Bashkortostan May 2013 FINAL to PRESS.Indd 1 30/04/2013 17:21

Euromoney special report: Bashkortostan

Published in conjunction with: The Republic of Bashkortostan

May 2013 www.bashkortostan.ru

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Contents

Open for business An introduction by Rustem Khamitov, Contents President of the Republic of Bashkortostan 2

Macroeconomic focus: a positive performance 4

Interview: Alexander Maryin 5

Modernizing the oil industry 6

Building on success 8

A warm welcome for international visitors 10

Towards 2015 12

This guide is for the use of professionals only. It states the position of the market as at the time of going to press and is not a substitute for detailed local knowledge.

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priority. In May, Ufa will host the third annual Bolshaya Khimiya (Big Chemistry) forum, an international event initiated by the government of the republic that brings together leaders in the field from Open for business both Russia and abroad. Meanwhile, regional corporate giants such as Bashneft, Gazprom Neftekhim Salavat and Bashkhim are already working on large-scale projects in the region and planning further investment. A wealth of natural resources, a strategic location and Over the next five to seven years, we advanced technological know-how make Bashkortostan expect the total volume of investment in the petrochemical sector to reach a natural venue for business $10 billion, with the emphasis on high value-added production. The republic An introduction by Rustem Khamitov, President of the itself produces 15 million tonnes of oil a year and we also have the connectivity Republic of Bashkortostan to import raw materials from the north of Russia and Kazakhstan for processing in Bashkortostan. The republic of Bashkortostan is one of and for the future. We are in the centre of We have all the necessary the most advanced industrial regions a major industrial zone that encompasses components for the development of a of the Russian Federation. We are in the the Volga and Ural regions, a territory that sophisticated petrochemical complex: top five of large Russian regions in terms is home to almost one-third of the Russian expertise, research and development of industrial output and agricultural population. It is a huge market with facilities, and specialist universities. We production. In spite of the effects of huge potential, and our well-developed have the capability to realize these global crisis, the republic has manifested infrastructure and accessibility give us a ambitions and, more importantly, we very positive dynamics of development. crucial competitive advantage. have the will to do so. The reason is that our economy is very Even during the Soviet era, Looking beyond petrochemicals, diversified. Inevitably, the predominant Bashkortostan was one of the core we are also working on leveraging our share of input belongs to oil extraction, oil industrial regions of Russia and the significant competence in machine processing and the wider petrochemical republic has for many years occupied a building and tool engineering. The sector, but other branches of the prominent position on the economic map republic is already home to leading economy are also operating efficiently. of the country. Our task is to build on this manufacturers of oil and gas servicing Machine building and tool engineering traditional strength, which has in the past equipment, helicopters, aircraft engines are developing, chemical companies and will in future ensure that Bashkortostan and passenger buses, and there is huge are advancing well and we are actively is able to maintain its economic stability scope for further investment in the sector. cooperating with large businesses even in the face of external turmoil. Bashkortostan’s natural resources also in copper and zinc extraction and What is more, new opportunities are extend well beyond its hydrocarbon processing. Even the agricultural sector is constantly arising. The new international and mineral wealth. The republic is one showing positive progress, despite adverse highway from Europe to western China of the top five agricultural producers in climatic conditions in recent years. will pass through Bashkortostan and our the Russian Federation and the national Our region is also characterized by a position midway between the two will leader in terms of milk production. very low debt burden and we are in the offer the potential to export our goods to Meanwhile, extensive and relatively top five Russian regions in terms of credit both east and west. Local businesses are undeveloped forest regions offer ratings from international agencies. We already working on projects to leverage significant potential for timber processing are keen to show that our republic is this advantage by exporting agricultural and associated industries. very stable, that it possesses sustainable and other products to China, and the Our beautiful landscapes are another development prospects, that we are new highway will also strengthen our valuable resource and we are actively open to businesses and that we support historic ties to Kazakhstan. encouraging the development of businesses that want to develop their Bashkortostan’s tourism industry. Reliable operations in Bashkortostan. Economic diversification snow cover and accessible slopes make The petrochemical industry is vital to the the republic a natural centre for downhill In pole position future of Bashkortostan but its potential skiing, and we are also looking to Bashkortostan’s location is a key factor in has not yet been fully realized, so promote the renewal and expansion of its industrial development, both historically development of this sector is our main our well-regarded spa and resort sector.

