“If in 2007 Russians bought about 700,000 foreign brand cars, by 2012 the figure is predicted to reach 4 million,” the Governor said. “It means that our industries shall cooperate to provide perspective and develop a reliable market. Automotive production will ensure stable development of our industrial sector, which means well-paid jobs and increased revenue from taxation,” he said. “This last factor is of utmost importance,” he stressed. “Last year we managed to increase the regional budget by 52%, but it’s still not enough. In the near future we plan to support the local budget completely from our own means and to become a donor-region”.

Kaluga may be enjoying a boom in the automotive industry as manufacturer after manufacturer opens assembly plants in the region, but Governor Artamonov, is equally passionate about stressing the role of innovation and small business in securing the region’s economic future.

Nowadays the basis of innovative advancement is formed by high-tech developments and science-intensive production in the field of atomic energetics and energy-saving technology, space technology, laser and fiber-optic electronics, robots, electronic instrument making and pharmaceutics, agriculture and other lines.

The governor stressed in his interview with BSR that “Kaluga region boasts high scientific and innovation potential.”He pointed out that the region has a leading position not only among its immediate neighbors of the Central Federal District, but also at the national level, in terms of the number of scientists per capita. “Obninsk, is the first Russian science-city. It is acknowledged as a world leader in the sphere of fundamental and applied research in such areas as atomic energy, radiology, radiation and aerospace materials development, radiochemistry, radiation medicine and biology,” the governor said. “This allows us to fulfill the model of the region’s innovation development. We are encouraging innovation research through grants. One of my strategic missions is the maintenance of steady economic development of the region on the basis of its innovation potential,” he said. Acknowledging that his region lacks natural resources of any export significance, the Governor stresses that “The main engine of economic development is activation of internal reserves, and first of all, of their innovation component. In this respect one of the main tasks of regional economic policy is forming conditions for launching competitive innovation products. To solve that task the administration of Kaluga region actively collaborates with federal executive and legislative bodies, our scientific institutions and organizations, innovation enterprises and educational establishments,” the governor said.

He pointed to the Federal programme for creating Special Economic Zones and said that Obninsk SEZ was in reality a “Technopark which shall specialize in bioengineering, pharmaceutics, new materials, nanotechnologies and IT. When the construction is over and the enterprises reach full capacity by around 2011, the value of production will be about 14 billion rubles a year.”

Vnesheconombank, with its huge credit resources has recently backed several investment projects in the region, including development of infrastructure of industrial and technology parks. The governor singles out the newly founded regional Non Profit Organisation “Fund, supporting development of venture investments into small businesses in scientific and technical spheres in Kaluga region”. “The creation of this venture fund contributes to forming an innovative support for the scientific and technological sphere. The infrastructure will ensure foundation of small technological enterprises and creation of conditions for their dynamic development, as well as favourable economic environment for attraction of venture investments into the innovation sector of economy.”

The governor also pointed out the regional authorities’ business incubator network, with five so far working in Kaluga and Obninsk. “The first student business-incubator was set up at Obninsk State Technical University of Atomic Energy (IATE), he said proudly. It is also planned to create business-incubators in other municipalities apart from Kaluga and Obninsk. “These are centres for innovation and their establishment is one of the key priorities of the innovation infrastructure, which we are creating. That infrastructure contributes to the establishment of innovation enterprises at the very first stage of their development – from one to three years. “This practice allows more active foundation of small innovation enterprises and the creation of highly qualified employment. It makes it possible to retain specialists, who are indispensable for regional economical development,” he told BSR.

Kaluga holds an annual competition for scientific and technical innovation with commercial applications and the winners are awarded cash grants. “It is very important to find an effective way of realizing a scientific idea. To achieve this, a regional system of Technology transfer (TT) is being created. Now 10 companies are included in this system.

“We are also undertaking a project, aimed at teaching students of the fourth to sixth year, and postgraduates of higher educational establishments, who have an innovative idea or a project, to develop skills in the transfer and commercialization of technology. The object is to create small innovation companies. Training will also contribute to encouraging the graduates to stay in the region,” Mr. Artamonov said.

Warming to this theme, the governor said the key to realizing innovative development in Kaluga region is “peopleware”, he describes as creating a labor market and developing a multi-level system of training, retraining and advanced vocational training for innovative specialists.

“In the region we support new scientific schools, young researchers and improvement of qualification of specialists. The region actively attracts resources from the Russian Fund of Fundamental Research (RFFI) and Russian Humanitarian Scientific Fund (RGNI).

But what about those auto plants? Kommersant a year ago called Kaluga, ‘the new Detroit’.

“Several years ago we set ourselves a task to turn the region into one attractive for investors. Today we have almost accomplished it,” the governor says. “Many Russian and foreign companies have chosen Kaluga region to realize their biggest investment projects. In particular, in December, we have signed an agreement with Peugeot Citroen for construction of a plant in the region, where 300 thousand cars shall be produced annually”. In May 2006, Volkswagen announced a new assembly plant in Kaluga. It is expected that the investment will surpass 500 million Euro. On November 28 inauguration of the plant’s first shop took place, they began assembly of the models Volkswagen Passat and Skoda Octavia (and from 2009 models Passat, Touareg and Polo will be in production). In 2009 when the second phase of the project, having its own painting shop, body and assembly shops, will be put into operation the plant will produce up to 150 000 vehicles per year.

