1.1 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. 1.1.1).

Ðèñ. 1.1.1

 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. 1.1.2). 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.

 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. 1.1.3). 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. 1.1.3). 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. 1.1.3

 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%.

The output of key chemical and petrochemical products over the past five years is shown in Table 1.2.1.

Table 1.2.1

 Output of key chemical and petrochemical products in Russia in 1997- 2001

In contrast to 1999 – 2000, when all subsectors in the chemical industry showed positive trends, in 2001 certain signs of decline started to materialize in some of the chemical industries while producers of key chemicals, products of primary chemistry and organic synthesis, plastics and synthetic rubber, kept increasing their output by 6 – 10% on average during the year (Fig. 1.2.1).

 Changes in the output of key chemical and petrochemical products in 2001, %

 

Inputs for the chemical and petrochemical industries have a wide range of components, and the production cycle consists of several consecutive processing phases.

Key products of primary chemistry come from the quarried and processed minerals. To produce phosphate fertilizers, e.g., they use phosphorous-containing ores mostly from 17 apatite and 24 phosphorite mines containing over 1 bln. tons of Ð2Î 5. The largest one is the Khibini apatite-nepheline ore deposit in the Murmansk region mined by the company Apatit. For potash fertilizers they need potassium salts from the Upper Kama mine in the Perm region: it has up to 3.8 bln. tons of production reserves.
Ammonia is the raw material for nitrogen fertilizers. It is recovered from natural gas through interaction between gaseous nitrogen and hydrogen. Sodium chloride is used to produce chlorine and hydrate of sodium while limestone is needed to obtain soda ash and hydrate of sodium.

Petrochemical production relies on multi-phase processing of oil and associated petroleum gas (APG). The full cycle of production from inputs to finished product (plastic goods, tyres, and mechanical rubber goods) has at least 7 technological stages. With every subsequent stage grows the profitability of the end product: in certain cases, the value of the product obtained at the final stages of the technological cycle could be more than 100 times the price of one ton of the input raw material.
Key raw materials in petrochemistry include products of oil refining (primarily virgin gasoline or naphtha) and associated petroleum gas (APG). Oil companies have been significantly reducing their sales to the domestic market recently motivated by excess profits of exports, and the increased reliance on APG is something petrochemical companies need to continue to be viable.
APG is different from methane, a natural gas, in higher concentrations of heavy hydrocarbons and is, as such, an important raw material for petrochemical operations. Processing of APG at gas refineries yields a product called "long distillate of light hydrocarbons" and the net gas similar to natural gas. At gas refineries the long distillate yields liquefied gases (propane, butane and their blend) for household purposes.
Further processing of the long distillate yields almost the entire range of petrochemical goods: rubbers for tyres and mechanical rubber items, plastics and components for high-octane gasoline.
Key petrochemical goods include ethylene, propylene and benzene; source monomers for synthetic rubbers, and inputs for technical carbon. For the diagram showing various types of petrochemical goods, see Fig. 1.3.1.

Fig. 1.3.1

 Functional diagram of some petrochemical products

 

1.4 Foreign trade

In 2001, the following factors defined the foreign trade for chemical and petrochemical industries:

• a relatively high reliance of exports at large-capacity chemical and petrochemical operations, despite the declining export sales of some of the products;

• lower world prices for some of the products (mineral fertilizers, ammonia and some plastics);

• higher imports due to stable national currency, and changes in the customs tariff regulation.

The factors ensured higher foreign trade turnover in chemical products due to increased import (by 10%); exports, in turn, did not change much (Table 1.4.1). Export preserved its surplus but at a lower level by more than 10%.

Table 1.4.1

 Foreign trade turnover at chemical and petrochemical industries in Russia in
1999 - 2001, USD mln.

Indicator	1999	2000	2001
Foreign trade turnover	6646.3	8308.4	8616.3
of which:
export	4122.0	5167.2	5207.8
import	2524.3	3141.2	3408.5
balance	1597.7	2026.0	1799.3

In the past decade, the commodity composition of exports has finally shaped up: it is dominated now by mineral fertilizers and products of organic synthesis. Export is big for some value-added products such as plastics and rubber. In 2001, mineral fertilizers accounted for over a third of the Russian chemical exports, and another 25 percent came from the exports of petrochemical semi-products (cyclic hydrocarbon, styrene, methanol, etc.). Synthetic rubbers and plastics (including plastic goods, which did not account for much export) had 6.4% and 11.7%, respectively (Fig. 1.4.1).

