The economic situation of the Kaliningrad region

Vladimir Kuzin,
Associate Professor, Director of the Analytical Center,
Kaliningrad State Technical University,

The Kaliningrad region, the smallest region of Russia separated from the territory of other regions of the country by the territory of the European Union, is characterized by population growth. The population of the region at the beginning of 2019, according to statistics, amounted to about a million people, an increase over the year amounted to 7.6 thousand people. This increase was achieved due to migration, while a natural decrease of 1.9 thousand people was recorded. A high level of inflow of the population of the region, five times higher than its natural decline indicates its attractiveness from the point of view of residents of other regions of the country.

At the same time, real disposable cash incomes have been declining since 2015, and this year in the first two quarters a decrease in wages was recorded, so it is difficult to assume that by the end of this year there will be an increase in real disposable income in the region. Wages are the main source of income for the working-age population, so the number of employers is an important factor. Such employers are organizations, the number of which for the year at the beginning of 2019 decreased by 10%. Without considering the reasons for the liquidation of enterprises, their downward trend is a negative medium-term period.

The volume of investment is a factor determining the long-term development trends of the region. A high level of investment (about 1.8 billion euros) according to statistics was recorded in 2017 and 2018. This level of investment is associated with preparations for the World Cup, several games of which were held in Kaliningrad in 2018. Part of the resources was directed to the formation of infrastructure. However, in 2019, the volume of investments decreased. This became apparent according to the results of the second quarter of the current year, when the investment volume was recorded at 44.3% compared to the second quarter of 2018. A factor that affects the volume of investment should be recognized as a decrease in business interest in the territory.

The key objects that receive investments from the federal budget are the Museum of the World Ocean and the Cancer Center. In addition, as part of federal initiatives, the construction of several objects has begun, including cultural, educational and museum complexes. The construction of a cultural and educational complex as part of the choreographic academy and music school is accompanied by the construction of apartment buildings. The choice of objects, apparently, is intended to strengthen the connection of the region with the main territory of Russia. Despite the fact that the marketing study of the creation of these objects has not been published, any steps aimed at creating jobs should be considered positive.

The industrial production index shows positive trends. According to the results of 2018, it amounted to 103.1%, a year earlier it grew by 1.9%, although a decline was recorded in 2015 and 2016. The data indicates the restoration of production.

Since 2014, the region’s agriculture has received excellent market conditions due to the closure of access to the market of its main competitors, which were agricultural producers of Lithuania and Poland. This has led the buyer to become a seller’s market. As a result, a high growth in agricultural output was recorded. The exception was 2016 and 2017, due to weather conditions in the fall of 2016. According to current estimates, agricultural production is again expected to increase this year.

The fishing industry has historical significance for the region. It was also influenced by the closing of the market for major foreign suppliers. This increased the role of domestic production and prompted fish processing enterprises to seek new sources of raw materials. Currently, only the Faroe Islands are left from European suppliers of fish, other raw materials come from countries in Asia and America. The volume of processing fish coming from the Far East also increased.

Despite the diversification of the region’s economy, two enterprises form the bulk of budget revenues. This is Avtotor car assembly plant and Soyuz soybean oil production company. These enterprises provide orders to other enterprises in the region, which makes them important elements of the economic system of the Kaliningrad region.

In general, we can say that the region’s economy is working, but the trends do not allow us to draw conclusions about sustainable economic development. At the same time, regional development trends look no worse than the national average. Obviously, the region’s economy is part of the country’s economic system, taking into account the characteristics, which include a greater economic distance than for other regions, due to higher tariffs for transportation through Lithuania and Belarus, as well as customs formalities for transportation of goods between the Kaliningrad region and other regions of the country.

It is possible to ensure the growth and development of the region in the long run if equal conditions are created, and this is possible with close cooperation between Russia and the European Union, as well as further diversification of the regional economy, which will reduce the impact of market fluctuation risks.

Expert article 2635

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