Investors’ Guide to Yekaterinburg

Russia’s Manchester and third capital

Yekaterinburg is regarded as Russia’s Manchester and the third capital.The city’s dynamic economy and strong industrial base attract increasing attention from Russian and international investors. In particular, companies looking to localize their production in the country extend their focus beyond Moscow and St. Petersburg and explore the opportunities of the industrial center located only two flight hours from the main capital away.

Major competitive advantages for localization:

  • A choice of industrial parks and production sites to buy or to lease to attractive rates
  • Qualified manufacturing workforce – engineers, blue-color workers, IT specialists. The salaries vary through sectors, with an average of 40,000 rubles (550 euro)
  • Availability of industrial partners and suppliers. Siemens increased the portion of local sourcing for its trains from 25% to 84% in only two years
  • Main road and railroad connections with Moscow and Asia
  • Attractive prices for electricity and gas
  • Governmental support, special economic zones and tax preferences
  • Two major Ural cities Yekaterinburg and Chelyabinsk located only 200 km apart constitute with their satellite towns an agglomeration with 4 million people, the third largest consumer market in the country
  • Quality of life

Yekaterinburg offers for industrial companies all the necessary infrastructure to attractive conditions, especially in comparison with Moscow and St. Petersburg.

300 years of industrial competences and international cooperation

Yekaterinburg was founded by decree of tsar Peter the Great in 1723, together with the construction of a massive metal-making plant, the largest in Russia and Europe at that time.

The city’s name containing the German word (-burg) means the City of Catherine, in honour of Peter’s wife, tsarina Catherine (in Russian Yekaterina), reflecting the same European-influenced naming practice as St. Petersburg, which was founded only 20 years earlier and named by Peter the Great, personally, in honor of Saint Peter. The tsar, in his early years, spent an extensive period of time in Europe, studying shipbuilding in Holland, and visiting factories, arsenals and museums. During his reign Russia and Europe came closer together, and the history of Yekaterinburg is symbolic of that time.

The tsar entrusted the construction and administration of the factory and the fortress to an experienced German mining and metallurgy engineer – Georg William de Gennin. According to records in church books recently recovered in Georg’s home town of Siegen, he was born as Georg Wilhelm Henning, but later changed his name to de Gennin. He constructed the factory-fortress with a strict structure of perpendicular streets, and the plant serving as the centrepiece of the urban area. The former production site is now a public space, marking the city’s starting point and remaining part of the city centre with its government buildings, business towers, hotels and parks located around a large body of water being an artificial pond created with the initial purpose to feed the water-powered ore mills of the metal-making plant.
Iron, steel and copper produced in Yekaterinburg were exported to other countries and used, for example, in building some of the world’s most famous landmarks – the Houses of Parliament in London and the Eiffel Tower in Paris.

The more recent turning point of the city’s industrial history goes back to 1930s, when the big industrialisation wave was unfolding across the country. Alongside the strong development of mining and metallurgy in the Ural region at that time, Yekaterinburg became also an important supplier of large blast furnaces, rolling mills, excavators and other heavy machinery and equipment for this sector, and around the same time or later for further leading industries, including power supply, oil & gas, railway and aerospace. The machine-building giants Uralmash, Elmash and Uralkhimmash were raised from scratch, together with the new city districts bearing the same names.

Since the early 1990s, the region’s industry has been transforming in the new environment of global market economy, with the evolving of new champions and outsiders.

In 2019, Yekaterinburg has a population of 1.4 million people and is, in this regard, the fourth largest city in Russia, behind Moscow, St. Petersburg and Novosibirsk. In administrative terms, it’s the capital of the surrounding Sverdlovsk Region and the Ural Federal District composed of, in total, six regions with a population of 12 million people.
Quality of Life

In the last two decades, Yekaterinburg has been moving on a dynamic path and is today a modern, safe and comfortable city.

Visitors can choose between hundreds of hotels offering the full array of options, from the local ones to well-known names and luxury five-star properties. As far as the list of Best Hotels in Europe from the U.S. News & World Report is concerned, the Hyatt Regency Ekaterinburg is the best in the city and the top-10 percent in Europe.

The city’s airport, Koltsovo, provides dozens of daily flights to Moscow, and beyond to other domestic and international destinations. Koltsovo is well connected to the city via a highway, and takes the top position on the Skytrax list of Best Regional Airports in Russia & CIS 2019.

According to a nationwide poll conducted by Zoom Market in 2018, Yekaterinburg is the safest major cities in Russia. Moscow came second, while Kazan and Novosibirsk took third and fourth place, respectively. Sociologists asked participants to rate the safety of their home city on a scale of one to ten.

