Mazda given special terms to open engine factory in Russia

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The Mazda logo is pictured at a dealership in Tokyo.      Photo: Reuters / Toru Hanai

The Russian government has decided to expand a special economic zone in its Far Eastern region’s Primorskye Krai territory to secure the first investment by Japan’s Mazda into an engine plant in the country.

The central government has passed legislation to alter the boundaries of the zone to include the grounds of the factory complex of OOO MazdaSollers Manufacturing Rus, a joint venture between the Japanese carmaker and domestic producer PAO Sollers. This will stimulate the venture to expand production, including through Mazda’s first move to manufacture engines locally.

Investment in the expansion, which will focus on the SkyActiv-G family of engines will be in the region of US$50 million.

“Getting residence status at a special economic zone will significantly cut the time needed to organize the manufacture of engines in the Vladivostok area. In addition, the advantages of such an economic status allow us and the Japanese partners to plan further investments to launch production of new models and also to upgrade factory facilities,” PAO Sollers general director Vadim Shvetsov told the media.

“Getting residence status at a special economic zone will significantly cut the time needed to organize the manufacture of engines in the Vladivostok area”

The joint venture plans to produce 50,000 engines a year. In addition, the partners are considering a roll-out of updated versions of the Mazda 6 and Mazda CX-5 models at the Russian facility.

Russian government officials told Asia Times that this will be the first time Mazda has set up engine production in Russia.

The factory expansion is due to be completed in 2018 and it is expected that most of the output will be for export.

“Once it’s a member of the special economic zone, the company effectively becomes a partner of the state,” Maxim Krivelevich, from the School of Economics and Management of the Far Eastern Federal University, told Asia Times.

“It opens the door to receive benefits, as well as all information and services. This gives investors in the Far East an equal opportunity to compete in what is one of the largest markets globally.

And what is the upside for Russia? This is much more complicated. In theory, Russia receives tax from factory worker wages, but the economic zone has preferential tax laws which give substantial tax breaks.”

“This is all ‘tomorrow’s money.’ This is money that will come later through the creation of a better investment climate”

Workers at a plant outside the zone might have 30% of their salaries go to the state pension fund and other social payments. For staff at facilities inside the zone, that figure is just 7.6%, according to Krivelevich. In this sense, Russia’s gain is more ‘reputational’ in terms of the investment community, he said. “This is all ‘tomorrow’s money.’ This is money that will come later through the creation of a better investment climate.”

OOO MazdaSollers Manufacturing Rus was set up in 2011 by Russia’s Sollers and Mazda Motor Company. It is the only automobile factory in the Far Eastern region and currently produces two models, the Mazda CX-5 and Mazda 6. Factory capacity is 70,000 cars a year.

In 2015, the factory produced 24,185 Mazda vehicles, while output dropped slightly the following year. Three out of four cars it produces are the CX-5 model. Last year, the venture company announced net income of US$28.6 million, according to Russian accounting standards.

Vehicle output in Russia has risen by about a fifth this year, compared with last year’s levels. In the first six months of the year, 647,000 vehicles were produced in Russia.

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