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Wednesday, 14 November, 2001, 14:44 GMT
Russia's recovery in the spotlight
Penza skyline
Penza lies between Moscow and the Volga River cities
Russia's economy is buoyant, its industry seemingly booming and the financial crisis of 1998 almost forgotten. But is the recovery solid? James Schofield visited the industrial region of Penza to investigate.

After a decade of catastrophic decline much of Russia's dilapidated industry has creaked back into life since the financial crisis of 1998, when the government defaulted on domestic debt and the entire banking system collapsed.

Far from finally sealing the fate of Russia's troubled economy, as many at the time predicted, the post-crisis period has proved to be something of a reprieve for many companies.

It was a great shock to lose the demand from the military-industrial complex, to see the orders fall

Konstantin Artyushin, Penza international relations

Since 1998, billions of dollars of hard currency earnings have flooded into the country thanks to recent high commodity prices on the world markets for oil and metals.

As companies have since invested their windfall profits, strong demand for machinery has breathed new life into the industrial rust-belt of the country.

But whether this heralds a bright new beginning or the last gasp for the once mighty soviet industrial complex is yet to be seen.

Penza - typical example

The region of Penza, 700 km to the south east of Moscow and home to 1.5 million Russians, is a good example of a typical region that has benefited from the turnaround.

Walking the streets of the city, there is little evidence of the western-style consumerism that has become so evident in Moscow and St. Petersburg.

8,000 skilled workers are needed
Shop fronts bear the same kitsch designs and window displays as they did two decades ago.

The battered town buses and lorries belch fumes as they make their way along the roads.

As factories were evacuated from St. Petersburg and Moscow, ahead of the advancing Nazi armies during the war, Penza became a supplier of generators, motors and spare parts.

It relied heavily on government orders and as much as 60% of production was destined for Russia's military-industrial complex.

Permanent change

In the early 1990's, orders from the government and military evaporated. The region was plunged into economic chaos.

By 1997-1998 unemployment had grown to18%. Workshops remained silent and machinery still with salaries going unpaid for months and even years.

"It was a great shock to lose the demand from the military-industrial complex, to see the orders fall," says Konstantin Artyushin, head of the international relations department of the local administration.

"It took five years for the factories to understand that the situation had changed for ever."

New lease of life

Over the last two years however, things in Penza have changed.

The collapse of the rouble in 1998 made domestic products more attractive, as imports quadrupled in price overnight. Unemployment has fallen to 1.5% and industrial production has grown 141% since 1998 according to the local administration.

Shoe factory in Penza
Penza's shoe factory is hoping for an Italian contract
In the factories themselves, directors report that order books for everything from pipelines and tankers for the oil industry to agricultural machinery and flour grinders are full and have increased by up to 400%.

Salary arrears have mostly been paid off and money has once again started to flow into people's pockets.

Consumer spending has steadily picked up and stimulated the production of goods for the local market as well.

True benefits

However, like so many other cities across Russia, the promised benefits for the average worker of a market economy still remain hard to see.

Wages, about 3000-4000 roubles (75-100) per month for a technical graduate, remain low.

There are few modern cars on the streets and the main hotel in town remains a throwback to the severe and imposing Soviet decoration of the late 1970's.

Yet, things have improved since the low point in 1998.

As the metal working plants and machine building factories have whirred into action once more, demand for labour has recovered strongly.

Keen students

Some 8,000 skilled workers are needed across the region according to Mr. Artyushin and technical colleges are once more heavily subscribed.

"Our college now has four times as many students as we did in 1997," says Vladimir Lifanov, director of the local machine building and metal processing college.

"We have seen a sharp growth in demand, especially for welders and metal workers. Our fourth year students are already out working in the plants because they are needed by the local industries."

But the future of the local economy is far from certain.

Inflation is high (18%) and as prices rise, foreign import once again are beginning to look affordable.

But will it last?

That is bad news for factories in places like Penza.

Local industry desperately needs to diversify and plants need new equipment.

Despite the present good news from the directors, that is going to prove difficult.

On the factory shop floors much of the machinery dates back to the 1960's, whilst tiles and paint peel from the walls.

High imports tariffs make buying foreign technology expensive.

Few international manufacturers like Procter and Gamble or Nestle are likely to establish local production facilities here either.

With incomes low, demand for more expensive 'western' goods is still weak.

Meagre foreign investments

Total foreign investments into the region over the last decade amount to a meagre $4.5m, or 30 cents per person per year.

There are glimmers of hope though. The local giant shoe factory, with 3,000 employees hopes to sign an important export contract with an Italian company in the near future.

A leading domestic brewery 'Ochakovo' also plans to invest $85m in the region and create 1,000 jobs.

The administration is confident that Penza can absorb much more investment and hopes it will become a warehousing and communications centre.

Survival struggle

Lying half way between Moscow and the Volga River cities, Penza has good rail and air links while storage facilities cost a fraction of those in Moscow.

The last two years have proved a period of remission for the ailing Russian industry and regions like Penza.

It, and dozens of similar cities across the country still have a long way to go before they fully recover.

Not everyone is convinced that it can succeed though.

One young graduate travelling on the train to Moscow wants to leave the region for good.

"Penza will probably carry on much as it always has," he said, unimpressed by the news of growth. "This city has always be on the brink of survival."

See also:

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