Russia

F

Gas

Russia’s natural gas reserves total some 50 trillion cubic m (1,748 trillion cubic ft) of proven reserves, and another 212 trillion cubic m (7,500 trillion cubic ft) of potential reserves. Around three quarters of proven reserves are located in some 20 super-giant fields in the Tyumen oblast in western Siberia. The first fields to be developed were in European Russia with various fields in western Siberia coming onstream from the late 1960s. Between 1991 and 1996, natural gas output fell by almost 10 per cent, from a peak of 640 billion cubic metres (22.6 trillion cubic ft), but was expected to stabilize and then rise again at the end of the decade. In 2003 production was 616 cubic metres (21.8 trillion cubic ft). Production in the western Siberian fields is declining, and interest is now focused on the Yamal Peninsula and the Sakha (Yakutia) republic of northern Siberia. Most of the production is expected to be exported via the new multi-billion dollar Yamal pipeline, due for completion around 2010, when some 156 million cu m (5.5 billion cu ft) a day is due to be exported to Europe. At present some 30 per cent of Russian gas is exported, the majority of it to European markets; the remainder to CIS countries.

The industry is dominated by Gazprom, the giant company that is the world’s largest producer of natural gas. It controls more than 95 per cent of production in the 100 largest fields in Russia and more than 20 per cent of the world’s natural gas reserves, oversees production companies, owns and operates Russia’s 138,400-km (86,000-mi) gas pipeline network, runs a variety of trading houses and marketing joint ventures, and contributes about 7 per cent of Russia’s GDP. The first steps towards privatization began in 1994, and in 1996 1 per cent of the company’s stock was sold on the international markets, raising more than US$370 million. The Russian government now has a 40 per cent stake in the company, and plans to sell up to 15 per cent of this. Other shareholders are residents of local producing regions (33 per cent), workers in the gas industry (15 per cent), Gazprom itself (10 per cent), and various minor shareholders (2 per cent). The gas pipeline network, like its oil counterpart, has been poorly maintained and is in need of major repair works. A five-year programme was begun in the mid-1990s to rehabilitate the main trunk network; estimates put the repair costs of the full network at between US$3 billion and US$12 billion.

G

Coal

Russia’s coal reserves are estimated at around 200 billion tonnes, comprising both hard, or black, coal and soft, or brown, coal (lignite); the country also has sizeable peat reserves. The leading areas of hard coal production include the Kuznetsk coal basin in western Siberia and the Pechora basin of Arctic north-eastern European Russia. The Kansk-Achinsk basin in central Siberia and the Moscow basin are the leading areas of brown coal production. Other production areas include the Chelyabinsk, Lena, South Yakutia, Taymyr, and Zyryanka basins in Siberia, the Raychikhinsk basin in Russia’s far south-east, and the Donets basin in European Russia.

Coal production has declined steadily since 1990, when production reached around 400 million tonnes. In 1995 Russia’s 260 mines produced around 260 million tonnes, with some indications that production might rise slightly in 1996. In 2003 production was 267 million tonnes. However, the industry still faces major problems of antiquated machinery, over-staffing, and inefficient production. Of 1995 output, the most inefficient 130 mines produced only 10 per cent of the total; the most efficient 5 mines, more than 25 per cent. The World Bank (see International Bank for Reconstruction and Development) has estimated that around half of Russia’s 900,000 miners will have to leave the industry by the end of the decade. In 1994, 17 mines were closed and more than 90,000 miners were laid off; the following year the World Bank provided US$500 million to support the closure of another 80 mines before the end of the century, including funds for the creation of a social safety net for displaced workers. Many mines are in more remote areas where there is no alternative employment in the case of closure. The government proved slow to implement such potentially socially disruptive plans, not least because of the unrest it was already facing over the US$470 million in wage arrears owed to miners. In 1997 the state was due to transfer management of five of the most profitable mines to boards of trustees, as an initial step towards their eventual sale to the private sector.

