INDUSTRIES IN RUSSIA

INDUSTRIES IN RUSSIA

Industries: Russia has a complete range of mining and extractive industries producing coal, oil, gas, chemicals, and metals; all forms of machine building from rolling mills to high-performance aircraft and space vehicles; defense industries (including radar, missile production, advanced electronic components), shipbuilding; road and rail transportation equipment; communications equipment; agricultural machinery, tractors, and construction equipment; electric power generating and transmitting equipment; medical and scientific instruments; consumer durables, textiles, foodstuffs, handicrafts. [Source: CIA World Factbook =]

About 27.8 percent of the labor force is engaged in industry. (2012). Industrial production growth rate: 0.6 percent (2014 est.); country comparison to the world: 159. =

After 1991 Russia’s industrial sector continued to rely heavily on defense industries and heavy manufacturing, despite an evident need for diversification. At the end of the Soviet era, Russia’s manufacturing infrastructure was decaying and energy- intensive, although it produced (and continues to produce) a wide range of chemical, metallurgical, and machine-building products, communications and transportation equipment, and ships. Lacking the subsidies and captive markets of the Soviet era, the industrial sector in the 1990s was not internationally competitive. Shortages of investment and human capital were other disadvantages leading to a drastic decrease in production, which by 1998 was only 45 percent of the 1990 level. Especially hard-hit in this period were the consumer goods and metallurgy industries. Light industry, of which textiles is the main component, declined because of its outdated infrastructure and inability to compete on the world market. In 2005 the majority of heavy and light manufacturing categories suffered significant declines in growth rates. Between 2004 and 2005, the overall growth rate of manufacturing decreased from 6.1 percent to 5.7 percent. The food-processing industry showed the greatest growth in productivity in that period. [Source: Library of Congress, October 2006 **]

After a sharp drop in the 1990s, production in the defense sector increased significantly beginning in 1999; restructuring of that chronically obsolete sector has concentrated on high- technology items and products for civilian application. Plans call for the latter outputs to account for 70 percent of the defense sector’s production by 2015. Increased foreign sales, particularly to China and India, and some increases in domestic military spending have spurred growth. In 2005 military exports were estimated at $6 billion. **

History of Manufacturing in Russia

Beginning in 1921, Lenin's Soviet government made industrial modernization a priority. But it was under Stalin that the system of central planning was fully developed and the industrialization of the Russian Republic reached its peak. Throughout the Stalin period, investment resources were directed into heavy manufacturing at the expense of consumer or light industry. [Source: Library of Congress, July 1996 *]

During the later Soviet period, economic reformers such as Nikita Khrushchev attempted to shift some resources to the consumer industries, but the emphasis eventually shifted back to heavy and military industries. This emphasis was especially strong while the Soviet Union was building its military base during the Cold War. In the 1970s, manufacturing productivity declined. As part of his perestroika program in the late 1980s, Gorbachev redirected resources to consumer goods, but the effort proved insufficient to forestall the decay of the manufacturing sector.*

In the 1990s, Russia urgently needed a revival of the manufacturing sector to provide employment and steer the restructuring of industrial priorities away from the impractical Soviet emphasis on subsidized heavy industry and the military-industrial complex (MIC). Although a substantial share of Russia's MIC enterprises underwent full or partial conversion to civilian production and most manufacturers were partially or fully privatized, manufacturing output continued a general decline in the mid-1990s. This trend had slowed by 1995, when the decrease in total industrial production was 4 percent compared with 1994; the 1994 total had been 23 percent below that of 1993.*

Industry in the Soviet Era

In the Soviet era, there were giant factories that were like communities. They provided housing, schools and hospitals for their workers. Industrial towns were created from scratch around resources in the Urals and Siberia. Economic incentives were given to people to go and work there.

The Communist government supported heavy industry such as steel making, heavy- machine making and large infrastructure projects. In the Urals there was an enterprise that made oil rigs, steel foundries and earth movers that moved 100 tons of earth with one move. Some firms produced an illogical array of goods such as cooking pans, washing machines and high-performance aircraft.

But that is not to say the Soviet Union didn’t make its share of consumer goods. In the early 1990s the former Soviet Union made the most refrigerators (about 6 million a year) and socks (almost a billion a year) in the world. It was also made a lot of televisions. The top 5 television producers (televisions per year) in 1988 were: 1) Japan (13,275,000); 2) USA (12,084,000); 3) former USSR (8,578,000); 4) South Korea (7,641,000); 5) China (6,840,000).