 Commodity structure of chemical and petrochemical exports of Russia in 2001, %

 

In the 2001 rating of top one hundred exporters, according to Expert RA, there are numerous chemical and petrochemical companies. The top few of them are SIBUR, Evrokhim, Fosagro Apatit Group, and Agrochemical corporation Azot.

Table 1.4.2

 Chemical and petrochemical enterprises among top one hundred Russian exporters in 2000-2001

The industry has a broad foreign trade geography. Traditionally, key exports go to Western Europe and Asia. For instance, China accounted for 18% of the 2001 foreign trade turnover. The second place by export volume went to Finland (11%). While China buys a wide range of chemical products from Russia, including mineral fertilizers (in 2001 they accounted for 36.3% of the export value), plastics and synthetic resins, rubbers, etc., Finland concentrates primarily on products of organic synthesis (about 70% of the export total). Note that Finland as well as Baltic countries often buy Russian chemicals for re-sale to European markets. The third largest importer of Russian chemicals, lagging significantly behind the leaders, is the US that buys big shipments of synthetic ammonia and mineral fertilizers from local producers. As a result of the lower prices for ammonia, although export volumes increased 13%, their value declined by 11%. The aggregate exports to the CIS and Baltic countries in 2001 accounted for 22.2% of the value of total exports (Table 1.4.3). The list of CIS countries trading with Russia is led by Kazakhstan and Ukraine that in 2001 accounted for US$261.2 and US$296.1 mln., respectively. In 2001, exports to Belarus almost doubled to US$184.0 mln.

 Geographic structure of chemical and petrochemical exports in 2000 - 2001

Importer	2000		2001		2001/2000, %
	US$ mln..	%	US$ mln.	%
Total	5167.2	100.0	5200.3	100.0	100.7
of which
Western Europe	1515.3	29.3	1418.0	27.2	93.6
Asia	1380.6	26.7	1499.7	28.8	108.6
America	673.0	13.0	670.1	12.9	99.6
Baltic countries	401.1	7.8	264.2	5.1	65.9
Eastern Europe	341.2	6.6	382.9	7.3	112.2
Africa	126.9	2.5	68.2	1.3	53.7
CIS countries	729.1	14.1	888.5	17.1	121.9

In 2000, a downward trend in Russian chemical and petrochemical exports reversed to a considerable growth in export sales. While in 1998-1999, exports dropped to 79.2%— 76.4% of the 1997 levels, in 2000 the difference narrowed to only 4.2% (Fig. 1.4.2). As for 2001, while the export trend was still positive, the rates of growth slowed down as elsewhere in the sector.

Fig. 1.4.2

 Chemical and petrochemical exports from Russia in 1998 - 2001, in % of 1997

 

An important decelerating factor for Russian chemical and petrochemical exports was introduction of export restrictions in a number of countries protecting local producers and domestic markets. The main method of regulation in this case is introduction of export quotas and special antidumping duties reflecting on the price for Russian chemicals. Restrictions now are more often targeting mineral fertilizers, and plastics and plastic goods. For instance, various sanctions for ammonium nitrate have been introduced in the US, Hungary, Poland, Lithuania and Australia; for carbamide, in the US and Mexico; for methylene chloride and acetone, in India. Three times in the past half of the year antidumping investigations were initiated by the Chinese Trade Ministry targeting caprolactam, polyvinylchloride and synthetic rubber. After sanctions, the aggregate import duty applicable to Russian rubber could be as high as 21%. In April 2002, US producers of mineral fertilizers demanded a 300% import duty on carbamide and ammonium nitrate, the measure that may fully close the US market to Russian exports (ca. US$ 50 mln.).

Chemical imports to Russia in 2001 amounted to $3.4 bln., which is almost 10% more than in the previous year. Chemical imports account for 13.5% of the import total. Among the key chemical imports to Russia are plastics and plastic goods, petrochemical products not produced locally, and paints and varnishes (Fig. 1.4.3).

