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Chechnya Sizes Up Iranian Auto Market

Ramzan Kadyrov (center) attends the opening ceremony for the Lada Priora assembly line in Chechnya in January 2012.
Ramzan Kadyrov (center) attends the opening ceremony for the Lada Priora assembly line in Chechnya in January 2012.
It has long been no secret that Chechen Republic head Ramzan Kadyrov's influence extends far beyond the North Caucasus. The most recent proof of that is that he has co-opted a Circassian automobile magnate and the president of one of Russia's 30 largest banks to invest $500 million in building a new automobile plant in Chechnya that will manufacture small trucks, primarily for export to Iran.

What is more, the Chechen government has persuaded the Russian authorities to give the green light for the creation of a special economic zone straddling the three federation subjects (Chechnya, Karachayevo-Cherkessia and Stavropol Krai) in which components for those vehicles will be manufactured and assembled.

That "special economic zone of an industrial-production type" is, as Republic of Karachayevo-Cherkessia Industry and Energy Minister Valery Ksalov has pointed out, the first of its kind in the Russian Federation. What specific economic privileges and tax breaks it entails, and how the net profits will be split between the three federation subjects and the federal center, is, as yet, unclear.

When plans for the post-conflict reconstruction of Chechnya's industrial base were first drawn up, it was decided to prioritize the manufacture and assembly of automobile components, given that that branch of industry had played a key role in China, Japan, and South Korea's emergence from economic stagnation, according to Chechen Republic Deputy Minister for Industry and Energy Sultan Rakhmayev. A former machine-building plant in Argun, Chechnya's third-largest town, was accordingly retooled and converted into the Chechenavto assembly plant.

For a combination of reasons, Chechenavto failed, however, to become the desired locomotive for economic growth. True, the first vehicles rolled off the assembly line in 2009, but the plant was closed the following year for modernization, and production resumed only in early 2011. At that time, its projected initial annual output was given as 4,000, rising to 50,000 by 2016.

Initially, Chechenavto primarily produced the Lada Priora. A second assembly line was planned to produce small Daewoo trucks, at which point, according to Chechenavto General Director Aynadi Kuzumov, the workforce would increase from 150 to 400.

As of mid-2012, however, the plant was working way below capacity: in the first six months of 2012 it produced only 538 Lada Prioras. Said-Khuseyn Taymaskhanov, who had replaced Kuzumov as director, explained in July 2012 that the shortfall was due to problems with deliveries of components from the AvtoVAZ "parent" plant in Tolyatti, which required payment in advance. That was not always possible, Taymaskhanov said, because the dealers who purchase approximately 70 percent of the vehicles produced did not always pay for them promptly. As a result, the plant had amassed debts of 20 million rubles.

Production fell even further in 2013, to just 791 Lada Prioras for the whole year. Current output is between 120-160 vehicles per month.

Moreover, even though the Lada Priora is reportedly popular in Chechnya, some Chechens have serious reservations about the quality of the vehicles Chechenavto produces, and prefer to buy cars assembled elsewhere.

The agreement on creating a separate company, Yugavto, that will build a new plant in Argun to manufacture small (1 1/2 -2 ton) trucks, was reached in January following talks in Grozny between Kadyrov, Cherkess industrialist Hadji-Murat Derev, who owns the Derways automobile company, and Moscow Industrial Bank President Abubakar Arsamakov, who is a Chechen. The Chechen side initially asked Derev to expand the Chechenavto plant, but he objected that it made no sense to do so. He proposed instead building "a new enterprise that would meet all standards in the sphere of automobile building and be provided with the most modern equipment."

The new plant will reportedly produce 200,000 vehicles a year and create 10,000 new jobs. How many of those employees will be locals is not clear, however. Kadyrov has announced that he hopes to recruit an unspecified number of skilled personnel from among the 5,000 members of the workforce at AvtoVAZ's Tolyatti plant who are to be laid off by the end of this year.

The plans to export the lion's share of the trucks produced by Yugavto to Iran were announced by Industry and Energy Minister Galas Taymaskhanov at a Chechen government session earlier this month.

-- Liz Fuller

About This Blog

This blog presents analyst Liz Fuller's personal take on events in the region, following on from her work in the "RFE/RL Caucasus Report." It also aims, to borrow a metaphor from Tom de Waal, to act as a smoke detector, focusing attention on potential conflict situations and crises throughout the region. The views are the author's own and do not represent those of RFE/RL.


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