The role of the auto industry in the country’s economy
The auto industry is an important force in the country’s economic development. Overall, there are about 400 manufacturing operations and organisations in this sector. At present, Russia’s auto industry accounts for around 1% of GDP; almost 400,000 people work at facilities manufacturing vehicles and auto parts. In addition to this, there are around 1 million jobs at related companies and auto dealerships that also make up the auto industry.
A well-developed auto industry is a key factor in modernising many related industries, such as the electrical engineering, metallurgical, chemical, electronic and textile industries. Due to the multiplier effect, the motor industry creates about 4.5 million jobs in related industries.
Localisation of Industrial Auto Assembly
The Russian government’s action plan to create a green-field industrial auto assembly segment in Russia’s auto industry with a high percentage of auto parts being manufactured locally was implemented by 2010.
With the Russian auto market growing at a rate of 30% to 60% every year, the government initiated measures in 2005 that aimed at attracting investment from foreign automakers. It issued Resolution No. 166 On Amendments to the Customs Tariffs of the Russian Federation Regarding Auto Parts Imported for Industrial Assembly, which is a key document setting forth the framework conditions for foreign automakers operating in Russia.
Encouraged by this document, practically all the world’s leading players in the auto industry came to Russia. Today, the Russian auto industry has a completely new image. Twenty-seven agreements with automakers were signed, 17 of which are being carried out. Additionally, out of the 38 agreements signed with vendors, 21 agreements are also in the active stages of implementation.
The percentage of cars manufactured in Russia, including Russian-made foreign brands, has grown remarkably over the past few years, reaching 60%. By now all basics have been put in place for the auto parts industry to develop into a major sector.
Riding Out the Crisis
The crisis dealt a serious blow to the auto industry. However, the prompt measures taken by the government to support this sector (ranging from customs and tariff regulation to motivating end users to buy) have buoyed key investment and innovation projects and helped to preserve jobs.
Foreign investors have not scaled back their operations in Russia. Moreover, despite the bumpy economic situation, new industrial assembly facilities were opened in Kaluga and St Petersburg. A smooth passage through the crisis has proven once again that measures to support the sector were carried out correctly.
The Development Strategy for the Auto Industry until 2020
The government addressed the issue of further developing newly built manufacturing facilities, as well as shortcomings in the model for growth for Russia’s traditional automakers by drafting a development strategy for the auto industry until 2020.
The strategy’s goal is to maximise value added in Russia throughout the value chain (from the current 504 billion roubles up to about 2.25 trillion roubles in 2020). By 2020, 80% of cars sold in Russia are expected to be manufactured domestically, with an average localisation rate of 50%.
The strategy is focused on the development of Russia’s own intellectual property in products and the comprehensive development of automakers and auto parts manufacturers.
The main forces between value added growth in Russia are as follows:
1) an increase from the current 230 vehicles per 1,000 people to 363 vehicles by 2020 as demand for cars swells;
2) a growing share of exports, mostly of cars and trucks;
3) a declining share of imports as a result of import substitution and the development of car manufacturing in Russia;
4) a higher level of localisation for automakers and the establishment of a competitive auto parts manufacturing sector.
With due account of trends prevailing in the global auto market, the strategy targets global partnership, thereby paving the way for the appearance in Russia of several well-developed automakers consolidated into global automotive alliances.
The following package of government support measures aims to ensure successful implementation of the strategy:
1) measures to create market conditions to promote manufacturing in Russia, namely, to encourage demand and upgrade the fleet of motor vehicles, and also put in place a vehicle disposal system.
This set of measures also includes retaining tariff and non-tariff measures, harmonising technological and tariff legislation across the Customs Union and promoting exports of the Russian auto industry.
2) measures to create conditions conducive to the sustainable innovative development of Russia’s auto industry. The main priorities in this area are providing incentives for starting up high-tech operations, developing a national basis for research and development and also for experimental and design works, as well as funding the creation of auto part manufacturing clusters (in the Volga, Central and Northwestern Federal Districts).