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Main | Archive | Issue 6/2008

Kaluga Phenomenon
Column: Kaluga Phenomenon

The name of the ancient Russian city of Kaluga is increasingly often encountered in dispatches of ambassadors accredited in Moscow, publications of foreign journalists, and reports of businessmen to their headquarters. Kaluga is confidently turning into one of the leaders in international interaction among the regions of Russia. It is still too early to speak about the Kaluga miracle, but its already time to speak about the Kaluga phenomenon. That was what Diplomat discussed with A.D. Artamonov, the governor of the Kaluga Region.

Mr. Artamonov, how did the region you head make a breakthrough into the international arena? What investment projects were the very first?
Until quite recently, this countrys negative image and a lack of information about the opportunities for doing business here was the main obstacle to attracting investments. We had to make a great effort to inform investors about our regions potential and advantages. The Law on the State Support of Investment Activities enacted in 1998 helped us set the priorities for investing in the regions economy and, to a large extent, determined our future success.

A brewery of the South African company SAB Miller and an enterprise of the Finnish company Stora Enso manufacturing modern corrugated paperboard packaging were the very first companies to come to the Kaluga Region.

What is it that attracts investors to your region?
Before the arrival of the investors, we had worked hard on creating a favorable investment climate and made corresponding changes in our legislation. Bringing down bureaucratic barriers was our main priority. Today, no request of a potential investor for the possible location of some type of production facility in the region remains unanswered by the regional leadership. To make clear the responsibilities of the sides, the investor company and the regional government conclude an investment contract on cooperation thus paving the way for the projects implementation and state-sponsored support. This support is provided in different ways, including tax privileges and preferences for the investors.

In the last few years, active work on developing the infrastructure of investment sites for locating new enterprises has been underway. Industrial and technological parks with complete engineering networks are being created. The new 50-hectare municipal industrial zone in the city of Obninsk built in 2002 has an operational engineering infrastructure. It can be considered an example of this approach to implementing the investment policies. As a result, several major manufacturing plants with a total investment of more than 100 million are successfully operating there.

Since 2006 a still bigger industrial park with a total area of about 1,000 hectares has been being created in the regions north (Borovsky district). At present, a plant of the Swiss company Nestle Purina PetCare producing dog and cat food is already operating on the park grounds. The South Korean company Samsung is building a plant there that will manufacture household appliances. Investment contracts were concluded and technical problems are being ironed out with other major foreign and domestic investors as well.

The concept of the Kaluga-South industrial park has been developed: it is a site with a state-of-the-art engineering and transportation infrastructure for accommodating some high-tech production units. The construction of the following facilities has already been started: a truck plant of the Swedish company Volvo Track Corporation, an enterprise for manufacturing car exhaust systems and car components of the Belgian company Bosal, and a factory for making window and door fittings and hardware of the Austrian firm .

In correspondence with the government program The Creation of Technological Parks in the High-Tech Sector in the Russian Federation, a technological park is being created in Obninsk especially for biotech companies, pharmaceutical companies, and companies producing new materials, nanotechnologies, and so on. It will occupy an area of more than 50 hectares.

The plant of the automobile corporation Volkswagen AG is located only a 15-minute car ride from the downtown area of Kaluga in the industrial park in the Grabtsevo district. In November 2007, its first stage, the car body assembly shop, was commissioned. It is planned to locate auto component suppliers on the same grounds.

The Rosva industrial park (near the township of Vorotynsk of the Babyninsky district) started being created in 2007. PSA Peugeot Citroen (France) and Mitsubisi (Japan) will build their automobile plant on the grounds of the park.

It looks like Kaluga is going to turn into the new center of the Russian car making industry in the future?
Once the Volkswagen, PSA Peugeot Citroen and Mitsubishi plants are put into operation, about 600,000 cars a year will be made in the Kaluga Region. That means that locating plants making car parts in our region will become cost-effective. The car parts makers are ready to locate their plants for manufacturing transmissions, engines, and other complex components here.

So, the car industry will become a key branch of the regions economy in the years to come. Along with the car component suppliers and auxiliary enterprises, it will form a cluster in which up to 50,000 jobs are to be created. Its success will largely determine the economic development of the Kaluga Region, which has a good chance of turning in one of Russias car making centers. Motor vehicles are products that will ensure a sustainable economic growth rate of the manufacturing sector, which means well-paid jobs and more tax revenues. The latter is especially important. Last year, the regions budget increased by 52 percent, this is still insufficient for us. In the next few years our own revenues should be enough for the regional budget and we will become a donor region.

What other branches of the regional economy are in need of development?
Mechanical engineering, construction, high technologies as well as the agricultural sector and the processing industry. The wood processing industry and the development of deposits of mineral resources are likewise promising areas of business today. Tourism is yet another sphere to invest in. Our region has much in order to develop it successfully: over 4,000 historical and cultural landmarks, scenic landscapes, pristine forests, clean rivers and lakes.

