CC BY
1DOI: 10.29141/2658-5081-2022-23-2-1
EDN: XQOTMJ
JEL classification: L60, L61
Olga A. Romanova Dmitry V. Sirotin
Institute of Economics (Ural branch of RAS), Ekaterinburg, Russia Institute of Economics (Ural branch of RAS), Ekaterinburg, Russia
Basic industries of Russia's industrial regions: The image of the future
Abstract. Industrialisation remains the major factor of development in the era of radical changes. Its drivers - advanced digital production technologies - are transforming the entire industrial and spatial landscape. Industrial regions take a special role in these transformations. The research aims to identify trends in the development of basic industries in industrial regions and work out a method to form their new technological image. Methodologically, the study relies on the institutional theory, theories of sustainable and long-term technical and economic development; applies methods of comparative, statistical, structural analysis and neural network modelling. Considering the case of the Ural metal industries, the study reveals the main trends of development and possibilities of forming the image of future of the basic industries of Russia's industrial regions, as well as specifies the factors that modify these trends under the New Normal. Due to institutional and technological transformations, the Russian metal industries have achieved impregnable positions in the world market. The paper substantiates the changes in the development of the basic industries linked with the formation of Industry 5.0 as the new management paradigm, which assigns priority to the ESG factors. The research demonstrates that an indispensable condition for the successful functioning of companies is the ability to cooperate and agree on decisions. The findings confirm that modernised metal and other basic industries through integrating green, digital and behavioural economy will not only maintain, but are likely to increase their importance in the economy of industrial regions.
Keywords: industrial regions; Russia; basic industries; metal industries; ESG; digitalisa-tion; image of the future; neural network.
Acknowledgements: The paper is prepared in accordance with the R&D Plan for the Institute of Economics (Ural Branch of RAS) for 2022.
For citation: Romanova O. A., Sirotin D. V. (2022). Basic industries of Russia's industrial regions: The image of the future. Journal of New Economy, vol. 23, no. 2, pp. 9-28. DOI: 10.29141/2658-5081-2022-23-2-1. EDN: XQOTMJ.
Article info: received February 1, 2022; received in revised form March 3, 2022; accepted March 15, 2022
Introduction
Russia's industrial path has been forming as an integrated interaction of industrial regions. In their territories, technological and product innovations were born and products were created that not only met the needs of the country's domestic market, but were also partially exported abroad. These regions attracted the most qualified engineering and scientific personnel, many universities trained specialists in the regions' core activities.
The deindustrialisation processes of the late 1990s and early 2000s that accompanied the development of a market economy in Russia led first to some localisation and then to the integration of enterprises' activities in industrial regions. Further thrust of the regions' development was determined by the desire of more and more actively emerging industrial companies to integrate into the global economy. Strategic orientations towards the export of products and placement of production assets in foreign countries decreased the interest of Russian investors in local industrial regions. At the end of the 20th century and during the first decades of the 21st century, the world economy saw the formation of certain patterns of the basic industries' distribution, primarily related to the possibility of effective accumulation of capital in a particular country. This significantly impacted on the development of industries such as metal industries in Russia. However, the appearance of new geopolitical factors, increased instability and tension in international relations today lead to the transformation of many of the previously formed patterns.
There is a number of in-depth studies on the development of industrial regions [Ta-tarkin, Animitsa, 2012; Lavrikova, Akberdina, Suvorova, 2019; Silin, Animitsa, Noviko-va, 2019; Orekhova, Misyura, Kislitsyn, 2020] and the basic industries that form their industry [Akberdina, Sergeeva, 2020; Voronov et al., 2017]. However, the topic of the transformation of these industries in the new reality has not been sufficiently covered as yet. In addition, there is almost no research in the field of creating an image of the future of industrial regions. To fill these gaps, we address these issues using the case of metal industries, which is the most significant area of specialisation for industrial regions.
The purpose of the study is to identify the trends and patterns in the development of the basic industries of Russia's industrial regions and the formation of their image of the future. The object of the study are metal industries, which are among the most important basic industries of industrial regions and the ones that determine the industrial profile of the Urals.
To achieve this purpose, the following objectives were set:
• to analyse the development of metal industries in Russia and in the structure of industrial regions' economies;
• to discern, using the case of metal industries, the trends and patterns in the development of basic industries;
• to identify factors that transform the established patterns under the new reality;
• to develop a methodological approach to the formation of the image of the future of metal industries as the basic industries of the industrial region.
