-1990

For the purposes of the construction of regression models one needs long enough time series. But during the Soviet period the I-O tables were developed according to the Material Production Accounts system (MPA), i.e. only for material production sectors. The GDP measure was not estimated, it was presented by the National Income and Final Production measures.

So we encountered the task of transferring Soviet I-O tables into SNA framework for the period of 1980-1990. Such work was carried out in the Institute. It was done by the means of transition matrixes (in the constant and current prices). The construction of transition matrixes mostly based on official I-O tables for the 1991 both in MPA and SNA framework.

It is necessary to note, that besides transition matrixes named above another data relating services and value added structure were used as well.

Thus was formed the I-O database for the Russian I-O model for 1980-2000.

The data on deliveries of producer services

The data we have are the time series of I-O tables for 1980 – 2000 in current purchaser prices and the same tables in constant purchaser 1997 prices. The data in constant prices are with the value added tax (VAT) excluded.

It is needed to keep in mind that the series of the I-O tables in purchaser prices that we have contain the transportation and trade margins relating to the production of each sector. More precisely the flows for trade and transportation sectors show mixed sum of margins and inputs of trade and transportation services used inside each sector. If one wants to convert margins into cost flows for deliveries it is needed to calculate the column sums of flows of the I-O transport and trade margins table. We have undertaken the work on construction of transport and trade margins tables and to convert margins into flows of deliveries.

However during the work many data problems appeared and it was found out that it needed much more detailed investigations and much more time than we had.

General trends of Russian economic development at 1980-2000

Before the analysis of trends in different economic sectors one should be aware of the main characteristic features of the economic development in Russia during the period of 1980-2000.

There are two subperiods of this period. The first subperiod of 1980-1991 is the Soviet period of slowing growth and subperiod of 1991-2000 is the post-Soviet transition economy period. The last one was the period of radical structural changes. This period has two phases: 1991-1997 – economic fall, 1998-2000 – stabilization and growth (look at Chart 1).

Chart 1. Dynamics of output in constant 1997 purchaser prices (1990 = 100%)

The total reduction of production in the economy in 1991-1997 was nearly twice. One of the main reasons for the economic fall were rapid growth of prices and costs (look at Table 2). Most of manufacturing sectors was not able to deduct their high costs on purchaser by rising their prices. Hence their production suffered more substantially. Large share of production capacities was unused.

Table 2. Purchaser Price Indexes, 1990-1997 (times)[IA6]

Electric Power / 12598
Petroleum Extraction / 15785
Oil Refining / 20900
Gas Industry / 11220
Light Industry / 4216
Freight transportation and communication services / 11571
Trade and other commercial activities / 15821
Finance, insurance, management / 9631
Average in the economy / 7902

In the conditions of high inflation enterprises tried to reduce the costs, especially the costs with high price index. For example light industry just abandoned unprofitable production. It’s output index for 1990-1997 was only 18%.[IA7]

At the same time (1990-1997) employment in Russian economy reduced only by 12%. This means that average nominal[IA8] productivity went down by 43%. Employment in many large former Soviet firms at 1991-1997 years was mostly nominal with very low wages. This excessive nominal employment prevented the social catastrophe.

There was sharp fall in investment in fixed capital in 1991-1997. This fact defined that technologies remained unchanged or deteriorated. It can be seen on dynamics of many I-O coefficients for the period of 1991-1997.

Since prices for producer services have risen seriously many firms tried to reduce producer services costs as well. Petroleum Extraction and Oil Refining firms searched for cheaper Freight Transport services For example they abandoned expensive Baltic Republics’ seaports in favour of cheaper domestic ones.

On the other hand after destruction of the USSR the major part of economic ties between enterprises were broken away. Bureaucracy has grown rapidly at all levels of national economy[IA9]. The end of central administrative planning and economic slump led to division of large former state owned firms into smaller private pieces. The expanding of market mode in the economy caused rising demand for producer services. The use of them grew. It was the cost for institutional changes in economy. Unfortunately the quality of these services was very low and was not adequate to demand, but prices were too high. The quality growth of producer services began since 1998 [2]. Besides this one have to keep in mind that transaction activities in the beginning of transition period often served to the shadow economy[IA10] and were the way to transfer money from real production sector into private pockets.

All this processes together with high inflation led to significant growth of transaction costs. These changes are presented in trends of I-O coefficients. The declining dynamics of I-O coefficients of producer services for the Soviet period often changes to constant or growing values. The examples are I-O coefficients of Freight Transport and Management, Finance, Credit and Insurance to other sectors.

