An Analysis of
the
Machine Industries in Russia's Khabarovsky Krai and Primorsky Krai
Takashi MURAKAMI
Copyright
(c) 1997 by
the Slavic Research Center( English
/ Japanese ) All rights reserved.
The machine industry in the Russian Far East was created in a
unique
environment. The Russian Far E ast had colonial characteristics since
the early period of the region's industrial development. It was a bas e
for nonferrous metals, such as gold and diamonds, and forest and
fishery resources supplied to
the o entral part of the former Soviet Union. The machine-building
industry
was created for repairing machinery used by the mining and fishery
industries, as well as for military purposes. Factories of the
military-ind ustrial
complex were concentrated in this region.
Today, the machine industry in the Russian Far East is in a state of
extreme
finanoial distress. The decrease in production in this branch in the
Russian
Far East between 1991 and 1994 was much greater than the Russian
average.
More over, it was by far bigger than the decrease in other key
industrial
sect ors of the Russian Far East.
The sluggishness of the machine industry in the Russian Far East is
attributable
to a number of fact ors unique to this region. One of the factors is
that
the role of machine-building did not start in a nat ural way. The
industry
was created primarily for the purpose of defense of this frontier
district.
The second factor is that in the industry's production the proportion
of
munitions is high. The big re duction in Russia's defense expenditure
res'ulted
in a sharp decrease in State orders for munitions on wh ich the
machine-building industry in the Russian Far East depended heavily.
This dealt a fatal blow to l ocal industry.
The third factor is that in the Soviet era the distribution of
production
capacity was decided by Gospl an in utter neglect of local economic
structures
and demand. As a result, raw materials needed by the machinery industry
are brought in from outside the region, while finished products which
do
not meet reg ional needs are shipped out of the Russian Far East.
The fourth factor is the rise in production costs, including
transportation, fuel and labor. Given the established patterns of
producers and consumers, involving long-distance transport of raw
materials and finished products, the sharp rise in railway fares dealt
a heavy blow to the industrial enterprises in the F ar East.
Consumption of energy in the cold region is great, and the cost of
labor in the hinterland is high.
The machinery industry is concentrated in the Khabarovsky krai and the
Primorsky
Krai where the tra nsportation network. is relatively well developed
for
the Far East, the natural and meteorological environme nt is relatively
favorable, and the populatioh is concentrated. Even in 1995, when the
importance
of the machinery industry sagged relatively, 77.10/0 of the machinery
production
in the Far East was in the Khaba rovsky Krai and the Primorsky Krai. In
particular, Khabarovsky's share of ma6hinery production in 1995 was as
high
as 49.30/0. This is evidence th,at machine manufacturers are
concentrated
in the Khabarovsky Krai. It was after the start of 1993 that the
production
of the machine industry in th.e Khabarovsky Krai began to decrease
sharply.
In 1994, it debreased by as much as 510/0 compared with the preceding
year and by 42.80/0 in 1995 (from the preceding year's leveD. The
decreases were
much greater than the entire industry's decreases of 41.70/0 and
23.20/0,
respectively. One of the outstanding characteristics of the machi ne
industry
in the Khabarovsky Krai is that machine manufacturers are concentrated
in
the heavy industry sector and in the military-industrial complex.
Principal
products are technical engineering facilities to prod uce forged
products,
diesel machines and apparatuses, gas turbines, metal cutting machines,
cranes,
c ables, crop harvesting combines, batteries, ships and aircraft. An
Analysis
of the Machine Industries in Russia's Khabarovsky Krai and Primorsky
Krai.
In the Russian Far East, the machine industry in the Primorsky Krai is
second
after that in the Khabaro vsky Krai. The machine industry in the
Maritime
Province, Iike that in the Khabarovsky Krai, is support ed by the
military-industrial
complex. A major difference is that whereas the machine industry in the
Kh abarovsky Krai consists mainly of heavy-industry, the share of
consumer
goods production of the machi ne industry in the Maritime Province is
great.