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Supporting investment All of these industries offer extensive scope for investment. Foreign and local investors are equally important for us and we are working to attract both. Clearly at present, however, external companies have the advantage in terms of efficiency, cost of production and quality of goods, which makes them key to our goal of modernizing Bashkortostan’s economy and achieving higher standards of living for our citizens. We have passed regional legislation that allows us to offer very significant benefits to investors, from tax breaks to Rustem Khamitov, assistance with documentation for new President of the Republic projects. These measures are rapidly of Bashkortostan establishing the republic’s image as a reliable partner, helped by our hands-on approach to dealing with investors. and municipal level. We are actively task, but one that is crucial to the In all cases, we do our best to meet promoting a culture of open-mindedness modernization of our economy. the needs of investors coming to towards and positive engagement with Another top priority for the government Bashkortostan. We are prepared to invest private sector investors throughout the is the development of Bashkortostan’s heavily in both time and resources to various tiers of administration. human capital. The republic is already ensure that businesses find a positive home to some of Russia’s most advanced atmosphere for development in the Small is beautiful universities, which between them address republic, whether that takes the form It goes without saying that small and all of the region’s needs in terms of of establishing an industrial park or free medium-sized enterprises (SMEs) are industrial production and the agricultural economic zone, or simply smoothing the very important for any economy and complex, and we are working to develop process of procurement. developing this sector is a priority for these institutions further to ensure that I personally meet foreign investors, us in Bashkortostan. We have a unique our most talented high-school graduates both large and small, and personally opportunity here to nurture smaller remain in the republic. guarantee that they will find conducive companies that can work in synergy with conditions for investment, predictability in our leading industrial firms in sectors such A warm welcome the terms of cooperation and a positive as petrochemicals and metallurgy. If further proof were needed of both the working attitude in Bashkortostan. Our Our task in government is both to republic’s national importance and the recent success in attracting sizeable encourage large-scale producers to hard work already undertaken by the investment projects in industries such as establish cooperation with SMEs and government and people of Bashkortostan, machine building, timber processing and help smaller firms find opportunities it has been provided by the selection of petrochemicals is proof that investors for collaboration with their bigger our capital, Ufa, as host for the BRICS and greatly appreciate the honesty of counterparts. We want to see larger Shanghai Cooperation Organization sum- our interaction with them and have companies surrounded by hundreds mits in 2015. confidence in the credibility of the or even thousands of SMEs that use These events will not only demonstrate regional government. their products as the raw material for that the republic’s infrastructure is We have also forged strong links with the manufacture of high value-added capable of coping with the demands local companies and enjoy the support goods such as plastics. We are working of large delegations from diverse of the republic’s business community. to facilitate the development of industrial countries but also provide an invaluable We have been working hard for the past parks in the vicinity of key producers, opportunity for us to promote three years to improve the environment via a number of initiatives including the Bashkortostan in terms of the global for business in Bashkortostan and our investment of state funds. economy and global business. local partners confirm that we have Bashkortostan is already home to a Making guests feel at home is a key already made significant progress large number of successful SMEs but part of Bashkortostan’s traditional culture towards our goals. there is still work to be done to achieve and we look forward both to extending In addition, we are taking steps to western levels of entrepreneurship. a warm welcome to our established ensure that investors from within and Establishing positive and sustainable partners such as India, China and outside the Republic find the same interaction between large- and small- Kazakhstan and to establishing links with level of support at both regional scale business is a complex managerial new markets in other growth regions.

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– of having favourable demographics. Bucking the national trend, the republic’s population has shown a slight increase since 2008 and has now stabilized at around 4.07 million. Meanwhile, Macroeconomic focus: unemployment had fallen to 6.1% of the total workforce by the end 2012 from a high of 9.3% in 2009.

a positive performance Positive outlook All these factors combined with a low debt burden are reflected in the region’s credit Diversification and prudent fiscal policies have boosted ratings from Moody’s and Standard & Bashkortostan’s economic growth despite an uncertain Poor’s with ratings of Ba1 and BB+ respec- tively – only one notch below investment external environment grade – and both have categorised the rating outlook as positive. Furthermore, Standard & Poor’s cites trillion ($31.7 billion) mark for the first time. Bashkortostan’s “prudent financial policies” Evgeny Mavrin, one of the republic’s as a factor in its assignation of a positive deputy prime ministers, says that since 2010 outlook to the rating. The agency also Bashkortostan’s economy has grown by notes that increasing operating surpluses nearly 20% – an impressive achievement to above 10% and keeping deficits below in the context of continuing uncertainty 3-4% would justify an upgrade on the in global markets and returning recession republic’s rating to investment grade. across much of Europe. Moody’s similarly commends the This strong performance is expected government’s “conservative approach to continue through 2013 and 2014. to budget management”, and says Independent analysts forecast annual that the republic’s fiscal management growth for the region of around 6% over is “continuing to evolve towards greater this period on the back of an expected predictability in key indicators, thanks to Evgeny Mavrin, deputy prime minister annual increase of inward investment of as the implementation of three-year budgets, much as 9%. adequate budget planning and a Bashkortostan’s economy has been one This strong growth performance in moderate spending policy”. of the best performing in the Russian Bashkortostan has not been accompanied Federation in recent years, thanks to a by an increase in inflation thanks to careful Positioned for growth combination of a high level of industrializa- economic management. In 2012 the For President Rustem Khamitov, maintain- tion, strong credit ratings and conservative republic posted annual inflation of just 6.2%, ing a strong credit rating is key to the budget management. the lowest rate since the end of the Soviet positioning Bashkortostan on the global The republic weathered the 2008 global era. Inflation is also expected to remain economic map. “We believe it is a positive financial crisis well, with gross regional below the national average this year. signal to potential investors because it is a product (GRP) dipping by just 1% in 2009, clear indication of the stable development compared to an average of 6.8% across Resilient industries of the region,” he says. the Russian regions and rebounding by Bashkortostan’s good growth performance Deputy prime minister Mavrin gives much 5.2% the following year, compared to is down to several factors. The most obvi- of the credit for the recent resilience of the average growth of 4%. ous of these is resilience of its oil production economy to the investor-friendly policies Bashkortostan continued to outperform and processing, which account for more initiated by President Khamitov since his in 2011, posting GRP growth of 8.2%, more than half of industrial production, over appointment in July 2010. “The belief in than twice the national rate of 4.3%. A the past five years. But Bashkortostan’s a new team has helped to improve the recovery in the agricultural sector following economy is more diversified than that of overall situation,” he says. “We announced a severe drought in 2010 boosted the the majority of oil-rich regions in the Russian a new economic policy of openness and expansion but the primary driver was an Federation. The machine building, agri- we have been removing the barriers to increase of 9.4% in industrial output. culture, construction and services sectors investment. We are now ready to welcome Estimated growth for 2012 of 5% is also all make a significant contribution to the investors from both the Russian Federation well ahead of the 3.4% recorded by the republic’s overall output. and abroad, and we are targeting rates Russian Federation as a whole and will Bashkortostan is also in the fortunate of investment of close to 29% of GRP in the take Bashkortostan’s GRP past the R1 position – rare among Russian regions coming years.”