H

Other Minerals

Iron ore deposits near Magnitogorsk in the Ural Mountains have been largely depleted. Russia is also a notable exporter of copper (168,000 tonnes in 1990) and nickel (127,000 tonnes in 1990). Copper and nickel ores are mined primarily in the Urals, although sizeable deposits of nickel are also located in the Kola Peninsula near Murmansk. Bauxite deposits are located primarily in the Urals and north-west European Russia near St Petersburg. Lesser deposits are found in western Siberia near Kemerovo and in the far eastern region near the mouth of the Amur River. Tin is mined in north-eastern Siberia, and lead and zinc are mined in Siberia and the far eastern region. Manganese deposits are located in the Urals, western Siberia, and the far eastern region.

Russia is one of the world’s leading producers of gold, which is mined in the Urals, in western Siberia, and in eastern Siberia in the valley of the Lena River. The impact of lack of investment has been particularly great on gold. Gold production fell from 136.2 tonnes in 1993 to 169 tonnes in 2004.

It is also one of the largest producers of diamonds, accounting for around 25 per cent of the world market in value; output in 2004 was some 21.4 million carats, produced mainly from mines in Siberia. Russia is moving to take over the marketing of its own diamonds. Its arrangement with De Beers Consolidated Mines of South Africa, which marketed the majority of Russia’s diamonds via its Central Selling Organization (CSO) arm, finally collapsed in January 1997 after more than a year of efforts to renegotiate the marketing agreement, which had lapsed in 1995. Control of diamond-marketing combined with a restructuring of production is expected to strengthen the industry in the long term. However, in the short term it could present some difficult problems. For example, following the collapse of the De Beers agreement, Almazy Rossii-Sakha, Russia’s largest diamond producer, lost a US$500 million loan facility agreed with western banks to provide capital for development of new mines and the refurbishment of existing ones. In October 1997 Russia re-entered the De Beers cartel, when an agreement was reached to sell 40 per cent of the production of the Almazy Rossii-Sakha mining company to De Beers, until the end of 1998.

I

Manufacturing

The structure of Russian industry was greatly affected by theoretical assumptions of Soviet planners concerning the role of industry in economic growth. In accordance with Soviet theory, heavy industry was promoted above all other sectors, with the greatest emphasis on the machine-building and metalworking industries because they provide the means for more production. The products of these industries are diversified, ranging from fine tools, instruments, and computers to industrial machines of all sorts, transport and communications equipment, agricultural machinery, mining equipment, and space vehicles. Industrial output for national defence also received high priority in Soviet-era planning. Russian industries are very technologically advanced in the production of certain items, such as aerospace technology, but the overall level of technology is generally well below the levels of other highly industrialized countries. The machine-building industries are usually located in the largest cities because they are labour intensive.

In planning the industrialization of the former USSR, the Soviet government devoted particular attention to the geographical location of the vast industrial complexes. Initially, Soviet manufacturing enterprises in Russia were concentrated in the Moscow and St Petersburg areas. Simultaneously, work was begun on the electrification of areas in the Urals known to have large coal and mineral reserves, and planning began for the electrification of various Siberian regions. As the so-called Five-Year Plans progressed, and as the electric-power areas increased, huge new manufacturing complexes were installed to take maximum advantage of these natural resources. As a result, production increased in the eastern regions. This significant expansion was accomplished by developing the new eastern industrial regions, rather than by reducing the production of the older centres; indeed, the older industrial regions continued to increase their output.

Today the manufacture of transport equipment is concentrated in central European Russia. Railway locomotives are produced at Kolomna, Murom, and Lyudinovo, all of which are located near Moscow. Railway rolling stock is built in plants at Tver, north-west of Moscow, and at Bryansk, south-west of Moscow. Underground carriages are manufactured in Mytishchi, a northern suburb of Moscow; Engels, in the Volga Valley, is the main centre for manufacturing trolley buses. A large railway-carriage plant in the Minusinsk Basin in eastern Siberia services the Trans-Siberian and Baikal-Amur railways.

