Is the future of the Urals in metallurgy and automotive engineering, or do electronics and the food industry also stand a chance? Have sanctions changed the structure of exports? We spoke with Evgeny Stepanov, Doctor of Sciences (Economics), Head of the Department of Customs Affairs at South Ural State University, about the prospects for the Ural region's foreign economic activity.
The trail from the times of Demidov
The Chelyabinsk Region is commonly classified as a mono-exporter. And naturally so, because metallurgical products account for more than half (up to 79.5%, to be exact) of the goods exported abroad from the region. Specifically, three commodity groups are export leaders in the South Urals:
- ferrous metals;
- goods made of ferrous metals (for example, pipes);
- non-ferrous metals (mostly copper).
The SUSU Department of Customs Affairs does not classify goods at will, but according to the Eurasian Economic Union's Commodity Nomenclature of Foreign Economic Activity. In it, each commodity group corresponds to a code: for example, ferrous metallurgy is 72, and electronic engineering is 85. Anyone can find this nomenclature online to see what our country exports.
This is how exports have historically developed. As early as the 18th century, the national and “Demidov” factories roared to life in the Urals; the evacuation of enterprises from the west of the USSR to the Urals during the Great Patriotic War played a huge role in the development of the region.
But at the same time, in the middle of the twentieth century, the Chelyabinsk Region's mechanical engineering industry was also taking shape. Today, the main share of mechanical engineering exports today is comprised of trucks manufactured by OAO UralAZ.
The South Urals region’s exports have grown to make up 1.8% of all Russian exports—a very good indicator for the region!
Gates to Asia
The start of the special military operation and the imposition of sanctions by Western countries changed the geography of export flows, but did not affect their structure too much. Yes, exports turned from the west to the east. Countries in Southeast Asia, primarily China and Vietnam, as well as the UAE have become the main exporters.
The situation is similar with the import of goods to the South Urals. The main importers of the region today are Kazakhstan, China, and Uzbekistan. Cooperation with the latter is facilitated by the work of the Russian-Uzbek Business Council, established with the participation of the South Urals Chamber of Commerce and Industry.
These trends were manifested as early as in 2021.
Another significant factor associated with the export reorientation to the East is the possibility to reject settlements in American dollars and euros and pay in Chinese yuan or even Russian roubles.
In addition, there are plans to create a "dry port" (a large transportation and logistics hub) in the South Urals near the Formachevo station. Cargo is already being regularly shipped from there on to the Far East. Of course, it would be much faster to transport goods to China, for example, via Kazakhstan and the Xinjiang Uygur Autonomous Region of China, but for now it is a matter of politics, and the trains go through Siberia.
ABC: computers point the way
Computer models help build forecasts of the region's foreign economic activity at the Customs Department of the School of Economics of SUSU. Recently, the head of the department, Evgeny Stepanov, and Irina Danilova and Kseniya Nesytykh obtained a patent for an algorithm of structural and dynamic analysis of foreign trade of Russian regions. The algorithm is based on ABC-XYZ analyses.
What is an ABC-XYZ analysis?
Everyone is familiar with the Pareto principle: "20% of efforts bring 80% of results" and vice versa.
A matrix is drawn up, the columns of which are labelled A, B, C:
A: 80% of the export nomenclature;
B: 10-15% of export nomenclature;
C: the remainder.
Matrix rows X, Y, Z reflect the demand for products:
X: stable, high demand;
Y: "average";
Z: low (this may include new products).
The program developed at SUSU receives a huge database of customs statistics as input. The forecast is output as an ABC table.
The upper left cell of the AX table contains goods with the highest demand, but it is empty—we still have to strive for the ideal.
Below the cell AY, the volume of supplies is greater than 80%, and the demand, although not ideal, is quite stable. The traditional products of the Southern Urals are in these cells: rolled metal products, pipes, and ground transportation equipment, thanks to UralAZ and those who are in the same technological chain. According to Professor Evgeny Stepanov and his colleagues from SUSU, it is this item (trucks) that has shown growth in recent years.
The BY cage displays medium stable demand and 10-15% of the supply volume and includes promising industries: electronic devices, plastic products, medical equipment. It is not bad that the South Urals is making money on it!
But timber and timber products have fallen from BY into BZ. It would seem that demand is unstable... And yet the supply of timber to Asian countries is growing steadily, and exports to China have increased 40 times in 2018–2020! So the “bottom line” is not a final verdict.
Unfortunately, food products fall into the lower right CZ cell: the demand for food from Chelyabinsk is not great, and our suppliers are not ready to supply it abroad. This does not mean that no one exports buckwheat or Makfa macaroni from the Urals. It is just that the share of the food industry is small against the background of rolled metal products. But there is something for farmers to work on!