Reduction process of I-O coefficients in Soviet period was the result of production concentration, economic planing and central administrative governing. The example of successful Soviet management is the Gas industry. This is homogeneous production sector with high monopolization rate.

Financial crisis of 1998 and 3 time changes of national currency exchange rate were followed by stabilization and growth that based mostly on import substitution by domestically produced goods and growth of capacity utilization. Employment by the way continued to reduce but more slowly.

During the whole transition period near abroad export shares in output in all sectors in view declined because of special prices that were lower than world prices. At the same time all export to the rest of the world shares in output grew.

It is rather difficult to separate the role of producer services in the economic process under conditions of such general trends and radical structural interindustry and inside sector changes.

Analysis of share of Producer Services in total material inputs. Dynamics of Producer Services I-O coefficients.

First of all one can observe trends of Producer Services (PS) shares in branches of Energy sector and Light industry. Shares of PS in total material inputs were calculated as sums of I-O coefficients of PS for different economy sectors divided by the column sum of I-O coefficients of corresponding sector. Dynamics of shares of PS can be seen at Chart 2.

Chart 2. Dynamics of shares of Producer Services in total material inputs (%%)

The first trend for 1980-2000 is the increasing share of PS for all economic sectors. For the Soviet period the tendency of increasing PS shares in total material inputs was characteristic for all sectors. For the post-Soviet period the tendency of sharp growing of PS shares could be seen for three economic sectors (Petroleum Extraction, Oil Refining and Light industry) for the years of 1991-1995 with some decline or stabilization afterwards. It was defined by sharp rise of I-O coefficients of Trade and Commercial Activity Services in these sectors (look at Chart 3). The values of PS shares for Gas and Electric Power for the post-Soviet period remained practically unchanged. These sectors continued to exist as monopolies that produce and sell their products by themselves.

The second trend was a serious change of input structure in different branches of Russian economy. There was a sharp rise of I-O coefficients of Trade and Commercial Activity Services for sectors of our research for the period of 1991-1995 years with decreasing tendency and stabilization for some of sectors afterwards (look at Chart 3).

Chart 3. Dynamics of I-O coefficients of Trade and Commercial Activity Services to branches of Energy sector and Light industry (1980=100%)

The exceptions from this trend were Electric Power and Gas industry. It can be explained by the fact that I-O coefficient of Trade and Commercial Activity Services to Electric Power is about zero and does not present trading of energy. This sector is organized as monopoly and deliveries of energy are included in Electric Power production. Growth of I-O coefficient of Trade to Gas industry in 1991-1994 was connected with some demonopolization of Gas industry and formation of gas-selling companies (for example, company “ITERA”). After 1994 Trade I-O coefficient for Gas industry remained practically stable. For the Soviet period of 1980-1991 the picture was not so homogeneous. I-O coefficients of Trade were falling for Petroleum Extraction and Gas industry and were growing for Oil Refining and Light industry.

We can note also the decreasing tendency of Freight Transport Services I-O coefficients for different sectors for the period of 1980-1991 (look at Chart 4).

After 1991 there was stabilization of these I-O coefficients with exception of Light industry. This fact reflects relative growth of these I-O coefficients in comparison with declining material/output ratios for the most sectors (look at Chart 6). We have to mention that Freight Transport I-O coefficient for Electric Power is not the cost of transportation of electricity and heat to consumers. It includes transportation costs inside the sector that are necessary to produce electric power and heat.

Chart 4. Dynamics of I-O coefficients of Freight Transport Services to branches of Energy sector and Light industry (1980=100%)

Dynamics of I-O coefficients of Management, Finance, Credit and Insurance Services can be seen at Chart 5.

Chart 5. Dynamics of I-O coefficients of Management, Finance, Credit and Insurance Services to branches of Energy sector and Light industry (1980=100%)

Most of I-O coefficients of Management, Finance, Credit and Insurance Services were rather stable for 1980-1991 period except coefficients for Gas industry (they were falling sharply and this fact was connected with the development of rich gas deposits in Siberia). After 1991 there was stabilization of I-O coefficients with exception of Light industry. There was a growing trend of I-O coefficient for Oil refining. The study showed a rather limited role of Management, Finance, Credit and Insurance Services in process of market transformation in Russia. It was connected with underdevelopment of Finance and Banking sector and it’s inability to work under of conditions of high inflation in 1992-1996.