ISSN 1075-7007, Studies on Russian Economic Development, 2009, Vol. 20, No. 1, pp. 54–67. © Pleiades Publishing, Ltd., 2009. Original Russian Text © L.G. Iogman, A.A. Shirov, A.A. Litovskii, D.B. Kuvalin, 2009.

RUBRIKA RUBRIKA

Long-Term Forecast of Oblast’s Socioeconomic Development L. G. Iogman, A. A. Shirov, A. A. Litovskii, and D. B. Kuvalin

Abstract—The article generalizes the experience in working out a long-term forecast of ’s socioeconomic development. Dynamic and structural characteristics of the oblast’s development are analyzed on the basis of statistical data. A set of models for forecasting regional economic development is presented. The main scenarios of the region’s long-term evolution are described. Quantitative characteristics of the develop- ment of Vologda oblast for the period up to 2020 are presented. DOI: 10.1134/S1075700709010067

Improvement in regional development mechanisms nomic Development, as well as their own ideas about a is becoming one of the crucial problems in promoting region’s development potential. Certainly, specialists effective general management of the national economy. working on forecasts in the constituent members have a The general developmental potential of Russian regions unique range of knowledge about the economy of the is quite significant and under favorable conditions can region in question. It must at the same time be admitted be a substantial source of the country’s economic that regional specialists are often insufficiently growth. At the same time, the existing regional dispari- informed of advanced model tools, which prevents ties may in the longer term be a serious limiting factor them from using calculations at the required level of for Russian economic growth. Accordingly, the govern- sophistication and comprehensiveness that would ment’s regional policy should not be reduced to the secure the desired quality. Therefore, the obtained val- establishment of intergovernmental fiscal relations or ues of indicators are usually not integrated into a uni- the implementation of individual projects. An integral fied calculation scheme and consequently lack consis- part of the national strategy nowadays must be the tency. It must also be taken into consideration that the development of a unified regional policy aimed at forecasting activity conducted by the economic depart- attaining ’s key long-term objectives. ments is mostly focused on the support of the budgetary Experience in recent years shows that integrated process and the everyday operation of the administra- programs of regional development are not yet based on tion within the region and, to a much lesser extent, on a clear and unified logic. This can partially be attributed feasibility studies of strategies and programs, espe- to the fact that over previous years, spatial development cially those at the federal level. issues had been somewhat neglected. In addition, the Improving the regional development strategy lack of adequate methodological and instrumental sup- requires a methodological apparatus that enabled the port prevents a national regional strategy. researcher to produce consistent forecasts of socioeco- In addition to key objectives and guides for the long- nomic development at the levels of the Russian Feder- term development of the national economy, the factors ation and its individual constituent members. Such a set assisting in attaining set goals must be clearly under- of tools should be the product of joint efforts of federal stood. In this connection, an integral part of govern- and regional governments, because these tools will help ment strategy in this sphere must be a comprehensive them to address a wide range of issues both at the forecast of the country’s socioeconomic development regional level and to develop the federal strategy of reflecting is dynamic and structural characteristics, regional development. including those allowing for the regional component. A In 2007, the Institute for National Economic Fore- prerequisite for this will be the implementation of a casting, Russian Academy of Sciences (RAS), in coor- new methodological approach to forecasting the coun- dination with the economic department of the govern- try’s regional development. ment of Vologda oblast, developed a model and long- Indeed, a comprehensive forecast of national territo- term forecast of the socioeconomic development of rial development is commonly prepared on the basis of Vologda oblast up to 2020. In the course of this work, materials submitted by local governments. At the same considerable experience had been accumulated in time, the respective departments of the administrations regional forecasting, which can be in preparing similar of constituent members of the Russian federation make forecasts for other regions. independent mid- and long-term forecasts in conform- We believe they development forecast for a RF con- ance with scenarios provided by the Ministry of Eco- stituent member must be based on the general develop-

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% 12

10

8

6

4

2

0 2000 2001 2002 2003 2004 2005 2006 Year

Fig. 1 Growth rates for GRP of Vologda oblast (---) and RF GDP (—) in 2000–2006. ment forecast for the Russian economy and the respec- 2006, the population of the oblast shrank by 126 thou- tive federal district. Analysis of the industrial branches sand people, or 9.2%. According to living standard sta- development in individual Russian regions shows that tistics, the oblast falls behind megalopolises and min- the general economic dynamics and the performance of ing regions. At the same time, the level of monthly aver- industrial branch indicators at federal and federal dis- age wages and salaries was rather high (12 700 rubles trict levels are the most significant factors for modeling in 2007). The level of per capita GRP in the oblast is a region’s branch indicators. Accordingly, the develop- much higher than Russia’s average (in 2006 it was 25% ment forecast of Vologda oblast must allow for the gen- higher). eral economic status of both the Russian Federation and The structure of the GRP of Vologda oblast mani- of the Northwestern Federal District (NWFD). fests a trend towards a reduced proportion of industry. The mandatory condition for the preparation of the Thus, from 2000 to 2006, the share of industry in GRP regional forecast is its structural constituent. Thus, a fell from 60 to 50%, and the share of agriculture decreased long-term forecast must be illustrative of the possible from 9 to 7.5%. This is situation typical of most Russian changes in the structure of the gross regional products regions and may be attributed to the huge growth in the (GRP), industrial production, etc. Of crucial impor- service, construction, transportation and communications tance for the economic growth dynamics and structure sectors. In particular the proportion of trade in the region’s are investment and innovations. In this connection, the GRP in 2006 reached 6.6%; construction, 11.2%; trans- forecast must largely rely on the assessment of the portation and communications, 11%. effect that implementation of large-scale regional Even though the dynamics of Vologda oblast’s GRP projects will have on the national economy as a whole. in 2000–2006 fell behind the general rates of the coun- In addition, a long-term forecast must describe various try’s development over the entire period (with the alternative economic development cases for an RF con- exception of 2004) (see Fig. 1), this fact in itself is no stituent member. A forecast interval of 15–20 years indication of negative trends. The matter is that the eco- seems sufficient for the regional authorities to have nomic crisis of the 1990s affected the oblast’s economy enough room to maneuver in allocating resources for much less than the entire country. Whereas at the low addressing specific issues in the oblast. point of the economic downturn (in 1998) Russia’s Over recent years, Vologda oblast has been one of industrial output was only 46% of the 1990 level, in the highest developed regions in northern Russian. The Vologda oblast it remained at a level of 67%. In this volume of the oblast GRP exceeds 10% of that of the connection, the recovery growth observed after the cri- entire NWFD. The area of the oblast is about 146000 km2. sis of 1998 was less manifested in the economy of The resource base includes primarily forest resources: Vologda oblast. The higher starting point enabled the over 70% of the oblast is covered in woods, and their per- regional economy as early as in 2005 to reach the prec- 1 formance stock is about 650 million m3. The region pro- risis level of industrial output, whereas the entire Rus- duces about 17.6% of Russian stock of finished rolled fer- sian economy has yet to attain this target (Fig. 2). rous metals, 10% of mineral fertilizers, 46% of timber The fact that the decline in the oblast’s industrial [1,2]. production was lower than Russia’s average can be According to the data as of the end of 2006, the attributed to the structure of industrial production number of Vologda’s permanent residents was already established in the region. The main industries 1228000 people [3]. Over the period from 1990 to of Vologda oblast, such as metallurgy, chemical pro-

