URALS= DYNAMIC CAPITAL ENTICES INVESTORS
by Yelena Zheberlayeva
Straddling the border between Europe and Asia, Yekaterinburg is the capital city of Sverdlovsk Oblast and plays the role of capital to the entire Urals region. A receptive business climate and strategic location, combined with the presence of a U.S. Consulate General and numerous foreign companies, makes Yekaterinburg one of Russia=s most promising regions for foreign investment and trade.
Yekaterinburg is among the top four most populous cities in Russia with over 1.5 million well-educated residents. Named for Peter the Great=s second wife, Catherine I, Yekaterinburg has maintained its historical importance as the center of Russia=s industrial heartland.
Today, Yekaterinburg is well known both as a center of heavy industry and steel production and as a major transportation hub. Its primary industries include ferrous and nonferrous metallurgy, chemicals, timber, pulp, and paper. Sverdlovsk Oblast produces the majority of Russia=s bauxite, titanium, and vanadium, and a quarter of its iron. Long an important trading area for goods from Europe, Central Asia, and Siberia, Yekaterinburg also has a reputation as a center of higher learning and research, housing over 18 institutes and numerous research facilities linked to industrial production. Politically, Sverdlovsk Oblast has produced some of Russia=s most prominent politicians, including Boris Yeltsin, Russia=s first president, and Eduard Rossel, its first elected governor.
Economic and Political Climate
Yekaterinburg and Sverdlovsk have worked hard to implement reforms in both the economic and political spheres, and economic reform appears to have achieved irreversible momentum. The majority of the Oblast=s industries have been privatized. Currently, over three-quarters of retail sales and industrial output is produced by private enterprises. Sverdlovsk Oblast has the largest GDP in the Urals and is one of the few administrative regions in Russia that is currently a net contributor to the federal budget.
Since the federal government in Moscow granted permission to Sverdlovsk oblast to negotiate its own foreign economic relations, the region enjoys a great deal of local autonomy and has been aggressive about pursuing foreign investment. Sverdlovsk Oblast=s independence allows it a greater range of freedom to negotiate directly with foreign companies interested in investing or developing relationships locally. Moreover, the Oblast=s history of economic and political reform bode well for future development in the region.
Trade Potential
Russia=s financial crisis has not left Yekaterinburg and Sverdlovsk Oblast unmarred and, much like the rest of Russia, emphasis is now being placed on local production over more costly imports. One of the best bets for exporting to the Urals region is food processing equipment as many firms are now purchasing new equipment to upgrade facilities and meet new demand for locally produced food products. Many of Yekaterinburg=s food processing facilities, such as Konfi Chocolate Factory, Myasomoltorg Ice Cream Plant, Myasokombinat Meat Packing Plant, and Patra Brewery have remained stable and are likely to grow in the near future.
Opportunities also exist for sales of price competitive Western products in a variety of other sectors including telecommunications, safety and security systems, medicine, and construction materials. The United States leads in trade relations with Sverdlovsk Oblast. The Netherlands, Kazakhstan, Germany, and the United Kingdom round out the region=s top five trading partners.
Investment Potential
Sverdlovsk Oblast=s major attractions for foreign investors are its wealth of mineral resources and its highly qualified and low-cost work force. Currently, approximately 138 foreign companies have branch offices in Yekaterinburg. The modest expatriate community is also drawn from the U.S. Consulate General, a British Consulate, and a Hungarian Trade Representative office. Yekaterinburg is by far the most cosmopolitan city in the Urals, with direct international flights to many European and Asian capitals.
Sverdlovsk Oblast=s favorable investment climate has resulted in its leading the Urals in attracting foreign investment, with $52 million and 689 joint ventures in 1998. The top foreign investors are the United States, the United Kingdom, and Germany. The United States is Sverdlovsk Oblast=s number one investor with $114 million in cumulative investment and 79 joint ventures.
Over 70 foreign firms have opened representative offices in Yekaterinburg, including DHL, Ford, IBM, and Procter & Gamble. Coca-Cola and Pepsi both opened bottling plants in 1998, and MediaOne Group has formed a joint venture, UralWestCom, which has become Yekaterinburg=s leader in cellular phone sales and service. Lufthansa has a regional presence in the Urals as well, offering flights three times a week between Frankfurt and Yekaterinburg.
One promising sector in Yekaterinburg is building materials; U.S.-Russian joint venture Denek is already capitalizing on this market. Another sector that offers opportunities for rapid growth is telecommunications. U.S. MediaOne Group has invested $1.4 million in the region since 1995. According to UralWestCom public relations manager Mariya Kuznetsova, AWe have reduced costs to our customers in order not to lose a single client. Our company continues to invest in order to broaden its network in the Urals.@
Sverdlovsk Oblast has a foreign investment support center and a website that profiles over 200 local companies (www.midural.ru/ek.en/). The oblast= Business Assistance Center, formed in 1992, can assist foreign companies in finding local partners (www.csp.mplik.ru/english/bac.html). The Yekaterinburg government has its own investment support center, opened in 1998.
For more information about Yekaterinburg, visit BISNIS Online at www.bisnis.doc.gov/bisnis/country/990525ur.htm.
Yelena Zheberlayeva represents BISNIS and is co-located with the U.S. Consulate General in Yekaterinburg.