A primitive industrialized society was established at a huge cost, namely in terms of pollution, inefficiency and poor production. Industries were heavily subsidized and profits were not regarded as an important consideration. The production cost of a Dresden-produced Praktica camera, for instance, was three times the selling price. Products were often shoddy. Russian stuff! was a common expletive used in Eastern Europe to describe flat tires and broken down refrigerators.

Soviet industrial development was characterized by periods of intense development and periods of stagnation. In the 1990s industries ground to a halt for want of spare while the wage of their workers went up anyway. Regions withheld goods, Karelia in the north, for example, stopped shipping paper and timber because it wasn't receiving food from the south. When Gorbachev attempted to increase food prices to bring more income to the collective farms, the food supply shrank by 40 percent. The decline of Russia's industrial bases led to an increase in industrial accidents. [Source: Mike Edwards, National Geographic, February 1991]

Industry in Post-Soviet Russia

In the 1990s Russian industry was in terrible shape. Factories were filled with out-of-date machinery and there was no capital to retool and restructure them. Some Russian factories and smelters were equipped with machinery taken from Germany as reparations after World War II. One metallurgist told the Washington Post, his steel mill was so old that "in Europe you only study this process in textbooks; no one actually does it anymore."

Industrial production in Russia fell 50 percent between 1991 and 1996, a sharper decline than in the United States during the Depression. Many factories were dark because they couldn't pay their electric bills. Many of these operated run at less than one percent of capacity. Aircraft manufacturers completed only three or four planes a year and still had trouble finding buyers. Many factories were abandoned and were little more than collections of collapsing buildings, toppled walls, rusting machinery and pipes and broken fences.

Privatization allowed factories to shed unprofitable wings and ignore their responsibilities to provide housing, schools and hospitals for their workers. The 44 mills in the town of Ivanovo produced two thirds of the cotton fabric in the Soviet Union and made uniforms for the Soviet army and suits for the members of the Central Committee. After the collapse of the Soviet Union all but one of the mills were closed and tens of thousands of workers were suddenly laid off en masse. In the 1990s, the mills served as warehouses for fabrics that were much better quality and cheaper than anything Russia could produce.

Successful industries increased productivity, improved marketing, trimmed waste, laid off unproductive workers, lowered their levels of debt and increased flexibility. In some regions the government took controlling stakea in debt-ridden industries and implemented solid business practices and then sold the companies to investors.

Weapons Factories Make Consumer Goods

Some weapons factories in Russia made the transition to producing consumer goods. Factories that once produced tanks manufacturing chamber pots. Shipyards that once produced submarines now make a semiautomatic washing machines called the Wave at a rate of 280 a day. Although people wanted them few afford them at a price equal to two months salary. As a result warehouses were overstocked and machines are stored near the assembly line making it difficult to work. [Source: Mike Edwards, National Geographic, March 1993 ♠]

Shipyards that built the first Soviet nuclear-powered freighters built double-hulled tankers with Pepsi-Cola, and discussed producing prefabricated Pizza Huts. They also started making small freighters, oil-field pumps, and plastic buckets, all things that were desperately needed. Former military parts factories produced kitchen cabinets, bicycle parts, and copper chandeliers shaped like artillery shells. By some estimates 90 percent of Soviet industry had ties with the military.

Even after the break up if the Soviet Union, many factories continued to churn-out money-losing product and promised their workers lifetime employment. They were kept afloat by government subsidies and debt forgiveness. Some companies prospered on merit. The television-maker Rubin and refrigerator maker Stinol made better-quality products that they did in the Soviet era.

Metals Industry in Russia

The Soviet Union's ferrous metallurgy industry was a showpiece of centralized planning of heavy industry. The fast-growing industry, vital in supplying other heavy industries with semifinished inputs, led the world in output in the 1970s and the 1980s. Beginning in the mid-1980s, however, ferrous metallurgy did not keep pace with the demands of domestic industry and foreign markets for more sophisticated and stronger metal materials. Many older plants with outmoded technology remained in full production; Soviet plans called for refitting the industry in the 1990s, but Russia's resources have not been sufficient for such a massive project. [Source: Library of Congress, July 1996 *]

In 1994 the ferrous and nonferrous metallurgical industries accounted for about 16 percent of industrial output. In 1996 more than 80 percent of Russia's steel output came from eight plants, although about 100 plants were in operation. Among the industry's most important products are pipe, pig iron, smelted steel, finished rolled metal, and shaped section steel.