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56 IOGMAN et al.

% 110 100 90 80 70 60 50 40 1990 1992 1994 1996 1998 2000 2002 2004 2006 Year

Fig. 2 Industrial production dynamics in the RF (—) and in Vologda oblast (---) (1990 = 100). duction, and forest industry, had had significant export capacity in the key sectors of the regional economy is potential that considerably mitigated the adverse conse- over 90%, which exceeds the optimum level. In partic- quences of the overall economic crisis in 1990s. ular, the largest of the oblast’s enterprises—the Chere- Over the years of economic growth (2000–2007), no povets metallurgical plant—the utilization of capacity significant changes occurred in the structure of Vologda of the chemical-recovery coal carbonization exceeds oblast’s industrial production. Metallurgical production 98%, the figure for blast furnaces is 98%, and for hot- still accounts for up to 68% of industrial output in the rolling mills it is 97%. In this connection, the possible region, the share of chemical production is 8%, and the decline in growth rates is to be expected in those timber complex accounts for about 3.5%. The oblast’s branches in the nearest future. economy still relies on production facilities (assets) Official surveys of producers published by Rosstat created over the Soviet period. At the same time, the show that for Vologda oblast’s enterprises, the main increase in investment over the recent years secured the purpose of investment in most cases is the replacement gradual replacement of fixed assets. The investment of the worn or obsolete equipment. The main barrier to process in the oblast has the following specific features: the accelerated investment is deemed to be the lack of the growing share of building and assembly works in proprietary funds. The insufficient development of the the technological structure of capital investment; high financial sector in the oblast’s economy substantially concentration of investment in the oblast’s metallurgi- limits investment activity. According to the data for cal and chemical complexes; the shrinking share of pro- 2007, bank lending accounted only for 3.5% of capital prietary funds in the structures of the investment investment in Vologda oblast; bank credits only financing sources accompanied by the simultaneous accounted for 3.5% of capital investment, which is one increase in the borrowed funds. of the worst figures in the NWFD. In spite of the relative prosperity of the oblast over The oblast has an impressive portfolio of short- and the 1990s and the steady development of the region’s mid-term investment programs in metallurgy and the economy over recent years, it should be noted that there timber industry. A major problem, however, is the are serious problems in Vologda oblast that can consid- absence of long-term investment projects, with the erably curb economic growth as in the nearest future. existing projects being concentrated in a limited num- Thus, by Rosstat estimates, the size of the able-bodied ber of industries. population in Vologda oblast may decrease by 20%: from 776000 people in 2006 to 621000 people in 2020. Another limitation of Vologda oblast’s economic If the rates of economic growth remain high, it would development may be the insufficient development of mean that the workforce shortage can be offset by the energy and transportation infrastructures. In particular, increase in labor productivity, by improvement in pro- in the oblast’s electricity energy budget, the share of duction technology, and by the redeployment of labor electricity purchased in other regions is 65%. Since an between industries or by labor migration from other electricity shortage is no less probable in these regions, regions or other countries. The direct conclusion to be the risks to the oblast’s energy supply will only increase drawn from this is that economic growth in the oblast with time. will largely be determined by the size of capital invest- The analysis of Vologda oblast’s economic situation ment. revealed that the region’s main problems in the longer The oblast’s production basis is also a serious prob- term are potential electricity shortages in the region, lem. According to statistical data, the utilization of aggravating demographic problems, insufficient diver-

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LONG-TERM FORECAST OF VOLOGDA OBLAST’S SOCIOECONOMIC DEVELOPMENT 57

Scenario conditions of economic development

Federal level of calculations

Scenario conditions of development in NWFD

Calculation level for NWFD

Scenario conditions for Vologda oblast

Intersectoral model of Vologda oblast's economy

Unit of industrial Unit of investment Unit of Unit of labor calculation resources production calculation GRP calculation

Unit of profit Unit of prices Fiscal and Unit of external calculation calculation budgetary unit trade calculation

Unit of calculation Unit of payroll bill of household balance Unit calculation calculation of income and expenditure of electricity budget