Fig. 1.4.3

 Structure of chemical and petrochemical imports to Russia in 2001, %

The main suppliers of chemicals to the Russian market are still Germany, France and Finland. Germany sells over 19% of all imports, mostly various plastic goods (31%), plastics and synthetic resins, paints and varnishes. Finland has been traditionally selling paints and varnishes, and plastic goods to Russia. Lower imports from the Baltic countries are balanced by higher imports from East European countries, which is mostly due to fast rates of growth in Polish exports. Of CIS countries, Belarus and Ukraine are gaining on in their imports: they are the main suppliers of tyres to the Russian market.

Table 1.4.4

 Geographic structure of chemical and petrochemical imports in 2000 - 2001

Ruble devaluation led to significant appreciation of chemical and petrochemical imports and undermined their competitiveness on the Russian market. In 1998 – 1999, chemical imports to Russia dropped considerably, and continued to do so throughout 1999 when they declined 37.6% of the 1997 level (Fig. 1.4.4). In 2000, the domestic markets started to stabilize and increase its imports. In 2001 the trend continued; and as prices for some local products rose, import chemicals became competitive again.

Fig. 1.4.4

 Chemical and petrochemical imports to Russia in 1998 - 2001, in % of 1997

 

1.5 Prices

Inflation-wise, in 2001 the chemical sector was one of the more stable of the Russian industries. Although the annual price index in the chemical sector may be higher than that in the Russian industry, and stood at 119.8%, it was importantly below the 2000 level, with deflationary processes registered in the sector by the end of the year. As for petrochemistry, where prices traditionally lag behind the inflationary rates in the industry in general, prices there started to decline in July and continued to depreciate through December. The net annualized appreciation result in the petrochemical industry was only slightly above 1% (Fig. 1.5.1).

Fig. 1.5.1

The price hikes in the chemical industry were caused by the growing prices for non-organic chemicals. The highest price growth was registered for ammophos (172.7% of the 2000 prices); carbamide (127.6%), and hydrate of sodium (127.9%). Price index for synthetic ammonia was at 88.7% of December 2000. Of petrochemical products, the highest appreciated was methanol (+7.1%) and pvc (+6,7%), while other products kept depreciating throughout the year.
As a result of the lower world oil prices, Russia had to face excessive supply, leading to considerable domestic depreciation. While in December 2000 Russian consumers had to pay an average price of Rbs 1,546 per ton of oil, one year later the price was Rbs 1,504, which is 2.7% less. As a result, the main reason behind the relative appreciation of petrochemical products was the 60% growth in prices for natural gas. In turn, the 30% rise in electricity tariffs led to a tangible growth in prices for other chemicals since the sector has a number of highly power-intensive technological processes (Table 1.5.2).

Table 1.5.2

 Average prices for key raw materials, fuel and energy resources in 2001, %

Although tariffs for the main types of transportation services did not grow generally as much as in the previous year, appreciation of transportation proved to be key inflationary factor in the chemical sector. It turned out that the appreciation was highest wherever pipelines were used to move the product (some types of petrochemicals, synthetic ammonia, etc.). Prices for this service in 2001 increased almost 1.6 times against 137.4% last year. The main type of transport used to ship chemicals domestically and abroad became more expensive almost by a third although, by comparison with the 70% appreciation in 2000, the growth seemed quite modest. The price for water transport increased 5% - 10% in 2001 (Table 1.5.3).

Table 1.5.3

 Freight tariffs in key types of transportation in 2001, in % of December 2000

The financial result of the chemical and petrochemical operations slightly deteriorated in 2001 compared to the previous year. The net profit over losses at large and medium-sized enterprises in the chemical sector dropped by 9.4 bln. rubles since 2000 (by 30.2%) to Rbs 21,7 bln. (3.6% of the figure for Russian industries total) (Table 1.6.1). The overall profitability of major and medium enterprises across Russia was declining at a slower rate and decreased by 17.1% over the year. The deterioration in the financial results at businesses almost throughout the industry in 2001 served to confirm that the improvements in the financial conditions of the businesses observed after the 1998 crisis came not so much from the positive change in their production activity but rather from outside factors (ruble devaluation, world markets, growing prices) that gradually became exhausted. The proportion of loss-bringing businesses grew 1.1 percent on the year to 31.4%, while in the industry overall this indicator improved slightly (decreasing 0.9 %).

