1. ECONOMY OF RUSSIA Lecture 3: Russian Industry Vera Valentinovna Ageeva Tomsk Polytechnic University Institute of Humanities, Social Sciences & Technologies Department of History and Regional Studies iforya@tpu.ru

2. Lecture 3: Lecture 3: Russian Industry 2 Heavy industry Metallurgical engineering * Iron and steel industry * Nonferrous metal industry Chemical industry Mechanical engineering * Defense industry * Shipbuilding * Automobile construction * Aircraft engineering, space industry * Agricultural machinery industry * Railway machinery * Optical mechanics * Electronics and microelectronics

3. Lecture 3: Lecture 3: Russian Industry PLAN 3 Discussion of manufacturing sectors: 1.Statistics (Russia place among other countries by this production, production and trade volumes, regionalization) and history of the industrial sector 2. Russian market current tendencies in this sphere 3. Strategical goals and projects in this sector, industrial policy 4. Problems in the sector and possible solutions 5. Case-study (situation in Tomsk plant)

4. General Problems of Russian Heavy industry 4 1.Problems with the demand for products 2.Reduction of export 3.Only the domestic market and the countries of the former Soviet Union to buy Russian railway equipment and tractors 4.Small amounts of aircraft, оptical mechanics and electronic industry do not satisfy even the needs of the domestic Russian market 5.Quality problems and underdevelopment in relation to the consumer needs are typical for electronics industry

5. General Problems of Russian Heavy industry 5 6. Railway, automotive and defense industries are dependent on government orders or orders of “monopolists” customers. For instance, for a long time ZiL (Moscow Joint- Stock Company “Likhachev Plant”) worked only due to the fact that the Moscow government bought ZiL cars for municipal services. Another example is connected with the railway industry which depends on the economical situation in “Russian Railways”.

6. General Problems of Russian Heavy industry 6 7. Technological obsolescence, which in some industries (primarily in the aerospace industry) leads to irreparable errors. 8. High prime cost of machinery products (from the light bulb to the wagon). Russian products are more expensive than Chinese analogs, despite the fact that they are more reliable.

7. General Problems of Russian Heavy industry 7 High prime cost of machinery products is connected with: sharply continental climate and expensive power supply; low energy efficiency of Russian enterprises; high taxes and social expenditures. Some of these problems are solved through the active implementation of the international management. Bo Inge Andersson – the first non-Russian Chief Executive Officer at AVTOVAZ

8. Discuss the Following Question: Discuss the Following Question: 8 Which sectors of Russian engineering have the largest (real) prospects for growth? To enter the international market?

9. 9 Today satisfactorily developed sectors of Russian machine-building are that ones, which have been created in the era of Stalin's industrialization: heavy engineering construction, tractor construction, defense industry, auto-truck construction.

10. Which sectors of Russian engineering have the largest (real) prospects for growth? To enter the international market? 10 In 1960 - 1970 the basis for the development of electronics, optical mechanics was not created. “While in Europe there were developed energy- saving technologies and electronics, the Soviet Union was proud of the volumes of energy production and was in no hurry to introduce achievement of scientific and technological progress into production”.

11. Which sectors of Russian engineering have the largest (real) prospects for growth? To enter the international market? 1 In the second half of 1980s M. S. Gorbachev declared the course on a scientific and technological renewal of production, based on the acceleration of scientific and technical progress. However, these attempts of economic reforms were not successful. The economic crisis intensified.

12. General Problems of Russian Heavy industry 12

13. Discuss the Following Question: Discuss the Following Question: 13 What is an industrial policy?

14. Discuss the Following Question: Discuss the Following Question: 14 Industrial policy is the set of government regulatory measures aimed at the creation of privileged conditions for the development of individual sectors and both industry and other sectors of the economy. Industrial policy can not provide some “equivalent conditions” for development of the whole industry, but it can create preferential conditions for specific areas, inevitably, at the expense of other sectors.

