Keeping up with the Volga neighbours

By bne IntelliNews August 2, 2012

Artem Zagorodnov in Ulyanovsk -

"We're not just the birthplace of Lenin, but of Kerensky too," Governor Sergei Morozov told guests at an investor conference in the Volga city of Ulyanovsk in June, referring to one of the leaders of the Russian Provisional Government that was overthrown in the October Revolution.

Morozov's point is that the city and surrounding region of Ulyanovsk, known more as a communist backwater, offers much more than first meets the eye, and has by all accounts come on leaps and bounds during his eight-year tenure. And he remains confident enough in Ulyanovsk's future to politely deny a recent job offer in the federal government.

Until now, though, despite its strategic access to over 40m consumers in and around the Volga River, Ulyanovsk has very much lived in the shadow of its larger and more prosperous Volga neighbours, Kazan and Samara. The numbers speak for themselves: in 2009, the region attracted RUB49bn (€1.25bn) in fixed-capital investments, compared with RUB268bn and RUB110bn in neighbouring Kazan and Samara respectively. Average monthly wages stood at around $330, versus $520 and $600 in the latter two.

Living standards and services too are poor, which is proving a problem when attracting increasingly demanding foreign investors. Julia Stephanishina of Ernst & Young points out that compared with 10 or even five years ago, international investors are asking more and more about how comfortable a region is for relocation. "They used to be interested in power connections and access to water; we'd basically just drive out into a field in a jeep accompanied by some suspicious-looking characters in dark suits," she says. "Nowadays, the companies coming here are interested in the availability of English-language schools and healthcare, nice places to live and go out, and direct international air connections from the local airport."

Unfortunately, Ulyanovsk still scores badly in practically all these aspects when compared with Samara and Kazan. While the former have fully functioning international airports with regularly scheduled flights to several European capitals by leading international carriers, Ulyanovsk authorities are only now considering setting up such routes

An aviation museum stands as a monument to better times past. Hopes that a revival of the Ruslan An-124 jet aircraft project (one of the largest cargo carriers in the world) pending a Nato order would rejuvenate the local Aviastar aviation plant proved premature: economies-of-scale didn't match up (ie. the plane was too expensive to produce without a larger order).

However, the Aviastar aviation plant is also evidence of a brighter future. Germany-based Gildemeister recently announced the construction of a $25m machine-building tools plant outside Ulyanovsk, the first such foreign-owned plant in Russia. It took two years to obtain a permit for the technology transfer, which will cater toward Ulyanovsk's aircraft and auto-manufacturing hubs. The deal constitutes a major nod toward the potential of the Aviastar plant, which plans to launch major production of the Ilyushin Il-76 and Tupolev Tu-204 SM jets in the near future.

Gildermeister had only good things to say about the process of setting up production thus far. "We were told that things like that could last very long," Gunter Bachmann, a top executive at the company, told The Moscow Times. "In Ulyanovsk, they happened instantly."

The local administration is hoping the growth experienced under Morozov's leadership, combined with favourable access to vital transportation arteries and low local taxes, will make Ulyanovsk a local leader in manufacturing.

Foreign direct investment (FDI) has gone from RUB6.9bn in 2003 to RUB61.8bn last year, with the region taking first place for FDI growth in the Volga Federation Region. Most of this growth has come from retail and manufacturing (which makes up almost a third of the local economy): Mars and Metro Cash & Carry were the most recent international giants to set up local production and distribution operations. Regional GDP has gone from RUB80.6bn in 2005 to RUB171.4bn in 2010.

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