Table 1.6.1

Indicator		2000	2001
Booked profits at profitable businesses, bln. rubles		35.8	29.0
Booked losses at loss-bringing businesses, bln. rubles		4.7	7.3
Booked profits (losses) for the sector overall, bln. rubles		31.1	21.7
Proportion of loss-bringing enterprises in the total number, %	Chemistry and petrochemistry	30.3	31.4
	Industry total	38.7	37.8

The level of payables at chemical enterprises increased by Rbs 2.3 bln. in 2001 to Rbs 112.4 bln. The sector enterprises seem, at the same time, to have been improving their payment discipline. Compared to 01.01.2001 when overdue payments exceeded half of the accounts payable, one year later the ratio dropped to 43.%., the overdue payables in absolute values stood by 2002 at Rbs 48.4 bln., which is Rbs 8.5 bln. less than on 01.01.2001.
The level of accounts receivable rose over the year. As of 01.01.2002, the debt owed to Russian chemical companies reached Rbs 64 bln., having grown by Rbs 6.2 bln. (10.7%). At the same time, efforts by at chemical enterprises management to collect payments from the consumers did not totally fail, and the level of overdue receivables in 2001 dropped 12.4% to Rbs 19.0 bln.

Table 1.6.2

Indicator	2000		2001
	bln. rubles.	%	bln. rubles.	%
Accounts payable, total	110.1	100.1	112.4	100.1
of which:
overdue accounts	56.9	51.7	48.4	43.1
Accounts receivable, total	57.8	100.0	64.0	100.0
of which:
overdue accounts	21.7	37.5	19.0	29.7

Of the 2001 total overdue payables, 52.7% were owed to suppliers of goods (work, services); 21.5% to budgets of all tiers, and 18.1% to government extra-budgetary funds.
In the total accounts receivable, the lion’s share was also the debt to suppliers (76.8%). However, during the year the tough policy pursued by the managers at chemical enterprises had a positive effect on the collection across the sector: the amount of debt outstanding dropped to Rbs 14.6 bln. (Table 1.6.3).

Table 1.6.3

Indicator	As of 01.01.2001		As of 01.01.2002
	bln. rubles	%	bln. rubles	%
Overdue accounts payable, total	56.9	100.0	48.4	100.0
of which:
to suppliers	31.3	55.0	25.5	52.7
to budgets of all tiers	11.7	20.6	10.4	21.5
as payments to government extra-budgetary funds	9.8	17.2	8.8	18.2
other	4.1	7.2	3.7	7.6
Of total overdue payables, more than 3 months overdue	47.2	83.0	39.2	81.0
Overdue accounts receivable, total	21.7	100.0	19.0	100.0
of which:
from buyers	17.6	81.1	14.6	76.8
of which:
owed under promissory notes	0.1	0.5	0.2	1.1
from government customers for goods shipped	0.5	2.3	0.4	2.1
other	4.1	18.9	4.4	23.2
Of total overdue receivables, more than 3 months overdue	17.9	82.5	15.2	80.0

As of 01.01.02 accounts payable exceeded 1.8 times accounts receivable, and overdue payables were 2.5 times the overdue receivables, which seems to point to serious financial problems in the sector (the ratios were 1.5 and 1.8 times, respectively, in Russia overall) (Fig. 1.6.1). Note, however, that the ratios have improved since the last year. Besides, the proportion of large and medium enterprises in the sector with overdue accounts payable and receivable, narrowed by 6%.

Fig. 1.6.1

 Ratio of accounts payable to accounts receivable at chemical and petrochemical enterprises in 2000 - 2001, %
(receivables total = 100%)

 

In terms of investment resources mobilized into the sector, the year 2001 was one of the more successful for the chemical enterprises over a few past years. The aggregate domestic and foreign investment amounted to US$ 1.118 bln., i.e. 31.3% more compared to the previous year. The capital investment in the sector in 2001 has almost gained the maximum over the past five years recorded in 1997 (Fig. 1.7.1). The leading role in the financing of capital requirements in the chemical sector belongs to domestic companies and banks. In 2001 they accounted for over three quarters of the sector’s capex. Foreign investors in the chemical and petrochemical industries have somewhat lost their positions, seeing their share dropping from 28.5% in 2000 to 24.6% in 2001.