The largest shipbuilding centre is in St Petersburg on the Baltic Sea. Lesser shipyards are located in Kaliningrad on the Baltic Sea, in Arkhangelsk (Archangel) on the White Sea, and at certain ports on the Pacific coast. Most of the country’s river craft are built in the Volga-Kama river basin. The oldest, and still the largest, river craft shipyard is located in the city of Nizhniy Novgorod; other riverboat manufacturing plants are in Moscow, Rybinsk, and Kostroma on the upper Volga.

The motor-vehicle manufacturing industry is limited in Russia because the Soviet government gave low priority to vehicular traffic as compared with railways and other forms of transport; several large-scale car and lorry factories, however, are located in Russia. These factories produced about 87 per cent of all lorries and cars manufactured in the former USSR in 1990. The largest construction project in the former USSR during the eighth Soviet Five-Year Plan (1966-1970) was the establishment of the Volga Motor Vehicle Plant at Togliatti, in eastern European Russia. This plant’s capacity is about 660,000 cars a year, or about half the passenger-car production of the former USSR; the plant, however, has been running well below capacity in recent years. Other important car assembly plants are in Moscow, Izhevsk, and Nizhniy Novgorod. The largest construction project during the ninth Five-Year Plan (1971-1975) was the Kama River Truck Plant in Naberezhnye Chelny. Lorries are also produced in Nizhniy Novgorod, Moscow, Simbirsk on the Volga, and Miass in the Urals. During 1997 Fiat, Renault, and General Motors were involved in plans or discussions to establish joint ventures with Russian vehicle manufacturers.

The manufacture of agricultural machinery is an important industry in Russia. In 1990 Russia accounted for 60 per cent of the total production of agricultural machinery in the former USSR, once the largest producer of tractors in the world and a sizeable exporter. Most of the principal producing plants are in European Russia, in Volgograd, Vladimir, Bryansk, and Lipetsk. Chelyabinsk in the Urals and Rubtsovsk in the Altay region of Siberia are also major production centres. Self-propelled combines and other farm machinery are produced in Rostov.

Russia is also a major producer of textiles. The former USSR led the world in the production of virtually all kinds of textiles, with the majority of its productive capacity located in the Russian cities of Moscow, Ivanovo, Kostroma, Tver, and Vladimir, where textile production has been based for more than a century. In the late 1980s the annual production of cotton yarn in the former USSR stood at 1.7 million tonnes, well ahead of that of its second-place competitor, the United States. The country was by far the world’s largest producer of linen fabrics (1.2 billion sq m/1.4 billion sq yd) and woollen yarn (465,000 tonnes). It was second only to Japan in the production of natural silk woven fabric. The USSR also led in the production of rayon and acetate fibres, but lagged in synthetic fibres derived from non-cellulosic materials. In general, the country was somewhat behind the rest of the developed world in the technology of synthetic fibres and plastics. Textile production in Russia has suffered greatly from the disruption of ties with other former Soviet republics, as the other republics were a major source of textile raw materials. Nearly all of the country’s raw cotton, for example, came from the Soviet republics in Central Asia and the republic of Azerbaijan, but with a shortage of supplies from these countries, many Russian textile mills were forced to close. Total textile production in Russia fell by more than 50 per cent in 1992. However, from 1994 it began to recover as a result of the resumption of cotton imports from the Central Asian Republics, and from the United States.

Russia has traditionally been a major producer of leather goods, and the former Soviet government greatly expanded and dispersed the industry. The former USSR ranked as world leader in the production of leather footwear, manufacturing approximately 820 million pairs of shoes and boots each year.

The food industries form another major manufacturing sector in Russia. Initially, flour mills were built in the major grain-producing areas, but newer flour mills are generally located in consuming areas. A considerable portion of the country’s fresh fruits and vegetables are tinned or preserved in the growing areas, because transport and refrigeration facilities are not adequate to market fresh produce at great distances.

