Andrey Berezin: Falling Economies with a Bailout Solution

Andrey Berezin: Falling Economies with a Bailout Solution

How does the government and business in St. Petersburg manage to protect themselves from industrial decline?

According to the preliminary results of 2022, the industry of the St. Petersburg agglomeration coped with the crisis somewhat better than expected by the expert community. In the Leningrad Region, the decline in industrial production was quite small and was mainly due to the temporary effects of restructuring the work of some sectors of the industry in accordance with new economic conditions. In the city, the industry even grew slightly, despite the fact that the auto plants, which were closed down in the first half of the year, have not yet been restarted.

Beyond the Automobile Industry

In more detail, the statistics are as follows: In St. Petersburg, the growth of industrial production for 11 months was 4.7%, and in the region, the index was almost the same at -4.8%. However, a closer look at the dynamics of the last month included in the period under evaluation, November, reveals even more positive data. In November (as compared to November 2021), the growth in St. Petersburg amounted to a very noticeable 22%, and in the Leningrad Oblast, although there was still a decrease, it was at a somewhat lower rate than the annual average of -4.2%.

Separately, experts note the good health of the manufacturing sector of the industry, which holds particular importance for both the northern capital and the region. In the city, the growth over 11 months was 27%, and in the region, it was 13%.

In the rest of the sectors of the city’s economy, the best-performing ones were the food industry with a 22% increase, clothing manufacturing with a 17% increase, pharmaceuticals (a 19% increase), and metallurgy (an 18% increase).

The most difficult sector was the automobile industry, where production sank nearly tenfold, with the industry index dropping 89%. This is explained by the stoppage of conveyors of major automakers, which took place at the turn of the first and second quarters of the year. In addition, the printing industry, as well as the logistics industry, including those related to port operations, were among those that suffered. Another block that took a hard hit is the forestry industry, which over the past decades has been built on the basis of foreign trade priorities, above all, with EU countries. This is precisely why the decline here has not been able to be compensated quickly.

Experts, including those in government, point out that the key role in stabilizing the economic situation in St. Petersburg and the region was played by the actions of the federal center and, first and foremost, the Central Bank. The latter timely introduced emergency measures in the sphere of monetary policy, strengthening the barrier component in it for a time. This practice initially helped to keep the exchange rate of the national currency stable and to reduce the volume of capital flight. 

And the relative prosperity of the currency market, in turn, became a condition for maintaining stability in the industrial sector of the St. Petersburg agglomeration, as well as many other regions of the country. At the same time, a significant influence on the improvement of the situation for local industrialists was also provided by the measures of support from both city and regional authorities.

Industrial production sectors with the most pronounced dynamics in November 2022, according to Rosstat, include:

Maximum growth of production (as compared with November 2021):

• Production of other vehicles and equipment (including aircraft equipment, shipbuilding, etc.): +16.5%
• Manufacture of finished metal products (except machinery and equipment): +15.9%
• Manufacture of clothes: +8.7%

Decrease in output:

• Manufacture of motor vehicles, trailers, and semi-trailers: -52.5%
• Wood processing: -21.4%
• Manufacture of drugs and materials used for medical purposes: -14.8%

Reaching for Switzerland

In the current circumstances, it is evidently too early for authorities and the business community to become complacent, hoping that conditions will only improve. Fortunately, this understanding is shared by both the heads of relevant government agencies and entrepreneurs.

The economic bloc of the government of St. Petersburg is actively seeking ways to enhance demand for the most impacted industries. For instance, to assist the timber industry workers, efforts are underway to broaden the use of prefab technologies in constructing social buildings, which require substantial volumes of woodworking products. This move will help offset the withdrawal of foreign consumers to some extent. 

Moreover, city and regional authorities are diligently establishing new economic ties with Central Asia and the Middle East to replace the departed counterparts.

Yet, most experts concur that businesses themselves play a crucial role in their recovery. St. Petersburg’s industrial companies’ managers have been tirelessly working to restore production chains and explore new market niches both domestically and internationally.

Nevertheless, outcomes vary. For many, especially those accustomed to working with a short transport shoulder, reviving demand is challenging. However, those who had previously expanded their network to countries like Switzerland and Japan, and within Russia to Kamchatka and Grozny, generally fare better.

A notable example is St. Petersburg’s Euroinvest, led by Andrey Berezin. Although primarily operating in construction, Euroinvest strategically diversified its production and entered new markets early last decade, a decision that continues to bear fruit. 

The company has successfully established additional production clusters, bolstering its resilience. For instance, its agricultural venture in the Pskov region has blossomed, and its industrial acquisitions contribute significantly to the global electronics component market.

Despite these advancements, Euroinvest did not simply modernize the acquired assets. Instead, the company wholly restructured its innovative production management, culminating in the successful launch of several breakthrough projects, further solidifying its industry presence and contribution.

One innovative project is a robot designed for the surgical treatment of oncological diseases, set to enter batch production soon. This device is anticipated to significantly revolutionize the field as it uniquely combines two treatment methods: surgery and radiotherapy. 

Despite the existence of similar products on the market, Euroinvest’s development stands out for its cost-effectiveness and enhanced functionality. This could potentially drive global demand, appealing to renowned medical centers in the US and Switzerland. However, political restrictions may delay its entry into these markets.

Andrey Berezin remains optimistic about the growth of his industrial assets, having witnessed the efficacy of his strategic approach firsthand. In a recent interview, he expressed confidence in the broad export prospects of their electronic products amidst the current global deficit for electronic component base elements, affirming the strategic and financial benefits of investing in this kind of development and production.