Timur Shagivaleev: 'In rubles, our economy seemed to be growing. But if in dollars...'

Revenue of Alabuga residents — 87 billion rubles

Timur Shagivaleev, the director general of Alabuga IP SEZ JSC, answered the questions of Realnoe Vremya readers at the online conference of the publication on 27 April. The speaker spoke about the opening of the Alabuga Polytech educational centre for the training of personnel in demand by residents. He explained how cooperation with Western companies is being built today against the background of tougher sanctions and how the SEZ project will develop.

Now, according to Timur Shagivaleev, the total revenue of all residents of Alabuga is comparable in terms of turnover with the large Tatarstan companies such as Kazanorgsintez and Nizhnekamskneftekhim. The revenue of the residents of Alabuga IP SEZ in 2020 amounted to 87 billion rubles. The SEZ's management company expects that in 2021 it will amount to 91 billion rubles.

For 15 years, Tatarstan has created one of the largest industrial clusters in Russia, said Shagivaleev, who thanked the “founding fathers” of the SEZ, now working in the federal government:

“Thanks to Mishustin, Alabuga actually launched, Marat Khusnullin personally built 'Alabuga', coming to us on Sundays. Irek Fayzullin was the chief designer of Alabuga.

Before 2014, Russia was a participant in the global financial markets, and some of the money from the West was transferred to us. We sold them oil, gas, and metal, and in return, we got a lot of money, which we directed to our development

Why Alabuga initially tried to attract foreigners

Over the years, Alabuga has had two stages of development. The first — 2006-2014 — was mainly associated with attracting foreign investment, and ended in fact “after the aggravation of the international situation”. The second stage — from 2014 to the present — keeps the Russian industry in priority.

“At the first stage, many large foreign projects were launched in Alabuga SEZ: Sollers Ford, Rockwool, Kastamonu, etc. Foreigners chose first Russia, then Tatarstan, and finally Alabuga. Why was there the focus on foreign investments? The answer is not as simple as it seems. Before 2014, Russia was a participant in the global financial markets, and some of the money from the West was transferred to us. We sold them oil, gas, and metal, and in return, we received a lot of money, which we managed to direct to our development," Timur Shagivaleev explained at the online conference of Realnoe Vremya.

It is not an easy answer, he believes, to the question of why foreigners have a lot of money, and Russians are forced to attract most of these investments. According to him, a huge impact on the development of Western companies and economies has their monetary policy, which works differently than the Russian one.

For example, if a hospital is needed to be built in Yelabuga, then the budget should include funds for this, any sources: taxes or customs duties. In the West, Shagivaleev says, everything works differently: if there is a need to build a hospital, then the state issues money for this in the Central Bank, and GDP predictably grows.

“As a result, foreign manufacturers always have a long-term predictable market, under which they build long-term strategies, invest in R&D. In addition, they have free funds, and they come to the country to us and build factories here. They have breakthrough technologies and practices, permanent sales markets. Therefore, the investors were mostly foreign," said Shagivaleev.

As a result, foreign manufacturers always have a long-term predictable market, under which they build long-term strategies, invest in R&D. Besides, they have free funds, and they come to the country to us and build factories here

“Investors choose countries and projects that will grow”

However, after 2014, foreign investors faced the problem: due to the sanctions imposed on Russia, international rating agencies now give 21% discount on all Russian projects. Foreigners consider a new project, and it turns out to be 20% worse in terms of marginality, “although the figures indicate differently”. Investors also can't raise money on the stock market — without penalties.

“Second, if we take our economy… Investors choose countries and projects that will grow, where there will be demand. In rubles, our economy seems to have grown in the last 10 years, conditionally by 10%. But if we measure our GDP in dollars — then in reality the Russian economy has shrunk by 10% from 2 to 1,5 trillion dollars. The economy has actually shrunk," said Timur Shagivaleev.

Foreigners are not happy primarily with the shrinking Russian market, although they show interest in Russia. And if Russia does not start setting goals for economic growth of 15% a year, no foreign investors will do it for it, the general director of Alabuga is sure:

“Would foreign companies like to work in Russia? Yes. Are they looking at our market? Yes. Are they happy with our market? No, our market is not enough for them. Ford reduced its presence in Russia. Their forecasts for sales in Russia have not realised. Why? Because the country's economy has been shrinking all this time.”

Would foreign companies like to work in Russia? Yes. Are they looking at our market? Yes. Are they happy with our market? No, our market is not enough for them

So what can we buy? Bast shoes, or what?"

Timur Shagivaleev was also skeptical about the “fact” that Russia is developing and its economy is almost the seventh economy in the world in terms of purchasing power parity. The very “purchasing power parity” suggests that in the country for rubles we can buy our goods cheaper than Americans at home for dollars.

However, the general director of Alabuga drew attention to that the cost of fuel is the same, and the cost of vehicles is the same. The cost of iPhones is even more expensive than in the US, and our salary is 7 times less than in America.

So what can we buy? Bast shoes, or what?" Timur Shagivaleev quipped. “This is a cynical manipulation, we must abandon the theory of 'purchasing power parity'. The second stage of the development of Alabuga, which began in 2014, made us completely rethink the strategy of the SEZ team. What if there is no foreign investment? Wait? We've rethought our strategy. The main projects of recent years are Russian. August, for example, Transneft-Sintez, Technonicol.

