Russia: Increasing Concentration of the Economy and Low Investment

Author: Oleg Shibanov, New Economic School and Corporate University of Sberbank.

The Russian economy became more concentrated in 2014. The new RBC-500 rating shows that the 643 largest companies in Russia produce 77% of the country’s GDP. Moreover, 94% of the net profit of these companies was generated in the oil and gas sector. This is up from 71% in 2013. This increasing concentration appears unstable at times of huge external shocks on commodity prices.

RBC (“Russian Business Consulting” media) published the new rating (called RBC-500) of the largest Russian companies. It is developed to understand the composition of the Russian economy, its dependence on different sectors, and to provide some insights into possible growth opportunities. The rating is based on carefully collected data on individual companies’ characteristics including sales, number of employees, and gross and net profits.

Given the international sanctions imposed on a variety of Russian companies and individuals, and large decreases in commodity prices, this is the toughest year for Russia since 2009. Revenues from commodities still represent more than half of the Russian government budget. It is therefore of interest to study how the companies in different sectors react to macroeconomic changes.

Increasing concentration

We can compare 2013 and 2014 using RBC-500. There are several interesting results (all expressed in Rubles):

  1. All 643 companies in the rating produced 77% of Russian GDP in 2014;
  2. The top-10 companies generated almost 58% of net sales in 2014 (see Figure 1 for the distribution);
  3. Most of the net profits are generated in the oil and gas sector. Namely, in 2013, oil and gas companies made 71% of the overall net profits, while in 2014, it was more than 94% (see Figure 2 for the distribution);
  4. The top-5 companies collected 63% of net profits in 2013, and a whopping 88% in 2014. However, large parts of the profits in 2014 correspond to the paper increase in the value of dollar-nominated assets and foreign currency that these companies saved over time;
  5. Total net sales (sales after taxes and levies) increased 16% between 2013 and 2014. Given the official inflation of 11.4% and GDP growth of 0.6% in 2014, this suggests an increasing concentration with respect to the rest of the economy;
  6. The top-10 companies by net profits in 2014 belonged to the sectors of oil and gas (6 companies), banking (2), metallurgy (1), and – unexpectedly – an IT company;
  7. The top-10 companies by net sales in 2014 include oil and gas (4), electricity (2), banks (2), railways (1) and retail (1);
  8. Finally, it is quite interesting to check for companies that may become “future leaders” e.g. in pharmaceuticals or IT. There are several in the ratings, but the largest in the former category generates less than $1 billion in net sales, while among the latter – less than $2 billion in net sales. Given a GDP of around $1806 billion in 2014, these are tiny numbers.

Figure 1. Net sales distribution, Rubles billion, 2014

NES_fig1Source: RBC-500 rating; author’s computations.

Figure 2. Net profits distribution, Rubles billion, 2014

NES_fig2Source: RBC-500 rating; author’s computations.

Uncertain Certain Future

Currently, there appears to be not much hope for the short-term. Given the increasing concentration of net profits in the hands of a few companies, it is hard to expect any material change in the economy’s growth in the near future. The 6% of net profits left to the rest of the economy means that there are little incentives to invest and expand – exactly the sources of growth the Russian economy needs now. There is almost a 10% decrease in real wages and a similar magnitude of decrease for retail sales in 2015.

Most of macroeconomic statistics almost exclusively depends on the decisions of a small number of managers. This may not be a problem if every company would start to increase their capital and productivity. However, despite a 40% growth of (Ruble) net profits in January-July 2015, with respect to 2014, we observe an almost 7% decrease in nominal investment. It seems that concentration plays against the Russian economy, and that the Russian government may have to think about ways to decrease this dependency.

The most important source of growth is that from small and medium enterprises (SME), and it is underrepresented in the Russian GDP, but there are signs that it may become a goal for the government. For example, a new course in Personal Finance developed by the Ministry of Finance has a huge part on entrepreneurship. It may take time to persuade the Russian people to become entrepreneurs in larger numbers, but the direction is definitely promising.


Future of Russian economy does not look too bright at the moment. High concentration of both sales and net profits in a few companies means that a small group of managers undertakes investment and production decisions for the large part of the economy. It seems important to increase the SME share in GDP if the government would like to revive growth.