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.
TEXT SIZE - +
— 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.”

James Brooke

A foreign correspondent who has reported from five continents, Brooke, known universally as Jim, is the Voice of America bureau chief for Russia and former Soviet Union countries. From his base in Moscow, Jim roams Russia and Russia’s southern neighbors.

You May Like

Thailand's Political Power Struggle Continues

Court gave Prime Minister Yingluck Shinawatra until May 2 to prepare her defense over abuse of power charges but uncertainty remains over election timing More

Malaysia Plane Search Tests Limits of Ocean Mapping Technology

Expert tells VOA existing equipment’s maximum operating depth is around 6 kilometers as operation continues on ocean bed for any trace of MH370 More

Open Source Seeds Hit the Market, Raise Awareness

First open source seeds include 29 new varieties of broccoli, celery, kale, quinoa and other vegetables and grains More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Pet Kangaroo Helps Spread Environmental Messagei
X
Penelope Poulou
April 22, 2014 5:53 PM
Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pet Kangaroo Helps Spread Environmental Message

Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pro-Russian Separatists Plan 'Federalization Referendum' in Eastern Ukraine

Pro-Russian separatists in eastern Ukraine say they plan to move forward next month with a referendum vote for greater autonomy, despite the Geneva agreement reached with Russia, the U.S. and Ukraine to end the political conflict. VOA's Brian Padden reports from the city of Donetsk in Eastern Ukraine.
Video

Video Pope Francis Hopes Dual Canonizations Will Reconcile Church

On April 27, two popes - John the XXIII and John Paul II - will be made saints in a ceremony at St. Peter’s Square. VOA religion correspondent Jerome Socolovsky says the dual canonization is part of the current pope’s program to reconcile liberals and conservatives in the Roman Catholic Church.
Video

Video In Capturing Nature's Majesty, Film Makes Case for Its Survival

French filmmaker Luc Jacquet won worldwide acclaim for his 2005 Academy Award-winning documentary "March of the Penguins". Now Jacquet is back with a new film that takes movie-goers deep into the heart of a tropical rainforest - not only to celebrate its grandeur, but to make the case for its survival. VOA's Rosanne Skirble reports.
Video

Video Boston Marathon Bittersweet for Many Runners

Monday's running of the Boston Marathon was bittersweet for many of the 36,000 participants as they finished the run that was interrupted by a double bombing last year. Many gathered along the route paid respect to the four people killed as a result of two bombings near the finish line. VOA's Carolyn Presutti returned to Boston this year to follow two runners, forever changed because of the crimes.
Video

Video International Students Learn Film Production in World's Movie Capital

Hollywood - which is part of Los Angeles - is the movie capital of the world, and many aspiring filmmakers go there in hopes of breaking into the movie business. Mike O'Sullivan reports that regional universities are also a magnet for students who hope to become producers or directors.
Video

Video Pacific Rim Trade Deal Proves Elusive

With the U.S.-led war in Iraq ended and American military involvement in Afghanistan winding down, President Barack Obama has sought to pivot the country's foreign policy focus towards Asia. One aspect of that pivot is the negotiation of a free-trade agreement among 12 Pacific Rim nations. But as Obama leaves this week on a trip to four Asian countries he has found it very difficult to complete the trade pact. VOA's Ken Bredemeier has more from Washington.
Video

Video Autistic Adults Face Housing, Job Challenges

Many parents of children with disabilities fear for the future of their adult child. It can be difficult to find services to help adults with disabilities - physical, mental or emotional - find work or live on their own. The mother of an autistic boy set up a foundation to advocate for the estimated 1.2 million American adults with autism, a developmental disorder that causes communication difficulties and often social difficulties. VOA's Faiza Elmasry reports.
AppleAndroid