A new industry is being created in the Urals

20.12.2012 — Analysis

The Sverdlovsk region has prepared a program to modernize its industry. At its heart is the creation of tens of thousands of highly productive jobs. Experts claim that several ambitious projects will be needed in order to carry out these plans. As this columnist for RusBusinessNews has determined, all of these can be accomplished with the proper support from the federal government.

In the past ten years, 325,000 highly productive jobs have been created in the Sverdlovsk region. Total investment in new production facilities, as estimated by analysts from Ural Federal University and the Expert-Ural analytical center, has exceeded two trillion rubles.

Among the most significant projects is arranging for the production of Sinara freight locomotives. Ural Railway Engineering Plant assembled only a single electric locomotive in 2007, but five years later production has grown to 110. After establishing a joint venture with Siemens, the company expanded its product line. Draftsmen have developed the technical design of the Siemens-Sinara urban express train, based on the Desiro RUS electric train. In 2014, the company plans to release its first six trains, certify them, and begin serial production within a year. Presently, 90,000 square meters of new buildings are being erected at the factory.

A new plant is being built by a leading Russian manufacturer of electrical equipment - SVEL Group, CJSC. The company, which will cost more than five billion rubles, will produce transformers and substations, cross-connect equipment, and switchgear. Previously, SVEL created two modern production facilities to manufacture power transformers and dry current-limiting reactors.

A number of other important projects in the Central Urals have been brought to fruition through the efforts of investors, greatly facilitating the modernization of the region's industry. But to comply with the Russian president's decree "On long-term state economic policy," which is intended to increase productivity and investment, the Sverdlovsk region must establish another 375,000 high-tech jobs by 2020. In their efforts to meet this challenge, the authorities in the region have made forecasts of socioeconomic development, prepared a program to create and modernize highly productive jobs in industry before 2020, and have focused on making decisions about a number of specific projects.

In 2012, research and development work began at the Ural Diesel Engine Plant to create a new generation of high-speed engines. The company brought in FEV GmbH to do the design work, which will provide the Russians with the technology to develop and comprehensively manage the project. Financing for the R&D will be provided by the Russian Ministry for Industry and Trade, which offered the Urals-based firm a grant under a targeted federal program to develop domestic engine production. It is expected that upon completion of work, Ekaterinburg's engineering firms will be able to upgrade their production on their own and expand their range of high-speed motors.

Modern units will also be manufactured in Ekaterinburg. In September 2012, an agreement was reached in the Czech city of Brno between the Sverdlovsk region and the company TOS VARNSDORF regarding the production of metalworking equipment in the Urals. The general director of Kovosvit-Rus, Dmitry Rudenko, informed the chairman of the Sverdlovsk region, Denis Pasler, that during the first stage, sales at the joint venture will total about two billion rubles. Twenty horizontal-boring machines and between eight and ten portal-milling units with programmable, digital controls will be assembled each year. Half of the company's employees will be Czech specialists who will train their Russian colleagues. Eventually up to 60% of the components will be manufactured in Ekaterinburg. According to the plans, the first units will be assembled in the spring of 2013, and the localization of the factory will begin in three years.

In December of 2012 there was some clarification of the situation regarding the creation of the Titanium Valley free economic zone in the Sverdlovsk region. The deputy prime minister of the region, Alexander Petrov, reported that the federal government is allocating three billion rubles for the project, another 2.4 billion will come from the budget of the Sverdlovsk region, and private firms will invest 1.7 billion rubles. The sums amassed are sufficient to begin construction of the infrastructure for the future industrial park, which is expected to employ up to 17,000 people.

Experts believe that in order to comply with the Russian president's decree, the Sverdlovsk region will have to create 127,000 modern jobs in the manufacturing industry (35,000 of which will have to be new positions), because one manufacturing job creates two openings in related industries. But enormous efforts on the part of government and business will be required to reach these goals. Sergei Kadochnikov, the director of the Higher School of Economics and Management at Ural Federal University, argues that 889 billion rubles will be required for the modernization and construction of factories, which equals 111 billion rubles per year. Industrial firms can shoulder no more than 90 billion, so the state will have to look elsewhere for the other 21 billion.

In addition to investment, the region needs sales markets, without which there is no reason for an increase in industrial production. It may be possible to increase sales in part by providing replacements for imported products, which experts estimate may be worth 150 billion rubles. But unless new markets are secured, the problem cannot be resolved. This will not be simple, because Russian entrepreneurs who are forced to pay 15% annual interest on credit find it difficult to compete with foreigners who can borrow at 3%.

Sergei Kadochnikov believes that investment can come from federal resources. The Sverdlovsk region contributes about 3% to the country's gross domestic product, or about $30 billion. It makes sense that the region should receive an equivalent sum in return. The funds are needed in part for job placement and the retraining of workers who were laid off from unproductive companies.

Alexander Petrov believes that the main challenges the Sverdlovsk region will face while implementing this industrial policy, in addition to a highly competitive market, will be the uneven development of the different areas of the country as well as the nation's demographic black hole. Although recently there has been some cause for optimism: in 2012 for the first time in many years, the number of births in the region exceeded the number of deaths. The deputy prime minister believes that the Sverdlovsk region has a good chance of getting funding for the construction of educational buildings and a campus for a science and technology center.

If the Russian government decides to create a world-class university in Ekaterinburg, about 100 billion rubles will be allocated to build it. Many of the industrial companies in the Sverdlovsk region would take part in such an ambitious project, which would create tens of thousands of highly productive jobs.

Vladimir Petrov