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and Central Asian investment funds are interested in projects in sectors such as manufacturing, agriculture and ecology. Bashkortostan’s foreign trade is one of the most important factors shaping Interview: the structure, dynamics and stability of the economy. Having an effective system of foreign economic relations, allowing the positioning of Bashkortostan Alexander Maryin in the world economic arena, is one of the basic conditions for the successful development of the region. The foreign Minister for economic development Alexander Maryin tells trade turnover of the Republic of Euromoney how Bashkortostan’s policy-makers are working Bashkortostan in 2012 amounted to $13,804.2 million. strategically to realize the region’s economic potential Bashkortostan as a region is open to discussions with investors. Currently, the republic has 744 enterprises created with and oil and petrochemical refining. the participation of foreign capital, as Q: How has Bashkortostan’s Manufacturing activities form about well as 193 branches, 31 representative economy fared since the global 30% of the GRP, while oil production offices and 47 separate (sub-)divisions of financial crisis? amounts to 10% on average. Thus, foreign companies. Bashkortostan is an industrial and extractive industries play an important agricultural region with a large economy but not decisive role in the economy of Q: Where do you see and a potential for development that Bashkortostan. Bashkortostan’s economy in five has been underused. The region has If you look at the structure of industrial years’ time? a fairly balanced economic structure, production, you will see that more than In these unstable conditions, it is difficult which contributed to overcoming the half (about 55%) is accounted for by to predict accurately the economy’s recent economic crisis. During the period production of petroleum products and performance over five years. However, from 2008-09, the situation in the republic coke. Chemical production amounts to through the strategic policy decisions improved, as compared to other regions, 15% of industrial production, with a large that we are adopting today aimed thanks to a much weaker recession. share represented by petrochemicals. at developing the recovery process – According to the results for the first post- For the development of these industries namely the stimulation of economic crisis period in 2010, the economy of the the region has companies that produce sectors, social services and regional republic was the tenth largest among the low-tonnage chemicals, producers of development – we see the economy of regions of Russia. At that time, nominal chemical compounds - in particular, the Bashkorstan boasting strong economic gross regional product (GRP) amounted production of composite materials and potential. By creating a self-sustaining to R757.6 billion - about 2% of the fibres - and biochemistry in the area of model for the region, we will have a consolidated figure for Russia as a whole. high-level processing of grain. These steadily growing economy. Today, with the results for 2012, the value companies will become integrated into of GRP exceeds R1 trillion and, according the economy of our region as a result of to our estimates, this will put us among many factors. The most significant among the top five regions of Russia. these are: human resources, close Taking into consideration the global proximity to sources of raw materials and financial crisis, in the real sector of the the availability of sites for such businesses. economy we have managed to maintain Thus, we are trying to move to a new our leading position in many areas level of technology within this industry, among the regions of Russia. which will give us products with a higher added value. Q: In its economic development Bashkortostan stakes its future on Q: What are the key attractions petrochemical production and of investing in Bashkortostan for oil and gas refining. What are the foreign investors? prospects for these industries? Within the field of investment we are In spite of the balanced structure of seeing a lot of interest from Chinese Alexander Maryin, minister for the economy, the main specialization manufacturers, as is evident from their economic development of Bashkortostan is oil production placing business in our region. European