In general, industrial output in Russia has declined sharply during the 1990s, accelerating a general slowdown in industrial growth that took place during the last years of the USSR. Overall industrial production declined by about 50 per cent between 1990 and 1994, with the drop in production of certain items being even greater. By 1994 average capacity utilization rates were around 42 to 45 per cent, compared with 75 per cent in 1991. The decline began to slow during 1995 and 1996 with industrial output falling by 3 per cent and 4 per cent respectively, in real terms, compared with more than 20 per cent in 1994. The contraction in output has affected all sectors, the only variation being in the pace of decline during the first half of the 1990s.

One of the worst hit sectors has been the iron and steel industry, where output deteriorated by more 60 per cent between 1990 and 1994 due to a variety of factors, notably the decline in the domestic market as a result of recession generally and the collapse in demand for the armaments industry and machine-building in particular. In 1988, for example, the year in which iron and steel production peaked at about 103 million tonnes, the country still had to import almost 6 million tonnes to meet demand from local industries. Domestic usage of steel was 440 kg (968 lb) per capita, the second highest in the world after Japan; in 1993 it had dropped to just 140 kg (308 lb) per capita. Also important in accounting for the decline were production problems related to outdated plant and lack of finance for maintenance, spare parts, or new equipment; around 60 per cent of the plant has exceeded its useful life, while production methods are dominated by outdated, energy-intensive, and highly polluting processes. Since 1995 production in the sector has started to pick up as new export markets have been developed to replace the loss of the domestic market; exports now account for 40 per cent of production, with China, Taiwan, South Korea, the Philippines, western Europe, and North America the main markets.

Russia’s light and consumer industries, including clothing and footwear manufacture, have been particularly hard hit by the opening up of the Russian market to imports. According to official statistics, the output of this sector fell by around 75 per cent between 1990 and 1994. Imported clothing accounted for around 40 per cent of the total clothing market. The main decline was in larger plants; smaller enterprises, which are of considerable significance in this sector, were not so badly hit. The food industry has also been affected by competition from imports, although to a lesser extent.

The majority of the manufacturing sector is now in the non-state sector; in 1995 the percentage of privatized enterprises averaged 77 per cent, accounting for almost 90 per cent of production, and ranging from 91 per cent in the ferrous metals industry, to 83 per cent among chemical industries, and around 81 per cent each in the light industrial sector and food industries. In general, this has not yet helped overcome the main problem facing the industrial sector, the need to modernize its capital stock in order to increase productivity and reduce costs.

J

Tourism

Tourism was a major source of foreign exchange for the former USSR, and despite political differences with many Western countries, the Soviet government developed procedures to cater to this activity. A huge state organization, Intourist, handled all touring arrangements, and many beryozka, or hard-currency, stores were established to sell a wide variety of souvenirs to foreign tourists. Student travel was handled by Sputnik, the international youth excursion bureau. Each year about 7 million people visited the USSR; slightly more than half of these visitors were from the countries of Eastern Europe. The Soviet government encouraged domestic travel, and each year millions of Soviet citizens visited parts of the country remote from their own homes. The capital city of Moscow, in particular, was the destination of many Soviet holidaymakers.

In post-USSR Russia, tourism continues to be an important source of business, although it has declined greatly as a foreign currency earner due to a decline in the number of foreign visitors since 1993 and a sharp rise in Russians travelling outside the country for their holidays. Private tour companies have exploded in number, and there has been significant foreign investment in upgrading hotels in the main tourist centres. The country contains a wide variety of cultural attractions including tsarist retreats near St Petersburg, the Old Town of Novgorod, the Golden Circle of medieval towns surrounding Moscow, and numerous museums, galleries, theatres, and architectural points of interest in the cities of Moscow and St Petersburg. Resorts on the Black Sea provide holiday destinations although they are less popular with foreign and domestic tourists these days. Cruises along the Volga are also popular. The Caucasus Mountains offer a variety of alpine sports, such as skiing, hiking, camping, mountain-climbing, and fishing. Lake Baikal, the deepest freshwater lake in the world and home to numerous unique animal and plant species, attracts thousands of visitors annually. Holiday rides on the Trans-Siberian Railway are also in great demand. Receipts from tourism amounted to some US$18,235 million in 2006.