Fig. 3. Schematic diagram of the forecast for Vologda oblast’s socioeconomic development. sification of industrial production, considerable con- nomic activities. In this connection, gradual diversifica- straints on production capacity, underdeveloped tion of the oblast’s economy is required. regional investment programs, intense competition Decision-making in investment policy aimed at the between regions for external investment resources. region’s development and assumption of a long-term Therefore, the freedom of economic development strategy are impossible without a comprehensive from increasing constraints requires considerable capi- assessment of the potential national economic conse- tal investment providing the basis for sustainable devel- quences of their implementation. In this context, there opment of the oblast. As well, to prevent the oblast’s arises the need for a comprehensive long-term forecast excessive dependence on one or two industries, invest- of the oblast’s socioeconomic development. In turn, to ments are necessary over a wide range of sectors of the solve this problem, tools must be used that allow the economy oriented toward the implementation of long- researcher not only to appraise the long-range eco- term projects. Traditionally, the oblast’s economic nomic dynamics but also to compare and reconcile development has been associated with the metallurgi- development programs in various industries of the cal, chemical, and forest industries; lately there have regional economy. been rumors about the development of the flax produc- m forecasting the socioeconomic development of tion industry. At the same time, the long-term develop- Vologda oblast, a set of models was used (Fig. 3) ment of the region cannot rely only on these few eco- including an intersectoral model of RF economy, and

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58 IOGMAN et al. intersectoral model of the NWFD and a direct model of Investments in the ith industry branch are calculated Vologda oblast. Construction of this kind of model is from the following formula: required because of the orientation toward a system of tech() regional indicators; only it is impossible to predict the ∑Invk t effect of the national-scale economic situation by the Inv ()t = InvA ()t ------k - + Invadd()t . (3) development of a regional economy. At the same time, i i () i ∑InvAj t in order to reflect the regional specifics in greater detail, j an intersectoral model of the NWFD was required. The results of scenario calculations based on those models The obtained investment sizes in comparable prices were used to prepare a regional forecast in the form of are employed for calculating output volumes according to the sectors of Vologda oblast’s economy (in compa- exogenous parameters describing the performance of rable prices) in combination with the respective indices macroeconomic and branch indicators. for the NWFD. In order to transfer to the nominal val- The intersectoral model of Vologda oblast’s econ- ues of gross output, NWFD sectoral prices are used. In omy is an aggregate of the following interrelated calcu- addition, m forecasting the volumes of gross output for lation units: volumes of industrial production, capital industries with a high share of exports (the ferrous met- investment, labor resources, GRP, balance of fuel and allurgy, chemical, woodworking, and timber industries) the parameters of the equations employed include the energy resources, indicators of sectoral prices, finances, world prices for the respective commodities. budget, external economic activity, household balance of income and expenditure, profit, and payroll. Output volumes according to sectors of Vologda oblast’s economy in comparable prices are calculated Generally, the model functions as follows. At the from the following formula: first stage, the size of investment is calculated in the () sectoral and technological structure on the basis of the Out t performance of capital investment in Russia as a whole 5 (4) () () () and in the NWFD, as well as exogenously specified = IndSZFO t Out t – 1 + ∑ ki Invadd ti– , parameters of the regional investment program. Then i = 0 the parameters of the dynamics of basic production where Out(t) is the sectoral output volume for the year assets are obtained from the volume of capital invest- t in comparable prices; IndSZFO(t) is the index of sec- ment. toral production in the year t; ki is the return on invest- The investment size in comparable prices is calcu- ment (made in the sector in the year t – i); Invadd(t) lated from the following formula: denotes the additional investments in the sector per year t. () tech() tech() Output volumes according to sectors in current Inv t = ∑Invi t – 1 IndInvSZFOi t i (1) prices are calculated from the formula + ∑Invadd()t , COut() t (5) = COut() t – 1 Out() t /Out() t – 1 Indprice() t , tech where Invi (t) is an element of the investment tech- where COut(t) is the sectoral output volume for the nological structure (building and assembly works, year t in current prices; Indprice(t) is the index of sec- equipment, etc.) per year t; IndInvSZFOtech (t) is an toral prices for the previous year (taken from the i NWFD model). index of the element of the investment technological structure of the NWFD per year t; and Invadd(t) are addi- In addition to the values of gross output in monetary tional investments within the specified investment pro- [value] terms, output volumes are calculated for the key types of production in physical terms for mechanical t gram per year . engineering, ferrous metallurgy, chemical, food-pro- The investment activity index is calculated as fol- cessing, glass, timber, woodworking, and the pulp and lows: paper industries. On the basis of the amount and the level of real per () InvAi t capita cash income of households, the performance of (2) []()[]()() () passenger turnover for transport is predicted, and on the = InvAi t – 1 IndOuti t – N IndOuti t – 1 , basis of sectoral volumes of industrial production, the dynamics of the cargo turnover is forecast, as well as where IndOuti(t) is the index of the gross output in the the traffic volume for transporting the production of the ith industry branch in the year t; N is the normalizing key economic sectors—metallurgical, chemical, tim- basic [datum] level. ber, and woodworking industry.