The Noril'sk Nickel Joint-Stock Company dominates Russia's nonferrous metallurgy industries. It controls nearly all of the country's aluminum and nickel production and 60 percent of copper production. The largest operations in the industry are Noril'sk Nickel in northwestern Siberia and Bratsk Aluminum, Krasnoyarsk Aluminum, and Sayan Aluminum in south-central Siberia. More than 90 percent of Russia's aluminum comes from six smelters. Some smelters have been privatized and export their semifinished products. Inputs, especially alumina (of which Russia has little), became much more expensive in the mid-1990s, as did transportation and electricity costs. At the same time, export revenues fell. *

The scrap metal business in Russian was very lucrative in the 1990s and 2000s. There were a lot of rusting heaps left over from Soviet era waiting to be recycled. It was regarded as a tough business, not for the faint of heart, with ties to organized crime.

Steel Industry in Russia

In the 1990s the four largest steel enterprises in Russia were the Novolipetsk and Cherepovets metallurgical plants, located southeast and north of Moscow, respectively, and the Magnitogorsk and Nizhniy Tagil metallurgical combines, located in the Ural industrial region. In 1995 the Cherepovets plant was re-formed as the Severstal' (Northern Steel) Joint-Stock Company. In the mid-1990s, more than half of Russia's steel production came from the outmoded open-hearth furnace process; the more modern continuous casting method accounted for only 24 percent of output. [Source: Library of Congress, 1996 *]

World’s largest steel producers: by country in 2006 (thousands of metric tons): 1) China 489,240; 2) Japan 120,203; 3) United States; 4) Russian Federation ; 5) India 53,100; 6) Korea, Republic Of 51,517.31; 7) Germany 48,550; 8) Ukraine 42,830; 9) Italy 31,990; 10) Brazil 31,800; 11) Turkey 25,750; 12) Taiwan, Province Of China 20,450; 13) France 19,252; 14) Spain 18,400; 15) Mexico 16,300; 16) Canada 15,56; 17) United Kingdom 14,300; 18) Belgium 11,000; 19) Poland 10,630 [Source: United States Geological Survey (USGS) Minerals Resources Program]

In the first half of the 1990s, the steel industry was hit especially hard by Russia's overall economic decline, which caused domestic consumption to drop sharply; by 1996 only 50 to 60 percent of capacity was in use. Between 1991 and 1994, output of rolled steel dropped from 55.1 million tons to 35.8 millions tons. Foreign sales were especially important as the only source of hard currency for some enterprises, accounting for as much as 60 percent of output in some cases. In 1995 Russian exports increased by 30 percent, making Russia the second largest exporter of ferrous metals in the world. The profitability of such sales dropped substantially between 1994 and 1996, however. Much of the steel industry's domestic business was payment in kind to input suppliers and railroads. Production costs are raised by the prices of such domestic inputs as coal and iron ore and transportation, which averaged at or above world levels in 1996. Another major cost to the ferrous metallurgy sector is social support programs for workers. Those costs in turn raise domestic metal prices above international levels.*

Magnitogorsk, an industrial city in the southern Ural Mountains, was home of the world's largest steel mill. The Severstal Steelworks, north of Moscow in Cherepovets, contained the largest iron smelter in Russia and employed 60,000 people and generated lots of pollution. It No. 5 blast furnace—with a volume of 5,500 cubic meters— was one of the largest on the world. The steel mill in Zlatousy produced 100 grades of steel and alloys, providing metal for everything from spoons and automobile doors to nuclear power plant parts and aircraft engines.

Currency devaluation was a boon for steel exports. OAO Severstal—Russia’s second largest steel maker in the early 2000s, bought Rouge Steel, a Detroit steel maker in 2002. The American company was founded by Henry Ford to supply steel for his cars and was the fifth largest steel producer in the United States.

Automotive Industry in Russia

In 1993 Russia's automotive industry produced 956,000 passenger automobiles, a decrease from the 1991 figure of 1,030,000 automobiles. During the Soviet period, the industry had gained a reputation for extremely slow production of very unreliable vehicles. In the mid-1990s, the plant rated most efficient, the Volga Automotive Plant (Avtovaz) at Tol'yatti, required about thirty times as long to assemble an automobile as the leading plants in Japan. All Russian vehicle plants operated at far below capacity, with outmoded machinery and bloated work forces. [Source: Library of Congress, July 1996 *]