In October, 2007, the Volvo Group broke ground on a new truck assembly plant, scheduled to be finished in early 2009. Once completed the plant is expected to have yearly capacity of 10,000 Volvo and 5,000 Renault trucks.

On December 28, 2007, Mitsubishi Motors announced its intent to build an assembly plan in Kaluga with the initial annual production capacity of 50,000 cars per year.

“The total volume of car production in the region shall be about 600,000 a year,” predicts Mr. Artamonov. “It’s an extremely important factor. It means that it will be profitable to set component and spare-parts production, as steady and highvolume demand shall be assured by the existing plants. Manufacturers of spare-parts are pretty aware of it and are ready to locate plant here for production of gear shift transmissions, engines and other complicated units. Thus, in the nearest years the car industry shall become the basis of the local economy. Together with manufacturers of parts and service enterprises, the industry forms an automobile cluster in the region, where 50,000 jobs shall be created”.

The Governor revealed that the US company, John Deere is planning to produce tractors and agricultural machinery in the region.

Kaluga Region is part of the Central Federal District and its favorable location is enhanced by a well-developed transportation network. Major international highways and railway lines, including the main Moscow-Kaluga-Bryansk-Kiev-Lvov- Warsaw route, pass through the region. This has influenced the development of industries considered to be traditional “Kaluga brands”, such as manufacturing turbines, locomotives, heavy equipment for construction and servicing railways.
Almost half of the region is covered with abundant mature forests and an area of constant concern for the Governor is expanding local lumber industries. The region can provide for logging and processing about 2 million of cubic meters of standing wood. “We invite Russian and foreign wood processors, who are able to launch big wood-processing complexes for production of finished products, including construction components,” said the Governor in response to a question about projects of investment potential. Already Stora-Enso has a carton manufacturing plan in the region and other paper mills of Kondrovskaya and Troitska are located here.

“We attract investors not only into industry, but also to the agriculture sector. 162 agricultural enterprises cooperate with investors. In 2007, for the first time in many years, we observe positive dynamics in agriculture. But this year is sure to be even more successful. Active construction of modern cattle farms, acquisition of modern equipment and breeder cattle shall bring a return.

“There are almost no spare sites for enterprises in the neighborhood of Kaluga itself, so we have to move father across the region.The towns of Maloyaroslavets, Sukhinichi, Kirov, Lyudinovo, Medyn and Ferzikovo are where huge industrial projects are realized today. For example, in Ferzikovo huge French company Lafarge shall build a big modern cement-production plant”.

“All of them shall create new production capacities because ours are not enough.” The Governor told BSR that coming of large construction companies from South Korea, Finland and Turkey is expected. The Governor was keen to emphasize that domestic and foreign manufacturers and investors enjoy absolute parity in legal conditions, tax breaks and support. “But Russian business suffers mainly from legal nihilism, which was recently mentioned by Dmitry Medvedev (recently elected to succeed Mr. Putin as President). Our businessmen still try to avoid taxes and to give salaries “in envelopes”, bemoans the Governor. “Foreign companies can’t even imagine such practices. Their activity is much more transparent. The region benefits from foreign investors, because we may follow their experience, learn to work legally”. Despite this, the Governor says, “Certainly we shall support local manufacturers”.

Turning to cultural and touristic development Mr. Artamonov told us, “Last year a good road to “Fowl Park” was built. We shall provide help for “Ethnic Village” in Borovsk district, support ecological project in Iznoskovsky area. Tarusa also has its own plan of development. In particular, Richter Center shall be constructed there in accordance with the project of Moscow Architectural Academy students, who won the open tender. All these steps are of utmost importance.

“Increasing tourist attractions in the region makes it more interesting for our potential partners, domestic as well as foreign. We should cherish our status of ecologically sound territory with the richest cultural heritage like the apple of our eye”.

“It’s necessary to mention that all new factories located on our territory strictly observe all environmental standards. It’s remarkable that foreigners spend much money to ensure ecological security of their projects.

Looking at the problem of retaining highly qualified science graduates and technical skilled labour in the region, the governor said that all the region’s commuters and emigrants to Moscow “are ready to return if we offer better conditions of work and higher living standards.”

Last year new residential housing increased by 72% and made 460,000 square meters. In 2008 the regional government plans to build 750,000 square meters.

“Kaluga never showed such figures, even in Soviet times,” exclaims Mr. Artamonov. “Everybody who wants to come to the region to work, including those who participate in the state program of citizen migration, in which we also take part, shall have an opportunity to buy a house or a flat. Accommodation for the youth is a special question. We’ve chosen the way of construction of compact individual dwellings so that a young family shall be able to purchase the house paying 6-8 thousand rubles per month.

“Last year we took an initiative. We studied public opinion and became sure that such practice shall be popular with young people. In the current year we plan to build 1,000 houses of this kind only for young couples. In future the volumes of such construction shall soar,” the governor said confidently.