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

Jihadist Assassin says Goal of Tunisia Murders Was Chaos

Abu Muqatil at-Tunusi’s remarks in a propaganda interview also cast light on attack on Bardo Museum More

Russia Denies License to Tatar-Language TV Station in Crimea

OSCE official says denial shows 'politically selective censorship of free and independent voices in Crimea is continuing' More

Kenyan Startups Tackle Expensive Remittances Through Bitcoin

Some think services could give Western Union a run for its money, though others say it’s still got a long way to go More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
For Obama, It's More Business Than Friendships With World Leadersi
X
Aru Pande
April 01, 2015 9:09 PM
The rift between President Barack Obama and Israeli Prime Minister Benjamin Netanyahu has put a spotlight on the importance of the American leader’s personal relationships with other world leaders and what role such friendships play in foreign policy. VOA's Aru Pande reports.
Video

Video For Obama, It's More Business Than Friendships With World Leaders

The rift between President Barack Obama and Israeli Prime Minister Benjamin Netanyahu has put a spotlight on the importance of the American leader’s personal relationships with other world leaders and what role such friendships play in foreign policy. VOA's Aru Pande reports.
Video

Video Buhari: Nigeria Has ‘Embraced Democracy’

Nigeria woke up to a new president-elect Wednesday, Muhammadu Buhari. But people say democracy is the real winner as the country embarks on its first peaceful handover of power since the end of military rule in 1999. VOA’s Anne Look reports from Abuja.
Video

Video Tiny Camera Sees Inside Blood Vessels

Ahead of any surgical procedure, doctors try to learn as much as possible about the state of the organs they plan to operate on. A new camera developed in the Netherlands can now make that easier - giving surgeons an incredibly detailed look inside blood vessels, all the way to the patient’s heart. VOA’s George Putic has more.
Video

Video Latin American Groups Seek Fans at Texas Music Festival

Latin American music groups played all over Austin, Texas, during the recent South by Southwest festival, and some made fans out of locals as well as people from around the world who had come to hear music. Such exposure can boost such groups' image back home. VOA’s Greg Flakus reports.
Video

Video Stockton Community, Police, Work to Improve Relations

Relations are tense between minority communities and police departments around the United States following police shootings that have generated widely-publicized protests. VOA's Mike O’Sullivan reports from Stockton, California, where police and community groups are working toward solutions, with backing from Washington.
Video

Video Indiana Controversy Highlights Divergent Meanings of Religious Freedom

Indiana’s state government has triggered a nationwide controversy by approving a law that critics say is aimed at allowing discrimination against gays and lesbians. The controversy stems from divergent notions of religious freedom in America. VOA's Jerome Socolovsky reports.
Video

Video Report: State of Black America a 'Tale of Two Nations'

The National Urban League has described this year's "State of Black America" report as a "tale of two nations." The group's annual report, released earlier this month (March), found that under an equality index African Americans had only 72% parity compared to whites in areas such as education, economics, health, social justice and civic engagement. It’s a gap that educators and students at Brooklyn’s Medgar Evers College are looking to close. VOA's Daniela Schrier reports from the school.
Video

Video Film Tells Story of Musicians in Mali Threatened by Jihadists

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video Ebola Vaccine Trials Underway in West Africa

Ebola has claimed the lives of more than 10,000 people in West Africa. Since last summer, researchers have rushed to get anti-Ebola vaccines into clinical trials. While it's too early to say that any of the potential vaccines work, some scientists say they are seeing strong results from some of the studies. VOA's Carol Pearson reports.
Video

Video Philippines Wants Tourists Spending Money at New Casinos

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.
Video

Video Civilian Casualties Push Men to Join Rebels in Ukraine

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.

VOA Blogs

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More