The following information was provided by the Foreign Investment Promotion Center (FIPC) under the Ministry of Economy of The Russian Federation. Reproduced with permission. For more information see http://ns.fipc.ru/fipc/

Sverdlovsk Oblast is one of the major regions in the economic structure of the Russian Federation. It is situated in the centre of Russia on the border between Europe and Asia. Sverdlovsk Oblast is the largest Ural region. It's area is equal to approximately 195,000 sq. km.

There are 4.7 million people living in the region or 3.1% of the population of the Russian Federation and 19.8% of the population of the Ural economic region. The administrative centre is the city of Ekaterinburg.

87.4% of the population live in urban areas. There are 47 cities and towns and 99 urban settlements in the region. The largest in terms of population are the cities of: Ekaterinburg (1.32 mln.), Nizhny Tagil (407 thousand residents), Kamenok-Uralsky (197 thousand residents), Pervouralsk (165 thousand residents), Asbest and Serov (over 100 thousand residents).

The economically active population amounts to more than 2 million people. 1.9 million people work in various branches of the economy, among them 67% work in the sphere of material production. The rate of unemployment is 3.4%.

There are about 70 thousand companies and organizations operating in the region, among them 56 thousand are commercial.

The number of small companies is 26,000. Approximately 10% of the total number of people working in the region's branches of the economy are employed in these companies.

There are executive and representative authorities in the region which guarantee a stable political situation.

Pursuant to the Statute of Sverdlovsk Oblast, which came into force in 1994, the legislative body is the Legislative Assembly of Sverdlovsk Oblast, consisting of two chambers: Regional Duma (28 deputies for the term of 4 years, half of the number are re-elected every 2 years) and House of Representatives (21 deputies for the term of 2 years). The region's executive authorities are the Governor of Sverdlovsk Oblast and the Government of Sverdlovsk Oblast. The Governor and the Government communicate on a regular basis with workers, trade unions, parties, and movements.

This provides a setting whereby there are no instances of political extremism, any large political protests, or strikes in the region.

Pursuant to the Statute, the Statutory Court of Sverdlovsk Oblast was created, which officially interprets the Statute of Sverdlovsk Oblast and considers cases concerning correspondence of the laws of Sverdlovsk Oblast, normative acts of the Governor and the Government of Sverdlovsk Oblast to the Statute of Sverdlovsk Oblast, and disputes concerning the competence between the federal authorities in Sverdlovsk Oblast and the local authorities.

In 1996, GDP amounted to 66.3 trillion rubles.

The external trade volume of Sverdlovsk Oblast in 1996 was equal to 3.8 bn (USD), including export volume equal to $2.7 bn (USD), and import volume equal to 1.1 bn (USD). 85% of the export volume falls on foreign countries save former Soviet republics. The region steadily maintains a positive external trade balance.

Major export items include ferrous metals, copper, aluminum, products of chemical industry (including radioactive chemicals), wood, and wood bi-products. Import items include the machine-building industry, food products and raw materials for food production, products of fuel and energy industry and consumer goods.

Sverdlovsk Oblast maintains external economic relations with 114 foreign countries, including export shipments to 98 countries, and goods are imported from 97 countries. The major trade partners are the U.S., Kazakhstan, the Netherlands, Taiwan, Ukraine, Germany and Great Britain.

The geographic situation of the region determined its development as a large transport center.

An international airport operates in Ekaterinburg. Frankfurt-Ekaterinburg airline was introduced by Lufthansa Airlines. Charter flights are available to Turkey, United Arab Emirates, Bulgaria, Belgium, India, China, and other countries. There are representations of MALEV, KLM, Luftbrukke, and other airlines.

Ekaterinburg is one of the largest railway centers in Russia. The length of highways for common use is more than 9.5 thousand km.

An underground metroliner line is under constructed in Ekaterinburg. The first stage, consisting of 6 stations, is already operational.

The region has an advanced telecommunications infrastructure. The exchange capacity of the Ministry of Telecommunications of Russia is equal to 736 thousand telephone numbers. ESWD international digital exchange, AXE-10 international exchange operate in the region, magnetic card based telephones were put in operation. The capacity of NMT-450 cellular telecommunications network is growing. An AMP-800 cellular telecommunications network has been put in operation in Ekaterinburg. Equipment for operation of GSM-900 cellular telecommunications network is assembled.

The hotel infrastructure of Ekaterinburg is developing at a high rate and services clients accordance with the world standards. There are about 2,000 rooms in total, among them about 500 rooms are at the three-star standard, and about 50 rooms even higher service standards are maintained. In 1997, the number of more comfortable rooms will double due to a number of new hotels begining operations.