The appearance of new industrial enterprises in our region increases the need for residential housing many times over. Accordingly, additional investment opportunities are provided. We have set the goal of drastically accelerating the pace of housing construction. Last year, the housing available increased by 72 percent to 460,000 square meters. Another 750,000 square meters are to be built in 2008. Never before has the Kaluga Region seen such an amount of housing construction.

Mr. Artamonov, how do the investment processes affect the life of the residents of Kaluga?
In 2007, foreign investments in the regions economy reached $381 million. According to this per-capita indicator, the region is ahead of the majority of Russian regions. The creation of new manufacturing enterprises made for an increase in new jobs with decent wages, additional budget revenues, and a higher work culture. Overall, it has had a positive effect on the quality of life of the regions population.

It is largely due to having attracted investments that the regional economy is working in an extended reproduction mode, with the socio-economic situation remaining stable. The Kaluga Region is ever more confidently relying on internal economic growth reserves while using its own investment, innovation and workforce potential. The gross regional product is growing and the volume of industrial output is increasing. As a result of the states support of the agro-industrial sector there is a steadily increasing flow of financial resources to this branch. The regions engineering infrastructure, small businesses, and communications are developing intensely. Residential houses are being built at a rapid pace. Favorable changes are occurring in the social sphere too. The populations living standards and real income have been rising for a number of years now.

Speaking of the Kaluga Region, we cannot pass over the scientific field. The fact is that Russias first-ever science city, Obninsk, is located here and peaceful uses of the atom also originated here. What place does the scientific sector have in the regions economic development?
Indeed, the Kaluga Region can boast of a high scientific and innovation potential: it has 33 specialized research institutes, including three state scientific centers. The region is a leader in such indices as the proportion of scientific workers among the population. This has made it possible for us to put an innovative development model into practice. The regional government stimulates innovative ideas by granting subsidies. Our strategic objective is to achieve the regions sustained economic growth rate on the basis of its innovation potential.

Today, Obninsk, the first science city in Russia, is the recognized world leader in research and applied studies in such scientific areas as nuclear physics, nuclear power engineering, radio ecology, radiation and aerospace materials science, radio chemistry, radiation medicine and biology, and meteorology. In correspondence with the governmental program The Creation of Technological Parks in the High-Tech Sector in the Russian Federation, a technological park is being created in Obninsk that will specialize in biotechnologies, pharmaceuticals, new materials, nano-technologies, and the transfer of know-how. Investors are currently actively coming to the Obninsk technological park. Once the construction of the technological park is completed and it has reached its design capacity (tentatively by 2011), roughly 14 billion rubles worth of products will be put out there. Of late, the region has succeeded in attracting sizable funds from Vneshekonombank to implement some promising investment projects, including the creation and development of the infrastructure of industrial and technological parks, in particular, that of Obninsk.

A noncommercial organization, the Foundation for Promoting Venture Investments in Small Enterprises of the Scientific-Technical Sphere of Kaluga Region, has been created in Kaluga. The foundation will facilitate forming the segment of innovative infrastructure in the scientific-technological sector. It will promote the setting up of small technological enterprises and provide the conditions for their dynamic development and a favorable economic environment for attracting venture investments in the innovative sector of the economy.

The development of a network of business incubators as places for conducting innovative business is one of the key areas of our activity. There are five such incubators in Kaluga and Obninsk now. The first student business incubator was organized at the Obninsk State Technical University of Nuclear Power Engineering. It is planned to create more of them in other municipal establishments. A regional system of transfer of know-how is gradually being formed in order to more effectively translate scientific ideas into life. The regional system already unites 10 organizations.

Skilled staff is vital for implementing the model of innovative development of the Kaluga Region. We are working on creating a modern labor market and developing a multi-tier system of training, re-training and skill upgrading of professionals for innovative work. Any 4th- and 6th-year undergraduates and college graduates who have an innovative idea or projects of their own are trained in technology commercialization. The goal of the training is to set up small innovative companies. This type of training should also help keep college graduates in the Kaluga Region.

The regional authorities support new scientific schools and young researchers. Highly qualified professionals are being given additional training. Apart from our own resources, we manage to actively attract the resources of the Russian Basic Research Foundation and the Russian Humanitarian Scientific Foundation.

As you can see, internal resources, such as innovation and investments, are the strategic engine for the growth of the Kaluga Region, a region that has no oil or gas resources of its own. We intend to expand international ties in both areas. The Kaluga Region remains open to constructive cooperation with Russian and foreign companies, while at the same time seeking to maintain the reputation of a reliable business partner.

Photos courtesy of the media department of the Governors office and the Diplomat archive.


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