"Expert — 400. The largest" rating, 2007

Annual rating of the largest companies

Storm front coming

Chart 1. Oil prices entirely determine revenues’ dynamics of the Russian largest companies

In view of pending crisis growth mechanisms are to be launched in priority branches.

We have been compiling a list of the largest domestic companies for the thirteenth year running. Unfortunately, the sinister figure is not the only thing that makes you feel ill at ease while studying the list.

The first thing that catches your eye is notable deceleration of rates of growth. All analysts have already made references to inability of raw material prices to grow any higher and to problems of economic development. Against such a background 26% growth of large companies makes you feel optimistic. But on closer examination it becomes clear: the Rating companies mostly grow due to mergers and acquisitions and pulling new legalized holdings out of the shadow into the open – increase of production had nothing to do with it.

One has to admit: several years of dynamic development and pretty high profits have had to bring to companies sufficient stability. After all, large companies invested each fifth ruble out of their revenues into development. Moreover, our analysis brought us an amazing surprise: the official investment-related statistics are 15-20% lower than real figures. This is where the positive part of the analysis ends, but there are several dangerous disproportions.

First, investments may look quite well, but the chief investors are either state corporations or state-controlled companies: Gazprom, the Russian Raiways, Transneft etc. And economic science insists: the state has never been the most efficient investor. So far private companies are inactive and quite cautious - in case of any danger they cash their chips.

Second, "raw material" money has pretty quickly flown to population, almost completely passing by processing industries (these proved to be not ready to pick the money up). This situation, leaving aside notorious inflation, brought about a cluster of problems.

For one, it caused a catastrophic overheating of the labor market. All records of 1998 were broken. A myth of cheap labor has long been forgotten. The labor in our country is pretty expensive, although not the most efficient. That is why many companies from seemingly lucrative processing sector prove to be simply noncompetitive (see Expert №33, 2007).

Certain booming features may be observed in servicing areas: telecommunications, retail, construction, banks. In the first two cases the situation is truly more or less OK, but construction and bank sectors cause some concern.

A chance to speedily develop a huge construction cluster (and the rest of economy) is simply being missed. Imbalance of supply and demand caused unjustified increase of housing rates instead of accelerated expansion of construction activities. The Expert-implemented project "Future Russian house" has shown: neither authorities nor large construction companies are motivated to introduce changes to the situation. The population has no clear-cut ideas about modern capacities and can not make demands for cheap and quality housing — new stereotype of consumption has not been shaped yet.

As to banks, they develop pretty fast, but generate too many risks. On the one hand, credits to individuals already constitute one third of the banks’ credit portfolio. What will happen to them in case of changed economic set up at the labor market (which is inevitable)? On the other hand, funds have mostly been attracted from cheap foreign sources, which, in their turn, depend on not too favorable international financing. As they say, no comments.

In other words, the crisis seems to be looming. Actually, it is time for it, in line with the theory of economic cycles — if not this year, than a year or two years later. For this we have had our Stabilization fund and record gold reserves. But so far no mechanisms have been developed to turn the reserves on. Known steps like monetary interventions or pumping money into selected banks are too gross and expensive. It would be good, without waiting for the crush, to push forward sectors of priority, give them an impetus for development. It is better to do it while the situation is still quiet. Levers of industrial policy should be switched on. The device, being forbidden several years ago, is slowly re-emerging now. A little bit in automotive industry, a little bit in aircraft, ship-building and electronics (these sectors turned to be a bit luckier than others). It is time to bring these exercises to the forefront.

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