Regional inequality
According to World Bank estimates, Russia is one of the leaders in regional inequality among the countries of Europe and Central Asia 1. And the matter is not only in the vastly unevenly populated territory, in India, China and Brazil, regional inequality is lower than in Russia. What is happening in the regions of Russia and how has the situation changed over the past five years?
Gross regional product and population income
35% of Russia's GRP is concentrated in the Central Federal District 2, and about half together with the Volga Region. This is due to the extremely uneven distribution of the population throughout the country, more than a quarter of which live in the Central Federal District. When calculating GRP per capita, the picture changes a lot; the Ural region is in the lead due to the presence of the Khanty-Mansiysk and Yamal-Nenets Autonomous Districts, where most of the hydrocarbons are produced.
With the beginning of the economic recession in 2014, real income of the Russian population are steadily declining. The decline is extremely uneven, for example, the Urals lost nine times more in five years than the Northwest. In absolute terms, there are no winners, but in relative terms, the Northwest and the Far East 3 can be noted, now income there is significantly higher than the average for Russia.
1 Only Slovakia and Tajikistan are ahead of Russia, “Towards a New Social Contract”, “Toward a New Social Contract”, 2019: https://openknowledge.worldbank.org/bitstream/handle/10986/30393/9781464813535.pdf?sequence=10
2 Further Federal Districts or regions
If we look at real income at the level of entities, then from 2015 the spread of household income began to increase again. If in 2014-15 the population in the affluent regions suffered the most, which markedly reduced the spread index; now the difference between rich and poor entities of the Russian Federation is growing again.
Spread of income in the constituent entities of the Russian Federation
Deviation / the average (Right Scale)
* standard deviation
Source: Rosstat, Standard Capital calculations
3 For comparability of calculations, Buryatia and the Trans-Baikal Territory belong to the Siberian Federal District in all years, although officially since 2018 they have become part of the Far Eastern Federal District.
Due to the fact that over the past five years, real GDP has actually stagnated, while real income has fallen, the ratio of total income to GRP is also declining. The gap between regions and entities is wide, from 14% in the Nenets Autonomous District to 215% in the Chechen Republic. The income smoothing system works quite adequately, the trend is clearly visible, there are few sharp deviations.
Income of the population / GRP, 2017
The numbers on the graph show the change from 2013 to 2017
Income of the population / GRP and the position of the entity of the Russian Federation by GRP per capita, 2017
In recent years, industrial production indices (IPPs) in the regions have been very volatile. After a steady rise in 2017, where even the worst growth was 2%, a period of increased turbulence began, in 2019 the growth of more than half of the regions did not reach 2%. Although the situation looks stable over the past five years, the growth of the North Caucasus is caused by a low base, other regions added from 1.5% to 3.5%.
On a smaller scale, the situation is even more stable. For one and a half years every month over fifty constituent entities of the Russian Federation have been showing the growth of IPP.
Dynamics of the industrial production index (data for June of the corresponding year), average annual growth rate
Distribution of the rise and fall of industrial production index among the constituent entities of the Russian Federation
After the failure of investments in fixed assets throughout Russia from 2014 to 2016 (at constant prices, they fell by 14% over three years) this figure began to grow again. In general, over the past four years, only three regions have been in positive territory - the most developed Central and North-West, as well as the Far East, where Sila Sibiri requires significant investments. Investments in the Southern Federal District collapsed sharply in 2018 due to the completion of the construction of the Crimean bridge.
Moscow, Khanty-Mansiysk and Yamalo-Nenets Autonomous Districts - in 2018 divided by three quarters of all capital investments (in 2014 - 22%), and the capital accounted for 14% of the total investment (in 2014 - 11%).
The distribution of capital investments per capita by federal districts remains stable, the Ural is confidently leading due to the development of the oil and gas complex in the Khanty-Mansiysk Autonomous District and Yamal-Nenets Autonomous District.
Dynamics of investments in fixed assets, at constant prices, average annual growth rate
Budget and Debt
Surplus / budget deficit,% of total income4
Over the past five years, the situation in the regional budgets has changed dramatically. If in 2013 all regions were in serious deficit, and in 2016 in a small one, excluding the Center alone, then by the end of 2018 there was not a single federal district where expenses would exceed income. The Ural, the former outsider in 2013 and the leader in 2018, stands out especially.
The structure of tax revenues of regions is changing. The two largest taxes - on corporate income and on personal income (PIT) are moving in opposite directions.
The first is growing quite rapidly as a share of total tax revenues in almost all regions except the Northern Caucasus, the second is declining everywhere without exception. In the Ural, corporate income tax already gives the budget more than personal income tax. A clear illustration of the economic trends of recent years in the country is the growth of company profitability against the background of a fall in real income.
4 Including donations
Share of gratuitous receipts from own income5
For five years, the share of gratuitous receipts in the regional budgets increased only in the Southern Federal District, thanks to reunification with the deeply subsidized Crimea and Sevastopol. All other regions improved their budget self-sufficiency, although in the North Caucasus it is still almost one and a half times higher than the region’s own income.
Debt burden, share of own income
The debt burden since 2013 has decreased in all regions except the Far East (there it has grown from 20 to 30% of all budget revenues). Some cases among entities such as Mordovia, which have increased their debt from 143 to 195% of budget revenues, do not play a special role, in general, the trend is downward and stable.
5 Own income means tax and non-tax revenues of the region, excluding donations
Far East
According to the above data, it can be noted that the Far East has become one of the most successful regions over the past five years. Its GRP per capita almost reached the level of the Center, real income decreased by only -2.2% (better only in the North-West) and is now above the average for Russia, the growth of the industrial production index is in the third position, investment in fixed assets- in the first, and in addition, this is the only region that is increasing its debt burden.
Since 2014, the Far East has been a priority region for development for the federal government. For the Far East, they specifically developed a type of economic zone - PDA (priority development area) 6 , where large-scale tax benefits are provided to residents. In the Far Eastern Federal District, 18 PDAs have already been created with a total investment of 2.2 trillion rub. According to the government, “PDA is a tool for the development of the Far Eastern Federal District, focused on global competitiveness and movement in the Asia-Pacific region ”. 7
Share of export and import (Far East - China)
The region's foreign trade is increasingly oriented to China, in 2018 it accounted for more than half of all imports (figures for 2019 are likely to change much towards the end of the year), and the growth rate is very high - more than 10% over the previous year. Export does not show much growth; the Far East serves more as a center of transit trade. In the context of long-term economic stagnation in Russia, the regions are looking for support in the outside world, and judging by the latest trends, the Far East is increasingly connecting with China.
6 Federal Law of December 29, 2014 No. 473-ФЗ “On Priority Development Areas in the Russian Federation”, according to it, in the first three years the PDAs can be created only in the Far East.
7 Ministry of the Russian Federation for the Development of the Far East and the Arctic, https://minvr.ru/activity/territorii-operezhayushchego-razvitiya/
In the Russian Federation, there are still strong regional imbalances due to territorial, resource and civilizational differences. The last five years have not changed much in the proportions of regional indicators, in general, the situation remains the same. Inequality increases during a country's recovery, when economic growth is unevenly distributed, and in the absence of growth, major changes cannot be expected.