News — The Chamber of Commerce and Industry of Tomsk

Long way home

  Each of us think back to the time and have a certain attitude of those long gone Soviet days. For some- it is an epoch of stagnant state-controlled economy and suppression of private enterprises, and others- a period of prosperity, equality and social equity.  However, it is indisputable fact that the most effective economy management had been established and developed in the Soviet days, which, in its turn, involves a system-based and highly structured utilization resources of the most influential country on the planet.

  The development of constituent republics was determined by the strategy embodying the clearly-stated target- share an interest in ensuring a stable integrated Soviet entity. Although the organized production structure in each republic had its own natural resources, it was these resources that determined the role of each republic in the general development strategy. As a result, such a differentiation for years and years, this complicated system of inter-republic economical coordination was established. Due to the dependency on the delivery of prime raw material resources and end-products from the neighboring republics, each republic found itself to be integrated into either the national market or united economy complex. The country was like one smooth mechanism. For example, Kazakhstan and Uzbekistan focused on cultivating grains and cotton. In its turn, cotton was the raw resource for Ivanovo textile factories, and further manufactures fabric was transported to clothing factories in Belarus and the Baltics. Lithuania and Latvia economy was based on the development of electronics, while Belarus was the unique “assembly-shop” where all industrial plant-giants were located. The interfusion of raw material resources ensured free economic policy, efficiently distributed the production forces and promoted concentration and cooperation.

  Upon the breakup of the USSR, former Soviet Union began establishing own economy and society structure on the basis of resource availability, neighborhood relationship, as well as (maybe even more important) own ideological and cultural environment (Uzbekistan-”equidistance”, Turkmenia- neutrality). Concurrently, several republics, especially the Baltics, agreed on a principled position- independence (without Russia). What was the result?  According to Evgene Gontmaher, assistant director of Institute of World Economy and International Relation of Russian Academy Sciences “…. Moldavia failed to be a free economic country, while Ukraine failed to be a state institution. Even if it is so decided, translating these initiatives into action within its country was impossible. Georgia could exist only within an environment of economic and social group development; however, in this case, Georgia was not accepted into Europe, and EEU (Eurasian Economic Union)- Georgia long-term relations has not been established yet. Because of the USSR breakdown, Armenia hasn’t benefit from playing this card. Why? - due to the Karabakh conflict between Armenia and Azerbaijan, as well as ongoing Armenia-Turkey blockade. Azerbaijan was lucky- oil resources. Being financially-supported,  Azerbaijan had the opportunity to invest in its infrastructure.  At the same time, the situation in Kazakhstan was rather unique- rigid vertical power, on the one hand, and, being an open country for inviting investments from different sources (Russia, Europe, USA and China), on the other hand. The situation in the remaining Central Asia countries was worse: gas in Turkmenia; hydrocarbons, gold and uranium in Uzbekistan.There are practically no commercial raw material resources in Tadjikastan and Kirghizia. The situation becomes even more serious because of the Islamist influence and neighboring Afghanistan.  In the short run, Russia acquired more and more benefits, especially during the oil-boom years, but the structural reform was not completed as iterated by President Vladimir Putin and Prime-Minister Dmitry Medvedev.”

  For the past two decades, centrifugal forces have been significantly transformed from the economic landscape to the Eurasian space. While Russia as solving its internal problems, its top range brand on the former Soviet republic market was substituted by representatives from Turkey, China and European businesses. The attempts of Russia “to cement-in” CIS market failed to a certain extent. The alternative issue emerged from the established Customs Union which, in its turn, matured into today’s Eurasian Economic Union (EEU). The organization core includes Russia, Kazakhstan and Belarus. Since 2015 Kirghizia and Armenia joined this organization. In cooperation with EEU, Vietnam and Iran free trade contract was signed. EEU, a territory of more than 18 million people, declared freedom of commodity, capital, work force and service movement. Nevertheless, notwithstanding this positive and “renaissant” vector of development, Russia has been endeavoring to implement its lasting ambitious target- to become a full-fledged member of the global market, especially, European market. However, the Western Nations had its own opinion in this respect. This became obvious after the Crimean events. It is remarkable concerning Russia’s reaction on this situation. At the same time, this fact itself showed how the former Soviet republic potential was underrated. In response to the escalating economic sanction restrictions, Moscow declared pivot not to “ex-partners”, but to the East, i.e. China!

  It might be a false inference that Russia has entirely neglected the market cooperation with former USSR republics for the past two decades. It is not so! Everhanded statements calling for dialogue in developing bilateral long-term economic relations was forwarded to various sites and from diplomatic platforms.  Each time there was always official approval and mutual support from the leadership of these republics. Moscow “Olympus” agreed and approved regular negotiating guidelines for planning former USSR markets.  However, it should be noted that business is there where it is profitable and/or could be profitable.  If viewed in this way, then how to over-persuade which country-partner is more economically advantageous- China and Germany or Azerbaijan and Belarus. But that’s the point-  either commercial opportunities or current political situation. Reality is that the most attractively potential market is almost forgotten ones- Uzbekistan, Kirghizia, Kazakhstan, Armenia and other republics. Consequently,  Federal instructions (directives) are becoming more and more rigorous and mandatory. Thus, based on the analysis of the State Council, dated December 21, 2017, the Russian President assigned the following mission- reversion of regional business (as well as Tomsk region) to the previously traditional marketplaces which were conspicuously tarnished.  