Development of metal industries in Russia
In the world metal market, Russia's position is quite strong. In terms of steel production and consumption of finished metal products, the country ranks 5th and 6th in the world, respectively1. The growth in the competitiveness of the domestic steel industry was facilitated by serious institutional changes and technological modernisation of the early 2000s. As a result of these transformations, the structure of the produced metal has changed in accordance with the specifics of the world metal industries, where about 70 % of steel is smelted using the basic oxygen furnace (BOF) technology. Experts argue that this technology will remain dominant across the world, although its share will decrease to 50-53 %2. In Russia, today the share of BOF steel is 63 %, electric arc furnace (EAF) steel amounts to 35 %.
Structural changes contributed to the overall economic development of the industries, including by reducing the resource intensity of production. In 2021, Russia's metal industries retained the status of export-oriented industries. If in 2000 the share of export of metal products in its total production was 57.8 % (with the value of this indicator in 1990 just over 22.0 %, and already in 1998 reaching up to 61.9 %), then in the first two decades of the 21st century it remained at the level of 41.5-53.3 %3. A somewhat different situation developed in the pipe industry: the export of steel pipes, which was less than 1 % in 1990, increased up to 15.4 % ten years later and has fluctuated between 15.4 and 18 % over the past two decades.
The financial attractiveness of export of metal products, its state support, low demand in the domestic market altogether have made exports a sustainable trend in the development of the industry. According to the Russian Export Center, metal products were the ones that occupied the bulk of non-primary exports in 2020 amounting to 20.8 %. Unfortunately, their average price (435 US dollars per tonne) is still only 35 % of the average price of imported metal products (1,239 US dollars per tonne)4. By the share, the next are engineering products (17.7 %), food (17.3 %), and chemical products (16 %). We should highlight that in 2020, the export flows of domestic metal products changed. The EU was the largest foreign market for ferrous metals, but because of the pandemic, the
1 World Steel Association. World Steel in Figures. Brussels, 2020. https://worldsteel.org/steel-by-topic/statistics/ world-steel-in-figures/.
2 A new estimate of the cost of decarbonisation of world metal industries. Metal Supply and Sales, 2022, no. 1, p. 81. https://www.metalinfo.ru/emagazine/2022/01/82/. (In Russ.)
3 Federal State Statistics Service (Rosstat) statistics for 2019-2020. https://rosstat.gov.ru/.
4 UN Comtrade. International Trade Statistics Database. https:comtrade.un.org/data/.
demand for steel in European countries has fallen to its lowest level for the last decade [Melkonyan, Shpilmans, 2020, p. 23]. The measures taken by the EU to protect its market also create problems for the exports. Kazakhstan became the major importer of Russian metal products in 2020. In 2021, the supply of metal products to the EU partially resumed, though already in 2022, due to unprecedented anti-Russian sanctions, Europe refused to purchase the main types of Russian metal products. For instance, Russia's Severstal stopped the supply of steel products to the EU countries in connection with the Europe's refusal to purchase them because of sanctions imposed on the head of this company.
Over the past two decades, Russian metal companies were quite successful in their integration into the global economy. However, the new reality is that the modernisation of the industry requires considering it not as a set of individual metals enterprises operating as part of transnational technological chains, but seeing it as the core of a system for meeting the domestic economy's demand for metal products [Budanov, 2018, p. 69]. The other side of this new reality is determined by increasingly stringent social and environmental requirements, tougher conditions for the metal companies' entry into the world market, and restrictions on Russia's imports of high-quality metal products. The priority of the domestic market determines the central problem of the domestic metal industries, namely, reaching a consensus between producers and consumers of metals, and building mutually beneficial partnerships.
Metal industries in the structure of the industrial regions' economies. The federal districts of Russia differ significantly in terms of industry's share in GRP, which ranges from 10.5 % in the North Caucasus Federal District to 60 % in the Ural Federal District, accounting for 33 % in the country's GDP1. The most important qualitative characteristic of industry is the share of manufacturing activities in its structure, which serves as the defining parameter of industrial regions. The manufacturing activities of the Ural Federal District are principally concentrated in the industry of the Sverdlovsk and Chelyabinsk oblasts, where their share exceeds 84 % (Figure 1).
