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Economist says crediting problems hamper switch of defense industry to civilian production

July 12, 2017, 21:55 UTC+3 YEKATERINBURG
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YEKATERINBURG, July 12. /TASS/. High credit rates and absence of non-bank financing tools for high-tech products complicate the turn of defense plants to civilian-oriented production, Deputy Chairman of the VEB bank and its chief economist, Andrey Klepach, said in an interview with TASS.

The need to switch defense plants to civilian-oriented production was caused, in particular, by planned reduction in defense procurement. Some defense plants are successfully developing new production, but many enterprises face problems.

"We cannot provide competitive financial conditions to the plants. China’s Huaiwei and US Cisco can supply products without prepayment and zero-rated. Our companies cannot afford this," Klepach said on the sidelines of the Innoprom-2017 international industrial exhibition.

VEB’s chief economist said that bank lending for so-called "pioneer" projects, such as production of the Russian Baikal microprocessor, is impossible due to the absence of pledging at plants that would correspond to the banks’ strict requirements.

Risks for the banks

According to President Vladimir Putin’s order, state companies have to create special venture funds that could finance defense enterprises at acceptable rates. Klepach noted that Rostech, Roscosmos and Rosatom were working to establish such funds.

"These funds can attract private investments and, moreover, be governed by special companies chosen on a competitive basis. This will provide the means for creating a mechanism for financing technology projects," Klepach said.

As he put it, Russian Venture Company (RVC) could create partner projects together with funds of state corporations. He also urged the Industrial Development Fund for more active credit financing of venture high-tech projects.

"The fund mainly provides credits for projects that banks may execute. However, it was created to finance projects that bear risks that are too hard for banks," Klepach said.

Advancement to competitive markets

VEB’s chief economist said that products made by Russian defense plants were lagging behind foreign competitors and were more expensive due to problems typical for defense enterprises: small series of production and overhead costs.

"Entrance to competitive markets means another mindset, other costs and other working skills. Much time and effort are needed here to advance products. There are serious challenges and problems with becoming competitive in the value-for-money ratio," Klepach said.

He noted that many defense plants could present worthy models of civilian products at the Innoprom-2017 exhibition, such as devices for children’s rehabilitation centers, optical systems and "smart city" detectors. "We’ve got products to show, and these are highly-competitive products," Klepach said.

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