Baltic Rim Economies - Baltic Port List

Expert article 897 Baltic Rim Economies, 21.12.2011 Quarterly Review 5�2011
Real investment in Northwest Russia – Ground Zero for reindustrialization?
By Vladimir Miklashevsky
Over 40 major investment projects in Northwest Russia
totaling $13.6bn in value were declared, under
construction, or launched during August 2010 to July
2011. 1 The region’s share of real investment projects 2
nationally climbed to 18% during the period. The value of
individual projects range from $15m to $4.6bn, 3 and almost
40% of projects include foreign capital. As in other federal
districts, the Russian state has been behind the most
substantial investments. State money is also backing many
private projects.
Consistent with trends elsewhere in Russia, the biggest
real investments are in power sector. The second and third
largest project categories are machinery & electronics and
construction materials & forest industries (Figure 1). In
other parts of Russia real investments in gas, oil refining
and chemical industries lead the list, but in Northwest
Russia machinery and retail have substantially higher
shares than the norm. Agriculture, food, mining and metals,
in contrast, are significantly lower. In terms of the number
of projects, agriculture and food industries were a firm
second (16%) after machinery & electronics with highest
share (19%).
Figure 1. Main real investments in Northwest Russia, % of
total value invested, August 2010 – July 2011
Building mat. & forest
9.5 %
Gas, oil &
chem. 7.4 %
Agri & food (excl.
tobacco) 5 %
Source: East Office, Ekspert
Mining & metal
3.2 %
Machinery &
electronics 10.6 %
Retail
5 %
Power sector
46.3 %
Pharm. 3.7 %
Transport & logistics
(excl. pipelines and oil
terminals) 6.7 %
Others 2.8 %
At the moment, the Russian state is the only investor in
power projects ($6.3bn) in Northwest Russia. Rosatom, the
state atomic energy corporation, is erecting the LAES-2
nuclear reactor in Sosnovy Bor in the Leningrad oblast. The
plant’s planned capacity should rise to 2,344 MW and 500
Gcal/h. The total investment is expected to be about
$4.6bn. Russian energy giants Gazprom and EES are
behind several power block and electric substations.
The automotive industry continued to lead machinery
investment. After a wave of launches of new automobile
1 In addition to Kaliningrad, Leningrad, Novgorod and Pskov
oblasts, St. Petersburg City we also consider Karelia and
Murmansk oblast.
2 Projects exceeding $12m.
3 Individual country level data provided by Ekspert Business
Weekly No. 3 (737), 14 (748), 24 (758), 37 (770).
54
plants in 2007�2010 (Ford, GM, Hyundai-Kia, MAN,
Nissan, Toyota etc.), there has been a second wave in
automotive components production. Known as “Russia’s
Detroit,” the Leningrad oblast continues to attract new car
assembly plants and kit producers that are largely funded
with foreign capital. Nokian Tyres, a Finnish tire
manufacturer (classified as “Others” in our sector groups) is
expanding production to over 5.5m tires a year with an
investment of $343m. The second wave in machinery is
increasing production and maintenance of equipment for
power plants. Rosatom’s Atomenergomash is building a
new plant for production of reactor equipment ($113m) on
the grounds of Petrozavodskmash in Karelia. OSK, a
Russian shipbuilder, and the South Korean STX have
released a memorandum of intent to build a $720m
shipyard (greenfield) in St. Petersburg.
Despite this activity in central districts, the major
investments in building materials and forest industry are in
remote regions. Northwest Russia attracted almost $1.3bn
during August 2010 – July 2011. Founded by Russia’s
richest official, Andrei Molchanov, 4 the LSR Group has
launched a $600m cement plant (greenfield) in the
Leningrad region and is currently constructing a brickyard
($371m). In the Novgorod region, the German Pfleiderer
has resumed construction of a medium-density fiberboard
(MDF) plant ($267m). The company began the project in
2008, but suspended its efforts during the global recession.
Real incomes and consumption levels above the
national average in St. Petersburg and Leningrad oblast
have attracted both domestic and foreign retailers.
According to the Ekspert data, five large investment
projects in retail ($674m) were green-lighted in August
2010 – July 2011. Foreign investors also are participating
in two smaller projects: a $27m shopping mall in the
Kaliningrad region by Metro and a $15m hypermarket in St.
Petersburg by Auchan. The construction company Briz has
erected its $500m Galeria Shopping Center in St.
Petersurg. There are several substantial projects in retail
missing from the Ekspert data, however. In November
2010, for example, Finnish retailer Stockmann opened a
shopping mall ($260m) in St. Petersburg. In April 2011, the
Finnish provider of trading sector services Kesko declared
its intentions to invest $850m during 2011-2015 in
hypermarkets in the St. Petersburg and Moscow regions.
Another Finnish retailer, S Group, announced plans during
the period to build a number of hypermarkets in St.
Petersburg in the near future.
There are six projects in the transport sector, totaling
nearly $1bn. If the oil terminal in Ust-Luga on the shores of
the Baltic Sea is included, the value for the category nearly
doubles to $1.8bn. The terminal has been finalized by
Gennady Timchenko’s oil trader Gunvor. Another big
terminal ($200m) is also under construction at the Ust-Luga
Port. The main investors are European container terminal
operator Eurogate and First Quantum, owned by Vitaly
Yuzhilin, a St. Petersburg billionaire. The state is helping
investors at both the federal and regional level with access
roads, land acquisition, and tax breaks.
4 According to Forbes, Andrei Molchanov, a member of the upper
house of the Russian parliament, earned more than $100m in
2010.
� Pan-European Institute � To receive a free copy please register at www.tse.fi/pei �