  In this regard, Tomsk Chamber of Commerce and Industry (CCI) has conducted an express-analysis to identify the following: (1) market-oriented direction for Tomsk; (2) how to work toward a two-sided solution; and (3) defining the restraints from mutual partnership cooperation.  The results were both predictable and discouraging. It became evident that Russian entrepreneurs keep in mind some particular “myths” and certain prejudice in respect to markets of EEU countries and former USSR republics in general. In particular, small market potential, low purchasing power, and no demand for Russian high-tech products, as well as acceptance and implementation failure. Let’s consider these facts in detail.  

  Myth 1. Non-profitable markets. Multi-million markets in China, Near East and Southeast Asia -that’s all what we embrace. It is these markets that we should be poised to cooperate with.   In recent years we have recorded the tendency of entrance to the CIS market among out exporters. This is China, Malaysia, Southeast Asia countries, as well as Australia.  According to 2017 analysis results, up to 60% of export contracts of Tomsk entrepreneurs were executed with countries outside former Soviet republics. Our research proved this fact and revealed that 40% of Tomsk exporters are on the CIS markets. Generally, this fact reflects the distorted and faulty illusion as the determining factor is market potential, which, in its turn, excludes the existing complications and barriers. In spite of multi-year cooperation and serious physically demanding efforts, case studies show the successful Tomsk businesses on the Chinese and Indian markets could be counted on fingers. It should be noted that due to the current political and economical situation, entrance to the CIS markets with our products is rather non-profitable. The reasons are high business competition, quality specifications, local producer support, protectionist barriers, as well as specific legislation in effect which significantly hamper trade cooperation. Conversely, EEU market- an appealing market of 180 million people in every respect, with created level playing field and unified customs code, as well as freedom of commodity, capital, work force and service movement. All-in-all, the CIS markets, including Mongolia, are still those countries which are ready for further mutually advantageous cooperation. It is remarkable that the conducted research demonstrated the fact that the majority of exporters understand this.  Moreover, more than 70% of exporters are entering this or that EEU markets. The main fact- Tomsk exporters are only suppliers of advanced processing products. Not one of the enterprise respondents do not export raw material resources. That’s all- a product of market value added.   Commercialized products on the market (as EEU) further the development of intensive non-resource exports, and, respectively, the growth in prosperity of the Russian producers.  

  Myth № 2. Are unexceptants. Closed markets for us. They (i.e. we) have no money. In reality the situation is reverse. We were not turned out of these markets, but we simply shut the door behind us. And other producers entered these markets. In Central Asia-China; in Armenia- Germany, Georgia and Bulgaria. At the same time, the situation in Belarus was not so. It should be mentioned that the producers in some of the above-mentioned countries do have state support. An excellent example could be Belarus.  Of course, these markets could not be considered closed markets. Comparable to China and EU which are wide-opened markets for us. However, this situation is invertedly. Due to relatively economically open markets, in particular, Central Asia, such countries as China and Turkey have moved in, while Americans and Europeans- only into several market spheres. This, of course, would be a big job to win in the marketplace and to drive the “hosts” out of these markets. Really! If not now, when? If not us, who? Then others would achieve a dominant position in these markets. The Uzbeks, who have moved to the implementation of export-oriented state policy in the mid 2017, would actively occupy a market share in Kirghizia, Kazakhstan. It is this that explains the current foreign policy in Uzbekistan, i.e. building good-neighborly relations. They are “nourishing the export soil” and parallel maintaining a proactive policy of production modernization and supporting home producers. In respect to the purchasing capacity, we are not majoring in minors. The point at issue is continuous product support for SMEs (small and medium enterprises). Take the word for it! It is the point that in such underdeveloped countries which are implementing hundred million dollar projects, could have the money for Russian SMEs products. At present, state projects of national economy digitalization are being implemented in Kirghizia and Kazakhstan. And, this is the case where Tomsk hi-tech companies could find their niche market. Besides, Russia- Kirghizia  Development Fund with share capital of 500 million dollars has been established in Kirghizia.   It should be noted that this Fund was organized for money of Russian taxpayers so as to promote  Russian business! The mission is the promotion of economy modernization and development in  Kirghizia, as well as economic cooperation between partners of the Fund. Globally speaking, this is an international financial tool for industrial rehabilitation in the republic. Why don’t we do it- propose our projects by financing. It being understood that the experience of the Fund would be forwarded throughout EEU over time.