Fig. 1.7.1

 Structure of investment in the Russian chemical and petrochemical industries in 2001, %

In 2001 chemical and petrochemical industries received Rbs 24 bln. (US$ 822.5 mln.) of capital from Russian sources, with the majority of investors being companies of the sector that invested their own funds in the capex. But as corporate finances are limited, this cannot but tell on the amount of investment. In this respect, the sector is the last but one in the list of more or less investment-attractive segments of the Russian industry, although in terms of capex growth (Table 1.7.1), chemical enterprises rank third, with their more than Russia’s average rate of capex growth. Until recently, though, the majority of enterprises had enough of their own funds only to maintain the operations at their existing technological plants, capable of replacing or upgrading only the fully depreciated equipment. Large-scale capital expenditure projects that could change dramatically the technology and economics of the operations can only be handled by the largest of the corporations. GASPROM and SIBUR, for instance, have plans to implement, together with SIBUR-Neftekhim, a comprehensive, $2 – 2.5 bln. 10-year development program at Nizhni enterprises. The program provides for the expansion of the aromatic hydrocarbons operations that would provide for separated paraxylol; development and operation of Volonshinsky gas field, with subsequent processing of the natural gas, and construction of polyethylene, films, and polypropylene plants, projects for pvc, cable elastron, acrylate and isopropyl alcohol. SIBUR- PETF intends to fully retool its production lines at Tver Khimvolokno. Nizhnekamsneftekhim has plans to upgrade its rubber lines and build polystyrene and polyethylene facilities. The agrochemical corporation AZOT has unveiled its plans to build an ammonia and carbamide plant in the city of Primorsk in the Leningrad region. Evrokhim will invest over a period of five years in excess of US$ 40 mln. to develop its own enterprises in southern Russia: Nevinomyssk azot and Minudobrniya (Belorechensk).

Table 1.7.1

 Capital investment by sectors in 2001

 

Îòðàñëü	Investment, Rbs bln.	Structure, %	Change, in % of 2000
Industry total	585.1	100.0	139.5
of which:
electricity	56.7	9.7	134.0
fuel	304.6	52.1	144.3
steel	31.4	5.4	137.1
non-ferrous metals	43.8	7.5	144.1
engineering and metal working	40.6	6.9	132.2
foods	43.8	7.5	132.3
chemistry and petrochemistry	24.6	4.2	143.9
forestry, timber, paper and pulp	16.2	2.8	101.3
other	23.4	4.0	148.1

Pursuant to the Strategy of development of chemical and petrochemical industries over the period up to 2010, government capital investment in the industry will be going down, as the government tries to stimulate own corporate investment in the sector and borrowing. The proportion of own funds invested by the companies is expected to narrow to 62% in 2002, and to 30% by 2004. The process will be compensated by the growing share of debt raised from financial lending institutions and other borrowing, which would rise to 35% and 67%, respectively. The principal constraints for the bank-led lending is the low profitability rate of most local enterprises; the deficiency of legislation as far as creditor’s rights are concerned; and high level of taxes applicable to production and finances.

The aggregate foreign investments in 2001 totaled US$ 275 mln. (Table 1.8.2), or US$ 32 mln. more than in the previous year. Compared to more investment-attractive sectors, this is even less than modest. In terms of capital expenditure funded by foreign investment, the chemical sector is hardly half as successful as non-ferrous metals, and has less than one fifth of the capex in the food industry. The investment growth in the sector over the past year is significantly below the industry’s average: aggregate foreign investment in the Russian industry grew 19.9% over 2001, while chemical companies benefited only from a 13.1% growth in foreign capex.

Table 1.8.2

Sector	Invested, USD mln.		Proportion, %		2001/2000, %
	2000	2001	2000	2001
Industry, total	4721	5662	100.0	100.0	119.9
of which:
fuel	621	1023	13.2	18.1	164.7
steel	662	1072	14.0	18.9	161.9
non-ferrous metals	432	475	9.2	8.4	110.0
chemistry and petrochemistry	243	275	5.1	4.9	113.1
engineering and metal working	470	703	10.0	12.4	149.6
forestry, timber, paper and pulp	257	241	5.4	4.3	93.8
foods	1786	1557	37.8	27.5	87.2
other	250	316	5.3	5.6	126.4

A positive shift in the investment structure came from the expanding segment of direct capital investment in the chemical sector. Compared to 2000, its share grew 11.8 percent to 32.0% (Fig. 11). However, over a third of foreign investment is in the form of lending raised by corporates themselves or against guarantees by Russian or foreign government agencies. As the Russian stock market can offer practically no liquid shares in chemical companies, the proportion of portfolio investment is extremely narrow: it was 0.4% in 2001.