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In terms of GRP calculation based on the perfor- from gross output and basic production assets. The mance of sectoral material costs per unit for the indicators of the balance of electricity production and NWFD, the volumes of intermediate consumption are consumption in the respective unit are obtained on the calculated according to the sectors of Vologda oblast’s basis of the performance of industrial production and economy and the GRP is obtained. The consumer price changes in the electric intensity according to the sectors index is evaluated by a regression equation allowing for of economy. The main factor affecting the production Russia’s national rate of inflation and sectoral prices. volume of electricity in the oblast is capital investment The values of balance-sheet [pretax] profit, business over the previous six years. In calculating foreign trade, profits, and payroll according to the economy sectors the forecast of the main commodity items of the are also calculated based on the output volumes and oblast’s export and import in monetary and physical GRP. For the ferrous metallurgy, timber, pulp and terms are predicted on the basis of gross output of fer- paper, and chemical industries, the parameters of the rous metallurgy, mechanic engineering, chemical, tim- equation include world prices for the main exports of ber, and woodworking industries, as well as world those industries; and for the food-processing industry prices for the production of these industries and the and agriculture, the equations are supplemented by aggregated gross output of other industries. such a parameter as Russian domestic prices for food In working out macroeconomic variants for Russia’s commodities. The consolidated financial result for the economic development, two main scenarios were up main sectors of the oblast’s economy (metallurgical, and put forward: innovation and inertial. chemical, woodworking, timber, pulp and paper, and The innovation variant is based on the respective food-processing industries, and for agriculture) is cal- scenario presented in the “Concept of the Long-Term culated as follows: Socioeconomic Development of the Russian Federa- ex ex tion up to 2020" (CLTD) worked out by the Ministry for Profit ()t = aCOut() t ++bOut ()t Price ()t c, (6) i i i Economic Development in 2007. The scenario is based where COut(t) is the sectoral output volume for the on the assumption that it is possible to attain the sus- ex tainable economic growth rates over the entire forecast year t in current prices; Pricei (t) represents world interval. prices for the main export products of a branch; This variant assumes a very significant increase in ex Outi (t) are the output volumes for the main export capital investment. Thus, the average annual increase in production of a branch; and a, b, c are the parameters of the capital investment over the interval 2007–2020 is the regression equation. 9.5%, whereas the period of greatest innovation and On the basis of the values of balance-sheet [pretax] investment activity is supposed to be in 2007–2015, profit generated by the oblast’s enterprises, payroll, as when the economy has to address the most important well as the national currency exchange rate and the per- issues of obviating limitations on economic growth in formance of the gross output for the activity of real infrastructural and manufacturing sectors of the estate operations as a separate block, the household bal- national economy. ance of income and expenditure is calculated. Household consumption will still be one of the cru- The total revenues of the consolidated and territorial cial factors of economic growth. The average annual budgets of Vologda oblast with respect to the main bud- increase in household consumption in 2007–2020 will get items is calculated from the consolidated financial be 7.5%. result of individual oblast industries, household The inertial variant is based on the hypothesis on the incomes, and gross output. From the oblast’s economy conservation of current trends in the country’s eco- revenues, the budget expenditures are obtained, in par- nomic development. This implies that over the forecast ticular, expenditures on public administration, health interval, the dynamics of capital investment and house- services, and education. hold consumption is mostly similar. As well, the In calculating labor resources, the labor pool or increase in the rate of capital investment will gradually scarcity in the oblast is evaluated as a function of capi- decline from 7.1% over the interval 2006–2010 to 3.9% tal investment and unemployment rate over the previ- in 2015–2020. The average annual growth rate in ous year as well as the increase in output volumes. The household consumption is expected to drop from 6.9% number of people with an income below subsistence in 2006–2010 to 4.6% in 2015–2020. These develop- level is calculated proceeding from the general popula- ments will be possible due to aggravate it resources lim- tion size and the dynamics of per capita household itations in 2008–2010 and a serious slowdown in eco- incomes. From this figure and the budgetary health nomic growth over this period. expenditures, the natural decline in population is The regional-level structural changes are character- obtained. The values of natural and migratory popula- ized by significant sluggishness. At the same time, anal- tion growth are calculated from per capita household ysis shows that persistent efforts, mostly in the field of incomes, average wages, labor pool, and the size of the investment, can partially mitigate certain negative population for the previous period. The average volume trends in regional development. This is why the most of employment in the oblast’s economy is estimated significant exogenous parameters that determine long-

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 20 No. 1 2009 60 IOGMAN et al. term prospects of regional development in our model sian macroeconomic forecast and on the forecast constructions are volume and sectoral structure of cap- worked out for the NWFD. In addition, an integral part ital investment. of the forecast should be scenario conditions worked According to this logic, innovation and inertial were out directly for the region’s economy. calculated for the NWFD. Scenario conditions for this In this connection, the two main scenarios of eco- region were assumed using calculation results based on nomic development prepared for the Russian economy the Russian Federation model and were complemented and for the NWFD were complemented by a set of by the development parameters of key sectors of the exogenous parameters reflecting the development of economy in the NWFD, and on the main basic develop- Vologda oblast. Those parameters include the share of ment characteristics of the electric power industry and population of active working age; volumes of residen- transport infrastructure of the NWFD. tial construction (housing); coefficients of energy For the innovation variant, the structure of the intensity reduction according to sector; volume of elec- NWFD’s gross output is expected to be characterized tric supply from regions outside the oblast; export by an increased share of industrial production, con- prices for metals and production of the timber and struction, and other industries that is largely associated chemical industries; coefficient of capacity utilization with a high level of capital investment. The shares of in metallurgy; norm for retiring housing assets; volume agriculture and transport in gross output will decline. of worn and emergency housing stock. At the same time, by 2020, growth rates in industry and In addition, the innovation variant was comple- construction will fall, and in agriculture and transport, mented by a set of investment projects planned to be they will go up. To a certain extent, this is connected implemented in the oblast. The most significant of with the fact that by 2015 some industries, e.g., ferrous those are presented in Appendix 2. metallurgy, will practically attain the limit level of their For every major investment project, the planned capacity utilization or they will face the constraints on investment size and scheduled implementation time resource. As well, further economic growth in the dis- were estimated. As a result, the “baseline” size of capi- trict will increasingly be determined by the develop- tal investment (i.e., the investment volume generated by ment of agriculture and forestry, and related branches the dynamics of NWFD economic development) was of light and food-processing industry, as well as the adjusted to the characteristics of the investment transport and service sectors. projects. In the distribution structure of the NWFD GRP, As far as the exogenous variables not related to the there will be a decrease in the share of consumption oblast’s investment situation are concerned, the differ- connected to the state administration bodies, and the ences between the variants are minimum. They are shares of household consumption and fixed capital for- associated with the performance of residential con- mation will slightly increase. struction (housing) and the size of the electricity supply In 2020, electricity generation in the NWFD will be from sources outside the oblast. 1.86 times greater than in 2005, slightly ahead of After calculating the innovation and inertial vari- regional consumption, which will rise by a factor of 1.7 ants, we concluded that the available information on the by 2020. Therefore, the NWFD will be able to export sectoral size and value of investment is insufficient for part of its generated electricity. The main electricity- a long-term forecast. Indeed, unlike short- and mid- consuming industries in the federal district are the term forecasts traditionally worked out by governments woodworking, timber, and pulp and paper industries; at different levels, the forecast horizon in the consid- the trade and service sectors, and domestic households. ered case must be at least 13 years. This extended The forecast indicators for the inertial and invest- period implies that the potential of the rear echelon ment variants of development in the NWFD are very industries will be widely used and investment will be similar, which can be attributed to the favorable finan- made in energy and transport infrastructures. cial and economic situation in the district, its well- The preliminary estimates showed that the main developed infrastructure, and the higher potential for drawback to the forecast results for the innovation vari- faster growth than in other regions of the country. ant is connected with the fact that the accelerated eco- As in investment scenario, the inertial variant nomic growth based on the development of the lumber assumes a reduction in the share of agriculture and industry and metallurgy makes it impossible to main- transport in gross output. At the same time, the rela- tain sustainably high economic growth rates over the 2 tively low level of growth in capital investment results entire forecast interval. The completed implementation in the construction growth rates much lower than for of large-scale investment projects in these sectors will the investment variant. In the distribution structure of necessarily be followed by an pause in investment GRP in the inertial variant, the share of consumption of accompanied by a decline in the rate of economic agriculture increases, whereas government consump- growth. tion and fixed capital formation shares decrease. Therefore, we can conclude that a third variant of In developing scenarios for Vologda oblast, we pro- calculations, i.e., the scenario of articulated invest- ceeded from their necessary reliance both on the Rus- ment, could ensure high economic growth rate in the