The structure of the manufacturing activities of the Chelyabinsk and Sverdlovsk oblasts is dominated by metal production, which made up 67.0 and 66.3 % respectively in 2020 (Figure 2).
Let us point to some peculiarities of the metal industries' development in these regions. In 2015-2020, the production of finished ferrous metal products in the Sverdlovsk oblast remained virtually unchanged at about 14.0 million tonnes (it grew insignificantly from 13.6 million tonnes in 2015 to only 13.8 million tonnes in 2020). But the share of high value added metal products, which was 15.28 % in 2015, increased up to 26.82 %
1 Unified Interdepartmental Statistical Information System (UISIS) statistics. https://www.fedstat.ru/indica-tor/59448. (In Russ.)
2016
2017
2018
2019
Russian Federation Ural Federal District Sverdlovsk oblast Chelyabinsk oblast
Fig. 1. The share of manufacturing activities in the industrial structure of Russia and individual regions of the Russian Federation, %
80 70 60 50 40 30 20 10
2016 2017 2018 2019 2020
Russian Federation Ural Federal District Sverdlovsk oblast Chelyabinsk oblast
Fig. 2. The share of metal products in the structure of manufacturing activities in the Sverdlovsk and Chelyabinsk oblasts of the Russian Federation, %
in 2020, i.e., 1.8 times. However, in the structure of export of metal and its products, the share of high-tech products decreased from 5.7 to 4.8 % in the specified period1. Given that in 2010 this share was 9.0 %, its continuing almost two-fold decrease by 2020, unfortunately, can be considered an emerging trend.
Despite the traditional conservatism of metal industries, metal companies now consider digital transformation to be an inevitable process, and many of them already enjoy the benefits of digital technologies [Xie et al., 2019; Usamentiaga et al., 2012; Shi et al., 2016]. As for the Ural metal industries, a technological trend towards its digitalisation is clearly seen. For example, in the Chelyabinsk oblast, which is the leader in the Urals by the share of metal industries in the manufacturing industries, in 2020 almost 90 % (89.3) of organisations producing metals (OKVED242) and finished metal products (OKVED 25) used information and communication (digital) technologies, 59.5 % of which were artificial intelligence technologies, cloud services and the Internet of Things. Over
1 Own calculations based the data from official statistical publications of the Rosstat regional office of Sverdlovsk and Kurgan Regions (https://sverdl.gks.ru/).
2 OKVED stands for Russian Classification of Economic Activities.
a quarter of organisations performing these types of activities (26.2 %) used the technologies for collecting, processing and analysing big data. The share of organisations adopting additive technologies in metal production is two times higher (12.1 %) than in the production of finished metal products (5.9 %). However, the latter turn to the technologies of digital twins more actively, 9.8 % versus 6.1 %. Industrial robots become increasingly utilised in the Ural metal industries, as well as generally in Russia. In the Chelyabinsk oblast, they are used by more than a third of all metal producers (33 %) and about a quarter (23.5%) of organisations involved in the production of finished metal products1.
In addition to general-purpose software, metal producers of the Chelyabinsk oblast are actively introducing specialised software. Thus, 82 % of organisations in the region use control tools for automated production or individual equipment and technological processes, 24 % employ CRM systems, 39.3 % adopt ERP systems, etc. At the end of 2020, the costs of implementing and using digital technologies in this region amounted to 5,095.2 million rubles, of which 85.8 % were internal costs. More than 30 % (33.5) of funds were spent on the machinery and equipment related to digital technologies, as well as on their maintenance, about 20 % (19.7) were used to purchase and adapt software. By contrast, the internal costs associated with employees' training in implementation and use of digital technologies are only hundredths of a percent (0.06 %)2. It is noteworthy that the number of specialists in information and communication technologies in the total number of employees of metal producing organisations in the Chelyabinsk oblast is only 1.6 %, though highly qualified specialists account for 41.6 % of them.
Thus, the development of metal production as the most important part of the profile of the Urals' industrial regions corresponds to global technological trends. In order to form the image of the future of the Ural metal enterprises integrated into transnational technological chains, it is necessary to identify stable, significant links between economic phenomena and processes in these industries, i.e., the trends and patterns that have developed in the global and national metal industries, as well as the factors that determine the transformation of these trends and patterns.
