The American "reset" in the Urals - from raw materials to innovations

16.05.2012 — Analysis

The "reset" in diplomatic relations between Moscow and Washington announced three years ago has yielded results, breathing new life into the two countries' bilateral cooperation. American business is turning more and more often to the growing Russian market, which includes the Urals. The American consul general in Ekaterinburg, Michael Reinert, explained in an exclusive interview with RusBusinessNews that Americans find the Urals region interesting, not only as a traditional source of raw materials, but as an excellent place to recruit skilled workers.

- Mr. Reinert, in 2009 a "reset" in Russian-American relations was announced. Did that further stimulate the development of trade and economic relations between the US and the regions of the Urals Federal District?

- The effect of that reset can be seen in the influx of American companies into Russia as a whole. The Russian market is expanding rapidly in all directions: from consumer goods to high-tech equipment - and major American companies cannot ignore this fact. Companies from the US continue to invest in production facilities and open new offices in Russia.

Cooperation with universities in the Urals Federal District is growing rapidly. There is hardly a single, major, regional university here that has not begun working with American universities and research centers. This is another type of cooperation, only in the area of science and technology.

I should note that the consular district of the US Consulate General in Yekaterinburg extends beyond the borders of the Urals Federal District to include the 11 regions of the Greater Urals. We don't keep separate statistics for the Urals Federal District. There are statistics for the individual regions that we take from the official websites of the regional administrations. But that data only reflects general trends and is sometimes just information from the customs office about the total value of the goods being shipped. Dry statistics don't take into account investments in human capital or the development of a branch network, and pay no attention to the investment components, etc. The overall trends are positive, although like you, we would like to see more American companies coming to Russia, and the Urals in particular, but companies follow their own strategies. We can only offer consultation and advice.

- What do US investors find attractive about the market in the Urals?

- The market in the Urals is a wonderful resource for finding skilled professionals, attracting a high concentration of universities and colleges because of the raw materials here and the willingness of local officials to offer their full assistance to American investors.

The energy sector is the most interesting one, and by this I mean not only oil and gas, but also production, supplying energy-efficient equipment, recycling solid consumer waste, and the petrochemical and medical sectors.

- In October, 2011, a delegation from the Chelyabinsk region headed by Governor Mikhail Yurevich visited the US. To what extent do such visits trigger further bilateral cooperation?

- All visits promote awareness of the region on international markets, but the end result depends on the travel objectives. I hope that visit will be the first of many. The Russian side got the opportunity to talk about their region, to announce investment projects, and to familiarize themselves with the business culture of American companies. As they say, seeing is believing... For many US companies this was the first time they had heard about the Chelyabinsk region and its excellent investment opportunities. Russia is a big country and often American businessmen don't realize how the geography, climate, and culture changes from region to region, even within our own consular district. These types of visits are important - they're important both for specific agreements and for sharing information with potential partners.

- More and more Ural-American joint ventures have sprung up in the last few years. In particular, Ural Boeing Manufacturing, which was founded with the VSMPO-AVISMA Corporation. Negotiations are currently underway for ChTZ-URALTRAC (which belongs to Uralvagonzavod) and Electro Motive Diesel (a subsidiary of Caterpillar) to begin the joint production of industrial machinery and large diesel engines. Are we seeing a trend of major industrial companies in the two countries establishing partnerships?

- As a rule, the success stories of cooperation between Russian and American companies that you've listed are usually the stories of many years of cooperation, occasionally culminating in the launching of joint ventures. The same can be said about Emerson Electric: the company, which, after many years of successful operation, created not only a production complex, but an engineering center.

Today, intelligent, high-tech products developed by Russian engineers are used around the world. Typically, companies start with small deals, check each other out, determine the the market size, and so on. In this context it's easier for major companies which are well-known global giants: they can make substantial, long-term investments. Small and medium-sized US businesses are not developing the Russian market as aggressively, but this is due to the cost of money and the capability to have long term investment pans.

- In addition to the fledgling project with Electro Motive Diesel and the American company Emerson Electric that's operating successfully in the Chelyabinsk region, there is also a factory belonging to Carbo Ceramics, which is based in Texas. What's the situation like in other regions?

- John Deere is doing well in Orenburg. Despite the effect on the economy of the 2008 economic crisis, John Deere still decided to expand its production in the Orenburg region. This is the company's second Russian plant. John Deere's operations in Russia actually date back to before the Russian Revolution.

Electro Motive Diesel, Emerson Electric, Carbo Ceramics, and John Deere are all huge companies, but there are many examples of cooperation with smaller firms. You've probably heard of the small research firm in Tyumen that sold its know-how to the American company BP to help clean up the oil spill. Since then that firm has grown, gained a reputation, and now fulfills orders for many global oil giants. We really value that kind of cooperation.

- Last fall you visited the Magnitogorsk Iron & Steel Works. What was your impression of what you saw there? What interests Americans about that company?

- MMK is an entire city built around a factory that employs over 70,000 people, and just as many people there work in related fields. MMK is the largest supplier of steel on the global market and is the biggest consumer of high-tech equipment. By this I mean, machinery, machine tools, laboratory equipment to conduct chemical analyses, resources to protect their workers and the environment, and so on. The list is endless. MMK is a huge, modern, manufacturing facility that uses all the innovations it can at every stage of production.

- As of Aug. 1, 2011, the US Consulates General in Moscow, St. Petersburg, Ekaterinburg, and Vladivostok have simplified the process of issuing visas. Has that step been justified?

- Of course the new system is much more convenient for our Russian visa applicants. As you say, they can pick a date which is convenient for them for the interview. They also pay at any post or any VTB bank branch. They may pay by credit card it they wish. If they have questions about the visa application process, they may call one of our call centers and speak with a representative who can answer their questions for them. We have also greatly expanded the number of people who are eligible to renew expired visas without coming in for an interview. So, the whole system has become much simpler for the applicants. And the number of applications for nonimmigrant visas has gone up substantially. In 2010, we did approximately 17,000 visa cases. In 2011, it was 20,000. We anticipate, based on present trends, that number will go up by at least 30% in 2012.

- Experts claim that in recent years the number of those who wish to travel to the US for permanent residency and work has significantly increased...

- Actually, the number of applications for permanent residence visas peaked in the years 2004-2007, then dropped sharply. The last few years, they have been rising slightly each year. Last year, for example, 4170 Russians received immigrant visas. This is down from nearly 8000 in 2004. The important thing is to understand what this means. These numbers accord perfectly with the public opinion polling in Russia which shows fewer and fewer people are interested in immigrating. Some polls show that the number of people interested in immigration is less than half of what it was ten years ago. This is because of the gradual improvement in the Russian economy, the improvement of living standards, and the growth of the middle class in Russia.

The interview was prepared by Valentina Mazharova