Izvestiya 16 May 2002 [translation for personal use only] Article by Yekaterina Kravchenko: "The Industry Is Switching to Surrogates"
April has not brought the long-awaited growth in solvent demand for Russian industrial products. According to a study of the Institute for the Economic Problems of the Transitional Period (IEPP), the sales of products for money have been declining for the fifth successive month. Experts say that such a continuous and deep drop in decline has not been observed since early 1999. For the first time in three years, the Russian industry has started preparing for personnel downsizing.
The financial and economic condition of Russian enterprises is continuing to deteriorate. According to the IEPP data, solvent demand and real profits continued to plummet in April and production costs again were noted to grow.
"Solvent demand is going down to zero. There is no money in circulation. The consumers who need our equipment cannot buy it," says Andrey Kozlov, the commercial director of OAO [joint-stock company] Excavator Plant Kovrovets. In his words, the negative tendencies that appeared in November of 2001 are continuing and positive changes are nowhere to be seen. A radical decline in solvent demand is confirmed also by Aleksandr Nemetkin, deputy general director of OAO Strommashina.
"Since last December, the supply of non-cash deals has grown significantly," he points out. "Commodity turnover is clearly falling.
Many enterprises are currently grappling with the problem of 'hard cash.' To keep running, they are forced to credit each other. But the effectiveness of this method is not limitless," says Galina Biryukova, chief financial officer of OAO Krasnyy Perekop.
To keep their facilities running, the Russian enterprises are beginning increasingly often to resort to non-cash methods of selling their products. "No barter operations have been observed as yet at the sector level but the volume of bill of exchange and set-off deals has increased in the chemical, petrochemical, and light industries," says Sergey Tsukhlo, chief of the IEPP market survey center.
Prospects for the future are also pessimistic. According to the IEPP surveys, the forecasts of industrialists for solvent demand and production remain at one of the lowest levels in the past three years. "The employment forecasts have changed radically as well. For the first time since April of 1999, they have become negative," Tsukhlo says. For the first time since the default, most of the enterprises are preparing for personnel cuts. The seemingly resolved problem of wage arrears has resurfaced. According to data from the State Committee for Statistics, as of March of 2002 the total debt on wages has increased by 5.3 percent since 1 February. Notably, this increase was 16.3 percent in social sectors.
If solvent demand does not go up in the immediate future, the industry will see mass personal cuts similar to the post-default layoffs in 1999.
Analysts say that forestry (the government is currently working out a program of its reform) and the light industry are the most exposed sectors.