Citizens and visitors enjoy an extensive programme of theatre performances, music concerts, museums, art exhibitions as well as a variety of cafes, bars and restaurants. There is a number of venues hosting regularly national and international sport events. In the summer of 2018, the Ekaterinburg Arena was the host to four FIFA World Cup matches.

The international community is represented by diplomatic and trade missions from 15 countries, including Germany, France, China and the USA, reinforcing the city’s unofficial status as the country’s third capital.

Since 2010, Yekaterinburg annually hosts INNOPROM, an International Industrial Fair with 50,000 visitors from over 100 countries.

The city recently competed for the right to host the World Expo 2025, a global exhibition event to take place in the year 2025 with over 15 million visitors expected. The winner was selected from three final candidates by the 170 member states of the Bureau International des Expositions (BIE) in November 2018 in Paris. Even though Yekaterinburg came second, behind Osaka (Japan), the city will still benefit from the publicity created and the inherited concepts from leading urban planning studios, laying the inspirational groundwork for its future development.
Picture 1.5: Expo 2025 architectural concepts / Source: bechu+partners

Contrary to a popular belief, the local climate is not much different in comparison to Moscow, with a warm summer and the average January temperatures of minus 14 Celsius.

The city’s development is continuing on a dynamic path. At the forefront is the construction of a new concert hall with futuristic architectural concepts, a new ice-sport arena for 15,000 visitors, a second metro line for $1 billion, and the $5 billion mega project of a high-speed railroad connection with Chelyabinsk.

Industry

Yekaterinburg is the administrative center of Sverdlovsk Region. The region’s industrial core competences are mining, metallurgy, pipe production, mechanical engineering and heavy machinery. The region accounts for 40% of the country’s total industrial output, holding a significant share in production of copper, titanium, steel pipes, ferrous alloys, locomotives and railroad freight cars. The profiles of leading local companies illustrate the structure.

Copper and titanium are Ural’s export hits produced by Ural Mining Metallurgical Company, Russian Copper Company and VSMPO Avisma. Event though the names do not sound very familiar, the companies take meanwhile a noticeable portion in the world market and their shareholders Andrei Kozytsin and Igor Altushkin are not unknown to Forbes.

Another successful regional product are steel pipes. According to Dmitry Pumpyansky, the main shareholder of Sinara Group, the rapid development of the steel pipe industry in Russia and the region was driven in the last two decades by strong domestic market growth and high investments of over $12 billion – only comparable with China – transforming the outdated pipe mills and industrial complexes into global enterprises. New gas pipeline projects such as Nord Stream, Nord Stream 2, Turkish Stream or Power of Siberia played an important role.

A showcase illustrating the industry transformation is the pipe mill Vysota239 launched in Chelyabinsk in 2010, the probably most prominent example of ChelPipe’s greenfield projects with an investment of $880 million. The mill is equipped with state-of-the-art machines from the German SMS Group, linked to form an extremely modern process chain. Trond Gjedred, a quality supervisor from Nord Stream 2 AG working on the production site, says, it’s probably the most modern pipe mill in the world equipped with the latest technology. His colleague and Chief Project Officer Henning Kothe commented in June 2018: “We are highly satisfied with the performance of ChelPipe. The company fulfilled all its contractual obligations on time and in accordance with the highest quality standards”. CMMS Software Insight listed the mill for its design in a row with Volkswagen’s Transparent Factory and BMW’s Central Building in Leipzig.

TMK (part of Sinara Group) has meanwhile eight pipe mills in Russia and Kazakhstan, thirteen in North America (thereof twelve in the US), four in Europe and one in Oman. Jens Bohlmann, representative of German Eastern Business Association, describes in an article his impressions from the visit of a TMK’s pipe mill located not far from Yekaterinburg as following: “TMK is another example of what I have recently noticed in several other Russian enterprises: the companies are competitive, internationally positioned and excellently managed. The owners have turned an industrial complex from the Soviet era into a global enterprise. Including social responsibility, the company supports local infrastructure and public life as well as leisure facilities. Environmental standards are at an European level, and even sustainability, safety and worker codetermination are not unfamiliar terms here.” 

Ural Locomotives is a 50/50 joint venture between Sinara Group and Siemens AG established at the site of the former Ural Locomotives Plant. The new production facility was launched in 2013. The plant boasts aluminum welding, machining, painting systems and passenger train assembly fixtures supplied by world’s leading equipment makers. Over 150 Russian electronics, machine-building and metallurgical engineering companies now form a full competence cluster around the locomotive production site. In 2014, following the rapid rouble weakening, the company initiated a large-scale import-substituting project which allowed to increase the share of local sourcing to 84% in a short period of time.
In 2018, Russian Railways, Siemens and Sinara Group signed an agreement for the delivery of 11 high-speed trains Sapsan, in addition to 16 of this kind already operating between Moscow, St. Petersburg and Nizhniy Novgorod at a speed of 250 km/h. 

