The Urals and Western Siberia

Consulate Yekaterinburg’s consular district covers 11 Russian regions:  Sverdlovsk Oblast, Chelyabinsk Oblast, Tyumen Oblast (together with its autonomous districts of Khanty Mansiysk and Yamalo Nenetsk), Kurgan Oblast, Orenburg Oblast, Omsk Oblast, Perm Kray, and the republics of Bashkortostan and Udmurtia.  Situated as it is in the middle of Russia, the district straddles the border of Europe and Asia, which can make it logistically attractive.  Historically the Urals and Western Siberia have been known as the “feeding artery” of Russia with world class oil and gas deposits in the Polar North, heavy industry in the Middle Urals, and an agro-industrial South.  The region still boasts a rich bounty of mineral wealth, with significant deposits of copper, iron, chrome, nickel, cobalt, zinc, carbon, oil, natural gas, gold, and gems.  In fact, almost all elements of Mendeleev’s Periodic Table are to be found in the Urals.  The Urals and Western Siberia are also well endowed with thick forests and extensive fresh water resources.  Traditionally known as Russia’s mining and metallurgical heartland, the Urals also has a well developed agricultural sector in its southern and middle sections.

The Ural region is increasingly integrated into the world economy.  Over the past decade most of the region’s major industrial enterprises have developed and implemented international development strategies.  In 2010-2011 the Ural Federal District (which includes six of the consular district’s 11 regions) attracted more investment than six of the seven other Russian federal districts.  In all, 17 percent of Russia’s gross investment was made in the Ural Federal District.  The oil and gas sectors of Khanty Mansiysk Autonomous Okrug and Yamalo Nenetsk Autonomous Okrug continued to retain their investment attractiveness through even the global economic crisis.  The metallurgical, machine building and processing sectors of Chelyabinsk and Sverdlovsk, on the other hand, were impacted severely by the 2008-09 crisis.  By the end of 2010, however, they had begun to rebound and even expand.  In 2010 Chelyabinsk Oblast saw an inflow of $3.3 billion in foreign capital, making it the sixth best among Russia’s 89 constituent regions for investment attractiveness.  For many years Sverdlovsk Oblast has been the Ural leader in international trade development.  In 2011 the oblast’s share of Ural gross international trade turnover exceeded 49 percent.

Since 2010 foreign direct investment has trended upwards in the Urals.  In 2011 the volume of foreign investment surpassed the pre-crisis level.  The negative consequences of the financial crisis forced regional governments throughout the consular district to reconsider their investment policies.  Those regions that were already economically developed and diversified began to see the importance of designing and implementing new, creative approaches for promoting themselves.  For instance, Chelyabinsk Oblast introduced a “start-up office” for potential foreign investors which now provides temporary office space, equipment and, crucially, administrative support and assistance.  The Sverdlovsk Oblast government launched the first “investor’s e-assistant,” an e-portal that guarantees registered users on-line administrative support, consultation, and control over the implementation of their projects.  The portal is, however, in Russian only.
 
The Tyumen Oblast government has introduced a bilingual business portal which now serves as an effective means of disseminating information about the regional economic climate.  The regularly updated portal is a practical tool for foreign businessmen, providing them with step-by-step guidance on investing in Tyumen.  Meanwhile, other regions like Perm Kray, Bashkortostan, and Khanty Mansiysk have established government–affiliated, for-profit consulting agencies which “lead” foreign investors along the complicated path of investing in Russia’s economy.  Finally, many foreign investors may expect to find various preferential tax and customs regimes which vary from region to region.

While cautionary tales about investing in Russia do apply to the Urals, the peculiarities of “regional investment policies” are worth keeping in mind.  Having survived the economic crisis, the Urals and Western Siberia have renewed interest in improving their investment potential and have gotten more active and creative in attracting that investment.  General practice has shown that the more economically developed and diversified regions tend to offer better platforms for investment.  What follows below is a list of regional “Investment Portraits” which may be useful resources for those thinking of investing in the Urals and Western Siberia.

A Recent History of Economic Cooperation in the Urals

The Consulate has seen the number of joint Russian – American business projects in the Urals grow significantly over the last decade.  According to government statistics, Sverdlovsk Oblast now has over 130 U.S. or U.S. –affiliated companies operating within its borders.  One of the most obvious examples of Russian-American partnership is that of Boeing and VSMPO.  After years of cooperation, the companies founded the joint venture Ural Boeing Manufacturing in 2009.  UBM provides the initial machining of VSMPO’s titanium forgings, which are later used in the production of Boeing 737s and 787 Deamliners.  

Another successful joint venture was formed by Metran (RF) and Emerson Process Management (US) in Chelyabinsk Oblast, where it has been in operation for ten years.  The company designs and manufactures a variety of high-tech measuring devises.  Carbo Ceramics, a producer of oil extracting propping agents, also has a large presence in Chelyabinsk.
More recently, the American SI Group and the Russian joint stock company Uralkhimplast registered a joint venture in Nizhny Tagil, Sverdlovsk Oblast, in April 2012.  The initial goal of the JV is to distribute Uralkhimplast’s synthetic pitch products in CIS countries, but Uralchimplast SI Group may later start production of certain products as well. 

US Consulate General Yekaterinburg founded the Club of American and America-Affiliated Businesses in 2009 with the aim of supporting US-Russian business cooperation in the Urals.  In the time since, the club has become a platform for effective dialogue between regional governments and American businesses active in the region.  So far over 40 companies have joined the club, including Halliburton, IBM, Pepsi Cola, Coca-Cola, IBM, Microsoft, Steelcase Furniture, 3M, and Ernst & Young.