Governor Aleksandr Misharin is trying to modernize on paper

23.09.2011 — Analysis

The government of the Sverdlovsk region has thrown down the gauntlet to more developed countries, promising to soon become a serious competitor in the market for hi-tech products. Officials believe that large-scale investment into research, development, and experimentation will allow them to diversify the region's industry by 2015 and create technological breakthroughs. But upon hearing this, industrialists were taken aback by what they saw as nothing but smoke and mirrors. This columnist for RusBusinessNews attended a meeting of the regional Union of Industrialists and Entrepreneurs, where he was told that no one can understand who is going to implement the Misharin administration's pipe dreams or how they will be financed.

The government of the Sverdlovsk region has come up with a theoretical, five-year industrial-development program for the region, which includes the production of new types of steel and alloys, modern electrical equipment, drilling rigs, advanced medical equipment, and popular pharmaceuticals, as well as providing for rail transportation, high-quality oil refining, and timber processing.

To get their innovative products on the market and secure their position, the government of the Sverdlovsk region has decided to group manufacturing facilities into clusters, and these plans are already underway for the steel and heavy machinery-manufacturing industries, pharmaceuticals, electrical engineering, and in the pipe-making and the nuclear sectors. Officials are counting on public-private partnerships, government backing and subsidies, and a flexible style of project management to help them rebuild the real economy.

But experts are warning that the government's plans so far only exist on paper. Anatoly Sysoyev, the vice president of the regional Union of Industrialists and Entrepreneurs, was surprised to find that rail transportation, which is absolutely essential for industrial development, was not included in the hypothetical plans. Manufacturers of construction materials are currently forced to ship their products and raw materials by truck because of bottlenecked rail lines. And Russian Railways is not making any promises to increase the capacity of the main rail lines, which casts doubts on the future of tens of millions of rubles worth of energy-sector projects. There is no indication in this multifaceted program of where the government intends to find the either investment or the labor force it will need to develop the region's potential.

It's clear that a shortage of skilled workers is becoming an insurmountable problem in Russia. According to Anatoly Sysoyev, businesses experience workforce turnover of up to 15%, and the country has no means of training new employees in highly specialized skills Higher education institutions have forged ahead into innovative research and find it difficult even to adequately train engineers, much less reequip them with new skills. Formal education operates only within the confines of its academic programs and is not eager to work with industry. Industrialists have tried to set up their own workforce-training centers, but faced resistance from the Ministry of Education in the Sverdlovsk region.

Yuri Chumerin, the executive director of the Construction Industry Union in the Sverdlovsk region, claims that these training centers are particularly important to the construction industry, because most of the real work on local construction sites is done by guest workers from Central Asia. In order to verify their qualifications and do any necessary training, builders decided to invest one million euros in the construction of a training center with regularly scheduled courses. Yuri Chumerin claims that for 13 months the Ministry of Education has refused to allow the center to open, even though the regional government admits that immigrants are the only workers available to build new power plants.

Mikhail Fyodorov, the chancellor of Ural State Economic University, offered a graphic example of the "vigilance" of government officials when he told manufacturers that they were encroaching on the jurisdiction of educational institutions. This is how public-private partnerships work in the Sverdlovsk region - the government doesn't just refuse to lend a hand to private businesses, it actually slams the door in their faces.

And the fact that there is no system to retrain and certify workers is a punch to the gut of industry. Anatoly Sysoyev claims that many timber-industry professionals lack written documentation of their qualifications, and as a result, regulatory agencies can at will shut down most small and medium businesses that manufacture wooden products. And there is no reason to hope that the state will resolve this problem. According to Nikolai Voronin, a deputy in the Sverdlovsk regional Duma, the government is not prepared and will not provide ongoing professional education programs for adults anytime in the next five years.

But industry is not particularly counting on government-backed financing. Aleksei Fefelov, the general director of JSC UralNITI, told journalists on the eve of the Russian Expo Arms - 2011 show that six months ago its business won a competition organized by Rosnano and obtained the right to set up a nanotechnology center, which required several hundred million rubles of specialized equipment. Since the institute could not provide the funds itself, it requested surety from the state, but in six months has yet to receive a verdict on the matter from government officials. As a result, the investment agreement has also gone unsigned.

Russian industry is not set up in such a way that it is able to independently reequip itself or develop. Anatoly Sysoyev suggests that one reason lies in the state's depreciation policy. In developed countries, businesses primarily update their equipment using deductions for depreciation, which make up as much as 80% of total investment, while loans account for no more than 15% of this amount. The situation in Russia is quite different. Payments into the depreciation reserve do not exceed 22% and businesses mostly rely on credit (55% of the total invested) to modernize. Unfortunately, legislative changes to the depreciation policy is outside the competence of both the regional and federal government.

The Sverdlovsk regional government has almost no influence on the management of businesses belonging to many private holding companies. Experts are convinced that Russian industry should have been reorganized long ago, because it still retains many traces of the old Soviet economic system. Russian factories still hold many non-core assets and facilities, making them wildly overstaffed, affecting the productivity of their labor force.

Neither the government nor the manufacturers is able to single-handedly manage the problems Russian industry currently faces, and for some reason they cannot work together for a common goal. As Anatoly Sysoyev has said, the regional government headed by Governor Aleksandr Misharin is only discussing social issues with the Union of Industrialists and Entrepreneurs. Economic projects quietly originate in government offices. And it took the insistence of the union's president, Dmitry Pumpyansky, to arrange a discussion within the union of this multifaceted industrial-development program for the Sverdlovsk region.

It's likely that the diverging interests of the government and the business community will result in programs that in their final versions do not solve a single urgent problem, but only once again bear witness to the troubled Russian economy. Documents like that aren't worth any more than the paper they're printed on.

Vladimir Terletsky