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 20 No. 1 2009 LONG-TERM FORECAST OF VOLOGDA OBLAST’S SOCIOECONOMIC DEVELOPMENT 61 region over the entire forecast interval. A hypothesis Table 1. The development forecast of the NWFD: average was put forward about the necessity of large-scale annual growth rate of the GRP by regions, % investment in 2012–2020 in such sectors of Vologda oblast’s economy as agriculture, the food-processing Region 2006–2010 2011–2015 2016–2020 industry, the machine-building complex, the financial Republic of Karelia 5.3 6.1 7.0 sector, the electric power industry, and the tourism Republic of Komi 5.3 6.0 6.8 complex. Analysis of the oblast’s electricity budgeting shows that electricity constraints can be overcome only oblast 6.7 5.2 4.9 by constructing new generating capacities in addition to Vologda oblast*: those stipulated for Vologda oblast in the “Master Plan I 4.8 5.1 4.4 for Siting Facilities of the Electric Power Industry up to II 6.5 9.4 7.0 2020”) [4]. III 6.5 10.0 8.2 The calculations yielded a scenario forecast of the Kaliningrad oblast 8.6 7.2 7.2 key socioeconomic indicators of Vologda oblast’s 10.2 8.5 8.4 development up to 2020. Comparison of the forecast estimates with the national indicators, the innovation Murmansk oblast 3.0 4.1 5.2 scenario, and the articulated investment variant will Novgorod oblast 4.5 5.0 5.8 enable Vologda oblast to be significantly ahead of the Pskov oblast 4.0 4.7 5.6 average figures for the indicators of the country’s eco- St. Petersburg 6.4 6.0 6.4 nomic development. Thus, in 2006–2010, according to the national innovation variant, the average growth rate * In all the tables, the scenarios of Vologda oblast’s development will be denoted as follows: I—inertial scenario; II—innovation of GDP will to 6.4%; for Vologda oblast, GRP growth scenario; III—articulated investment scenario. rates will be 6.5% both for the innovation and articu- lated investment variants. In 2011–2015, the growth rate of Russia’s GDP will remain practically the same, greatest return on the planned investment in 2011–2015 and for Vologda oblast, depending on the variants, they (Table 1). will be, respectively, 9.4 and 10%. In 2016–2020, the growth rate of Russia’s GDP will rise to 6.6%. For This situation can be attained at the expense of rapid Vologda oblast, the average annual growth rate of the growth in the region’s industry. Despite the fact that in GRP over this period is 7% for the innovation variant 2006–2010, the growth and industry in Vologda oblast and 8.2%i for the articulated investment variant. Taking falls behind the most dynamic regions of the NWFD, into account that in 2011–2015, the region’s develop- significant investment in the development of the lumber ment rate as a whole will be significantly ahead of the industry will enable the oblast to reverse this trend average Russian figures it can be concluded that in the andas early as in 2011–2015, the oblast will demon- longer term the oblast will be able to retain its leading strate the highest growth rate for industrial production positions in the level of the socioeconomic develop- in the federal district. If the articulated investment sce- ment not only in the northwestern region, but also for nario is implemented, the high rates of industrial Russia as a whole. growth will be retained for the subsequent years of the forecast. In addition, analysis of a possible change in the The main results of the forecast for the socioeco- position of Vologda oblast in the NWFD was per- nomic development of Vologda oblast are presented in formed. On the basis of a long-term forecast of Russia’s Appendix 1. spatial development carried out by the RAS Institute for Although in forecasting demographic indicators not National Economic Forecasting, the possible dynamics only the respective Rosstat estimates were taken into of the socioeconomic development in NWFD regions account, but also the indices of changes in the region’s was studied and compared. The benchmark indicators socioeconomic situation, calculations prevent us from of the regional development were the calculations for expecting any drastic change in the trend in the size the variant comparable with the CLTD innovation sce- dynamics of the oblast’s population over the forecast nario. interval. In appraising the demographic situation, the The calculation results show that the implementa- conservative scenario of migratory increase was tion of the articulated investment scenario will enable employed, according to which it was insignificant over the oblast to retain its leading position in the NWFD. As the entire forecast interval. well, the greatest economic growth rate over the fore- The average number of employed persons in the cast interval is expected in such NWFD regions as Len- population is expected by 2020 to be 592000 people ingrad oblast, Kaliningrad oblast and the Republic of according to inertial scenario and 609000 people Karelia. The greatest difference in the economic growth according to the articulated investment scenario. In the rate between Vologda oblast and the rest of the NWFD context of the declining size of the population of active constituent members is observed over the period of the working age and with allowance for the conservative