The machine industry in the Russian Far East is almost synonymous with
the
military-industrial comp lex, and the Machine industry in this region
consists
basically of military enterprises. Before the transfer of the munitions
industry to the civil sector, military-industrial complex enterprises
in
the Far East accou nted for about 100/0 of the gross industrial
production
of the region, 130/0 the industrial workforce, and 6010 of the fixed
capital
of all industries in the region. The military-industrial complex was
comparable
in scal e to such leading specialized industries as fisheries and
nonferrous
metals. The military-industrial comple x in the Russian Far East
consisted
of 38 enterprises, of which four have their plants still unfinished. S
caling
down of the military-industrial complex actually began in' 1989. Around
that
time, munitions produc tion in the Khabarovsky Krai and the Primorsky
Krai
accounted for about two-thirds of the machinery in dustrial production.
As of 1989, 900/0 of the total production of the military-industrial
complex
in, the Rus sian Far East consisted of building of ships, their repair
and
manufacture of aircraft.
A characteristic of the military-industrial complex in the Far East is
that
it is weak in the research a nd development sector. Basic designing of
ships
is done primarily in St. Petersburg, and the design rese aroh institute
in the Far East plays only a supplementary role.
In the course of the Russian economy's shift to the market, conversion
of
the munitions industry to a civilian industry was one of the impQrtant
policies
of the Russian Government. What products' did the civilian industry
begin
to produce in the Far East? The results from the industrial switchover
were
few. Small refrigeration ships, various types of guns for public use,
"K[]34"
helicopters and "AN[]74aircraft are manufactured in the Primorsky Krai.
The slight progress made in the industry switchover is attributable to
the
shortage of funds. Ih 1992, in the case of the Primorsky Krai, a total
of
7,037 billion rubles (917 mil lion dollars) of 1991 prices was said to
be
required, according to the 1992[]1995 industry switchover plan.
However,
only 54.3 million rubles, amounting to only 0.80/0 of the amount
considered
necessary, was allo oated to the Primorsky Krai by the Federal
Government.
The switchpver investment is virtually zero in the Far East.
The rapid rise in railway fares is often cited as the prime factor in
c~using
the machine and metal pr ocessing industries in the Far East to suffer
serious
production decreases. During the Socialist period, d omestic fares of
the
railways were held at an extremely low level by Government policy.
Accordingly,
rail way fares did not constitute a problem for enterprises in the Far
East.
As a result of the liberalization of prices in early 1992, however,
railway
fairs, though still somewhat regulated, skyrocketed. According to
"Russian
Transport and Telecommunications Statistics" (1995, Moscow, p. 207),
railway
fares ~nd freight charges fQr the public rose 4, 840 times during the
period
between December 1991 and December 1994, w hich was greater than the
average
rise in the producer's prices of industrial products (they rose 3,800
tim es). Railway fares, in particular, rose 5,745 times, much greater
than the
rise in the produoer's prices of industrial products. As a matter of
fact,
in the Far East, which is located far from the supply sourc es of raw
materials
and consumer markets, transportation costs weigh all the more heavily
on
the enterp rises.
The machine industry in the Far East is threatened with crises as a
result
of skyrocketing transportatio n costs, the loss of customers and the
dissolution
of the military-industrial complex. Will the machine i ndustry in the
Far
East be able to make a comeback? "The Developmbnt Program of the
Russian
Far E ast and Trans Baikal Region in 1996-2005" (popularly called the
Far
East Long-Term Development Plan) a dopted in April 1996, outlines the
following
goals: '
1.Stop the production decrease of the machine industry, stabilize
production
activities and increase produc tion of the industry in the region for
the
next two or three years, particularly the production of key secto rs .
2.Ensure production of machine industry products that are highly
technology-intensive
and ecologically saf e, can be substituted for imports from other
regions,
and have a strong competitive edge both in and o utside the country.
3.Stabilize the social situation by creating employment at newly
established
enterprises and munitions-turn ed civil industrial facilities, maintain
the knowhow and labor potential of machine manufacturing enterprise s
and
utilize them effectively.