U.S. plane maker Boeing and Russia’s VSMPO-Avisma, the world’s largest titanium producer, launched a second manufacturing unit in 2018. The JV focuses on titanium forgings mainly for B777 and B787 Dreamliner. The long-term contracts between both partners cover around 35 percent of Boeing Commercial Airplanes’ demand for the metal, and should sum up to $ 18 billion over the next 30 years. The new facility is located in Titanium Valley, a special economic zone. The investment amounts to 5.5 billion roubles ($83 million), around 200 jobs will be created. Everything starts from titanium sponge, which is fresh raw material. Before it becomes the Dreamliner’s landing gears, the titanium spends 16 hours in the furnace under the careful watch of a melting operator. “Winged metal” should not have any pores. Even a microscopic defect can lead to a flight accident. Industrial work with titanium began simultaneously in the US and USSR in the 1950s. Titanium is expensive but the metal has major advantages over other alloys. Aircraft construction requires the use of materials that can withstand the severe pressures of flight at high altitudes, as well as constant exposure to the elements. Traditionally, aircraft were made of steel, but lighter, more durable materials are now used to extend the life of aircraft and make them more energy efficient. Titanium is as strong as steel but 45 percent lighter. It can withstand long periods of exposure to salt water in marine atmospheres. The strength of titanium makes it difficult to weld, which contributes to its high price compared to steel and aluminum.

Ural Works of Civil Aviation (UWCA) has been a repair and maintenance shop for aircraft engines since 1939. In the last five years, the company established its own production of light aircraft, helicopters and military drones. In 2017, UWCA assembled its first twin-engine aircraft Diamond DA-42T, pre-ordered primarily by pilot schools, under the license from Diamond Aircraft Industries, an Austrian composite aircraft manufacturer. The production started with a local manufacturing depth of 30%. The company announced that it will reduce the share of imported parts, including composite materials, to nearly zero in 2019. The on-board equipment is already completely Russian-made.

UralVagonZavod, a state-owned enterprise, manufactures mainly railroad freight cars (15,000 per year) and battle tanks. The headquarter is located in Nizhny Tagil, 140 km to the north of Yekaterinburg.

Uralmash and Uralkhimmash are manufacturer of machinery and equipment for mining, metallurgy and oil&gas industries trying to develop new products and technologies, a process accelerated by sanctions pushing major Russian companies to pursue a procurement policy “made in Russia”. Greenfield investments and joint ventures are welcomed, as the vision is to establish manufacturing clusters, i.e. for companies producing drilling rigs and drilling equipment.

IT Competence Center 

The Sverdlovsk Region should become a Smart City Champion in Russia, and there are good chances to succeed. The Ural Federal University is one of Russia’s leading IT institutions, while Yekaterinburg is the host to around 2.700 IT companies, 5 of which are on the list of the country’s 100 biggest IT enterprises. The Region is already an IT competence center, ranked 3rd behind Moscow and St. Petersburg. 

Logistics

Located in the heart of Russia and at the crossroads between Europe and Asia, Sverdlovsk Region is an important logistic hub with main road and railroad connections to all major destinations in Russia and beyond. Daily seven to ten trains pass through the region from China to Europe.
Note: The domestic road cargo volumes going from Central Russia to Yekaterinburg are higher than the other way around. Following logistics companies offer lower tariffs for empty trucks heading to Moscow.  

International investments 2018 (medium-sized businesses)

Sika (Switzerland) opened a new production site for concrete admixtures.
Ivo Schädler, Regional Manager EMEA says: “With the foundation of the new production site near Yekaterinburg, we are investing in a region that has dynamic growth and a booming construction industry. We have now created the ideal framework for tapping into this potential and further accelerating our growth in Russia.”

Hüttenes-Albertus (Germany) and its local partner announced $20 million investment to localize the production of a chemical binder used for making sand casting molds. The product enables foundries to deliver advanced engine and machine cast parts for automotive and machinery manufacturer. The Joint Venture plans to launch the production in 2020.

Lasselsberger (Austria) acquired Plast-Rifey LLC, the developer of the largest kaolin deposit in Russia. With new investments the company will produce fiber cement plates and kaolin for Lasselsberger’s ceramic tile plant operating since 2009 in neighboring Ufa. The investments are estimated at $60 million.

For more information, feasibility studies and support please contact MAC International Consulting:

Phone: +7 (343) 312 22 74
E-mail: info@mac-consulting.net
Web: mac-consulting.net
Yekaterinburg