Foreign investors are changing the face of the Southern Urals

11.06.2013 — Analysis

Mikhail Yurevich, the governor of the Chelyabinsk region, presented the concept for the Southern Urals transportation and logistics complex at an international exhibition in Munich. The regional leader believes that the construction of this complex will help optimize the process through which goods are shipped from Asia to the Urals. He has invited German investors to take part in the construction of this major distribution center, and experts are convinced that investment in logistics infrastructure will pay for itself quickly because industry in the Chelyabinsk region is being modernized, which requires materials, machine tools, machinery, and equipment. This columnist for RusBusinessNews has discovered that foreign companies that are seeking to expand their presence in the Urals market are taking an active role in the creation of a new economy.

The 2013 Transportation and Logistics exhibition in Munich hosted a forum titled, "The Prospects and Chances for Developing Transportation and Logistics in the Russian Regions." Speaking at this forum, Mikhail Yurevich stated that one of the focuses of the region's strategic development will be the creation of logistics centers. The governor explained that the Chelyabinsk region is banking its future on the introduction of advanced technology and the careful management of resources. Creating a new economy is not possible without the corresponding institutions and tools.

The plans for the creation of new industries in the Southern Urals are truly impressive. An industrial innovation park was registered in 2012. The construction of approximately twenty high-tech factories within a 190-hectare area near Chelyabinsk has been proposed, and there is already news of one project: the Italian engineering group Danieli, a producer of metallurgical equipment, has signed an agreement to build a service center/plant.

Danieli's representative in the Southern Urals, Mikhail Sofronov, told RusBusinessNews that the company has been actively supplying its products to metallurgical businesses in the Urals in recent years and is now interested in signing service contracts. In fact, a contract has already been worked out with Mechel, OJSC to service a beam/rail mill and continuous steel casting machines. To meet the obligations the group has undertaken, Danieli decided to build a service center near Chelyabinsk to manufacture spare parts, unit assemblies, and machinery components.

The service center will be located on a 12.2-hectare site. The erection of this site, which was primarily designed to manufacture products worth 20 million euros per year, will begin in 2014 - right after construction ends on a similar business in Nizhny Novgorod. Investment in the first year will total 12 million euros, with another 40 million three years later. Danieli intends to not only repair and upgrade previously sold equipment, but also to expand sales of its own products, competing on the market with Russian and foreign manufacturers. For this reason the company plans to increase the value of its production in the Southern Urals to 70 million euros over the next few years.

Its own experience has convinced that investor that it will be profitable to establish new production facilities in the Chelyabinsk region. In addition to free land with utility lines already in place, the necessary raw materials can be found here, as well as qualified workers and a promising sales market for products. These three favorable conditions made it possible for Mikhail Yurevich to obtain an agreement fairly quickly to carry out the project after visiting Italy.

Other overseas visits by the delegation from Chelyabinsk also produced practical results. Between 2010 and 2011, official representatives from the region visited Germany, the US, and China, in addition to Italy.

A meeting in March 2011 with Alliance Winding Equipment Inc. helped to convince that American company to build a plant in Snezhinsk for specialized electric machinery. In addition to the Americans, who are designing the line to manufacture engines, Europeans are also involved in the construction of the new business. Belgians are supplying the production equipment for the sheet metalworking, Italians have undertaken to produce a paint line, etc.

According to the business's general director, Alexander Karlov, the 1.4-billion-ruble project will be completed in 2016. By that date the plant will be capable of producing 1,000 electric motors each year, the same number of electronic enclosures, 1,500 converters, and tens of thousands of transformers and throttle valves. The products are intended for the Privodnaya Tekhnika ("Driven Machinery") Group, which is responsible for the complete assembly of drives, supplying them to machinery manufacturers, railroads, and many other industries.

By taking part in an exhibition in Harbin in the summer of 2011, it was possible for the Chelyabinsk region to conclude an agreement with the government of the Heilongjiang province within two months regarding cooperation on trade and economics, investment, and research and technology. The first fruits of this partnership with China are already apparent. A timber-processing complex began operations in early 2013 and a shoe factory was built in the Kunashaksky district. Total investment has amounted to nearly $7 million USD.

The visit to Harbin proved useful to other businessmen in Chelyabinsk as well. The regional research and production association in the Southern Urals, Ural, established business ties with the Zhuangzai Group, as did ChelyabTrakZapchast, LLC with YTO Group Corporation, and Umek, LLC with the Harbin-based machine-building firm Rocktes and Dongnan Elevator.

About twenty agreements were signed following the visit from Chelyabinsk to Germany. In addition to supplying equipment, the parties agreed to increase investment in the Southern Urals. One such project will be the creation of an additional service center by the company SMS SIEMAG, which registered the joint venture SMS Cheltek in 2009 to repair and service equipment from metallurgical plants, and also to manufacture spare parts. Investment in the first and second phase of SMS Cheltek exceeded five million euros. Pino Tesè, the president of SMS Siemag AG, claimed that the decision to invest was influenced by the fact that the Southern Urals is a strategic metallurgical region in Russia and a favorable investment climate has been created here.

Governor Mikhail Yurevich is convinced that the region's investment potential has not yet been fully explored. The region is interested in the arrival of new companies equipped with advanced technology and a more developed manufacturing culture. He feels that local industry needs to be competitive in order to ensure the future growth of the economy of the Chelyabinsk region. It was for this reason that the governor raised the issue in Munich of the development of the transportation infrastructure of the Southern Urals. Gov. Yurevich claims that deficiencies in this area could delay industrial modernization in Chelyabinsk.

Vladimir Terletsky