Project to change Dagestan

Makhachkala, April 1, 2015. The “New Industrialization” project is the most difficult and the most ambitious one among all the complex Dagestani Head’s priority projects. It can give Dagestan what it lacks: the large enterprises, which may become the main taxpayers. In other words, Dagestan will be unsubsidized, wealthy and prosperous in case of proper project implementation. However, there is quite a serious difficulty - the foundation of large companies requires solid investments. The republican budget is unable even to partially finance the large-scale project. Dagestan, perhaps, has to attract foreign investors, to seek financing from commercial banks and to solve many other specific objectives.

We can conditionally divide all items of the New Industrialization project in two realization stages. According to the first one, the sub items of the project can be implemented easily, for they require relatively “modest” costs mainly available in the republican budget and target federal programs. For example, the project will support a number of existing industrial enterprises that work more efficiently and increase production tempos. Thus, it envisages the modernization of producing assets of "Dagfors", "Aviaagregat" and some other enterprises, the radical reconstruction of Makhachkala commercial port, the deployment of innovative productions in Aviaagregat plant.

There are definitely reasons to be optimistic in the project implementation. In fact, the volume of industrial production has been growing by leaps and bounds for recent years in Dagestan. The republic obtained orders and industry has already created records in growth rates compared to the last decade indices. The index of industrial production grew by 39.8% in January-October 2014 not from a starting point of zero but after several years of growth. The industrial production has greatly increased due to the volume of orders for major companies such as Dagdizel OJSC, KEMZ OJSC, the Gadjiyev plant and others. Nevertheless, there is an underutilization of production capacity. All what Dagestan plants need today is the new orders.

The modernization of the whole transport infrastructure including port, airport and the main road achieve rapid progress in the republic of Dagestan. Dagestan Government and ministries actively participate in modernization speed up. Funding is executed from the federal and republican budgets. Therefore there is a higher probability that the work will be completed quite successfully. By the way, the process of reconstruction of Makhachkala airport has recently been completed. This reconstruction has also been included into the “New Industrialization” priority project.

Of course, the most interesting is the realization stage related to the creation of new industries from scratch. In Dagestan, there are companies working in the field of construction and the very creation of new industries will have a large multiplier effect. The example of the successfully operating Caspian float glass plant gives some ground for optimism. It means that more similar investment projects may be easily launched and realized in the republic. The capital recovery time in such cases is minimal.

The oil and gas extraction from the sea shelf, implemented by the Rosneft OJSC will become very expensive but ambitious part of the project.  
RusHydro OJSC intends to create a series of small hydropower plants. Despite the crisis, these projects are relatively protected from failure by state guarantees. The state institutions had already announced that both industrial giants would be supported and assisted in refinancing.
The most difficult part of the project relates to the attraction of private and corporate investors. The state will provide only the creation of industrial sites, but the establishment of industries with all the attendant risks and costs remains on the investors.

In contemporary economic crisis conditions, the investors are experiencing some difficulties. For the time being there is no clear notice of termination or slippage of projects. However, it is principally possible.

Of course, there is a second "pole", the own risk zone. Unfortunately, the crisis will not go completely unnoticed for an existing investment program. It should be expected that the greatest difficulties arise for those projects that partly depend on the financial market. For example, some difficulties may arise in the mega-project to create textile production "Nergiz-Dagestan". Although no official comment was given, according to some reports, the Russian side after studying the project filed a claim to Turkish investors for possible supply of poor quality and worn-out equipment. It speaks for the delay of the project.
However, the Republic of Dagestan confidently continues to create sites for industrial clusters. There is no doubt that in the end they will find the site and large investors and small forms of production. Any difficulties are temporary and will be inevitably subdued.

In fact, Dagestan long outgrown the current stage of weak development of the industry. Ten years ago, the private workshops were created directly in the courtyards of private houses or rented in the abandoned production areas. Possessing a huge production capacity, they can give a solid development impetus. Nowadays their owners have capital investments and streamlined sales for reaching the new stage of the development. So there is no doubt that when the realization of industrial sites is completed, they will not stand idle.

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