BACKGROUND PAPER: SVERDLOVSK OBLAST ECONOMY

 

Demographics

 

 - Sverdlovsk Oblast has 4.6 million residents, which comprises 3.2% of Russia’s total population.  It is one of Russia’s most urban areas; 87% of the population are city dwellers.

 

 - Yekaterinburg has1.6 million inhabitants, making it Russia’s third or fourth largest city.

 

Economic Reform

 

 - The majority of Sverdlovsk's industries have been privatized.  Over 75% of enterprise are at least partially privately owned.  The process of privatization still continues in Sverdlovsk oblast.

 

 - Sverdlovsk oblast is one of the only nine Russian Federation government bodies that are net contributors to the Federal budget.

 

 - The International Agency Standard & Poor’s has provided a higher rating for Sverdlovsk Oblast from SD to CCC in the fall of 1999, which is higher than Russia’s overall investment rating.

 

 - 80% of retail sales and 90% of industrial output in Sverdlovsk Oblast is generated by private enterprises

 

 - 32,000 small and medium businesses are currently registered - up from only 12,000 in 1994. Small businesses comprise about one-third of the construction, trade and foodservice sectors.  They produce 8% of Sverdlovsk Oblast's GDP.

 

 - As result of the 1998 financial crisis and decrease of purchasing power of the population, retail turnover dropped 60.9 percent in 1999.

 

 - Purchasing power of local consumers dropped 37 percent in the first half of 1999, compared to the same period in 1998.

 

GDP and Foreign Trade

 

 - Sverdlovsk Oblast has the largest GDP of any oblast in the Urals, producing 5 percent of Russia’s industrial output and ranking second only to Moscow Oblast in that category. 

 

 - GDP composition has changed markedly.  Services have grown to comprise up to 40 percent of regional GDP, up from only 16 percent in 1992.  Most of the growth has been in the transport, construction, telecommunications and food services sectors. 

 

 - Sverdlovsk oblast holds 3rd place with 4.85% of the total Russia’s industrial output.

 

Industries

 

 - Heavy industry, ferrous metallurgy and machine building form the bulk of  Sverdlovsk’s economy, much of it is defense-related.

 

 - The defense industry continues to occupy a significant role in the oblast’s economy, with more than 40 enterprises. The first military show in the Urals region was held July 2, 1999 in Nizhniy Tagil and attracted a number of foreign businessmen. Defense enterprises signed contracts for USD18 million

 

 - Sverdlovsk oblast's industrial sector faces problems common to all Russian regions, including a decrease in government financing for defense conversion and a lack of financing for industrial reconstruction and modernization.

 

 - Non-ferrous metallurgy remains a growth sector.  The Verkhnaya Salda titanium plant (VSMPO) is the largest titanium works in Russia and the second largest in the world.  Boeing signed a ten-year titanium supply contract valued at $200 million with the VSMPO titanium plant in 1997.

 

 - A second growth sector is food production and processing, with many firms purchasing foreign equipment to upgrade production.  Many of Yekaterinburg's leading food processors -- including the Konfi chocolate factory, Myasomoltorg ice-cream plant, Myasokombinat meat packing plant and Patra brewery -- have remained financially stable and sell their production all over Russia

 

Agriculture

 

 - Sverdlovsk oblast produces annually up to one million tons of grain, 1.1 million tons of potatoes, 310,000 tons of vegetables, 900,000 tons of milk, 150,000 tons of meat and 1.3 billion eggs.  Sverdlovsk oblast is self sufficient in potatoes and vegetables, eggs and diary products.  Local production of meat products accounted for 50 percent of total consumption.

 

 -  Sverdlovsk oblast's agricultural production ranks fifth in the Urals region after Chelyabinsk, Orenburg, Kurgan and the Republic of Bashkortostan.  The industry includes meat and dairy production, cattle, pig and poultry breeding, and vegetable farming.  Arable land totals six million acres.

 

 - Private farmers realize the necessity for new agricultural technology and machinery to raise production volumes and seek for used machinery and equipment and the most recent technologies.  They say they lack professional training.

 

Infrastructure

 

 - Yekaterinburg is one of central Russia’s major road and rail transportation hubs, featuring regularly scheduled air service to several European cities.  Lufthansa operates three flights weekly from Yekaterinburg to Frankfurt.

 

 - Its banking infrastructure is the best in the Urals, with 31 banks and 17 branches of commercial banks from other regions.   Visa and Master Card payment systems have become common for local banks. 

 

 - Local bankers state that it takes 1-3 days to transfer money to any country in the world.

 

 - Over 18,000 trade outlets, including 11,400 shops and 6,900 small retail outlets, were registered in Sverdlovsk oblast in 1999. 

 

 Opportunities for foreign investment and trade

 

Overall Foreign Investments

 

 - Over 600 joint stock companies and branch offices of foreign companies are registered in Sverdlovsk oblast.

 

 - Over 70 representative offices of foreign companies are registered in Sverdlovsk Oblast.  The majority of them continue their activities after the 1998 financial crisis.  Pepsi Co., Coca – Cola Bottlers, U.S.West and Global One continue to develop their facilities.

 

 - The U.S. is the major investor in Sverdlovsk Oblast with 47% of the total investments, Germany -34%, Luxemburg-$10%, Cyprus-4.1%, UK-$3.2% correspondingly.

 

 - Major investments were made in ferrous metallurgy ($35.0 million), machine building ($1.2 million) and food industry (7.1 million).

 

Foreign Trade

 

 - Overall trade turnover of Sverdlovsk Oblast is valued $2.28 billion, with $1.8 in exports and $0.4 million imports.

 

 - U.S. imported products are valued at $9.1 million including major imported products: synthetic India rubber ($0.9 million), medical equipment and devices ($0.8 million), pharmaceuticals ($0.1 million).

 

 - Major exported products in 1999 were: chemicals ($314.5 million), non-processed aluminum ($50.2 million), titanium and titanium products ($29.9 million), saw materials and plywood ($7.1 million), copper alloys ($3.0 million).

 

 - Trade opportunities have been reduced because of the nationwide financial crisis's devaluation of the ruble has hurt price competitiveness of imports.   Foreign trade turnover is estimated at $1.9 billion with $1.64 billion exports and $0.3 million in imported goods in 1999. 

 

U.S. Investment

 

 - The U.S. is number one investor with 79 joint ventures and $114 in investment

 

 - Major U.S. investors are Coca-Cola, Pepsi-Cola, U.S. West (JV UralWestCom) and Boeing. 

 

 - Coca-Cola and Pepsi both opened bottling plants in Yekaterinburg in 1998. Both companies have seen difficulties in 1999 due to the depreciation of the ruble and decrease in sales volumes. 

 

 - U.S.West has a joint venture, UralWestCom, which has become Yekaterinburg's leader in cellular phone sales and service.  Its U.S. partner invested $1.4 million in microwave tower construction and technical supply of the project. 

 

 - Boeing signed a ten-year titanium supply contract valued at approximately 200 million dollars with the VSMPO titanium plant.

 

 - There is a number of U.S. companies and joint ventures which trade with construction and finishing materials (Story Master), medical equipment (Spectra Technical Services, Inc) and computer components successfully.

 

Foreign Aid

 

 - The EBRD is the largest multilateral lender with over $7.5 million loans granted in 1999.

 

 - U.S.-Russia Investment Fund (TUSRIF) funded 17 projects valued at $1.2 million in 1999.

 

 - Citizen Democracy Corp (CDC) has resumed its activities in 1999 through a local Russian partner with 50 projects implemented during six months.