15. Discuss the Following Question: Discuss the Following Question: 15 What kind of industrial policy can improve the situation in Russian heavy industry?

16. 1. Read the description of the Federal Law 'On Industrial Policy in the Russian Federation‘. 2. Answer to the following questions: 1616 Are the directions and measures of industrial policy appropriate for the current situation in Russian economy? What advantages and disadvantages of the industrial policy (according to the Law) can You mention?

17. Comments and critics of the Federal Law 'On Industrial Policy in the Russian Federation‘. Comments and critics of the Federal Law 'On Industrial Policy in the Russian Federation‘. 17 The program includes list of measures to stimulate industrial production: financial support; information and advisory support; support of scientific and technological activities and innovation in industry; supporting the development of human resources; support of foreign economic activity; granting state and municipal preferences

18. Comments and critics of the Federal Law 'On Industrial Policy in the Russian Federation‘. Comments and critics of the Federal Law 'On Industrial Policy in the Russian Federation‘. 18 However: this list is not mandatory for the authorities; the conditions, under which obtaining state support is possible, are not listed; the order of application and consideration to get such support is unknown; forms of such support are not specified. The “investment contract” does not contain the essential terms, making it impossible to determine its place in the system of civil- law transactions, which deprives the investor sufficient safeguards to protect their rights in court.

19. Comments and critics of the Federal Law 'On Industrial Policy in the Russian Federation‘. Comments and critics of the Federal Law 'On Industrial Policy in the Russian Federation‘. 1919 control characteristics of industrial policy are absent; all measures are declarative in nature. They do not include concerted State actions aimed at the creation of the industrial infrastructure. State plays the role of a passive benefactor without establishing a procedure for obtaining this charity.

20. Statistical Overview of modern Russian Heavy industry

21. Iron and Steel Industry 21 The share of ferrous metallurgy in the volume of industrial production in Russia is about 10%. The steel industry includes more than 1.5 thousand enterprises and organizations, 70% of them city-forming, and more than 660 thousand employees. Russia ranked 4th in the world steel production (72 million tons per year). Russia takes third place in the world (after China and Japan) in exportation of steel products (27.6 million tons per year). The production capacity of finished rolled steel in Russia amounted to 67.9 million tons.

22. Russian steelmakers are: 22 Upper Iset Metallurgical Plant (EID) – factory in Yekaterinburg, one of the oldest metallurgical plants in the Urals. At the moment it is the only cold rolling mill (Company "VIZ-Stal"). The plant is the largest Russian manufacturer of high transformal steel. Asha Metallurgical works Novokuznetsk Iron and Steel Plant NLMK (Novolipetsk Steel) Magnitogorsk Iron and Steel Works (MMK) Nizhniy Tagil Iron and Steel Works Chelyabinsk Metallurgical Plant West-Siberian Metal Plant Vyksa Steel works Zlatoust Metallurgical Plant Severstal

23. Public Policy 23 In recent years, the Russian government has taken measures to protect the domestic market, abolished import duties on the main types of equipment, supported by Russian firms buying metals assets abroad, has taken steps to reduce trade restrictions on foreign markets, acting against Russian steel products. These measures have contributed to the positive results of the activities of the Russian metallurgy in the 2000- 2010s. In 2009, Russia was approved by the Ministry of Industry Development Strategy for the metallurgical industry of the Russian Federation until 2020

24. Nonferrous Metal Industry 24 The share of non-ferrous metals in the Russian GDP - 2.6%, industrial production - 10,2%. Russia ranked 1st in the world in the production of nickel, nickel exports and export of aluminum. Russia ranked 2nd in the world in the production of aluminum (after China ) and the production of titanium mill products.

