1. General description

The state of the chemical sector is one of the best indicators of health in the economy. Since the products of the industry are required almost everywhere, the stable growth of chemical and petrochemical sectors appears to be the decisive factor of the efficiency of the Russian industry. In addition, chemical products are among the more important export items, and help shape the foreign trade potential in Russia.

The output in the chemical and petrochemical sectors in 2001 reached Rbs 376.3 bln., and the sector accounted for 6.4% of the total output in Russia in 2001 (Fig. 1.1).

Fig. 1.1
Structure of Russian industrial production
by sectors in 2001, %

The number of chemical and petrochemical enterprises in 2001 went over 8 thousand. (of which ca. 800 are large and medium-size); they employed in excess of 770 thousand industrial workers, or 6.5% of the total workforce in the Russian industrial sector.

Despite the big number of enterprises in the chemical business, a significant feature of the sector is high concentration of production: in this respect, the chemical industry is second only to non-ferrous metallurgy. The weighted average ratio of concentration that reflects the share of 4 major companies in the subsectors (their "contribution" to the total production output in the sector) is 65%. The level of concentration may vary depending on the type of product. In chemical fibers, or varnishes and paints, the leaders account for up to 36% of the total output, while in rubber, they have 83%.

Chemical and petrochemical companies own huge production resources. Their operations are rated among top two hundred largest industrial businesses in Russia by Expert 200. The 200 leading companies in Russia in 2001 listed 36 chemical and petrochemical enterprises (less operations owned by oil holdings).

Since 1990 the Russian chemical and petrochemical sector had suffered from major depression in the output. It was particularly affected by such factors of the economic crisis as non-payments, disruption in the economic ties and the loss of sources of raw materials. As a result, the rate of decline in the sector exceeded the industrial average (Fig. 1.2). In 1994 - 1998, the production index varied between 42% and 47% of the 1990 indicator. A slight improvement happened in 1997, bringing in first signs of stabilization. However, the August 1998 economic crisis had its toll on the chemical sector: the total output dropped to a meager 42% of the 1990 figure. However, in the same 1998 the situation in the sector reversed. Improved exports and domestic market expansion helped to reinvigorate considerably this sector of the economy. As soon as in 1999, the chemical industry registered more than a 21 percent growth in the output, which was the best result for any of the sectors of the economy. By the end of 2000, the chemical industry was back to the production levels of 1993.

Fig. 1.2
Changes in the output by the chemical and petrochemical sector
in 1991-2001, in percent of 1990

In 2001 the overall output by the chemical industries grew 6.5% on the previous year. The output of chemical products, as a result, is only slightly more than by one third lags behind the 1990 level. Notably, while only a year ago the products, the output of which exceeded the pre-reform levels, included only polyethylene and polypropylene, in 2001 this group was expanded to incorporate such products as polyvinylchloride, passenger car tyres, and potash fertilizers (although the latter are mostly exported abroad).

It is important at the same time to emphasize the gradual deceleration of the rate of growth in the output of chemical products. This is believed to be the result of the expiration of such positive effects of 1999 as the export-led growth in the profitability and price control for natural monopolies. Nevertheless, in terms of its rate of growth, the chemical sector is doing better than the majority of other Russian industries: higher rates of growth in 2001 were recorded only by engineering companies and food businesses (Fig. 1.3). Note that the chemical industry has stayed among the leading troika in terms of its rate of growth of production, for three years already.

In 2001 the overall output by the chemical industries grew 6.5% on the previous year. The output of chemical products, as a result, is only slightly more than by one third lags behind the 1990 level. Notably, while only a year ago the products, the output of which exceeded the pre-reform levels, included only polyethylene and polypropylene, in 2001 this group was expanded to incorporate such products as polyvinylchloride, passenger car tyres, and potash fertilizers (although the latter are mostly exported abroad).

It is important at the same time to emphasize the gradual deceleration of the rate of growth in the output of chemical products. This is believed to be the result of the expiration of such positive effects of 1999 as the export-led growth in the profitability and price control for natural monopolies. Nevertheless, in terms of its rate of growth, the chemical sector is doing better than the majority of other Russian industries: higher rates of growth in 2001 were recorded only by engineering companies and food businesses (Fig. 1.3). Note that the chemical industry has stayed among the leading troika in terms of its rate of growth of production, for three years already.

Fig. 1.3
Changes in the output by Russian industries in 2001, %

Interim results for 2002 seem to suggest the continued slowdown in the rate of growth in the sector. The total output in January remained virtually unchanged year-on-year: the output of chemicals increased by a paltry 1.7%, given the overall industrial rate of growth of 2.2%.