Economic Infrastructure

The region possesses large resources of minerals and raw materials, 71% of bauxites, 61% of chrysotile asbestos, 23% of iron ores, 97% of vanadium, 6% of copper, 2% of nickel, 20% of refractory clays, 1.2% of coal produced in Russia fall in the region. Rather high are volumes of mining of precious metals, raw gems, fluxes and refractories. Resources of raw materials for construction, resources of various facing and jobbing materials, peat, sapropel, etc. are practically unlimited. Two thirds of the territory of the region is covered with forests.

A supply of oil and gas in the region is guaranteed with transportation thereof from neighboring Tyumen Region and Bashkiria, where 245 million tons and 400 billion m3 of gas are produced per annum.

The volume of industrial production of the region is second among the republics and regions of Russia. The rate of concentration of industrial production in the Central Urals is 4 times higher than the average rate in Russia.

In the Ural Region, 66% of non-ferrous metals production, 37% of ferrous metals production, 28% of production of machine-building industry, 27% of forestry and wood-processing industry production, and 34% of construction materials production fall in the Sverdlovsk Oblast.

The volume of industrial production in 1996 was equal to 61.3 trillion rubles.

The leading location in the region's industrial production belongs to ferrous (30% of the production volume) and non-ferrous (17.5%) metallurgy. Most of the largest plants are among the leaders in the country. The main products of the metallurgical industry are: crude iron (about 5 million tons), steel (6.5 million tons), ferrous metals rolled stock (4.7 million tons), steel pipes (1.3 million tons), iron alloys, blister and pure copper, aluminum, titanium, hard alloys, non-ferrous metals rolled products.

Plants in the region are fully supplied with iron ore: Kachkanar Mining and Concentration Plant produces approximately 7 million tons of agglomerate and pellets, and the presence of vanadium in its ores covers the needs of Russia in this metal practically by 100%. The region produces 100% of railway tires in Russia, and most of the construction of broad-flanged beams. Large facilities for production of both rolled and welded steel and iron pipes for oil and machine-building industries are concentrated here.

Good copper ore deposits were established in the centre and northern parts of the region. Their development will guarantee operation of copper-melting plants, production of pure copper, copper foil and powder.

Large facilities for aluminum production are concentrated in the region - from mining of bauxites to production of aluminum rolled stock and foil. Production of aluminum and argil is backed with bauxites.

Another major industry in the region is machine building (16.5%) which is oriented to production of chemical, oil production, metallurgical, electric equipment, excavators, steam and gas turbines, agricultural machines, motorcycles and electronic equipment.

High industrial potential is backed by production of electricity (approximately 40 billion kW/hrs per annum, or 12% of the volume of industrial production).

There are opportunities in the region to produce and ship large volumes of nuclear fuel for nuclear power plants.

The major products of the chemical and forest industry are plastics, synthetic resins, automobile and motorcycle tires (about 1 million pieces), rubber products, sulfuric acid, mineral fertilizers (more than 10 thousand tons), timber (about 5 million m3), wood boards (1.2 million m3), paper (about 25 thousand tons), paper-board (2.5 thousand tons), plywood, fiberboard and chipboard.

Construction materials plants cover the needs of the region, as concerns most relevant products. Asbestos, mineral wool, and products made of mineral wool, bathroom-and-lavatory equipment, tileboard, cement (about 2 million tons), bricks (about 430 million pieces), construction glass, chipping, gravel, keramzite, talc, linoleum are produced in the region.

Light industry products (wool, knitwear and garments, leather and felted footwear, carpets, fur products) account for less than 1% of the region's industrial production.

Agricultural production volume in 1996 was estimated to be equal to 6.7 trillion rubles. There is a large network of bakeries, milk plants, brewing and alcoholic beverages production plants, non-alcoholic beverages production plants, vegetable processing plants in the region. However, the situation of the region in the zone of risky agriculture makes it impossible to provide food products on its own.

A trend is observed of growing portion of services in the structure of GDP.

The major ones in the structure of services are commercial services of transportation and telecommunications (one third), retail trade and public catering (one fourth); as concerns non-commercial services, the biggest portion falls on housing and utility services (10%).

Market Transformations

Primary attention is paid in the region to privatization.

Currently more than 4,300 facilities are privatized, among them two-thirds are retail shops, public catering and public utilities facilities. The form of ownership of 700 enterprises has been changed by means of transformation to joint-stock companies. The practice of selling blocks of shares of large enterprises through investment tenders was widely used, including selling to foreign investors.