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the challenge for Bashkortostan today is to counterbalance declining yields from ageing oil fields with a move towards higher value added production. Modernizing the oil At present, Russia produces only a couple of hundred of the thousands of petrochemical products that it uses, while the rest are made in Europe and industry Asia, often using raw materials from Russia. As Yury Pustovgarov, president of Leveraging Bashkortostan’s historic strengths in Bashkortostan Chamber of Commerce petrochemicals and related fields offers both and Industry, says: “We already have the unprecedented opportunities and challenges biggest oil processing complex in Russia but the added value of our products is currently in the region of 20%, whereas that of the products we import from Bashkortostan’s leading economic by local company Bashneft, which Europe can be as much as 200%. Our position among the regions of the Russian accounted for 99.2% of the regional output strategic task, both in Bashkortostan and Federation is based in large part on in 2011. Bashneft – which in 2009 became the Russian Federation, is to take control its mineral resources, and above all its part of the Sistema Group – still derives 90% of this higher value added chain and petrochemical industry. of its oil production from Bashkortostan, reduce our dependence on expensive The extraction of crude oil in the primarily from the main Arlan, Tuimazy and imports.” republic began in 1932 and, following the Sauzbashevskom oil fields. Policy-makers at national and discovery of sizeable oil deposits in the But as Bashkortostan’s oil industry regional levels agree on the necessity 1940s, Bashkortostan rapidly established matures, Bashneft is starting to explore of developing deeper processing itself as one of Russia’s principal centres of other locations. The company recently and downstream operations, and oil production. Today the region produces commenced production at the Trebs Bashkortostan’s existing technological around 15 million tonnes a year, making and Titov oil fields in the Arctic region of expertise means that it is ideally placed it the third largest oil producer in the Nenets, and in November 2012 finalized to take the lead in this field. The republic country. The republic also produces other a deal with the Iraqi government to is one of the most advanced in Russia in fossil fuels such as natural gas, coal, lignite develop new oil fields in the latter’s this sphere thanks to a range of research and peat. southern provinces. and training institutions, including The oil production sector is dominated Bashneft has earmarked an annual $1.2 the renowned Ufa State Petroleum billion to invest in the development of new Technological University. business in the years to 2016. Fitch Ratings estimates that by the end of the period Platform for development the company will have boosted its oil Ways in which to expand the range of output to around 326,000 barrels a day, a high value added production of the 7.9% increase from 2011 levels. Bashkiri and Russian oil industry will be a key theme of this year’s Bolshaya Khimiya World-class refineries (Big Chemistry) event. The forum was The majority of Bashneft’s oil will then established in 2011 by the government be processed by Bashkortostan’s world- of Bashkortostan to provide a focal point class oil refineries. The region processed for the discussion of the future of Russia’s 27.5 million tonnes in 2011, and currently petrochemical complex and this year has a total capacity of 30 million tonnes more than 500 delegates are due to per year. Leading companies include attend the international event in Ufa on Bashneft subsidiaries Ufa Oil Refinery, 23 May. Novoil and Ufaneftekhim – which together “We took the decision to create the accounted for 21 million tonnes of output Bolshaya Khimiya forum in order to Yury Pustovgarov, president of in 2011 – and Gazprom Neftehim Salavat, attract attention to the challenges for Bashkortostan Chamber of Commerce part of the Gazprom Group. the petrochemical industry in Russia,” and Industry As with the majority of Russia’s says Evgeny Mavrin, one of the republic’s traditional centres of oil production, deputy prime ministers. “It provides a

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valuable platform for the discussion of Nurturing a new generation to encourage the development of a strategic development and for large Mavrin and other regional policy-makers network of small petrochemical firms in businesses in the sector to coordinate stress, however, that the development of Bashkortostan.” their efforts to move towards higher value an advanced petrochemical complex in The aim of the regional government added production.” Bashkortostan will require input from smaller is to see each of Bashkortostan’s Bashkortostan’s larger companies firms as well as the established market petrochemical giants surrounded by a have already announced substantial leaders. The regional government needs huge infrastructure of small and medium- investment in new downstream projects. to nurture a new generation of smaller, hi- sized firms that use their products as the Bashneft established the United tech enterprises that can process the raw raw material for the manufacture of high Petrochemical Company (UPC) in 2011 material produced by larger firms. value added goods such as plastics. for the production of a range of new Dmitriy Sharonov, another deputy prime “Around each large enterprise we need petrochemical products and ethylene. A minister, says: “Small companies can to encourage the appearance of a substantial part of UPC’s facilities will be network of smaller companies involved in based in Bashkortostan. Work is due to deeper processing,” says Mavrin. start next year on a $3 billion plant for the Mavrin says the republic needs to production of ethylene that is expected “The initiatives rediscover the Soviet-era mechanism to come on line in 2015. announced by of having technological chains of Similarly, Gazprom Neftehim Salavat petrochemical production involving has announced plans to invest $3 billion companies such as a range of different companies. “It’s in various new downstream operations, Bashneft and Gazprom inefficient for one company to manage including a catalytic cracking unit. It is a whole production chain so we need exploring the potential for establishing a Neftehim Salavat are a to understand where we can create plant for the production of acrylic acid. key part of the drive to connections and encourage firms to work These investments have been warmly together,” he says. welcomed by the regional government. update Bashkortostan’s Initially, most of the oil to feed “In order to be able to compete with petrochemical industry” Bashkortostan’s petrochemical complex their European and Asian counterparts will come from within the republic. An on quality and price, our petrochemical expected decline in local production over companies need both to modernize their the medium term, however, is not seen as existing facilities and to broaden the be nimbler and more creative, and are a bar to the development of the industry, scope of their operations,” says Mavrin. therefore able to develop new products thanks to both the anticipated increase “The initiatives announced by companies with much more readiness than their in production at Bashneft’s newer fields such as Bashneft and Gazprom Neftehim larger counterparts. Smaller companies and the republic’s excellent transport Salavat are a key part of the drive to tend to be the drivers of cutting-edge links, which will facilitate the import of raw update Bashkortostan’s petrochemical industrial development internationally, materials from areas including northern industry.” and that’s why it is important for us Russia and Kazakhstan.

