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Alexandrow & Partners

The First Russian Investment Boutique

Oct. 2017: the investment potential of the ural federal district

Ilya Alexandrov, Dr. iur., MBA (Finance), LL.M.,

Managing partner,

www.alexandrow.biz

Ural is an often called the region, which is more than other territories of the former USSR won from the beginning of the Great Patriotic War. Actually its true  – thousands of enterprises within the Europe were evacuated to the Ural in the first months of the war.

My grandfather was one of the evacuated engineers. In June 1941, grandfather worked at Kharkov tractor plant, which produced components for Soviet tanks. Already in the autumn of 1941, he and other employees of the plant have been unloaded from the railway platforms near Chelyabinsk, where they were literally in the middle of the field continued to work and make supplies for the armament front. Due to this jump production power of the Urals increased in the last decade.

In the post-Soviet period in the Ural many companies were created, as it has been happening all over the Soviet Union. However, the orientation in the sphere of extraction of raw materials, metallurgy and production of large machines and machine tools remained.

Until recently, the diversification of production in the Urals was observed only in some sectors – there is well -known example of cosmetology holding company Kalina in Yekaterinburg, which had acquired in 2005 the manufacturer of cosmetics of the German company Dr. Scheller with the aim of vertical and horizontal integration. There are examples of Russian producers of food products, also small industrial enterprises for production of building and finishing materials appeared.

Crisis in 2008-2010 demonstrated inefficiency of lopsided structure of the industry of the Ural. Examples of the sharp reduction of production at the enterprises Mechel, MMK, in other large enterprises, which was given the job and a small integrated companies, illustrate the rule that ‘do not put all your eggs in one basket’. If we consider the Urals as Khanty-Mansiysky and Yamalo-Nenetsky Districts, the Ural, of course, in its General statistics production and production by industries shows and diversity of development, and the high dynamics of production of raw materials and the production of finished products. However, we can also witness the biggest number of the so-called monocities, where the structure of production is insufficient and is limited to the overwhelming majority share of any enterprise, constructed during the Soviet Union, to the sphere of the services (restaurants, hairdressers) and to the trade. There are no alternative facilities in the high-tech industries, in the field of food production, crop production, production of modern finishing and building materials (advanced by Russian standards).

I see the potential of development of the Ural Federal District in ability to diversify the industries not in this macro-region, and in some regions and districts that can ‘shoot’ the new ideas to local people be involved in the business. Unfortunately, this inactivity and the lack of clear security guarantees for new business in general greatly affect the effectiveness of this kind of ‘shooting’. Those projects, which we can see on sectored investment forums, belong either to the projects of large companies, often owned by the state, or to the projects of individuals, who do not have sufficient capital, even to obtain the right to their inventions, not to mention the creation of the production, which may be demanded in the market.

The inactivity of the local population, lack of investment infrastructure, the vulnerability of small and medium business in the security agencies and corrupt of the officials are the main reasons for the lack of significant results in the investment projects within the territory of the Ural.

However, there are opportunities and tools, which can be used successfully thanks to the knowledge and experience of the consultants and project managers working at the Federal level. The possession of access to direct investors, to the suppliers of high-tech equipment, the use of modern Russian institutions of special economic zones – all of these features can be and should be used for realization of those investment projects that have been announced or prepared for presentation of the Ural initiators.

On the example of our own projects, we can see how important it is to ensure the bond between local businesses, ideas, and products of the international market of goods and services, as well as arrange financing of projects with the help of banks, private equity funds and other representatives of the financial sector. And we also can see the effectiveness of our work and its results.

Therefore the investment potential and the enormous possibilities of the Ural Federal District may only be the subject of the conversation and faltering attempts to invent the wheel. And you can turn your plug into the socket of the global capacity to catch by antenna the latest news and make one step forward in the framework of a personal meeting – and these actions radically will change the world, where there are still single-industry towns in the markets traded Chinese consumer goods, and the people in the kitchen which criticize the government. You should start with yourself, work with reliable partners, focus on the latest developments, create cost-effective ideas.