IMTS International Breakfast

14 September 2010

CENTRAL EUROPE & RUSSIA

AMT Central & Eastern Europe

Central Europe

from Baltic to Black & Adriatic Seas

…

Source: AMT

... and Russia

Source: Wiki

A few academic points about regional specifics

Multinational region,

apprehensive about history

Bohemians (Czechs), Hungarians & Poles had independent states, but

CE often part of foreign powers, Germany or Austria

Since 18c Russia a dominant power in EE, overshadowing part of CE

Most of South CE (Balkans) except Dalmatia (Croatia) till mid-19c under the Ottomans

Today’s 23 states of CEE the product of two WW and the fall of Communism.

Multilingual region

Latvians, Lithuanians, Estonians, Hungarians Romanians, Moldovans, Albanians, Caucasus people and most ethnic minorities in Russia not Slavs, all others are, but...

Slav languages different, similarities may mislead

Lingua franca formerly German, now English

Russian language less popular in CE, even if partly understood; widely spoken in Belarus and Ukraine

Source: AMT CEE Research

Our focus:

Poland Czech Rep Slovakia Hungary Romania RussiaThe reason? Over $2.5bn p/a imports of manufacturing technology

2009 GDP Per Capita

0 10000 20000 30000 40000

Slovakia

HungaryRomania

Czech Rep

Poland

TurkeyRussia

Germany

$ / Head

Source: AMT CEE Research

Prominent Industries

Source: AMT CEE Research

Automotive Precision EngineeringGeneral Engineering

Auto Gen Engrg Appliances Off-roadPowergen Aerospace Armaments Metallurgy Precision Engrg Transport

AutoGen Engrg Aerospace Armaments Precision EngrgTransport

Auto Gen Engrg Metallurgy

Powergen Aerospace Automotive Electronics & Modern Tec Industrial Military Complex Machinery & Equipt Earth Mov’g & Constr’nTransportShipbuilding

(Per revised governmentalplan of modernization)

AutoGen EngrgAerospace Off-road

Industrial Output Mid 2010 to 2009

Source: AMT CEE Research

Note: in 2009 most CE economies did better than “old” EU

CEE External Finance

European Bank For Reconstruction And Development (EBRD)

European Investment Bank (EIB)

World Bank

EU Funds (Available To All Established In Member Countries Of European Union)

Watch www.bankwatch.org/projects.shtml For projects in CEE countries

Source: AMT CEE Research

Source: AMT CEE Research

CEE markets -

realities of today CE economies continue to grow

CE -

mature markets; full sales & marketing techniques applied; CE certification; useful shows (Brno, Poznan, Moscow)

Rewards –

for organized professionals (long term)

Yet to consider: Bulgaria (EU member), Croatia (EU imminent membership), Serbia (largest industry in Balkans)

Note Ukraine & Belarus, but economies need fixing

Russia’s potential is greatest

European Union Environmental Directives (not applicable to Russia)Such as:

RoHS (Restriction of Hazardous Substances)WEEE (Waste of Electrical and Electronic Equipment)EuP (EcoDesign Requirements for Energy Using Products)Not complying products cannot enter EUManufacturers self certifySource: AMT

Revision of RoHS Directive

Key websites:

www.buyusa.gov/europeanunion/weee_rohs_revisions. html

www.buyusa.gov/europeanunion/weee.htmlhttp://ec.europa.eu/environment/waste/weee/index_e

n.htm

Contact Information

Bob StraetzOffice of EU Affairs

US Department of CommerceTel: 202-482-4496

Robert_Straetz@ita.doc.gov

Update for Russia

Red – defence production, blue – civil aviation, grey - otherSource: MinProm Russia

Aerospace Industry 1992–2009

Aerospace Industry Doing Well

Governmental subsidies to sector: 2008: 10 times more than in 2002 2009: doubled 2008 level -

over $5bn

Up to 2015 no reduction envisaged 2007 up to 2015 program continued

Revenues planned for 2015:-

ODK (aircraft engines) –

over $3bn

-

OAK (aircraft)–

over $11bn -

Vertolyoty Rossii (helicopters)-

over $10 bn

Source: MinProm Russia

Aerospace Industry till 2015

Projects in implementation or pending:

