Machine Tool Makers Tooling up Operations in Stagnant Russia

Imports of Oil, Food and Machinery Rise

Japanese machine tool manufacturers are making further inroads into Russia after Tokyo agreed to offer economic support to Moscow at the bilateral summit last month.

Russia is trying to boost domestic production of industrial and other goods to reduce its dependency on imports. Western economic sanctions imposed on Moscow for its annexation of Ukraine, as well as the depreciation of the Russian ruble, are making imports difficult for Russia.

Machine tools are crucial to domestic production, and Russian is pinning high hopes on Japan’s machine tool makers, who have advanced technologies.

The eight-point economic cooperation plan, confirmed during the Dec. 16 summit talks between Prime Minister Shinzo Abe and Russian President Vladimir Putin in Tokyo, included many deals related to the machine tool industry.

At a Japan-Russia business conference held in Tokyo on the sidelines of the bilateral summit, Putin showed his determination to promote domestic production, saying it is necessary to change a bilateral trade structure in which Russia exports materials to Japan and imports automobiles and machines in return.

One official from the machine tool industry described Russia as “a vast blank map” because it is lagging behind in modernizing its production facilities.

To foster domestic manufacturers, Russia is shutting out foreign companies from government orders in certain sectors. Still, foreign firms are allowed to take part in bidding for such orders and receive tax incentives if they sign special investment pacts with Russia and launch local production.

Major machine tool maker DMG Mori Co. is one firm that has concluded such a contract. The eight-point economic cooperation plan includes a 10-year investment contract signed by DMG Mori and the western Russian province of Ulyanovsk, where the company has a plant.

Other Japanese firms include Fanuc Corp., which will have an expanded base in the Skolkovo area near Moscow, a hub for high-tech companies, and Takisawa Machine Tool Co., which has decided to start assembling metal-processing machines in Russia.

But there also are problems in Russia’s machine tool sector.

The Russian government is aiming to lower the share of foreign-made parts in domestic machine tools to 30 percent from 70 percent over the next five years, but its parts manufacturing industry has not been fully developed.

An official of the Japan External Trade Organization warned that productivity could fall if Russia prematurely tries to boost domestic production without a well-developed parts supply network, adding that such a situation would deal a blow to Russian companies and its economy.