Beyond hydrocarbons addition boasts deposits of aluminium, world. Founded in 1945, Soda – based Hydrocarbons are far from iron and manganese. in Sterlitamak, 120km south of Ufa – Bashkortostan’s only mineral resource. In Non-metallic minerals are also well manufactures more than 100 chemical total, 60 different types of minerals occur represented. Bashkortostan is the products, construction materials and naturally in the republic, from metals and national leader in the extraction of household chemical goods. ores to semi-precious stones. More than rock salt, producing 27% of the total for Today the company is part of the 3,000 mineral deposits are distributed the Russian Federation. Other deposits Bashkirian Chemistry Group (Bashkhim), across the region, providing the base for include such essential raw materials which was established in 2005 to a thriving minerals industry that includes for the chemical industry as fluorspar, coordinate the activities of a number ferrous and nonferrous metallurgy, the limestone, barite and sulphur, as well as of chemical and petrochemical chemical industry and building materials. phosphorus rocks, carbonates, zeolites enterprises in Bashkortostan and Bashkortostan accounts for 10-12% of and glauconite. beyond. Other businesses within the overall copper production in the Russian Key companies in the sector include group include Sterlitamak-based Kaustik, Federation and 30% of production in Soda, the largest producer of purified which accounts for 20% of all caustic the wider Urals region. It is also a leading sodium bicarbonate in the Russian soda production in Russia and 29% of producer of zinc, gold and silver, and in Federation and the fourth largest in the PVC production.

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almost doubled annual sales in 2011 from the previous year. Other prominent engineering companies include automobile parts Building on success manufacturer BelZAN, based in the west of the republic close to the city of Oktyabrsky, and metal-cutting machine A host of sectors from machine engineering to tourism offer tools manufacturer Sterlitamak MTE. The huge scope for the development and further diversification south-eastern centre of Beloretsk is home of Bashkortostan’s economy to one of Russia’s top three hardware producers. The Beloretsk Metallurgical Plant – part of the Mechel group – is a leading manufacturer of cutting-edge Developing Bashkortostan’s petrochemical producer in the Russian Federation. UMPO products including high-strength wire, complex is a priority for the regional also manufactures a broad range of other micro wire and hot-rolled carbon products, government, but policy-makers are also products, including tractor and automobile which it exports to more than 30 countries well aware that diversification is essential parts, gas pumps, turbines and cutlery, worldwide. for the long-term health of the economy. as well as providing maintenance and Building on this existing competence, Fortunately, the republic already has well- support services for its clients. Bashkortostan’s policy-makers are looking established competence in a wide range Other companies involved in the to promote expansion into a variety of of other industries, from engineering and aviation sector include the Kumertau new sectors, including light aircraft and construction to agriculture and tourism. Aviation Production Enterprise (KUMAPE), automobile production. “We possess Of these, the most significant and which makes helicopters and related very important and unique know-how in fastest-growing is machine building and equipment in the southern city of machine building and tool production, mechanical engineering. The sector Kumertau. Both UMPO and KUMAPE, such as stressing metal services and already accounts for more than 10% of as well as the wider aviation sector in precision finishing,” says President Rustem industrial output and is a key focus for Bashkortostan, are strongly supported by Khamitov. “As a result, we are ideally foreign investment, with global giants such the technological expertise and world- positioned to develop new projects and as General Electric, Safran and Alstom class training provided by the Ufa State explore new areas of industry.” establishing joint ventures and cooperation Aviation University. Related areas of development agreements with local companies in include radioelectronics, an industry recent years. Exports from the sector have Driving growth that has grown up alongside the increased by an average of 5% a year In addition to aviation, Bashkortostan is aviation manufacturing sector in Ufa. over the past 10 years and the pace of a national leader in the production of Companies such as PS-UFA produce growth is expected to be maintained and passenger coaches and trolley buses. a variety of electronic devices and even enhanced over the next decade. The Bashkir Trolleybus Manufacturing electronic manufacturing services for the Bashkortostan’s expertise is based in Plant, based in Ufa, was established as telecommunications industry, a market part on its position as a historical leader early as 1979, while passenger coaches that is worth several billion dollars in the in the defence industry, particularly in are produced in the north-west of the Russian Federation alone. The government the manufacture of aircraft engines. The region by the Neftekamsk Automobile of Bashkortostan is targeting further first jet engines in the Soviet Union were Plant (NefAz). The republic is also home development in the sector. produced by the Ufa Engine Industrial to leading utility truck manufacturers, Association (UMPO), founded in 1925. The such as the rapidly expanding Tuimazinsky Agricultural leader company is still the largest aircraft engine Concrete Delivery Truck Works, which Bashkortostan’s other traditional strength is agriculture. The republic has 7.1 million hectares of agricultural land, accounting for more than 3% of the national total, and is in the top five regions of the Russian Federation for agricultural output, thanks to a dominant position in the dairy and meat industries. Bashkortostan has 1.3 million head of cattle, more than any other Russian region, is one of the country’s top two milk producers and also produces grains including wheat, rye, oats and barley. Bee-

