News / Europe

Russia Re-Industrializes as Energy Boom Fades

Russia Re-Industrializes as Energy Boom Fadesi
X
March 22, 2013 1:07 PM
For the last decade, Russia has been the world’s largest energy exporter, sometimes called “the Saudi Arabia of the snows.” Now, many economists say that oil and gas revenues are dropping and that Russia is starting to re-industrialize. James Brooke reports from Moscow.
James Brooke
For the last decade, Russia has been the world’s largest energy exporter, sometimes called “the Saudi Arabia of the snows.” Now, many economists say that oil and gas revenues are dropping and that Russia is starting to re-industrialize.

Post Soviet Russia is widely seen as an industrial rust belt. But here, in a new car making hub outside St. Petersburg, American car maker GM is investing to triple its production capacity.

Romuald Rytwinski, GM’s Manufacturing Manager for Russia, says the quality is world class.
 
“I was working 10 years as a plant manager in Western Europe,” said Rytwinski, a native of Poland. “And when I look at the cars we are making here, I’m very proud.  The quality of products, it’s as good as the best plants in Western Europe.”
 
With these new cars, Russia this year is to finally top the peak car production level of the Soviet Union - 2.2 million in 1985.
 
The rebirth of car making in Russia may signal the slow start of Russia’s re-industrialization.

Seeing the end of an oil boom
 
Anders Aslund, a Swedish economist, says that energy revenues are dictating new directions for Europe’s most populous nation.
 
“The oil price now seems to be leveling out, and you would expect it to go down a bit rather soon,” Aslund said on a visit to Moscow from Washington where he works for the Peterson Institute of International Economics. “And then the crowding out of other sectors by energy would diminish and at that time we will see a substantial revival of Russian manufacturing. “

Gazprom, Russia’s state gas exporting monopoly, is now offering European customers price discounts. With gas and oil production increasing around the world, Russia’s energy boom is slowing.
 
According to new report by the European Bank for Reconstruction & Development, Russia’s known oil reserves only allow for production to continue at current levels for 20 years. The comparable figure for Saudi Arabia is 70 years.
 
For now, Russia is highly vulnerable to energy prices. Oil and gas exports account for almost 70 percent of Russia’s export earnings and cover half of the federal budget.
 
With the end of this easy money in sight, foreign investors predict that Russia will be forced to embark on a new era of industrialization. During the Soviet era, the economy was closed and virtually all products were made at home.

Manufacturing a growth industry
 
Aslund, who has over 25 years of experience with Russia, links energy prices and local manufacturing: “The excessively high price level will decline and we'll see more economic reforms coming. And then lots of manufacturing will make sense.”
 
And while Europe is in recession, Russia is growing - by a forecasted 3 percent this year. Unemployment is only 5.8 percent - far below the levels of southern Europe.  A lead driver of growth is consumer demand, people making up for decades of Soviet deprivation by buying good quality cars, clothes, furniture, and housing.
 
Bernie Sucher is an American entrepreneur with 20 years experience in Russia. He sees continued growth for Russia: “This place, for whatever reasons, is still growing, and it is likely to continue to grow and at a pace that is obviously higher than the European Union, probably higher than the United States, and better than what we’re seeing in Brazil, to pick another big emerging economy where people seem to think that everything is wonderful.”
 
With lower energy revenues on the horizon, the word from the Kremlin to local authorities is to encourage manufacturing investment.

Last month, Russian Prime Minister Dmitry Medvedev set an ambitious goal in a policy speech:  “We must support the export of high-tech products and services. By 2018 we must increase our non-energy exports by more than 50% as compared to 2012.”

At the GM plant outside St. Petersburg, Rytwinski, the Manufacturing Manager, says he feels a new reality taking hold.

“Before I came to Russia people were telling me it’s unpredictable, you know, permissions,” he said. “In two years, we had no plant disruptions, we have a very good material flow, we haven’t had any dispute with local authorities, we received all permissions on time.”

You May Like

Disappointing Report on China's Economy Shakes Markets

In London and New York shares lost 3 percent, while Paris and Germany dropped around 2.4 percent More

DRC Tries Mega-Farms to Feed Population

Park at Boukanga Lonzo currently has 5,000 hectares under cultivation, crops stretching as far as eye can see, and is start of ambitious large-scale agriculture plan More

Video War, Drought Threaten Iraq's Marshlands

Areas are spawning ground for Gulf fisheries, a resting place for migrating wildfowl, source of livelihood for fishermen and herders who have called the marshes home for generations More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Nobel Prize Winner Malala Talks to VOAi
X
August 31, 2015 2:17 AM
Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video Nobel Prize Winner Malala Talks to VOA

Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video War, Drought Threaten Iraq's Marshlands

Iraq's southern wetlands are in crisis. These areas are the spawning ground for Gulf fisheries, a resting place for migrating wildfowl, and source of livelihood for fishermen and herders. Faith Lapidus has more.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Rebuilding New Orleans' Music Scene

Ten years after Hurricane Katrina inundated New Orleans, threatening to wash away its vibrant musical heritage along with its neighborhoods, the beat goes on. As Bronwyn Benito and Faith Lapidus report, a Musicians' Village is preserving the city's unique sound.
Video

Video In Russia, Auto Industry in Tailspin

Industry insiders say country relies too heavily on imports as inflation cuts too many consumers out of the market. Daniel Schearf has more from Moscow.
Video

Video Scientist Calls Use of Fetal Tissue in Medical Research Essential

An anti-abortion group responsible for secret recordings of workers at a women's health care organization claims the workers shown are offering baby parts for sale, a charge the organization strongly denies. While the selling of fetal tissue is against the law in the United States, abortion and the use of donated fetal tissue for medical research are both legal. VOA’s Julie Taboh reports.
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.

VOA Blogs