In 1996 the focus started to shift from transformation of enterprises to joint-stock companies, to the creation of a more effective system of management of federal property by means of introduction of officers of regional privatization authorities to boards of directors of joint-stock companies, where a portion of the stock is owned by regional authorities.

New economic structures of integration type are actively formed for the purpose of increasing the competitiveness of domestic products and saturation of the internal market with quality goods.

Measures are taken aimed at assistance to private entrepreneurship, as a result during the last few years the number of people engaged in private business has grown by more than 2 times. Over 12 thousand private companies operate in the region.

Services Sector

As of 1 January 1997, Oblast had 39 commercial banks, 128 branches of commercial banks of Sverdlovsk Oblast (of these, 112 - in the territory of the Oblast, and 16 - in other Oblasts), 26 branches of other Oblasts' commercial banks. SberBank with 46 branches. By the number of banks and branches the Oblast ranks seventh in Russia.

Four banks of our Oblast are included in the list of 100 largest Russian banks: Ural-promstroyBank, SKB-Bank, Urals Bank for Reconstruction and Development.

In the Oblast there are 142 professional securities market participants, of these, 97 are investment institutions, 23 voucher investment funds, 4 registrars, 17 banks, 1 depository (CJSC Oblast Deposit Center). Since 1995, the independent Urals Association of Registrars, Transfer-Agents, and Depositories which unifies 12 professional securities market participants has been operating in the Oblast.

In 1996, 3 exchanges were operating in the Oblast: Commodity Exchange Urals (the only commodity exchange in the Urals), Ekaterinburg Stock Exchange, and Urals Oblast Stock Exchange.

Scientific Infrastructure

The territory of the Oblast includes 18 scientific academic institutions, over 60 branch scientific research institutes and scientific organizations, 18 state high educational institutions. The scientific sphere involves about one thousand Doctors of Science and 5 thousand Candidates of Science, including 40 Members and Correspondent Members of the Russian Academy of Sciences. Traditional directions of their activity are as follows: precise alloys production technologies, powerful magnets, fuel elements, as well as software, research in the field of geology and geophysics.

The number of the high educational institutions includes 5 state universities and 4 academies. The professional education institutions train about 140,000 students in all major aspects of public economy and society. In recent years the number of non-governmental educational institutions has increased.

Budget of the Oblast

In 1996 the credit part of the consolidated budget of the Oblast amounted to 10.2 trillion rubles.

Prospects of the Oblast

The experts of the Moscow Consulting Agency Expert-Oblast gave the Sverdlovsk Oblast the highest investment rating of Russian Oblasts. The Oblast has been marked among the five potential poles of investment growth both in relation to Russian and foreign investors, which is explained by a high resources, raw materials, infrastructure, institutional potential and low risks.

Legal Environment for Foreign Investments

The rights of the governmental authorities of the Sverdlovsk Oblast have enlarged to a great extent after the signing, on 12 January 1996, of the Agreement on the Differentiation of Authorities and Competence between the governmental bodies of the Russian Federation and the state authorities of the Sverdlovsk Oblast, and a number of agreements included in it. In accordance with the Agreement the Government of the Oblast has prepared a number of legal and organizational arrangements providing for the improvement of the investment climate in the Oblast. The Government of the Oblast has been granted the right to attract foreign commercial credits against its guarantees. Corresponding provisions have been developed on the procedure of guarantees submission by the Government of the Oblast.

A 1997 Program is designed to attract foreign investment to the Sverdlovsk Oblast economy. A number of draft laws are being prepared for the consideration of the Oblast Duma: On the State Support of Investment Activity in the Territory of Sverdlovsk Oblast, On the Pledge Fund of the Sverdlovsk Oblast, On the Investment Fund of the Sverdlovsk Oblast, On Free Economic Zones. The Government plans to develop provisions relating to issues including granting of tax benefits; procedures of technical and economic expertise performance in relation to the projects which need the Oblast Government's guarantees; and a the list of priority sectors which more beneficial terms are introduced to attract foreign investments.

At present, organizational arrangements are being completed to establish the zone of export production with a special customs status Titan on the basis of Verkhnesaldinsky Metallurgical Production Association. On this basis, production will develop in several directions (medicine, biology, construction materials). The work is performed to study the possibilities of establishing free economic zones at JSC AEG-Sverdlovsk Electromechanical Plant which produces the control and distribution devices and voltage gauges, and in Koltzevo Airport.