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 20 No. 1 2009 62 IOGMAN et al. scenario for migratory increase in the population size, The significant size of investment in the oblast’s such employment dynamics assumes the wider use of agricultural sector will enable it to increase its output the population below and older than active working 1.7 times in the articulated investment scenario. age, i.e., people younger than 16, women from 55 to 72, The region’s economic growth is accompanied by and men from 60 to 72. development of infrastructure sectors. Thus, cargo turn- The average annual growth rate in GRP in Vologda over in the transport sector according to the articulated oblast over the period from 2008 to 2020 is 4.8% for the investment scenario should rise 2 times in 2006–2020, inertial variant, 7.7% in the innovation variant, and electricity generation in the oblast’s territory should 8.3% for the variant of articulated investment. There- grow 2.3 times. fore, the volume of GRP as compared with the 2006 Large-scale capital investment characteristic of the level increases according to the respective variants 1.9, innovation scenario and articulated investment scenario 2.8, and 3.1 times. Such a high dynamics in the articu- will lead to drastic changes in the structure of Vologda lated investment scenario does not seem improbable oblast’s GRP. considering that Russia’s economy current growth occurs at an average annual rate of 6.7% and that The development of industries is conducive to an Vologda oblast is implementing large-scale investment increase in the share of manufacturing industries in the projects in certain key sectors of the economy. structure of GRP. In particular, in 2020, according to the inertial variant, their share increases to 49.2%; for The gain in labor productivity is becoming a crucial the innovation variant, the increase is up to 51.3 %; and factor as the democratic problems in the region become in the articulated investment scenario, up to 51.4%. The acclimated. According to the results of the calculated share of construction will grow considerably up to inertial variant by 2020, it will be possible to increase 16.1% of GRP in 2020 in the articulated investment this value 1.8 times; under the innovation variant, scenario. The requirement for attracting additional 2.5 times; and for the of articulated investment variant, investment in the articulated investment variant pre- labor productivity in 2007–2020 will increase 2.8 times. cludes the increased significance of the financial sector This result will, in particular, be achieved through invest- (1.5% GRP in 2020). Investment in the tourism sector ment and overall improvement in production efficiency in of the oblast in the articulated investment variant a the rear echelon sectors in 2012–2020 brings about an increase in such activities as restaurant and hotel business (0.9% GRP in 2020). In spite of The living standards of Vologda oblast’s population rather high rates of production growth, the share of this in accordance with the increasing level of real house- activity in the oblast’s economy will continue to fall. hold incomes over the period from 2006 to 2020 will This is connected with the greater rates of development rise 1.9 times under the inertial variant; 2.6 times for the for other sectors of the economy over the forecast innovation variant; and 2.7 times for the articulated period. investment variant. Per capita GRP, in US dollars at the exchange rate for 2006, by 2020 will reach $14000 for It should be noted that in the structure of Vologda the inertial variant, $21000 under the innovation vari- oblast’s industrial production, the share of metallurgi- ant and $23000 in the articulated investment scenario. cal production will shrink according to all three vari- Therefore, according to the most favorable scenario, an ants of the forecast. This is mostly due to the limit level economic development level can be attained that is of capacity utilization at the metallurgical higher than similar indicators in the most Eastern Euro- plant. The scheduled investment will support only a pean countries. slight increase in production. At the same time, other regional industries are characterized by priority growth The housing level by 2020 will increase up to rates. Large-scale investment in the lumber sector in the 26.5 m2 per person under the inertial variant and up to innovation and articulated investment scenarios will 27.3 m2 per person both for the innovation variant and increase the share of this business activity in the struc- for the articulated investment variant. The relatively ture of Vologda oblast’s industrial production from slow growth of this indicator is connected with the 3.5% in 2006 to 15.5% in 2020 according to the inno- accelerated retirement of worn and emergency housing vation variant and to 14.2% under the articulated stock and with the current housing level, which is rather investment variant for the same year. In the articulated high by Russian standards. In addition, a part of con- investment scenario, the significance of the machine- struction sector resources must be allocated to indus- building complex in the oblast will increase signifi- trial construction according to the investment program. cantly, up to 7.1% in 2020. Over the forecast period, industrial production will A more detailed picture of the oblast’s industrial rise 1.7 times under the inertial scenario; 2.6 times for development can be obtained by analyzing the physical the innovation variant; and 2.8 times in the articulated production indicators production of the key industries investment scenario. In the latter case, the growth in in Vologda oblast (Table 2). In particular, the produc- industrial production remains steadily high over the tion of finished rolled ferrous metals will grow by 2020 entire forecast period. up to 13346 000 t according to the inertial variant and

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Table 2. Physical production indicators of Vologda oblast’s key industries according to the forecast of the region’s socioeconomic development up to 2020

2010 2015 2020 Indicator 2006 I II III I II III I II III

The production of finished rolled 9749 10777 10915 10915 12116 13169 13169 13346 15215 15215 ferrous metals, thousand tons

Steel production, thousand tons 11282 12268 12510 12510 13919 15770 15770 15399 18681 18681

Cellulose production, thousand tons 21 39 58 58 48 675 675 56 1071 1071

Timber production, thousand cubic 1088 1514 1665 1943 2138 4421 5896 2695 6803 9311 meters

Production of sulphuric acid, thousand 2334 2945 3111 3111 4384 5502 5658 5909 8074 10054 tons

Production of synthetic ammonia, 936 1055 1091 1091 1374 1618 1651 1709 2182 2614 thousand tons

Production of mineral fertilizers, 1771 2096 2158 2158 2688 2108 3167 3314 4128 4872 thousand tons

Cargo turnover, million ton/km 66197 72522 74324 75848 84194 100144 106508 94515 119979 132454

Cargo carried by railroad transport:

ferrous metals, thousand tons 8860 9216 9417 9417 10586 12122 12122 11815 14539 14539

chemical and mineral fertilizers, 3028 4195 4464 4464 6753 8568 8819 9457 12970 16183 thousand tons

timber cargo, thousand tons 2994 4167 4582 5347 5884 12166 16223 7416 18718 25619

