Business

Can Russian timber shore up the economy?

Man rakes logs of timber
Image caption Russian loggers are finding it increasingly hard to make a living from the country's vast timber resources

A warm winter is rare in the Arkhangelsk region, an inhospitable, vast Russian tundra bordering the Barents and Kara seas.

But this year it came close, with temperatures rarely dropping below -6C until the middle of January.

Welcome relief, one might think, in a region where temperatures this time of the year often drop to -30C.

But not so for the region's loggers who make a living from harvesting some of the world's largest forests.

Decades of unsustainable logging, with all the trees close to the roads already felled, mean the forests have become difficult to reach.

Earlier this year the relatively warm weather resulted in a frozen economy - loggers were unable to get the trees out from remote forests over boggy marshlands that can only be crossed when the ground is frozen hard.

Some major timber processing factories sent their workers home on unpaid leave. Smaller operators struggled to source enough trees to break even.

For small sawmill operators such as Nikolai Alexandrov, who employs about 100 people, "this year is all about survival".

The ground has since hardened in Arkhangelsk, as the temperatures have dropped to the Arctic levels the locals are used to.

But the trading environment Arkhangelsk's timber industry is operating in has hardened too.

Dangerous reliance

Around 97% of everything produced in the region is sold abroad, mainly to the US and Western Europe, and more than half those exports are derived from wood, with the pulp and paper industry accounting for some 55% of the region's industrial output.

The result is a region that is reliant not just on its forests, but also on export markets like the European Union, which is currently in the midst of an economic slowdown.

Image caption Almost everyone in Arkhangelsk relies on natural resources from the wilderness that surrounds them

Take the cardboard used to wrap fridges. It is made here and sold to fridge makers abroad.

"But what happens now is that the people in Europe are buying fewer fridges, so we cannot sell enough cardboard," says Prof Alexander Plastinin, an economist with the Northern Arctic Federal University.

For the people of Arkhangelsk region, who live in run-down, remote villages linked together by poor and at times non-existent roads, these are desperate times.

"I travel a lot in the region," says Moscow-based Swedish businessman Martin Hermansson, chief executive of RusForest.

"And there is really no hope in the eyes of people.

"They are simply facing the fact that they are dying out. There are no jobs, but even if you offer them a job they don't want to work. They've lost all motivation.

Bleak future

The despair felt by the loggers and the broader population of Arkhangelsk is shared by many across Russia, as they have come to realise that any economic prosperity enjoyed in recent years has been largely based on the exports of raw materials - mainly oil - at a time when global prices have been high.

A picture of nationwide reliance on foreign markets for the country's raw materials has emerged, and in terms of economic development and growth it offers a bleak vision of the future.

Russia's long-running failure to implement economic reform and invest in the future is accompanied by a political process buoyed by government spending as Prime Minister Vladimir Putin aims to reclaim the presidency in the election on 4 March.

Consequently, the economic pain has yet to be widely felt, though as the year proceeds the country's economic growth is set to slow dramatically, as export markets fail to recover and as government spending slows.

WTO membership

At the same time, Russian industry, already struggling with trouble in export markets, will see its home market shaken up as a result of the country joining the World Trade Organization (WTO) on 15 June.

Cardboard maker Arkhangelsk Cellulose Plant expects competition to heat up. Foreign rivals will find it easier to enter the market once import duties on carton falls from 15% to 10% in June, then to 5% in 2017.

Also, Eastern European rivals have started making cheaper packaging materials from waste paper.

All this will eat into the factory's profit margin, acknowledges the company's deputy head of marketing Mikhail Konopliov.

But WTO membership also offers hope, at least for Arkhangelsk's optimists.

Sceptics range from loggers busy simply surviving through the winter and bamboozled by the intricacies of global politics, to critics such as Mr Hermansson, who fears the government's insistence to hang onto ownership of the forests is deterring entrepreneurs from committing to the region.

"What we need is stability, to make bigger investments," he says.

Skills and investment

So once again, Russia is reliant on foreigners - this time on their cash and expertise.

"To compete abroad, we have to offer the markets something new," says Sergey Slavyanov, director of Solombalsky, a machine manufacturer, pointing to how it is difficult to compete with foreign rivals.

Mr Konopliov agrees.

"We have to introduce new technologies, reduce expenses and attract foreign investment," he says.

"There's no other way."

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