Image: Dina Aira keeping is also a local speciality: Bashkir

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honey has a national reputation. Kronospan, for the construction of a plant Further development and promotion of Agriculture is already in the process of for woodworking and the manufacture of the sector is a priority for the government, extensive modernization, involving both the construction materials in Ufa. as is the nurturing of the rapidly expanding transition from smaller private units to larger The plant will involve an investment sports tourism industry. President Khamitov plants and the implementation of new by Kronospan of up to R6 billion and is – himself an accomplished skier – says: “We industrial processes. President Khamitov, expected to start production of oriented have numerous mountains that offer the however, insists this is only the start of the strand board (OSB) in 2014. This in turn, opportunity to ski for six to seven months of process of bringing the agricultural sector says Khamitov, will help to encourage the the year, so the development of a downhill into the 21st century. development of associated industries in ski complex is something we are actively “If we are to retain our position as one the region, from the manufacture of glues encouraging.” of the leading agricultural producers in and additives for furniture production to The republic is already home to two the Russian Federation over the medium the final manufacture of wooden furniture. downhill ski facilities, both within an hour to long term, we need to establish new of Ufa, with 12 slopes in total, recently competences in the spheres of deep Natural beauty developed with an investment of processing of agricultural products such as Also ripe for further development is tourism. R200 million. These formed part of the grain,” he says. With its own international airport and infrastructure that enabled Bashkortostan Policy-makers see Bashkortostan’s flight times of less than two hours from to host the International Children’s Winter existing agricultural strength as a key Moscow, the republic is easily accessible Games in February and March this year, building block in the republic’s drive to to visitors from Russia and beyond, and its featuring 800 participants from 20 countries expand its nascent biotechnology sector, spectacular and diverse landscapes make competing in seven events. “We like to with the support of institutes such as the it a natural tourist destination. say that Sochi 2014 [next year’s Winter Bashkir State Agricultural University in Ufa. More than 13,000 rivers criss-cross the Olympics] started in Ufa,” says Sagitov. “Biotechnology is a priority for both the region, including the Belaya and Ufa, Russian Federation and Bashkortostan, and and Bashkortostan also boasts more Smart solutions it’s an area we have historic competence than 2,000 lakes. The southern end of Whether the sector is tourism or hi-tech in, so we are prepared to dedicate the Urals mountain range runs along engineering, however, one principle significant resources to its development,” the eastern edge of the republic. “Not underlies all the development initiatives of says deputy prime minister Dmitriy only do we have a great deal to offer in Bashkortostan’s government, according to Sharonov. terms of natural beauty, but it’s also very deputy prime minister Evgeniy Mavrin. “If Yuriy Pustovgarov, president of the compact,” says Salavat Sagitov, deputy there is one word that I would like to see in Chamber of Commerce and Industry, prime minister. “Within an hour’s drive, future used to describe the distinguishing says Bashkortostan also has a unique visitors can have access to mountains, features of our region’s development,” he opportunity to establish itself as a centre for lakes and rivers.” says, “it would be ‘intelligent’. specialist agricultural sectors such as halal This natural beauty, combined with “My ambition is to promote the meat and organic produce. “We have the presence of more than 50 sources of development of ‘intelligent’ or ‘smart’ a competitive advantage in the field of mineral waters and medicinal mud, has solutions across all sectors of our republic, organic production and we must build on ensured Bashkortostan’s popularity as a which can provide both substantial tax that,” he says. destination for health tourism since Soviet streams for Bashkortostan and great times. Sanitoria and spa resorts including opportunities for its people. As we see it, Processing potential Yangantau, Krasnousolsk, Assy, Yumatovo the main mission of a government is not Bashkortostan’s natural resources also and Yaktykul have a national reputation merely to enable our citizens to satisfy include extensive forests. More than one- and have seen a renewed influx of visitors their day-to-day needs but to help them third of the territory of the republic – an in recent years – indeed, most are running to achieve self-realization and self- area of around 62,000 sq km – is forested at close to 100% occupancy. development.” and the timber stock is estimated at 718 million cubic metres, with key varieties including birch, lime, oak, maple and conifers. The timber processing sector, which was relatively neglected during the Soviet era, offers huge potential for development and the regional government is already making significant progress in encouraging investment. In August 2012, President Khamitov signed an agreement with Kronospan Holdings East, a subsidiary