What Alabuga Polytech educational centre was created for

The situation in the Russian economy is now difficult, the ruble GDP of Russia is stagnating, and the dollar GDP is declining. This adds to the difficulties for the Russian residents of the Alabuga SEZ. For the new strategy of the SEZ itself, other personnel, technologies, and finances were needed. Therefore, Timur Shagivaleev considers the project of the educational centre Alabuga Polytech to be the most important in recent years. With its help, the SEZ actually “solved the personnel problem for 10 years ahead”.

At the previous online conference of Realnoe Vremya newspaper, Minister of Labour, Employment and Social Protection of the Republic of Tatarstan Elmira Zaripova spoke about how the problem of the personnel gap in the Kama agglomeration will be solved: “There is a high demand for personnel, for example, in the Kama agglomeration, where we have experienced a shortage of labour in recent years — in Naberezhnye Chelny, Yelabuga and Nizhnekamsk. We are working closely with the local authorities. Today, Alabuga is developing not just separate projects, but also projects that connect businesses and educational organisations with each other.

Today, the SEZ team wants to train people in the centre who can build factories themselves, form new teams. Moreover, every year 500 people are required for the needs of Alabuga. A by-product of Alabuga Polytech will be that the SEZ will have its own engineers, experts in industry 4.0. According to Timur Shagivaleev, if you send graduates of Yelabuga schools to study in Kazan, then no more than 1-5% will return to Yelabuga after graduation.

“That's a problem. Our current task is to provide a world-class education in Yelabuga itself (Alabuga). Alabuga Polytech is the first stage of career development for a person. In one year, it will be fully ready to work on the most modern equipment. Our teachers and engineers come from the leading factories of Alabuga," explained the SEZ's director general.

What if there is no foreign investment? Wait? We've rethought our strategy. Main projects of recent years are Russian

Seven hundred million rubles have been invested

It is assumed that for a year of study, the student will have the opportunity to get “world-class knowledge”. But the requirements of residents are that the employee already has at least a couple of years of work experience. Therefore, the SEZ Alabuga Management Company will hire students immediately after the first year: thus, they “work fully from the second year in our teams, divisions, getting the necessary skills”, Shagivaleev said. Currently, 200 people are studying at Alabuga Polytech, and the plan is to have another 300 students starting next year. Training is free and subject to subsequent employment — graduates must work for three years in the SEZ.

“They will then work for residents, whom we have not even attracted yet," said Timur Shagivaleev. “We teach children not only mechanics, but also business planning. There is a computer programme that teaches how to manage a small business. Now 16-17-year-olds have a very versatile mind, it's time to invest in them the knowledge necessary for future work.”

The SEZ team was “helped” by the pandemic. At the first stage, the residents were asked whom they needed: the employees of the management company could spend more time with the engineers of the plants, step by step learning what minimum knowledge is needed for the employees of the residents. For example, they need not just robotics, but those who can develop robots in a specific programming language.

“We gave a piece of the programme to students who will be able to master it in one year. After that, a person can fix the knowledge and work as a robotics engineer, or get an economic education, or to study robotics even more deeply. We are now building a complex where they can do this.

Investments in Alabuga Polytech — amounted to about 700 million rubles. And these are credit funds, but the SEZ, according to Shagivaleev, “finances from the future”.

“First we get loans, then we build what residents need. And from the taxes paid by them, we will compensate for the costs," Timur Shagivaleev explained.

Our current task is to provide a world-class education in Yelabuga itself (Alabuga). Alabuga Polytech is the first stage of career development for a person. In one year, it will be fully ready to work on the most modern equipment

“It paid off”

In total, the state has invested 25 billion rubles in the project of Alabug SEZ, of which 7 billion — Tatarstan. Since 2006, it has collected 28 billion rubles of tax deductions and customs duties. Thus, the project has already paid off, the director general of Alabuga is sure. Over 10 years, the federation has recouped its investments through VAT, excise taxes and customs duties, receiving 23 billion rubles. Tatarstan has collected 5,1 billion rubles of regional taxes from residents over 15 years: personal income tax and income tax (regional part).

“It seems that Tatarstan's investments have not paid off yet. But when a factory is being built, builders are working, service sector is working, transport workers are working. We do not count these organisations, do not know their reporting. That is, a multiplicative effect is formed, creating a new economy. And this new economy gives at least as much in taxes. Therefore, in general, we have recouped the investment throughout the subject," says Shagivaleev.

Every year, 3-5 plants are opened in Alabuga SEZ. Timur Shagivaleev considers microelectronics to be the most promising niche for the future — despite that Russia “produces almost nothing in this area”. In his opinion, today we need a state programme for the purchase of Russian computers and Russian chips — these products may be worse in quality than their Western counterparts, but there will be Russian added value. And millions of errors will fall into the database of the SEZ residents and Alabuga itself — thus, every year the understanding of the industry will grow. The first step in this direction has already been taken: Alabuga SEZ has signed an agreement with Chinese company Haier on the localisation of microelectronics in the SEZ.

“We will jointly develop and certify boards for their consumer electronics based on their technologies, train specialists at Polytech, and provide Haier with our own space and part of the financing," the head of the SEZ said about the new project. “The history of localisation of the entire microelectronic industry is long-term, at least 15 years will be required for its creation. And I think that we really need state funding for companies that have decided to buy Russian components.”

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