4.Extend the economic activities of machine manufacturing enterprises
outside
the country, especially to th e Asia-Pacific region.
As regards structural reform of the machine industry in the Far East,
importance
is placed on the fu ture development of the manufacture of apparatuses
and
equipment, electronics, and machine tools. Mor eover, efforts should be
made to reduce imports of machine products from remote areas by
expanding
pr oduction of machine and facilities necessary for agriculture and
development
of resources. Moreover, pow er transformers, small output transformers
and
batteries should be produced to replace imports.
If the above-mentioned objectives are attained even In a small way, the
machlne
Industry In the Far East will be resusoitated. The problem is how to
attain
these objeptives and prooure necessary financial r esources. This
depends
on how well the Far East's potential can be realized. Expectations can
be
place d on the resources in sectors like nonferrous metals, energy, and
fisheries as well as the geopolitical fa ctor that the Far East borders
on the Asia and Pacific Region. The former centralized economic system
dependent
entirely on State financial support could not realize the region's
potential
effectively. The introd uction of foreign capital is essential for
procuring
funds necessary for developing resources. In order to i ntroduce
foreign
capital, it is essential to improve the investment environment. What
th~
machine industr y in the Far East needs today is an industrial policy
that
attaches top priority to the development of reso urces in the Far East
and
to raising the degree of processing of these resources, with Asia and
Pacific region in mind as a major outlet for its produots, and that
concentrates
human resources, funds, machi nery, facilities and technologies in the
development
and processing of resources.
Another big problem that the machine industry in the Far East must
solve
is the conversion of the munitions industry to civilian production.
What
do the Russian Government and local governments of the Far East want to
do with the military-industrial complex in the Far East hereafter? Some
indication
is gi ven in the "Long-Term Far East Development Program. " Integrated
in
thls program Is the "Plan to Conv ert the Military-Industrial Complexes
in the Far East and Traus Balkal Reglon Into Clvlllan Industnes " part
of
Russia's "I995-1997 Plan to convert the Military-industrial complexes
into
Civil Industries. " The plan to convert military-industrial factories
in
the Far East and Trans Baikal Region into civilian industries embodi es
plans to convert 22 specific military-industrial factories into
civilian
industries. These plans describe in detail what produots each
enterprise
should manufacture, the size of investment eaoh enterprise will nee d,
and
what results can be anticipated. They cite as possible products to be
manufactured
those produc ts which make best use of the oapabilities possessed by
the
military-industrial complexes: civil alrcraft, s hips and ship repair
(both
commercial vessels and fishing boats) ; medical apparatuses and
instruments; and telecommunications equipment, consumer electronics and
measuring instruments
to be manufaotured by the electronics industry, which should be able to
produce techno[ogy-intensive and ecologically safe p roducts to
replace'
imports from outside the Russian Far East. Considering the actual
condition
of the mi litary-industrial complex in the Far East and the market
features
required by this region, this industry co nversion plan can be
evaluated
as appropriate. The problem is the ability to implem'ent it. On the
region al level, Iittle effect can be expected form this plan due to
the shortage
of financial resources. Institution al measures to enable
military-industrial
enterprises themselves to promote investment must be implement ed. The
area
where the conversion of the munitions industry into civilian industry
is
expected to make pr ogress is the manufacture of machinery and
equipment
needed for the development of petroleum and nat ural gas resources in
the
Continental Shelf off Sakhalin. Investments totaling $27 billion, of
which
the m ajority are from foreign sources, are expected to be forthcoming
to
develop the oil and gas resources in the Continental Shelf. "Local
Content"
which makes it mandatory to utilize Russian enterprises to supply
machinery
and equipment needed for the development is a ~rerequisite. In
particular,
the Chairman of th e National Committee of Defence Industry is a member
of the Observer Committee which supervises this Continental Shelf
resouroes
development project, and the military-industrial complex in the
Khabarovsky
K rai is scheduled to construct platforms for drilling petroleum and
natural
gas reserves. Development cases like this are quite realistic, and
already
underway.