A Regional Profile of

Nizhny Novgorod

Nizhny Novgorod, A Rebirth of Capitalism
Sergei Zhiltsov

Nizhny Novgorod, the third largest city in Russia is witnessing the vibrancy and enthusiasm of a youthful city on the brink of a metropolitan explosion. Business Week cited Nizhny Novgorod "City of the Future." Citizens refuse to accept this statement believing that Nizhny is the hottest city in Russia today. Since 1991, the city has pioneered in privatization, restructuring and defense industry conversion in close cooperation with international financial institutions. Nizhny Novgorod offers a highly educated work force, diversified industry base, wide range of mineral resources, exceptional location, advanced transportation and communications infrastructure and, most importantly, an energetic reformist government open for new ideas.

The Governor of the Nizhny Novgorod region, Boris Nemtsov, is the youngest and most famous of the Russian governors. He succeeded in establishing a politically stable climate, reducing crime rates and in creating a basis for economic prosperity of the region. He was the first among the governors in the Russian Federation to begin market reforms.

In 1992, the World Bank and International Finance Corporation together with the Russian State Property Committee started the first Russian privatization program in Nizhny Novgorod. Most of the industry in Nizhny was privatized before other regions started their privatization. Now more than 90% of industrial production is represented by the private sector. Following five years of reforms, the city has evolved into a major industrial and financial center of the Russian Federation, thus restoring its reputation as a major commercial center, which it has been for most of its history since the city was founded in 1221.

For centuries, the city has attracted merchants and businesspeople from all over Russia. The city was created as a defense outpost on the eastern border of Russia, but later when the Russian state expanded to the East, it evolved into an international trade center. Its favorable geographical location at the junction of the Volga and Oka rivers make it Russia's largest river port, which has attracted traders from the west to meet merchants from the east for centuries. Recent developments in ship design now allow big cargo vessels to travel from Nizhny to the Mediterranean sea and further to the Atlantic Ocean.

The importance of Nizhny Novgorod to the Russian economic renaissance was recognized when President Yeltsin issued the order to hold the All-Russia Exhibition "The Future of Russia" in Nizhny Novgorod in September 1996. This event was organized to celebrate the centennial anniversary of the All-Russia Industrial and Cultural Exhibition held in Nizhny in 1896, which was the major event of that time attended by the Russian Royal family. The exhibition was organized by the Russian Government, and the government of the Nizhny Novgorod region together with Nizhegorodskaya Yarmarka AO (Nizhny Novgorod Trade Fair Inc.) The Nizhny Novgorod Trade Fair is the largest and oldest in Russia, it dates back to the sixteenth century when first yearly trade sessions were organized there. Now the trade fair hosts numerous international exhibitions throughout the year.

The Nizhny Novgorod Trade Fair is not the only attraction of the city for businesspeople. The government of Nizhny Novgorod works extensively to attract foreign investment. The regional government seeks ways to create a favorable infrastructure and tax relief for foreign companies to attract foreign investment. These efforts include the creation of tax-exempt production zones in former defense enterprises and customs free warehouses. The regional government regularly organizes conferences and seminars to address issues of foreign investment into the region. The most recent one "Investment in the Nizhny Novgorod Region: New Opportunities" highlighted issues and industries including timber, food, and technology in tax exempt production zones. In 1995, the region attracted over $60 million USD in foreign investments. Among the top investors were companies from the United States, Germany, Finland, Great Britain and Switzerland. Though foreign investment continues to grow about 100% a year, there is still great potential for newcomers. Nizhny Novgorod has the capacity to accommodate and provide generous returns on new investments. So far the focus of foreign businesses in Russia has been primarily on the cities of Moscow and St. Petersburg and on the oil extraction regions of Siberia, Sakhalin and Tatarstan. But now more and more businesspeople and financiers are looking for manufacturing and services opportunities in other areas.

Among foreign companies who pioneered into the region there are Coca-Cola, PepsiCo, US West International, Wella AG, Herlitz International Trading AG, Ingersoll-Rand, Nike, Levi Strauss, Philip Morris and DHL Express to name a few. Many government investment agencies also expressed their interest and established their presence in the region; among them are IFC, IBRD, EBRD, USAID, British Know-how Fund, TACIS, Westdeutsche Landesbank and the Ministry of Economic Affairs of the Netherlands.

Even more companies are planning their entry for the nearest future. Proctor & Gamble, Microsoft, Rank Xerox, Reebok and Johnson & Johnson are among them.

One of the best resources the region can offer is its highly effective labor force. The total population of the Nizhny Novgorod region is 3.72 million people and 1.76 million are employed. The workforce in the region is highly educated. With 32.7% of the total population holding college or professional schools degrees. For this and other reasons, Nizhny used to be a major center of hi-tech defense production during the Soviet times with over one hundred defense enterprises. It also has numerous educational institutions. Over a hundred scientific labs and facilities are housed there, among which the most famous are the Russian Federal Nuclear Center and the Institute of Applied Physics of the Russian Academy of Science.
The core industries of Nizhny Novgorod region include automobile and aircraft manufacturing, ship building, pulp and paper, electric power, chemical and petrochemical, electronics, textile and forestry. In 1995 industrial production was 29.6 trillion rubles $5.92 bn (USD). Along with manufacturing and processing, a highly effective banking and financial system has been developed in the region. Unlike other regions of Russia it is possible for foreign companies to finance local operations directly through regional banks avoiding transactions via Moscow. Practically non-existent in Soviet times, the service industry is also on the rise as the demand is surging.

The city of Nizhny Novgorod is easily accessible for foreign travelers. Lufthansa German Airlines has regular flights from Frankfurt to Nizhny Novgorod International Airport. Other major airlines will follow the lead shortly. Nizhny is just 250 miles east of Moscow, so there is regular air, railway and highway transportation between these two cities. The city has also developed efficient internal transportation including a subway system.

The great potential of the region does not go unnoticed. Extremely active on the local markets are major American, German and British companies. The time factor is critical, especially after democracy was reassured during the June presidential elections. Nizhny Novgorod did its homework and prepared the ground for your successful entry. Now it is your turn.

For additional information, please contact:

Victor Pershin, Chief Specialist,
Department of International Relations,
Nizhny Novgorod Region,
1 Kremlin, Nizhny Novgorod, 603082 Russia.
Telephone/Fax: (8312) 39-00-56
Email: victor@dms4.kreml.nnov.ru
Tim Goodwin, Peace Corps Volunteer.
Russian-American Business & Information Center,
46 Prospect Gagarina, Room 110,
Nizhny Novgorod, 603600 Russia.
Telephone (8312) 65-78-89
Email: tim@pcv.nnov.su
You can also visit the following web side: http://www.inforis.ru

Sergei Zhiltsov is currently working on his graduate business degree at the University of Denver. He can be reached by E-mail at: szhiltso@du.edu.

The Russian-American Chamber of Commerce® is a nonprofit, nonpartisan organization acting to promote American business interests in the Russian marketplace.