25. Russian producers of non-ferrous metals: 25 Rusal - the world's largest aluminum and clay. Norilsk Nickel - the world's largest manufacturer nickel and palladium. VSMPO-AVISMA - the world's largest titanium. Novosibirsk Tin Works - the only CIS producer of tin and its alloys. Gai plant for processing of ferrous metals '''Alloy''' (Gay) Ural Mining and Metallurgical Company (Pyshma) Plant solders and alloys (Ryazan) Kamensk-Uralsky non-ferrous metals processing plant (Kamensk-Uralsky)

26. Russian producers of non-ferrous metals: 26 Kamensk-Uralsky Metallurgical Works (Kamensk-Uralsky) Kirov Plant for processing of nonferrous metals (Kirov) Kolchugino plant for processing of nonferrous metals (Kolchugino) Red Vyiborzhets (St. Petersburg) Moscow non-ferrous metals processing plant Nadvoitsy aluminum plant (Karelia) Novgorod Metallurgical Plant (Novgorod) Novorossiysk nonferrous metals plant Stupino Metallurgical Company (Stupino) Electrozinc (Vladikavkaz) Ural Mining and Metallurgical Company (Revda) Ryazan Plant for Manufacturing and Processing Non-Ferrous Metals (Ryazan) Tuim nonferrous metals plant (Khakassia) "Novokuznetsk Aluminum Plant"

27. Russian Chemical industry 27 Chemical industry accounts for 10,4% of the total output of Russian processing industry and about 5,4% of export profits. There are about 800 large and middle-size industrial enterprises and more than 100 scientific and research bureaus. The industry employs more than 740 thousand people. Export includes: ammonia, methanol, mineral fertilizers, synthetic rubber.

28. Russian Chemical industry 28 Russian chemical industry accounts for 1,1% of the world production output. However, by production of ammonia and carbamide, Russian companies dominate 15% of the world market. After a long recession the industry has been showing positive development since 1999. The last six years have seen an increase of production by 1,5 times. However, the development is hindered by low profitability and lack of investments. Experts say Russian chemical industry is lagging behind the developed countries by some 15-20 years. Basis chemistry and petrochemicals are the industry's main segments. The production in 2006 looks as shown in picture.

29. Russian Producers and Exporters of Chemical Products 29 The companyFactoriesSpecialization SiburTogliatti, Voronezh, Krasnoyarsk, Dzerzhinsk, Perm, Tomsk Petrochemistry Gazprom Salavat neftekhim SalavatPetrochemistry Nizhnekamsknefte khim NizhnekamskSynthetic rubbers Acron Groupdeposits :Murmansk Oblast plants :Veliky Novgorod, Dorogobuzh, Сhemical fertilizers Uralkalideposits :Perm Krai plants :Berezniki, Solikamsk Potash Did you know… The earth of Russia has virtually all elements of the Periodic Table

30. Defense industry of Russia 30 The Defense industry is a strategically important sector and a large employer in Russia. It is also a significant player in the global arms market. Russia is the second largest conventional arms exporter after the United States, with $13.5 billion worth of exports in 2012. Combined, the USA and Russia account for 58% of all major weapons exports.

31. Defense industry of Russia 31 In 2012, Russia’s military exports hit another record sum of $15 billion. The structure of military exports had become more balanced. The biggest sales were in aviation equipment — 37 percent. Total exports of land-based weapons and military equipment grew to 27 percent. At the same time, the shares of naval equipment and anti-aircraft systems increased to 18 percent and 15 percent, respectively. The most popular types of weaponry bought from Russia are Sukhoi and MiG fighters, air defense systems, helicopters, tanks, armored personnel carriers and infantry fighting vehicles.[8] Russian arms were exported to 60 countries. The most significant supplies went to countries in Southeast Asia and the Asia-Pacific region — 43 percent.

32. Defense industry Companies 32 The most successful businesses in the sector are aerospace and air defense companies. The six largest companies of the industry are: 1.Almaz-Antey – air defence systems 2.United Aircraft Corporation – fixed-wing airplanes 3.Tactical Missiles Corporation – air- and naval-based missiles 4.Russian Helicopters – helicopters 5.Uralvagonzavod – main battle tanks 6.United Shipbuilding Corporation- submarines, corvettes, frigates, aircraft carriers.