of Austrian wood processing giant Image: Dina Aira

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from business registration and construction permits, to fi nancial support A warm welcome for and tax breaks,” says Mavrin. Valuable support is also provided by Bashkortostan’s Chamber of Commerce international visitors and Industry (CCI), under the auspices of its president, Yuriy Pustovgarov, a deputy prime minister and former Ufa Engine Industrial Association (UMPO) A raft of new measures has created a uniquely welcoming manager. The CCI is working closely with environment for investment in Bashkortostan and the government on the development of international fi rms are taking note a centre for foreign investors that is due to open later this year, which will provide full offi ce facilities and logistical support for visiting business teams. “Our task is to serve as an auxiliary to the Bashkortostan should be a natural best to ensure that they have everything government by making the life of investors location for business as it is rich in natural they need for their operations, from road in the republic easier. In future, from the resources, has easy access to both or rail connectivity to electricity and water moment they arrive at the airport, the CCI European and Asian markets and a supplies,” says Evgeny Mavrin, one of will be able to look after them and ensure highly skilled workforce. And now the Bashkortostan’s deputy prime ministers. they have everything they need for their new leader of the republic, President Regional authorities are similarly keen to business requirements during their stay in Rustem Khamitov, has made attracting ensure that incoming investors will use local Bashkortostan,” says Pustovgarov. investment a strategic priority since taking business support, and are trying to foster offi ce in July 2010. links between investors and local businesses Inspiring confi dence Khamitov’s administration has by establishing industrial and technological Taken together, all these measures introduced new legislation enabling it to parks. President Khamitov says the 2011 form a comprehensive package that offer an array of fi nancial incentives to joint venture between France’s Alstom and demonstrates the pro-business stance both potential and existing investors in the local company RusHydro to manufacture of Bashkortostan to potential investors, republic, whether from Russia or beyond. hydropower equipment at a new plant according to Khamitov. “Any company These include generous reductions to outside Ufa shows how international contemplating a major investment needs (and in some cases exemption from) investment can benefi t the republic’s to have confi dence in the credibility of income and property taxes, as well as manufacturing industry. the regional government, in its attitude land grants, subsidized interest rates, The new facility will produce equipment to investors and in its relationship with the co-fi nancing of leasing payments and for small and medium sized hydropower federal authorities,” he says. “Thanks to the the provision of state guarantees to plants and pump storage plants, as well hard work we have put in over the past underwrite loans. as auxiliary equipment. It is expected to few years and are continuing to put in, we The body behind these changes start production by early 2014. As part are able to reassure investors that we are is the newly created Corporation of the development, the government stable, open and ready to support them.” of Development of the Republic of has put together a pool of resources That work is already paying off, with Bashkortostan. Established in December to fund a $30 million technopark for inward investment increasing at an 2010, the corporation has a broad the establishment of a research and annual rate of 70%. In addition to the remit that includes securing new inward manufacturing cluster around the site. Alstom investment, Austrian wood investment, implementing government- “This is just one of many examples of the processing giant Kronospan is investing approved investment projects and way in which we go the extra mile to fulfi l up to R6 billion in a plant outside Ufa and liaising between the government and the requests of potential investors,” says Palfi nger, a manufacturer of hydraulic local authorities in relation to priority Khamitov. lifting, loading and handling equipment projects. The institution has a budget of has also invested. R65 million. One-stop shop Palfi nger - also based in Austria - Policy-makers also stress the importance acquired a base in Bashkortostan in Infrastructure assistance of having a single, easily accessible 2011 via the takeover of local crane The Bashkortostan administration is also information and contact point for producer INMAN and is in the process of courting new investment by providing incoming businesses. “We have expanding its operations in the republic, services and infrastructure on plots of land effectively established a one-stop shop with a new facility for the manufacture of being sold for development. “If an investor where investors can obtain assistance manipulators and lifting equipment due to has a site for development, we will do our with every aspect of their requirements, come on stream in the near future.

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Other major international names that have already established ties Case study: Lasselsberger of installing a third, which is due to start with Bashkortostan include General Ceramics operation by October. Further expansion Electric and Snecma, while Honeywell One of the biggest makers of ceramic is scheduled and by 2015 Lasselsberger International Corporation signed a tiles and ceramic raw materials in plans to have six production lines in Ufa memorandum of understanding with the Europe, Lasselsberger Ceramics began turning out 20 million square metres of tiles regional government in November 2012. production in Bashkortostan in 2009 and per year, with staff levels also expected to Honeywell – a Fortune 100 company today turns out 6 million square metres of rise to 1,200. – has set up a working group to look tiles a year from its factory outside Ufa. Of the fi rm’s current 300 employees, at opportunities in the republic. The For Lasselsberger, the choice of only six are from outside Bashkortostan – corporation is considering a partnership Bashkortostan was primarily driven by a testament, says Molnar, to the skill level with Ufa fi rm Hydraulics to manufacture its ease of access to major markets and of the local workforce. “I have been very and repair of auxiliary power units for abundance of raw materials. “Ceramic positively surprised at the availability of aircraft, while other potential areas of tiles need to be distributed over a huge highly trained staff in the region, from cooperation including petrochemicals, area so Ufa is an optimal solution, given mechanics and electronics specialists to mechanical engineering and the creation its proximity to Moscow, Kazakhstan, accountants and sales people,” he says. of a radioelectronic cluster. Siberia and other growing CIS markets,” He adds that the continuing support of Policy-makers also report recent says Peter Molnar, head of Lasselsberger’s the regional government has been key expressions of interest in Bashkortostan operation in Ufa. in encouraging Lasselsberger to pursue from companies in countries as diverse “We also need ready access to raw its expansion . “It’s not always easy for as South Korea, Germany and China. materials such as quartz sand and a western company to invest in Russia The interest the republic is receiving feldspar, and we are able to source more but our interaction with the authorities from international investors makes the than 90% of our total requirements in here has been very positive,” he says. “I government’s current target of a rate Bashkortostan.” would defi nitely recommend Ufa as a of investment of 29% of gross regional The company has two production venue for foreign investors looking for a product achievable. lines at its Ufa plant and is in the process base in Russia.”