Foreign Investors' Activity

In recent times, the inflow of foreign capital in the economy of the Oblast has increased tremendously. The establishment of joint ventures with the Russian businessmen is the preferential investing medium. As of the start of 1997, 550 such enterprises have been operating in the Oblast.

The legal entities and individuals of 63 countries participate in the established organizations. The most active investors are those from China (64 enterprises), USA (62), Germany (42), Great Britain (26), Uzbekistan and Poland (25 each), and Kazakhstan (23).

Despite the tendency towards the decrease in volume of newly established enterprises, strategic investment continues with the enlargement of current enterprises.

The orientation of enterprises on trade and mediator activity gradually changes for the production.

Companies such as Pepsi-Cola, Coca-Cola, ABB show evidence that the Oblast is increasingly the object of ever-growing attention from foreign capital.

The largest projects performed with the participation of West-European and American companies are as follows: - JV UralAvstro Invest carries out the construction of International Business Center. Austria is represented by the Construction Group Austroklima Kelte. The project cost is $40 million.

- Within the framework of the Russian-Swiss enterprise Geodetic Devices Ekaterinburg, the tachometers production has been developed which will be sold on the Russian market. The Swiss Partner is the Concern Leika AG which contributes know-how and equipment.

- At Verkhne-Isetski Metallurgical Plant, a project for magnetic circuits production has been prepared. The investor is represented by a consortium of French firms which will deliver equipment amounting to $1 million.

- The largest Machine-Building Plant Uralmash cooperates with the American firm Caterpillar, which has invested $13.5 million in the joint production of oil and drilling equipment. Also here, the specialists of the Japanese Trade House Mitsui and Co. prepare a program on the Plant's reconstruction and the financing schedule with a Russian Federation Government guarantee.

- On the basis of Sverdlovsk Electro-Mechanical Plant the Joint Venture AEG-SEMS (shares distribution 50/50) has been established producing distribution devices. The German Concern AEG has additionally invested DM7 million in the Plant's reconstruction.

- JV ABB-UETM has been formed as a result of international Concern ABB cooperation with Plant Uralelectrotyazhmash. The products of this JV are high-voltage equipment, electric and gas current transformers, disconnectors, and overvoltage controls. The equipment is delivered to the Russian market and produced under foreign licenses. The project performance allowed to additionally organize 450 jobs.

- Pepsi-Cola Company is constructing an Alcohol-Free Drink Production Plant in Ekaterinburg. The projects has involved $20 million investments. The commissioning of the Plant and product distribution will provide over 5,000 people with jobs.

- Coca-Cola Inc. Ekaterinburg is planning to invest $60 million in the construction of a plant in Ekaterinburg. The designed capacity of the plant is up to 50 million liters per year.

The local authorities pay much attention to the development of economic and cultural cooperation with foreign partners.

The network of foreign firm representations is being developed, and currently 80 are registered in the Oblast. Among them are the Representations of Siemens, Mitsui & Co., Rank Xerox, Dresdner Bank AG, Wrigley GmbH, AGVA Inc., Bayer AG, Lufthansa, and others.

Investment Projects

The Oblast's Government Data Base includes about 200 projects which participate in a competition to receive Government guarantees. The most prospective are the following directions: - development of prospective deposits (production of raw copper and aluminum, precious stones, rare-earth elements); - reprocessing of technogenic formations in the territory of the Oblast with the production of copper, zinc, chromium, titanium, gold, silver, rare-earth elements, raw materials for the production of construction materials (about 80 projects); - the reconstruction of enterprises of the machine-building complex aimed at increasing of the competitiveness of manufactured products or the production of new goods (15 projects); - the reconstruction of ferrous and non-ferrous metallurgic enterprises (10 projects); - the restructuring of defense industry enterprises and organization of civil production manufacture (5 projects); - the reconstruction of chemical and oil-chemical enterprises (6 projects); - production of construction materials (about 20 projects); - The technical re-equipping of agricultural complex enterprises, the introduction of a new technology of farm crops growing and products processing (20 projects); - the reconstruction of forest, wood-processing, and pulp and paper industry enterprises (10 projects); - the reconstruction of light industry enterprises aimed at the product quality increase and saturation of the internal market; - the development of export-oriented production; - the development of science-capacious production.

Standard & Poor's has assigned its double- 'B'-minus long-term issuer credit rating to Russia's Sverdlovsk Oblast, said S&P's CreditWire. The outlook is stable. The oblast is located in the heavily industrialized area of the Ural Mountains on the border of Asia and Europe.

Last Updated: June 10 1999. Copyright the Russian-American Chamber of Commerce® 1995-1999. All rights reserved.