33. Problems in defense industry include: 33 Inflation Lack of qualified personnel (the age of the average defence industrial scientist or engineer in Russia is 50 years or more) Younger scientists and engineers who are needed in Russia to form the next-generation of weapons designers are leaving the nation in droves. Many skilled workers are nearing retirement age, and young graduates are hesitant to enter the industry due to low wages and insufficient career opportunities.

34. Shipping and Shipbuilding 34 Russian fishing fleet consists of about 2500 vessels, where more than 50% are at least 20 years old. Research fleet contains about 80 vessels. Compared to other sectors, sea shipping shows better results. National companies own about 1500 vessels with total deadweight of 15 million tons, that places Russia on 23rd position in the world. River transportation accounts for 25% of all water transportation in Russia. Per 2007, there are 20 river shipping companies in the country, but their fleet is even more obsolete than other vessels in the industry, with an average age of 28 years.

35. Shipping and Shipbuilding 35 Russia's shipbuilding industry is dependent on foreign suppliers for 70% of the electronic equipment installed aboard its ships, despite ongoing government efforts to replace foreign hardware with domestic alternatives. Russian shipbuilding is particularly dependent on Ukraine for the supply of engine turbines to power ships. Several Russian military shipbuilding projects have been put on hold for lack of engines after Ukraine's government last year suspended defense- industrial cooperation with Russia.

36. Russian Automobile construction 36 The Soviet Union possessed a large automotive industry. In late 1987, the industry produced 2 million cars, satisfying 45% of the domestic demand. But after the dissolution of the Soviet Union the industry faced a crisis due to competitive foreign imports. Japanese brands overtook the lower-end Ladas; on the high-end sector, Volga sales dropped in favor of German-built Mercedes and BMWs. By 1993, total output was down 14% compared to 1990 levels. Lada's declining sales during the 1990s, and toughening European Union emissions requirements, saw exports to Western Europe discontinued by the end of the decade. Lada had enjoyed particularly strong sales in Britain, peaking at more than 30,000 sales a year in the late 1980s, but had failed to remain competitive with other budget brands over the subsequent few years.

37. Russian Automobile construction 37 In the early 2000s, the Russian economy recovered. Macroeconomic trends were strong and growing incomes of the population led to a surging demand, and by 2005 the Russian car market was booming. In 2005, 1,446,525 new cars were sold, including 832,200 Russian models and 614,325 foreign ones. Foreign companies started to massively invest in production in Russia. Russia's automotive industry was hit hard by the late 2000s recession. Production of passenger cars dropped from 1,470,000 units in 2008 to just 597,000 units in 2009. Lorry production fell from 256,000 to 91,000 in the same period. In late 2008, the Russian government introduced protectionist measures, worth $5 billion, to improve the situation in the industry.

38. Russian Automobile construction 38 The Russian automotive industry can be divided into four types of companies: local brand producers, foreign OEMs, joint ventures and Russian companies producing foreign brands. In the heavy vehicle sector, the largest company is the truckmaker KaMAZ. It is also one of the largest companies in the whole Russian automotive industry. Another very important company is GAZ, which makes vans, trucks and busses, among other products. Russia's largest tractor maker, and one of the largest machine building companies in the world, is Concern Tractor Plants, located in Cheboksary.

39. Case Study Tomsk electrotechnical plant 3 What steps or measures can you suggest to bring the plant out of the crisis?

40. Case Study Tomsk electrotechnical plant 3 Decisions which were realized: 1.Sale of part (almost half) of the plant area 2.Energy audit of the remaining industrial areas 3.Repair to save energy, including the replacement of windows 4.Elimination of heating in those areas where it is not necessary 5.They did a workshops and offices more compact 6.Replacement product range in order to reduce dependence on the state order

41. THANK FOR YOUR ATTENTION! 14 Vera V. Ageeva Department of History and Regional Studies iforya@tpu.ru +7 (382)2 563549