Bashkortostan special report: Introduction - Moving forward
From core industries to SMEs, Bashkortostan’s government is committed to providing the support that businesses need to thrive in a modern global environment. An introduction by Rustem Khamitov, President of the Republic of Bashkortostan.
The past year has been a good one for Bashkortostan. In 2013, our economy outperformed the Russian Federation average across the board – and, most importantly for us in government, we have made a significant difference to the quality of life of our citizens. Income levels and average salaries in the Republic are both rising, and poverty is on the decline. We have been able to increase our spending on transport and social infrastructure, while at the same time meeting our federal obligations to increase public sector wages.
We are also especially proud of the fact that our demography is improving – indeed, we count this increase in population as our greatest achievement of the past two decades. The fact that young people in particular are willing to expand their families is clear proof that confidence levels are recovering.
We have been able to deliver these results thanks to our strong economic fundamentals. Gross regional product increased by 3.5% last year and tax revenues grew by 6.7%, while inflation remains at a manageable level of around 6%.
Overall industrial production growth of 2.3% was below the level we were targeting but nevertheless above the average for the Russian Federation; for an economically developed region such as ours every decimal point is important.
The headline number also masks significant outperformance in some of our key industrial sectors. In Bashkortostan we are currently focused on three major areas: oil production and refining, along with the associated sectors of petrochemicals and chemicals; machine-building, particularly of parts and engines for the aviation industry; and agriculture.
|Rustem Khamitov, President of the Republic of Bashkortostan|
Our oil refinery last year put in a strong performance, posting annual growth of 4-5%, while some parts of the aviation equipment industry grew by as much as 50%. In the machine-building sector we are also seeing an encouraging expansion in the production of equipment for the oil industry, including the establishment of companies for the manufacture of drilling equipment. Meanwhile, agriculture showed excellent growth of 17% in 2013. In all our key sectors, exports continue to be the primary driver of expansion. Our Republic accounts for a fifth of overall motor fuel production in the Russian Federation, the vast majority of which is consumed elsewhere in the country. Engines made here in Ufa are key components for aircraft manufacturers in other regions, while our oil production equipment is used by companies across the whole of Siberia.
International exports – mainly of products from our oil refinery and chemical sector – have also continued to grow, topping $13.7 billion in total last year. Major importers of Bashkiri products include Latvia, Hungary, Italy, the Netherlands, China, Belarus and Poland, which between them accounted for around half of total exports in 2013.
We are pleased to see that our economic strength has been recognized by international rating agencies Moody’s and Standard & Poor’s, both of which raised Bashkortostan to investment-grade status last year. The Republic is now rated Baa3/BBB- with a stable outlook on both ratings, making it one of the five most creditworthy regions in the Russian Federation.
These ratings are obviously important to us. We are in good shape economically but, if we do need to raise additional funding in future, an investment-grade rating will ensure us ready access to financial markets.
More significantly, the fact that international rating companies that have made a thorough study of our economy judge Bashkortostan’s growth to be stable and sustainable will clearly help to instil confidence in potential business partners and investors in our Republic.
While we are pleased with our achievements so far, however, we know that there is still much work to be done. In terms of foreign trade turnover, for example, imports currently account for only 7.9% of the total. This makes for an imbalance in the economy which we need to correct by increasing import deliveries of goods such as machine equipment and machinery products.
Similarly, although foreign direct investment in our Republic is increasing, overall levels remain low. Total inward investment in 2013 amounted to over $300 million but we would like to see much higher numbers than this, which is why we are implementing a proactive policy of attracting external investors.
What is more, the overall improvement in industrial production masks the fact that some of our key sectors are performing less well than others. Chemical production, for example, showed a slight decline in 2013 and we are well aware that this is something we need to address. We are working closely with business leaders in this sector and will do our utmost to encourage the modernization of facilities and production methods.
One of the key planks of our strategy for developing both the chemical and petrochemical industries is the establishment of business clusters. We have made a detailed study of the highly successful Jurong cluster in Singapore and are convinced that implementing a similar model in our Republic would bring a wide range of benefits for all participants.
By creating such clusters, we hope to encourage fruitful cooperation between companies in these sectors. We are working hard to convince businesses of the benefits of being involved in these projects, both through the use of administrative resources and by guaranteeing significant tax breaks to those companies that participate in the initiative.
We are also offering similar incentives to companies in the machine-building and agricultural sectors. We are actively involved in setting up industrial parks for machine-building firms and on the agricultural side we are providing subsidies. I believe strongly that building this type of mutual dependency between business and the public sector is key to the creation of substantial and sustainable economic growth.
The scope of our business-supportive activities is not limited to our main industries, however – we understand that the economy of our Republic is diverse and multifaceted, and we are working to encourage businesses across a wide range of industries.
SMEs in focus
We are particularly aware of the importance of developing small and medium-sized enterprises (SMEs) in Bashkortostan. We believe that this is the most dynamic sector of the economy and a crucial component in our plans for future prosperity. It is a sector that can be vulnerable but also one that with the right support can show rapid and palpable results.
At present, SMEs account for 20% of gross regional product, 6% of the industrial production in the Republic, a level we would like to see substantially increased. We are therefore working on a wide range of initiatives to support the sector. These include providing affordable funding to smaller businesses, removing administrative barriers to the official registration of land and property, and organizing a training centre for SME employees.
We are also looking into the possibility of setting up a dedicated ministry to oversee the SME sector. This is not because we want to increase the size of the administration but because we realize that these businesses need constant care, support and protection if they are to achieve their potential.
Other development priorities for us include education, where we are undertaking extensive reforms to ensure Bashkortostan’s graduates are fully equipped to participate in the global economy, and infrastructure. We have made substantial investments in the construction of roads, housing, schools and hospitals.
There is, however, still significant work to do in terms of upgrading the Republic’s infrastructure and we are aware that to achieve our goals we will need the support of the private sector. We are therefore making every effort to ensure that we will in future be able to offer the transparency and reliability of income streams that are needed to attract private infrastructure investors.
Finally, we know that in order to achieve our targets for inward investment we need to raise Bashkortostan’s profile internationally. For overseas investors, the locations in the Russian Federation with strong brand recognition continue to be Moscow, St Petersburg, the Volga region, Siberia and now Sochi, whereas our Republic is well known only in oil and petrochemical circles.
We believe that one of the best ways to build awareness of Bashkortostan is by hosting international events. In addition to organizing conferences such as Bolshaya Khimiya and Euromoney’s Bashkortostan Investment Forum, we are doing our utmost to win the right to host major events such as the 2021 World Games.
In this respect, our greatest achievement so far has been to be chosen as the venue for the BRICS and Shanghai Cooperation Organization summits, both of which will be held in Ufa in 2015. Coverage of these headline events will allow us to introduce Bashkortostan and Ufa to a global audience and we are very much looking forward to the opportunity. We have high hopes that it will prove an inspiration both for the citizens of our Republic and for our international visitors.