Passenger turnover, million passenger 3905 3562 3651 3651 3356 3894 3913 3373 4897 5009 kilometers up to 15214 000 tons under the innovation and the the profit tax share will slightly decline. The share of articulated investment scenarios. nontax revenues will remain relatively stable, account- Cellulose (wood pulp) production in the articulated ing for about 3.6% of Vologda oblast’s consolidated investment scenario increases from 21 000 tons in 2006 budget. to 1 071 000 tons in 2020; according to this variant, by The electricity budget of the region will experience the end of the forecast period, timber production can be some difficulties in connection with the oblast suffering 9311000 m3. from power shortages (Table 3). At the same time, the The growth in industrial production will predeter- articulated investment scenario assumes the construc- mine the increase in railroad transportation of the main tion of new generating facilities that will make it possi- types of the region’s industrial output. The volume of ble by 2020 to boost electricity generation in the oblast timber cargo transportation in 2006–2020 will be to 16.5 billion kWh. In the oblast’s general power con- boosted 2.5 times according to the inertial variant, 6.3 sumption, the share of the electricity produced outside times according to the innovation variant, and 8.5 times the region in this case will drop from 65 in 2006 to 55% according to the articulated investment scenario. in 2020. The growth in Vologda oblast’s economy will The greatest increase in electricity consumption is become the main source of increased revenues of the observed in the manufacturing industries. In particular, regional consolidated budget. In the structure of tax in the inertial variant, electricity consumption by this revenues, the rising share of receipts from personal sector in 2020 will be 12.4 billion kWh; under the inno- income tax and value added tax is expected, whereas vation scenario, it will amount to 18.9 billion kWh; and

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Table 3. Electricity budget of Vologda oblast, million kWh according to scenarios

2010 2015 2020 Electricity budget 2006 I II III I II III I II III

Electricity produced 7174 8450 8454 8454 10069 10366 11102 11604 12680 16588 Supplied from generating 8715 10267 10303 10303 12295 12760 12760 14241 15764 15764 capacities outside the region Total regional consumption 13362 14698 15269 15269 16933 21561 22005 18414 26291 28689

@ 1173 1308 1311 1311 1489 1540 1589 1676 1845 2099 Supplied to the consumers out- 2526 4019 3489 3489 5431 1565 1857 7430 2153 3664 side the region agriculture and forestry 512 508 532 532 503 580 609 498 653 758 fishing industry 7777788799 mining 9 9 10 10 10 13 13 11 17 17 manufacturing activity 9049 9923 10387 10387 11555 15637 15911 12432 18896 20516 production and distribution 1234 1397 1401 1401 1584 1647 1721 1735 1938 2314 of electricity, gas, and water construction 60 80 94 94 101 141 155 122 180 213 transport and communications 541 589 623 623 684 807 807 811 1143 1143 rendering utility [communal], 260 301 313 313 342 417 417 371 576 576 social, and personal services other economic activities 516 576 591 591 659 773 775 751 1034 1044 in the articulated investment variant, 20.5 billion kWh. out for developing rear echelon industries. These may The transport and communications sectors rank second include agriculture and the food-processing, machine- in electric power consumption. The energy sector will building, electric power, and tourist industries. also consume a large amount of electricity. —According to the forecast results, it can be The main conclusions drawn from the forecast cal- assumed that the implementation of the innovation sce- culations are as follows: nario and the articulated investment scenario will make —Vologda oblast remains one of the most dynami- it possible to overcome the existing limitations on the cally developing regions in the NWFD. It managed to region’s economic development and to create prerequi- achieve a high (by Russian standards) level of living sites for sustainable growth in the longer term. standards. Over recent years, the industrial potential of the region has been actively realized. REFERENCES —The economy of Vologda oblast faces a maze of 1. Regional Strategy of Economic Growth 2015 (: problems connected with increasing economic devel- Nauka, 2007) [in Russian]. opment limitations on labor and capital. There is also 2. A Regional Development Strategy (Vologda: VSCC the serious problem of energy shortages in the region. CEMI, RAS, 2004) [in Russian]. —Under persistent demographic problems and 3. Vologda Oblast Statistical Yearbook 2006 (Vologda: labor limitations, the natural way to retain high rates of Vologda Regional Office of the Federal State Statistics the economic development seems to be a gain in labor Service, 2007) [in Russian]. productivity. The solution to this problem also requires 4. “Russian Government Order No. 215-r of Feb. 22, 2008, an increase in investment activity. Master Plan of Physical Layout of Electic Power Facili- ties to 2020,” Sobr. Zakonodat. Ross. Fed., No. 11 (Pt. II) —Planned large-scale investment in the lumber sec- (2008). tor will imply higher requirements on the state of the region’s transport infrastructure. 5. Report of the Vologda Oblast Governor on His Results and Main Lines of Activity Submitted for Consideration —In order to avoid slowdown in the rate of eco- to the Russian Federation Government (Vologda: 2007) nomic growth in 2012–2020, a strategy must be worked [in Russian].