  Myth № 3. We are “tough guys.” Our products are in advance of time. This statement could be true for Kirghizia. Such an opinion is the evidence of ignorance concerning the actual situation and current situation in the country. These people do not live in the Stone Age. Today the national digitalizatin program “Taza Koom” has been approved in Bishkek; while the Chinese  Company “Huawei” has won the contest “Smart City” program in Bishkek. Nonetheless, Tomsk entrepreneurs could have been the winner! And, Barnaul could have participated in the 386 million-dollar project in the modernization of Bishkek CHP (Combined Heat and Power) Plant. Alas, the outcome of this matter was that the modernized CHP Plant which was put into operation in November, 2017,  immediately broke down in January, 2018. Bishkek was practically winterkilled.  But the good news is- the contract with Huawei was terminated. So, Tomsk entrepreneurs do have a chance. Whereas, if we look into the situation, we should understand that it is a real honeypot for us! It’s high time to tap into this marketplace. The whole point is Uzbekistan. A country with 13 million-dollar market value and which has forwarded the process of industry modernization (big money on far-reaching state programs) has finally solved the problem of currency conversion. In total, the Central Asia market involves more than 50 million people. It could be that if all SFD (Siberian Federal District) companies start friendly cooperation, then there vwill be enough space for everyone. This is what is worthwhile!   

  Myth № 4. Belarus phenomena – the aftereffect of inattentiveness to other markets. The research revealed an unexpected fact: rather high performance activity of Tomsk entrepreneurs within Belarus market. More than 50% of respondents attempted to enter this market through market exploration and logistic analysis. And five companies were able to enter into a foreign exchange contract and only two companies announced of their representation offices here. However, around 30 % of respondents informed of their Belarus partners. It should be noted that the objective factor, hampering the export expansion into the Belarus market for actual producers,  is  logistics (excluding such spheres as IT and educational services). For example, this is substantiated by the fact that the high export activity in Kazakhstan is twice or more than in Belarus. What is the reason? The most obvious answer is the fact that, initially, Customs Union  embraced three countries: Kazakhstan, Belarus and Russia. It was evident that at first the business moved easily forward. According to the questionnaire, it was Kazakhstan that was the leader in the EEU, while Belarus was the runner up, in spite of the apparent problems in logistics. Conversely, Armenia and Kirghizia joined the EEU quite recently- in 2015. Actually, the analysis showed that Tomsk entrepreneurs remained aloof concerning this fact. Half of the respondents stated that at present they are not interested in the markets of these countries. We consider that there exists a rather serious gap. It is necessary to focus on an extensive and in-depth analysis of these markets by applying all possible tools and links.

  Myth № 5. The laws in our country are imperfect and, it’s a pity, there is no support from the state. Research results showed that Tomsk exporters are practically unconscious of the problems existing in internal Russian legislation. Most problems involve arising questions of the national legislation and corruption within these countries. On the one hand, we are within the same framework of these existing laws. On the other hand, there arises the question- what should we do with this new knowledge? Be out of operation? Or cooperate with reliable partners and operate through safe and secure channels, where corruption is reduced to zero? Probably, there are significant resources here and especially for such organizations as Tomsk CCI, Russian Export Center (REC) and trade representations.  

  Myth № 6. EEU countries, and, broadly speaking, post-Soviet area is a territory of under-educated and population with limited abilities. Siberia involving Siberian universities has traditionally become the base for training future skilled workers and professionals being in demand for the industrial sectors of Central Asia. we need not consider this case separately.  It should be noted that the half of the senior executives in “Kazatomprom” graduated TPU.   Hundreds of students from Uzbekistan and Kirghizia received higher education diplomas and are now working as energy engineers, nuclear physicists, journalists, as well as teachers of Russian and History. Even ex-Prime Minister of Uzbekistan was a graduate of one of Tomsk universities. Nowadays, the mission of higher education institutions gas changed. The priority has shifted towards cooperation with Europe, China and other far-abroad countries. Due to the demographic gap and the shortage of students in many professional directions,  more and more school leavers from Kazakhstan, Kirghizia and Uzbekistan are being enrolled in different Russian universities.

  Such a shift in emphasis within the framework of long-term prospects deprived us of the strategic superiority in the post-Soviet area. What does this mean. The current questionnaire analysis showed that integrated cultural and language space still exists. This is a significant plus for our business, which, in its turn, facilitates further and fruitful cooperation. The prestige of our education is still the foremost in the world owing to the relatively modest cost of the education.   For now the historical inertia is stronger yet. The graduate-generation of post-Soviet universities and institutes is still living and working. As the follow-up younger generation in Kazakhstan and Kirghizia has graduated relatively prestige education institutions in the USA, Europe and Great Britain, the present-day meritocracy, having completed studies based on Western standards and patterns, is arising.  How will the next generation implement the future economic policy?  How will this business develop and advance? Promotion of educational services within the framework of EEU solves two major problems: (1) establishing and consolidating such an environment as to develop favorable common business space and (2) educating those people oriented on Russian production and standards. By attracting and educating students from non-CIS countries, we do not solve the current business issues, but only promote the academic ranking of a university.  However, by attracting students from the post-Soviet countries and training for specific professions would solve the strategic and perspective target of building integrated EEU cooperation, as well as developing favorable economic and political conditions for future business.

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