Research results
Trends and patterns in the development of metal industries. Metal industries have traditionally been considered systemically important for the Russian economy, constituting the basis for the industrialisation of the country and providing it not only with structural materials, but also with strategic munitions. Integration processes in industry, formation
1 Own calculations based the data from official statistical publications of the Rosstat regional office of Chelyabinsk Region (https://chelstat.gks.ru/).
2 Rosstat regional office of Chelyabinsk Region. https://chelstat.gks.ru/.
of large vertically integrated structures, and then transnational corporations (TNCs) allowed enterprises included in these structures to successfully modernise production, integrate into global technological value chains and become full-fledged participants in the global metal market.
Russian companies are among the largest steel companies in the world, traditionally occupying quite prestigious positions. In 2020, NLMK ranked 22nd, EVRAZ was 30th, MMK was 37th, and Severstal took 40th place1. Their positions are fundamentally different from the positions of enterprises outside the corporations. Those who operate in free competitive conditions demonstrate poor economic performance, divergent trends in production, and do not have long-term contracts with suppliers and consumers of their products. In addition, involvement in TNCs has become a determining factor in the higher value of the assets of integrated metal-producing enterprises compared to the assets of independent enterprises, despite approximately the same level of investment in the creation of these assets. Today, this is a trend manifesting in both domestic and foreign metal industries.
Another trend is changing factors that influence the development of metal industries. If during the 20th century they included the availability of mineral and cheap labour resources, the profitability of production, the ecological capacity of a territory, today the development and location of metal industries is primarily determined by general systems factors both of a macroeconomic and a political nature. The choice of options depends on the economic and political (presence or absence of sanctions, etc.) situation in the country, its macroeconomic policy, characteristics of its institutions, and established state and corporate governance mechanisms.
Based on the analysis of the development of the world metal industries under the new reality [Romanova, Sirotin, 2019a; Budanov, 2020], the identification of macroeconomic prerequisites that define the role and importance of metal industries in a changing environment [Orekhova, 2018], the systematisation of research into the formation of state and corporate governance mechanisms, as well as their interactions, which are significant in terms of the industries' development, we can argue that there is one more trend in the field under consideration. It consists in locating metal production without taking account whether or not traditional competitive advantages are obtained, but thinking about the possibility of efficient capital accumulation in a particular country. Such a pattern cannot be explained within the framework of the industrial market, an explanation to it is found only through applying the reproduction approach, viewing the issue from the standpoint of the efficiency of capital accumulation [Budanov, 2020, p. 107].
1 World Steel Association. World Steel in Figures 2021. Brussels, 2021. P. 32. https://worldsteel.org/wp-content/ uploads/2021-World-Steel-in-Figures.pdf.
This is the viewpoint that, for example, the US administration adheres to, and encourages active investment of foreign partners in the country's economy along with creation of joint ventures. As a result, the share of foreign investment in the development of the ferrous metal industry of this country approximated to 25 % of their total volume at the early 21st century. The well-known expression of the former US President Donald Trump "If you don't have steel, you don't have a country" was accompanied by active support for this industry, the introduction of steel and aluminum import tariffs (25 and 10 % respectively), as well as other protectionist measures [Adno, 2019, p. 4-5]. At the same time, the prospect of economic growth depends not only on attracting new resources and increasing the efficiency of their use, but also on the quality of the interface between the economic and social policies of the state [Mikulskiy, 2020, p. 7]. Importantly, this interaction could lead to an increase in public wealth and develop universal values, including social justice, which is of particular importance [Animitsa, Rakhmeeva, 2020, p. 130].
To lay the basis for such well-being in modern conditions, cooperative work of the state and business in the field of national investment development is necessary, so that industrial activity would be able to stimulate the growth of production and social assets.
Factors in the transformation of trends and patterns of metal industries' development under the new reality. Trends in world technological, economic, socio-ecological and political development alter, and sometimes significantly modify the patterns of development of the economy in general, of industrial regions and individual industries, including metal industries. For instance, the development of the knowledge-based economy triggered the emergence of such new patterns as the structural transformation of the economy, an increase in the share of human capital in the national wealth, and resulted in a set of new contradictions. For instance, in metal industries, there are growing contradictions between TNCs and government bodies. The intensification of globalisation processes has led to the fact that the activities of TNCs have actually crossed national borders. Resources that were previously accumulated by the state to invest in industrial development, have been gradually given an international focus by TNCs. Thus, the very nature of corporate metal enterprises, which today is not only transnational, but also increasingly diversified, does not allow considering the industry as an object of national regulation [Tolkachev, Teplyakov, 2021, p. 48].