Regional Superjet SU-100, Sukhoi -

HQ Moscow, KnAAPO Works Komsomolsk, $1.4bn project, 1st

flight 2008. Boeing consultancy

5th

Gen Fighters: Irkut MS-21 (Komsomolsk Works), to fly 2014, engine bids Salut Moscow, Saturn Rybinsk, Motor Sich Kiev Ukraine; Stealth PAK FA or Sukhoi T-50 (Works n/a yet), 1st

flight 2010, $8-10bn project

5th

Gen Fighters SU-35 (Komsomolsk), MIG-35 (N Novgorod)

Passenger/Cargo Tupolev-204SM&S (AviaStar Ulyanovsk, KAPO Kazan); wide cabin Ilyushin 96-400-M (Voronezh)

Stretched fuselage AN-158 (Kiev Ukraine, Voronezh –

Antonov merged with OAK), international certifications pending

Medium transport helicopters Mi-38 (Kazan) & civil transport Ka-62 (offspring of already used anti-tank/anti-helicopter Ka-60, (Kamov Works Moscow/Arsenyev/Komertau)

New gen engines, incl the 9-18–ton thrust engine for MS-21 (see above)

Source: MinProm - Ministry of Industry & Trade of the Russian Federation, AMT CEE Research

Aerospace Industry till 2015

International co-operation sought , e.g.:SU-100 Regional Superjet (Boeing,

Honeywell, Goodrich & others), Boeing and VSMPO Avisma JV (titanium

processing, Ekaterinburg Region)Integration with Ukrainian manufacturers (see

Antonov and OAK)

Source: MinProm - Ministry of Industry & Trade of the Russian Federation, AMT CEE Research

Blue – Russian-owned, grey – foreign owned, red - assemblingSource: MinProm Russia

Automotive industry 2005-2009

Bleak picture? Yes, but at present, in Russia, a several-

month wait for cars!

Supply will have to resume

Other industries of Russia

In 2009 two significant sectors growing. Industrial military complex (reportedly modest) & shipbuilding (output doubled)

Other in decline, included machinery & equipmentSince Oct 2009 moderate upward trend in all sectors

(However, 2009 output only equal to that of 2005)President Medvedev’s plan -

Continuation of retooling,

part privatisation of Fed enterprises, incentives for investors, competitive product driven economy in place of raw materials driven.

Source: AMT CEE Research

Machine tools brief

Russia depends on imports

Machine tool production and trade in Russia

Year Output ($m) Exports ($m) Import ($m) Consumption ($m)

2008 420.5 111.8 1733.2 2041.9

2009 230.1 64.1 1072.7 1238.7

Note 1: Russian industry is dependent on imports, as it covers 85 % of needsNote 2: 2008 was a record import year ever

Source: ITO Russia

Russian m/t import 2009 by countries

% Share (clockwise)

G'many 30.3China 13.8Italy 12.3Spain 6.1USA 5Japan 4.9Czech R 4.9Switz'nd 4.7France 2Ukraine 1.9Other 14.1

G

Note: US suppliers in 2009 noted an increase from $37.8 m to $54.5 m; other countries to record small increases were only China, Italy and Spain

Source: ITO Russia

Russian m/tool import structure 2009

Codes explained:

8456 –

EDM, laser, plasma8457 -

Machining centers8458 -

Lathes (turning centers)8459 -

Drilling, boring, milling, threading other than lathes

8460 –

Grinding, honing , lapping, deburring, other finishing, other than gear cutting etc.

8461 –

Planing, shaping, broaching, gear cutting etc.

8462 –

Metal forming 8463 –

Other m/tools

Source: ITO Russia

Shows remain good promotion tool in Russia

Metalloobrabotka Moscow -

May 23-27, 2011

Russian version of IMTS

Metalloobrabotka 2010

Acme & Sierra

Overview of Main Hall

MAG

OMAX

Conclusions for Russia

Russia’s potential unquestionable

3 out of 4 m/tools need replacement, most over 30 years old Local machine tool manufacturing very limited.Oil and gas revenues reduced but still available Retooling program very much a priorityMore transparent tender procedures introduced Fed enterprises more open, less red tape Easier to promote (e.g. Metalloobrabotka Show) Distribution becoming professionalMore private stake holding sought Private investors promised better treatment

Source: AMT CEE Research

Thank you for your attention!

Please useAMT Central & Eastern Europe Office

Warsaw-Poland

hsawicki@AMTonline.euwww.AMTonline.eu

+48 22 7662311 +48 22 7662312 (fax)+48 502 751105 (cell)