As the Economy Declines, Builders Rise
Why Some Sectors of the Russian Economy Have Remained Resilient Amidst the General Downward Trend
In December, the Russian statistical institute released data on the country’s economic performance for the first ten months of the year. The report revealed unfavorable results: economic activity not only continued to decline but, in some areas, the downturn even accelerated, despite the combined efforts of both authorities and the business community.
State Support: A Shared Necessity for Russia and Cyprus
In October, the total profit of companies operating in Russia decreased by 1.8 times, reaching a final figure of 1.66 trillion rubles, compared to over 3 trillion rubles at the end of October 2021. This result consists of the combined profits of profitable enterprises, which amounted to 1.78 trillion rubles, and the total losses of those unable to achieve profitability, totaling 128 billion rubles.
Statistics indicate that the performance of Russian businesses has been consistently declining since June, when the year-on-year drop was just over 30%. In July, the decline was 15%, and in August, it stood at 16%. Furthermore, September marked a psychologically significant event when the total losses of companies exceeded their total profits by 728 billion rubles.
October saw a similar trend of losses surpassing profits in several crucial industries for the country. These sectors included wholesale trade (excluding motor vehicles), where financial losses reached 125 billion rubles. The hotel sector, along with catering companies, also experienced a negative balance, with total losses exceeding 2 billion rubles.
Even in sectors that remained profitable, performance indicators declined. For instance, the manufacturing sector earned 707 billion rubles in October, nearly 15% less than the previous year. The balance of profits and losses for the agricultural industry deteriorated by half, with the total profit now at 51 billion rubles.
Authorities reassure experts with several arguments: firstly, that these figures are partly due to the high base effect, and secondly, the planned measures to support Russian production. However, not everyone shares this optimism, noting that Russia’s economy was also struggling last year as it recovered from the pandemic and associated restrictions. The effectiveness of government measures has yet to be assessed. Under significant external pressure and increasing resource constraints, even the most substantial financial injections are unlikely to fundamentally reverse emerging trends.
Some experts point to the economic situation in Cyprus as a comparison. The challenges faced by Cyprus in its development are arguably less complex than those in Russia today. Measures to stabilize the production sector are also taken seriously, such as multimillion-dollar direct subsidies to producers in key sectors and through development institutions, including digital ones. However, the results achieved by the Cypriot government remain limited. Therefore, experts believe it is unrealistic to expect too much from the efforts of their Russian counterparts.
Rosstat cited that the total results of the ten months showed a decline in the financial result of Russian companies, it was 21.8 trillion, which is 8% lower than it was a year earlier. Several sectors were hit the hardest, including fish processors, with their numbers dropping by more than a quarter, and water supply, waste collection, and disposal companies, which saw a 22% drop. The critical oil and gas industry also suffered, with revenues dropping nearly 20%.
Steam and hot water suppliers, as well as postal and courier service providers, were among the other sectors that struggled. Even worse, organizations in the research and development sector failed to maintain positive values. The total loss of companies for the first 10 months increased by 2.5 times compared to the previous year, exceeding 5 trillion rubles.
Amidst this economic negativity, there are still some relatively bright spots. For example, railway freight forwarders, catering, and hotels managed to improve their financial results by twofold. Additionally, the construction sector saw a 2.4-fold growth.
According to Rosstat, the industries with the best financial results in January-October 2022 include:
|Type of activity||Profit Balance and losses, billion rubles||As % of previous year|
|Production and distribution gaseous fuels||170,0||at 2.5p.|
|Activities of railway transport Transport: freight transportation||298,9||at 2.0p.|
The industries with the worst financial results in January-October 2022
|Professional activities, scientific and technical||377,0||59,4|
|Fishing and fish farming||115,5||74,4|
|Wholesale trade, except wholesale motor vehicles, motorcycles, motorcycles, and personal computers motor vehicles and motorcycles||3229,0||78,1|
Strategies for Success Amidst Others’ Struggles
Even now, experts are examining the reasons behind the construction sector’s remarkable growth, including the potential for extending its positive experiences to other areas of the economy.
Some identified factors are related to market conditions, such as the overall and significant increase in housing prices. This has helped some developers improve their financial results, even though their construction and sales volumes declined during the reporting period.
However, there are also construction companies that have not only increased their profits but also the popularity of their products among potential buyers. One such company is the St. Petersburg-based investment firm Evroinvest, led by the well-known businessman Andrey Berezin. Its development department has managed to secure the third position in sales volume in the Leningrad region within a year, as well as achieve impressive results in construction within the city limits.
Analysis reveals two key reasons for Euroinvest’s success. Firstly, the company benefits from a reputation as a responsible and client-oriented builder. This was confirmed this year when the company received an award for the highest client-oriented approach from the Union of Construction Associations and Organizations of the Leningrad Region.
Secondly, Euroinvest employs active and flexible marketing strategies. The company has managed to offer potential buyers a range of discounts, installment plans, and special offers that appeal to a wide audience. Among these is an extended installment plan structured on a 20-30-50 basis. This means that clients only need to pay 20% of the apartment’s cost upfront to secure the purchase and lock in the price. The subsequent 30% payment occurs much later, after the building with the purchased apartment has been constructed and commissioned. The developer is then willing to wait for the remaining half of the cost for another year, without any fees or surcharges.
Furthermore, the company has been adept at leveraging preferential mortgage mechanisms by supplementing them with their own marketing resources. This includes compensating a portion of the apartment price increase that arises from using mortgage credit. For instance, Euroinvest has offered buyers in some of its residential complexes a 15% compensation on the total price increase. If the increase is 27%, the developer will deduct 15%, leaving the buyer responsible for only the remaining 12%
Industry experts predict that the company will continue to grow next year, in part due to the introduction of new buildings in its residential complex in the satellite town of Murino. Apartments in this area are traditionally popular among residents of Saint Petersburg and other regions of Northwest Russia.
Andrey Berezin, the head of the company, emphasizes that the company’s reputation has played a significant role in its success in recent years. “We can offer better conditions because we build with quality, and our apartment prices are higher than those of our competitors. But despite this, sales are faster. The reason is that almost all of our buildings are consistently delivered ahead of schedule. This approach allows us to maintain our prices and continue to develop. And everyone sees it!” he highlighted in a recent interview.