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Appendix 1. Main indicators of the forecast for the socioeconomic development of Vologda oblast for the period up to 2020 Level of Average growth Indicator 2005 2006 2010 2015 2020 2020 to rate, 2020 2006, % to 2006, % Population size, thousand people I 1200 1168 1144 93.1 II 1235 1228 1200 1173 1164 94.8 III 1200 1173 1167 95.0 Size of the population of active working age, thousand people I 741 673 626 80.7 II 779 776 741 676 637 82.1 III 741 676 639 82.3 Average staffing number of organizations, thousand people I 604 597 592 97.1 II 606 610 605 604 607 99.5 III 605 604 609 99.9 Household cash income, billion rubles I 0.1 0.1 0.2 191.6 II 0.1 0.1 0.1 0.2 0.2 260.0 III 0.1 0.2 0.2 262.7 GRP in comparable prices 2005, billion rubles/year I 251.6 323.3 401.0 192.8 II 194.9 207.9 267.5 418.3 587.7 282.6 III 267.5 430.2 637.2 306.4 The average annual growth rate of the GRP, % I 4.9 5.1 4.4 4.8 II 4.5 6.7 6.5 9.4 7.0 7.7 III 6.5 10.0 8.2 8.3 Industrial production in comparable prices 2005, billion rubles I 306.0 384.6 458.7 172.5 II 247.9 266.0 319.4 512.8 685.9 257.9 III 319.4 522.5 748.1 281.2 Production of agriculture in comparable prices of 2005, billion rubles I 26.0 27.1 28.2 111.8 II 24.8 25.2 27.3 31.3 37.0 146.8 III 27.3 32.8 42.9 170.2 Fixed assets in comparable prices 2005, billion rubles I 431.2 445.8 459.0 11.6 II 400.1 411.2 440.2 467.1 498.9 121.3 III 440.2 472.9 505.8 123.0 Residential construction (housing), thousand m2 I 385 463 518 155.1 II 293 334 450 595 672 201.2 III 450 595 672 201.2 Housing stock, million m2 I 29.6 29.9 30.3 102.6 II 29.4 29.6 29.7 30.5 31.7 107.2 III 29.7 30.5 31.7 107.2 Housing level (m2 per person) I 24.6 25.6 26.5 110.1 II 23.8 24.1 24.8 26.0 27.3 113.1 III 24.8 26.0 27.2 112.9 Cargo turnover in transport, billion t/km I 72.5 84.2 94.5 142.8 II 63.1 66.2 74.3 100.1 120.0 181.2 III 75.8 106.5 132.5 200.1

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Appendix 1. (Contd.) Level of Average growth Indicator 2005 2006 2010 2015 2020 2020 to rate, 2020 2006, % to 2006, % per capita GRP, US dollars, 2006 I 9216 11843 14687 192.8 II 7139 7617 9800 15323 21528 282.6 III 9800 15759 23339 306.4 Growth rate of labor productivity, % I 4.33 4.39 3.66 179.8 4.28 II 6.14 6.95 8.66 5.41 256.6 6.96 III 6.95 9.83 6.18 278.3 7.58 Growth rate of real cash income, % I 4.97 4.06 2.82 II 6.47 23.14 7.00 7.06 6.22 III 7.00 7.26 6.34 Electricity production, billion kWh I 8.4 10.1 11.6 161.8 II 6.8 7.2 8.5 10.4 12.7 176.8 III 8.5 11.1 16.6 231.2 Budget revenues in current prices, billion rubles I 73.33 113.20 154.51 322.0 II 40.49 47.98 76.21 136.13 207.59 432.6 III 76.21 137.97 218.48 455.3 GRP in current prices, billion rubles I 359.8 603.7 817.1 370.6 II 194.9 220.5 383.0 777.1 1191.9 540.6 III 383.0 806.6 1339.7 607.6 2005–2010 2011–2015 2016–2020 Investment size over the period, in comparable prices of 2005, billion rubles I 61 61 319 396 481 II 393 557 773 III 393 604 815

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Appendix 2. List of large investment projects ready for implementation in Vologda oblast [5]

No. Project name

1 Construction of integrated lumbering plant Suda (Suda settlement of Cherepovets district, Vologda oblast) 2 Setup of industrial and production park Sheksna (Sheksna settlement, Vologda oblast) 3 Koskisilva (Sheksna district) Construction of woodworking enterprise producing birch timber, plywood, veneer sheet 4 Severstal: Construction of air separation plant—ER Likid Severstal 5 Azot: Modernization of ammonia production 6 Ammophos: Reconstruction of the engineering system for the production of sulfuric acid. Construction of a power generation plant 7 Sokolskii Woodworking Plant: Reconstruction of drying production 8 Kharovlesprom: Modernization of lumber-mill production 9 KDK Plant: Setup of production of laminated joists for house building 10 Krona: Production of laminated battens for windows 11 Monza Woodworking Plant ( district): Technical upgrading of slab and pressboard production 12 Velikii Ustyug Plywood Mill Novator: Modernization of equipment 13 Sokol Pulp and Paper Plant: Reconstruction of pulp and paper production 14 Municipal Unitary Enterprise, Chebsara Logging Enterprise (Sheksna district): Modernization of equipment and facilities 15 Poldarsales (Velikii Ustyug district): Modernization of equipment and facilities 16 LLC Glassworks and Co.: Modernization and reconstruction of glass containers production 17 Pokrovskii glassworks: Establishment of modern production of high-quality glass containers 18 Smerdomlya glassworks: Modernization of equipment and facilities 19 Cherepovets dairy factory: Modernization of processing room equipment 20 Russkii biskvit (Cherepovets): Modernization of equipment and facilities for cake production 21 Vologda Dairy Factory: Technical upgrading of ricotta and cheesecake production 22 Federal State Unitary Enterprise Scientific-Experimental Milk Processing Factory Vereshchagin VSGE: Reconstruction of entire milk production 23 Premium Vodka Distilleries (Vologda): Reconstruction and modernization of the bottling chamber 24 Vologda bread-baking plant: Reconstruction of the grain-cleaning department 25 Sheksna Grain Production Plant: Modernization of equipment and facilities of the mixed feeds production facility 26 Severnoye moloko (Gryazovets district): Modernization of equipment of the packing plant 27 Velikii Ustyug Distillery: Modernization of technological equipment and facilities 28 Pekar ( district): Modernization of bread-baking equipment and facilities 29 SSM Tyazhmash (Cherepovets): Modernization of equipment and facilities of the machine tool plant 30 Severstal-Emal’: Construction of a plant for the production of steel enamelware 31 Elektrotekhmas: Modernization of equipment and facilities for plastics processing 32 Velikii Ustyug Repair and Engineering Works: Modernization of equipment and facilities of machining and woodworking shops 33 Metaplast: Modernization and reconstruction of production of commercial metallic packing (50–100 l). Setup of production of commercial metallic packing (10–30 l) 34 Vologda Textiles: Modernization of equipment and facilities for fabric production 35 Dedovo Pole: Creation of a new peat processing production 36 LLC Vologda brickworks. Construction of brickworks.

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