REGIONAL OVERVIEW: VORONEZH, RUSSIA

POST OF ORIGIN: MOSCOW
DATE OF REPORT: 990224
AUTHOR: SERGEY MINKO, OLGA ANANINA

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GEOGRAPHIC LOCATION AND INFRASTRUCTURE
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Voronezh Oblast is located 600 km south of Moscow in the Central Black Earth Region of Russia. The climate is moderately continental. The Oblast covers 52,400 square kilometers of land. Two-thirds of its land is the richest soil in Europe. Voronezh Oblast is surrounded by four other Central Black Earth Regions of Russia: Belgorod, Kursk, Lipetsk, and Tambov, and neighbors with North Caucases and Povolzh'e also known for their fertile lands. Voronezh Oblast is perforated with three important automobile highways: Moscow-Rostov, Moscow-Astrakhan, Kursk-Saratov, - as well as railroads, and river ways. Volga-Don company operates it the region allowing most of the inter-oblast cargo be transported via rivers Voronezh, Don, and Volga. The cargo is also shipped to the regions located on Azov and Caspian seas.

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POPULATION AND EDUCATION
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The population of the Voronezh Oblast is 2.5 million people of which 1 million live in the city of Voronezh. 17% of the population is involved in the agribusiness sector. Retirees compile a high percentage of the total population (60%). Voronezh is the leading scientific center of the Black Earth Region. There are 15 institutes, universities, and academies. Over 60 research institutes and design bureaus create powerful scientific potential of the oblast.

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INDUSTRY
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Both the climate and well-educated work force impact the development of certain industries in the region: agriculture and food processing and technologically advances industries such as aerospace, radio electronics, machine building, chemical industry, pharmaceutical, synthetic rubber industry, and mechanical engineering. Energy is supplied by the Novovoronezhskaya Atomic Electricity station and the near-by fuel mains.

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OPPORTUNITIES IN AGRIBUSINESS
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Around 225,000 people (17% of population) are involved in agribusiness sector of the Voronezh region. The agricultural land accounts for almost 4 million hectares, including 3.2 million hectares of plough-land, 130 thousand hectares of grass-land, and 500 thousand hectares of pastures. The region is a major producer and supplier of agricultural products to industrial region of the Russian Federation. It produces 7% of crops, 20% of sugar, and 10% of vegetable oil of the entire Russian agricultural output. The leading branches of agribusiness are plant-growing and cattle-breeding.

In the Voronezh Oblast, most farm enterprises are poorly equipped with farm machinery. The machinery is difficult to maintain because of the shortages of spare parts, and this badly effects productivity. Despite the richness of the soil, the crop yields are comparatively low because of low-grade management and shortages of farm machinery and fertilizers.

The regional government has made the agriculture its top priority for development and attraction of foreign investment and offers local tax incentives to Western companies. The agricultural resources of the region are far from being used to the full extend. The Oblast needs to increase its output in industrial crop processing, to overhaul its food processing and packaging enterprises, and support the development of small businesses through out the region. The general situation in the region provides tremendous potential investment and trade opportunities to American companies in the food processing and farm machinery sectors.

Among the investment projects reviewed and offered by the regional government are:

- Overhauling of a sausage plant in Esipovo to increase variety and improve quality of sausages;

- Construction of a cheese plant with capacity of 2.5 tons of cheese per shift in Kamenka;

- Arranging joint agricultural crops production in the Voronezh region to produce wheat, sun flower, and sugar beets. The project needs modern fertilizers and machinery to increase crop yields;

- Construction of a malt plant to provide local breweries and bakeries with quality malt;

- Construction of a meat canning plant with capacity of 20 tons per shift to better process meat and meat sub-products;

- Establishment of agricultural machinery shops to use high-tech technologies in crop production ensure high yields and quality of crops;

- Purchase of a meat-processing equipment for a meat processing plant to increase production efficiency, verity of sausages and lower production cost;

- Establishment of a brewery to produce lager beers;

- Construction of a natural juice plant;

- Construction of a chocolate-coated halvah bar plant;

- Overhauling of the Meat and Milk Processing Plant to increase the capacity of sausage-producing and semi-prepared products facilities from 7.5 tons per shift to 30 tons. The project will require purchase of Western meat processing equipment;

- Installation of industrial hydroponic systems and micro seaweeds biological generators in agricultural enterprises of the Voronezh region;

- Establishment of a sun flower processing plant with capacity of 150 tons per shift;

- Construction completion of non-fat milk plant with capacity of 6 tons per shift in Bogucharovo; - Overhauling completion of the Milk and Canning plant Nizhnekislyaisky. The project requires replacement of the plant's aging equipment and installation of a new boiler;

- Purchase of a new meat and milk processing equipment for OAO Borisoglebsk Meat Canning plant;

- Purchase of a western cereal production line for OAO Arocentr of Borisoglebsk Proborostroitelny plant;

- Construction completion of AOOT Berezovsky Cheese plant's cheese storage facility with capacity of 300 tons;

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OPPORTUNITIES IN THE INDUSTRIAL SECTOR
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Over 850 industrial enterprises in Voronezh Oblast employ 23% of the regional workforce. Voronezh enterprises produce airplanes IL-86 and IL-96, rocket engines for spacecrafts, equipment for oil and gas industry, excavators, rubber and automobile tires, fertilizers, chemicals, metal-cutting equipment, and mechanical presses. Industrial enterprises encounter similar challenges as do their agribusiness counterparts. Obsolete equipment hinders the production and prevents project development. Thus, while developing an investment project, a company has to begin with overhauling of the production facilities. Investment Projects promoted by the Regional Administration and mentioned below reflect the general situation of the regional economy. Projects that won the Voronezh City Investment Project Competition are marked with the asterisk:

- Production of natural gas meters on the VZPP premises;

- Overhauling of the enterprise for production of aviation engines TPJ 1304 HF licensed by VM Motori S.p.A. company;

- Acquisition of new equipment for production of automobile spare parts;

- Reconstruction and overhauling of the Mechanical Factory for increases and improved production of oil and gas extracting equipment* ;

- Production of train carriages of new generation, joint stock company Vagonremmash*;

- Sizing of the base and bleaching the cloth, joint stock company Promtekstil*;

- Development and production of an economical system of providing the electricity for lighting the living compounds, joint stock company
VZPP *;

- Acquisition of new equipment for the production of electronic scales.

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INVESTMENT POTENTIAL
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Despite the current difficulties, these sectors and projects could be of great interest to the U.S. companies in the future. Foreign investors are also granted support and certain regional tax breaks by the Voronezh Oblast government. Thus, knowing the urgent need for upgraded phone lines in Russian, the U.S. company Lucent Technologies, Inc. which is also the world's largest telephone equipment maker, is forming a joint venture with Russian SviazStroy-1 to produce fiber optic cable in Voronezh. Lucent will own 51% of the joint venture called the Lucent Technologies SviazStroy-1 Fiber Optic Cable Company and will invest USD 7,000,000 in the project. Since 1996, Lucent has invested USD 30,000,000 in Russian and has presence in nine other locations in Russia.

For further information on Voronezh investment opportunities please contact:

Vadim Sukhoverov
Deputy Governor for Investment in the Oblast
Phone: +7-(0732) 77-52-90
Fax: +7-(0732)-77-53-92

Vladimir Volosovtsev
Chairman of the Voronezh region Committee for
Investments, Small- and Medium-Size Business
and Entrepreneurship
Phone: +7-(0732) 55-46-33
Fax: +7-(0732)-77-53-92
E-mail: invest@comch.ru
Web Site: www.chernozem.ru/~voronezh