Investors’ Indecision Hindering Russian Cluster

24.08.2009 — Analysis

A technopark where constructs and parts for prefab houses will be made is being created in the Sverdlovsk Oblast. The RusBusinessNews observer found out that the developers of the intercontinental range missile Topol-M decided to get involved in the timber prefab house manufacturing. The Oblast government is hoping that in time the project will become the foundation for the timber processing cluster. Experts, however, claim that this would require a change in the legislation and approaches in the organisation of business in the country.

Vitaly Dobrotvorsky, the Director of the Building Construction Plant "Elevit-Ural", has informed RusBusinessNews that it is planned to establish two technoparks near Verkhnyaya Salda.

The first one will occupy 54 thousand square metres; this will be housing the production areas for timberframe prefab houses with the annual production capacity of 100 thousand square metres. Together with Elevit-Ural, the Volgograd Institute for Material Sciences that, under the guidance of Valirian Sobolev, a Member of the Russian Academy of Natural Sciences, the creator of the Topol-M missile, has developed the prefab housing technology, is participating in the project.

The technopark will be making joists, wall panels, floor/ceiling panels, and other metal and timber parts. The wire products manufacturing is also in the plans, as well as Eco-Wool and other elements needed for the timberframe structures.

The project has a third of financing needed - according to Vitaly Dobrotvirsky the venture has spent almost 56 million roubles on production and warehouse real estate. The project implementation needs further 205 million roubles which Elevit-Ural would be happy to get from private investors, venture funds, or banks.

The total area of the second technopark will amount to 88 thousand square metres. Under the supervision of the Timber Industry Department of the Sverdlovsk Oblast specialists from the Ural State Forestry University will process timber, develop innovative technologies, and apply these technologies making commercial goods. The funds for the project have not been found yet, but Andrei Dobrachev, a USFU professor, reckons that a law allowing research institutions setting up for-profit companies would help to resolve the problem.

Since both sites are bordering the "titanium valley", areas where the VSMPO-AVISMA Corporation is trying to organise the titanium goods production cluster, Vitaly Dobrotworsky offered the metal makers to establish a third technopark and create the single managing company for all three innovation sites.

The experts so far are very cautious in their assessment of the project. Andrei Dobrachev welcomes the union of small businesses within the framework of the technopark. Since the abolition of forestry auctions small business lost the access to raw materials anyway and this is a right thing, in the expert's opinion. Companies of five or six people cannot carry out integrated works from logging to planting new trees. All this leads to the barbarian logging and dumb selling of the round timber to middlemen. The Government is partially to blame, since it lobbies interests of large oligarchic structures like Ilim Pulp. Naturally small business drowns in red tape and has no chance of growing into medium size. This is why entrepreneurs back off and start to simply steal timber and smuggle it abroad. Joining the companies wanting to establish timber processing within the framework of the technopark would benefit everybody.

The expert is a little confused by the economics of the project. The market of timber-built housing is oversaturated, in his opinion. Urallesprom, a Sverdlovsk company, bought a timberframe building plant in Germany, and now is managing to sell around 40 houses per year which is only a tenth of the plant's capacity. There are three more plans like that in the Khanty-Mansiysk Autonomous Okrug, and these plants, claims Andrei Dobrachev, are also practically idling. Investments into such projects will never pay back, in his opinion.

He thinks that the construction of hospitals, kindergartens, sports facilities, and even swimming pools has a better future because timber does withstand moisture better than concrete. The scientist does doubt, however, that the Elevit technology, developed by the defence people would be suitable for the construction of swimming pools. The timber house building greats claim that metal and wood must never touch because this is detrimental to the construct longevity.

Nikolai Kireyev, the President of the Urals Union of Timber Industry, thinks that the technopark must be organised, the economic crisis notwithstanding. The construction market today has shrunk, of course, but it will rise again tomorrow and we have to be ready for the rapid growth of demand for plywood, OSB panels, and construction components.

The expert reminds us, however, that a timber industry project gets promoted rather quickly when its initiator, a large concern as a rule, assesses as a whole the raw materials, resources, production capacities, sales markets, and only then develops the business plan and shares the ideas with potential investors. The situation in Verkhnyaya Salda is well remote from this, it's all talk so far.

The timber processing cluster development future assessments are ambiguous as well. This kind of structure itself, proving most stable all over the world, is unlikely to be created in Russia in the nearest future.

A cluster, be it in Bavaria or Finland, is thousands of small ventures making products for the production of a car or a cell phone with a world famous brand. In Russia, professor Dobrachev asserts, all the legislation is built to protect the vertically integrated structures which is in contradiction with the notion of cluster itself. There is no room for small business in the country of Mr. Lenin.

Russia, it is true, still cannot shake off the heritage of the soviet past. The past is where the understanding that timber industry does not need own machine building, that high tech and timber are incompatible, came from. Today the country is reaping the fruit of that kind of thinking. So, Russians can only dream of life like in Bavaria or Finland as the timber industry specific machine building and high technologies are inalienable parts of such cluster.

Experts are convinced that while the Government lobbies interest of large monopolies it is not worth even talking about clusters. This kind of economic model has to mature in the harsh Russian conditions. First of all politicians have to understand what hides behind this pretty word. Having this understanding they will have to conclude that social relations in Russia must change radically. We have to start with the legislation. Nikolai Kireyev reckons that there must be common sense in everything, everybody should make a profit. This is the soil from which stable economic models like cluster grow.

So far Russia, however, remains in a very unstable state, Vitaly Dobrotvorsky says that investors have the money, but they are stalled by the lack of clarity.

Vladimir Terletski