Perfectly positioned Located in the heart of the highly road and rail links between the two. Both Impressive connectivity and access to industrialized Urals region, the republic is the Trans-Siberian and Southern Siberian major markets are a key part of Bashkorto- almost exactly equidistant from China and railways cross Bashkortostan, while Ufa is stan’s appeal for investors. western Europe, and lies astride the main handily situated on the M5 highway that forms a key part of the road network that runs through to Beijing. Ufa is less than two hours by air from Moscow via the city’s international airport, which also serves destinations in the CIS, Europe, South-East Asia and the Middle East. The airport has capacity for 200 passengers an hour and will be able to process more than twice that number when the new international terminal opens in 2014. The republic is also linked to the Baltic and Black Seas via its main rivers, including the Belaya and Ufa, which are part of the deepwater transportation system of European Russia. In total, more than 30 million people live within 1,000km of Bashkortostan, making it an ideal destination for access to growing markets and abundant raw materials in both Russia and – with the Kazakh border just 500km away – Central Asia.

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Welcoming the world

Playing host to two major summits in 2015 will put Bashkortostan and Ufa firmly on the global economic map

Bashkortostan’s ambition to take its place the rapid recent growth of inbound with Rezidor on the possibility of a Radis- on the global economic stage received visitor numbers. International passenger son property in Ufa. In total, around R20 a huge fillip last year when the republic numbers were up by a third year on year billion of investment is planned for Ufa’s was selected as the venue for two major in 2012 and the same growth is expected hotel sector over the next two years. international events. for 2013. Key venues in Ufa, including the In 2015, leading politicians and business- Congress Hall and the Neftyanik Culture people from the world’s biggest growth Room for expansion Palace, will also receive upgrades in the markets will visit Ufa as the city plays host Ufa’s hotel infrastructure will also see a run-up to the summits, including extensive to both the seventh summit of the BRICS significant expansion over the next two modernization of acoustic systems. grouping and the 15th summit of the years, with capacity for an additional Meanwhile, Bashkortostan’s ongoing Shanghai Cooperation Organization. 2,000 guests due to be added by 2015. investment in transport infrastructure – the Policy-makers in Bashkortostan agree In total, 10 new hotels are in the pipeline, government set up a fund last year to that the two events will offer a unique including at least three properties from finance improvements to the region’s opportunity to showcase the republic’s major international hotel chains, a first for road network – is due to be supplement- infrastructure, accessibility and economic Bashkortostan. ed by around R20 billion of funding from development. “This will provide an ideal InterContinental Hotels Group has the federal government. Major bridge platform for us to introduce Bashkortostan announced plans to open a 203-room projects in Ufa are also in the works and to a global audience,” says deputy prime Holiday Inn, featuring five meeting rooms are expected to be completed in time for minister Salavat Sagitov, whose remit as well as a high-class restaurant and bar, the summits. includes the organization of the summits. on Ufa’s central city square next to the “It will give us a chance to show the world Gostiny Dvor retail and office complex in Reliable partner that there are valuable opportunities in mid-2015. For Sagitov, the choice of Ufa to host the Russia outside the traditional centres of “We are excited to open our first hotel BRICS and SCO summits is a testament to Moscow and St Petersburg.” in the Russian city of Ufa,” says an IHG both Bashkortostan’s existing infrastructure spokesperson. “We are committed to and its capacity to implement change. Flying high growth in Russia and our expansion will be “The fact that the republic was chosen Preparation for the summits will also driven by growth in regional centres such to host these summits is an acknowledge- complement Bashkortostan’s existing pro- as Ufa.” ment of our standing as a reliable partner gramme of infrastructure investment. Work Other new properties will include a and a recognition of the fact that we are is already under way on the construction three-star Hampton by Hilton that will be able to solve a task of any magnitude of of a new international terminal at Ufa’s operated in conjunction with Russian hotel difficulty,” says Sagitov. airport – which serves a wide range of group Osnova Development and will offer He adds that the republic’s tradition of destinations in Europe, South-East Asia 160 rooms over eight floors, as well as a hospitality also makes an ideal venue for and the Middle East, as well as Russia and fitness centre and 75 sq m of meeting and major events. “We have a strong culture other Commonwealth of Independent events space. The hotel will be located on and we are very conservative in a posi- States (CIS) countries – and is expected to Oktyabrya Street, in the emerging central tive sense,” he says. “For us in Bashkor- be completed by the end of 2014. business district of Ufa. tostan, a guest is like a saint – and these The new terminal will boost the airport’s At least two four-star properties are also events will give us a chance to share our capacity to 500 passengers an hour expected to open by 2015 – a Hilton- values with a wide international audi- from the current 200, an increase that brand hotel is in the pipeline and authori- ence at the same time as showcasing is urgently needed to keep pace with ties in Bashkortostan are in negotiations our economic development.”

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