Although demand for passenger automobiles has increased substantially in Russia over the last twenty-five years, output has not responded even in the post-Soviet period. In 1994 only eighty-four autos were registered per 1,000 people. In the mid-1990s, all automobile plants retained the Soviet style of organization, which is incapable of self-financing or effective marketing. The lack of post-Soviet government subsidies has placed most enterprises in danger of extinction. Some Russian enterprises have proposed joint ventures with Western firms, but in many cases the Russian partners lack funding for such ventures. Meanwhile, foreign imports further endanger the industry: in 1994 only 65,000 automobiles were imported legally, but another 250,000 to 500,000 entered Russia illegally. Therefore, most new cars in Russian cities are foreign. (In 1996 government vehicles were exclusively Audi, Mercedes-Benz, Saab, or Volvo). Exports of Russian passenger cars declined in the early 1990s.*

In the Soviet period, the machine-building industry was at the center of the industrial modernization programs that required a steady supply of capital equipment to respond to new demands. However, the inefficient organization of industrial planning caused bottlenecks in crucial programs and generally unreliable performance. The industry is concentrated in the European part of Russia, with major facilities in Moscow, St. Petersburg, Nizhniy Novgorod, and the Ural industrial region. (Russian machine building includes the automotive, construction equipment, and aviation industries as well as the tractor, electrical equipment, instrument making, consumer appliance, and machine industries.) *

Between 1985 and 1995, production of most categories of machines decreased significantly, mainly because of declining domestic orders. For example, by 1992 production of metal-cutting machines had dropped by 20 percent, washing machines by 47 percent, turbines by 36 percent, and tractors by 45 percent. In 1993 production of about one-third of sixty-two major categories of products declined by at least 50 percent. In 1995 production for the entire machine-building complex was about 4 percent below the 1994 level.*

In the 1990s, Russian automobile factories were old, inefficient, over-manned and produced too few models. Russian car producers suffering from poor sales. Automobile production increasing sharply in the late 1990s but fell in the early 2000s. In 2001, car production fell 5 percent to 970,000, below China’s production for the first time, even though the market for cars was growing.

Russian Automobile Makers

In the 1990s, Avtovaz, the most productive plant, operated at about 70 percent of capacity, and the Gor'kiy Automotive Plant (GAZ) in Nizhniy Novgorod was the only other major plant operating above 30 percent in 1995. The two main truck manufacturers, the Likhachev Automotive Plant (ZIL) in Moscow and the Kama Automotive Plant (KamAZ) in Naberezhnyye Chelny, have suffered especially from reductions in orders by their main customers--the armed forces and collective farms. GAZ has successfully marketed a light truck, of which it sold 75,000 in 1995, mainly to small businesses. The traditional Soviet truck was a heavy diesel model with limited service life.*

Avtovaz ran Russia's largest car factory. It produced more than three quarters of the country's passenger vehicles. Avtovaz produced Ladas, which were designed by the Soviets in cooperation with Fiat. Later Avtovaz formed a joint venture with General Motors.

GAZ (Gorky Avtozavod, or "Gorky Autoworks") was Russia's second largest car maker. Located in Nizhny Novgorod, 260 miles east of Moscow, it produces Volga sedans along with other cars and trucks. It was founded in 1932, with help for engineers at Ford Motor Company, using plans drawn up by Henry Ford himself. Stalin declared it a "Triumph of Socialism.”

In 1994, GAZ employed 350,000 people, ran 120 kindergartens and a 1,100-bed hospital. It owned 10,000 cows and a resort complex in Sochi on the Black Sea. In 2000, GAZ had 15 percent of the Russian passenger car market and employed 100,000 workers and produced 220,000 cars, minivans and trucks. Production was 2.2 per vehicles per worker, about a tenth of the productivity of American workers.

After the break up of the Soviet Union, GAZ continued to churn-out money-losing cars and was kept afloat by government subsidies and debt forgiveness. Middlemen, often in cahoots with management, ripped off the company by overcharging for things like headlights and batteries. Car dealers sometimes paid for their purchases with materials such as metal. In 2001, GAZ was valued at less than $100 million and was about $500 million in debt. It defaulted on European Development bank loan of $65 million in 1999. Efforts to reform GAZ included demanding buyers and dealers pay cash, eliminating middlemen, canceling production of models for which there was no demand, cutting shifts and tailoring production to meet demands.

Light Industry in Russia

The most important branch of light industry is cotton textiles, which has production centers in Ivanovo, Kostroma, Yaroslavl', and about two dozen smaller cities between the Volga and Oka rivers east of Moscow. The economic slump of the 1990s had a dramatic effect on textile production and other light industries. In 1995 Russia's light industry suffered the sharpest drop in production of all economic sectors, slumping by an estimated 25 to 30 percent compared with the previous year. Prices for light-industry goods increased by an average of 2.9 times in 1995 after having increased by 5.6 times in 1994. [Source: Library of Congress, July 1996 *]

Unemployment in Russia's textile production centers has been among the highest in the country. In early 1996, an estimated 70 percent of workers in the industry were on furlough or working part-time. The chief cause is the Russian consumers' decline in personal income, hence in demand. In the mid-1990s, consumers purchased most of their textile products at flea markets, which offered both a wider variety of merchandise and cheaper prices than most stores. By the end of 1995, orders for all types of light-industrial production were 48 percent of the average for the previous years. Production declined by 20 percent in fabrics, 21 percent in leather shoes, and 44 percent in knitted goods, but stocks of finished products grew because demand decreased at a faster rate.*

The high price of cotton also has hampered the textile industry, which had been accustomed to paying low prices for its raw material when the major suppliers in Central Asia were part of the Soviet economic system. Although their cotton is not of high quality, Central Asian sellers now charge world market prices. (Cotton from the "far abroad," outside the former Soviet Union, is even more expensive, however.) In 1996 industry experts expect some improvement because of expanding export markets in Europe and new investment in light industry by Russia's banks. They also expect an increase in domestic shoe manufacturing in the 1990s because the high import duties on foreign shoes make them twice as expensive as Russian shoes--although in 1996 some 65 percent of shoes sold in Russia were imported. The former member countries of the Council for Mutual Economic Assistance (Comecon--) were the chief source of such goods.*

Chemical Industry in Russia

The centers of the chemical industry traditionally have been areas where critical raw materials and allied industries were available. Before 1960 plants were near mineral deposits, potato farms, coking coal, and nonferrous metallurgy plants. When oil and natural gas became prime raw materials for chemical production, plants were built near the Volga-Ural and North Caucasus gas and oil fields or along pipelines. In the 1980s, major plants were built at Omsk, Tobol'sk, Urengoy, and Surgut in the western Siberia oil region and at Ufa and Nizhnekamsk in the Volga-Ural region. In the same period, the government gave strong investment and research support to chemical production because of its importance to the rest of heavy industry. [Source: Library of Congress, July 1996 *]

The major divisions of the chemical industry are paints and varnishes, rubber and asbestos products, synthetic tar and plastic products, mined chemical products, household chemicals and washing compounds, mineral fertilizers, chemical fibers and filaments, and paper and pulp. In the 1990s, output has decreased in all of those areas. Among representative products, between 1985 and the early 1990s production of mineral fertilizers dropped by 29 percent, agricultural pesticides by 74 percent, industrial carbon by 28 percent, sulfuric acid by 19 percent, synthetic tars and plastics by 16 percent, paints and varnishes by 43 percent, household soaps by 25 percent, and caustic soda by 15 percent.*

Based on Russia's huge supply of timber, a substantial lumber-processing and pulp industry developed in the Soviet period as a subsidiary of the chemical industry. In 1996 Russia's largest pulp and paper enterprises were at Kondopoga near the Finnish border, Bratsk west of Lake Baikal, Syktyvkar in the Republic of Komi, and Kotlas southeast of Arkhangel'sk. Most pulp and paper companies do not own timber resources, but timber suppliers, who lease timberland from the state, generally sell raw materials at below world prices, giving Russian manufacturers a competitive advantage. Some mergers have occurred between suppliers and manufacturing operations.*

In the early 1990s, production of raw timber dropped by about 25 percent, mainly because of equipment depletion, lack of credit, higher railroad transport fees, and a drop in construction of lumber roads. In 1993 production of raw timber was 450,000 cubic meters, 75 percent of the 1992 total; production of commercial cellulose was 79 percent of the previous year's total; and of cardboard, 73 percent. *

Technology Businesses in Russia

The high technology sector in Russia was growing at a rate of 15 percent in the early 2000s. A number of computer, software and Internet firms sprung up at Akadengorodok ("Academic City") in Siberia, a former center of military research that fell on hard times after the collapse of the Soviet Union. It formed the heart of "Silicon Taiga."

A number of foreign companies came to Russia to take advantage of its talented mathematicians, physicists and computer scientist who did good work at cheap prices. The Akadengorodok-based software company Novosoft was founded in 1992. By 2001, it had 5000 employees and was doing programming for foreign firms like IBM.

The IBS Group is a computer systems company founded in 1992. In 2001, it had 2000 employees and was adding hundreds of new workers every year and boasted 25 percent growth. It designed sophisticated computer systems that integrated the operations of large companies.

Russian software designers are considered talented. They designed Tetris, the popular computer game, and programs that can recognize handwriting as well as programs used in flight and navigation simulation.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated May 2016

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