The contradictions provoking a conflict of interests between the state and TNCs can be exemplified by the development of export activities that are attractive for Russian metal companies. The conflict becomes obvious when considering the domestic metal industries from the standpoint of its traditional competitive advantages. In modern conditions, these advantages have turned into limitations due to rising prices for all resources consumed and used by the metal industries. This factor leveled the improvements in
average indicators in these industries by the types of raw materials used, and caused an upsurge in the cost of all types of manufactured metal products.
In the domestic economy, it has already become a tradition that for every ruble of an increase in the price of a basic resource, the increase in the prices of manufactured metal products ranges from 3 to 4 rubles. However, in a number of highly developed countries, such as the USA, Japan, EU countries, changes in resource prices do not have a significant impact on the cost of final metal products. There, even a five-fold or more increase in prices of imported raw materials has almost no effect on the cost of products such as pipes and rolled products1. Moreover, in 2019, the situation on the global metal market was exactly the opposite: prices of raw materials soared by 70 % in the first half of the year, while prices for metal produced from them went down by 12 %2.
Neither the concept of costs nor the standpoint of generally accepted market criteria, such as price situation, effective demand, and supply, can explain such a situation. We believe that Budanov is right arguing that the key role in this case is played by the stability of the state system as a whole, which makes it possible to nullify emerging external price impulses. The ability of the socioeconomic system to stifle these impulses helps ensure the stable functioning of the country's economy. This encourages metal companies to develop business in such countries, because there the value of accumulated production assets is retained. Obviously, such an approach does not meet the state interests of the home country of the metal producers, in this case Russia, because in such circumstances the country losses both the assets, which were previously created in its territory, and unique competencies, various skills, etc.
Another limitation to the development of export activities of domestic metal industries is also associated with a conflict of interests between the state and business. Companies are interested in meeting their production needs by purchasing usually cheaper products in global markets with the subsequent export of metal products. For the state, in many cases, it is preferable that these companies fulfill domestic demand for metal products. Besides, companies evaluate the efficiency of their export activities on the basis of the amount of profit received, whereas the state considers it efficient only when using this profit brings any dividends for the national economy. For instance, in the last two decades, the profits of domestic metal companies were five times higher than the amount of investments directed to their development during this period [Budanov, 2020, p. 111].
In addition to export activities, the crucial difference between the positions of the state and TNCs manifests itself in other aspects. Under growing geopolitical contradictions, in
1 Federal State Statistics Service. Official statistics. https://www.gks.ru/folder/10705; Eurostat. https://ec.europa. eu/eurostat/data/database.
2 Delloite. Overview of the steel and iron ore metal market. Moscow, second half of 2019. https://www2.Deloitte. com/ru/pages/research-center/articles/overview-of-steel-and-iron-market.html. (In Russ.)
Russia, the traditional mechanism for the development of metal industries within TNCs is complemented by mechanisms of state regulation. At the same time, state intervention in the activities of corporations can create a variety of risks for them. An important aspect of the conflict between the state and corporate interests is related to the spatial factor of capital distribution. Since the place of capital accumulation is determined by its owners, and today Russia is not attractive in this respect, there is a clearly ascertainable trend towards domestic companies creating production capacities abroad. This applies not only to the metal producers, but also to the mechanical engineering enterprises [Bor-isov, Pochukaeva, Pochukaev, 2020].
In the Russian economy, by now there are practically no types of economic activity left, investments in which would exceed intra-industry financial capabilities [Salnikov, 2020]. For example, investments in metal production, both in the first decade of the 21st century and subsequently, amounted to less than 30 % of the total financial resources of the industry (profit plus depreciation allowance) that it had in 2010-2020. That is, modern metal industries could not develop in countries where there are prerequisites for the efficient functioning of metal production, but there are no macroeconomic factors that create an opportunity for efficient capital accumulation.
The geopolitical situation, as noted above, is assuming an increasingly important role in the modern economy, transforming the established patterns of development of the domestic metal industries. Thus, in the face of tougher sanctions, accumulating foreign assets is losing its attractiveness for Russian metal companies. Moreover, some of them have already sold assets acquired abroad. In particular, TMK (Pipe Metallurgical Company) did this with previously purchased assets in the USA1. At the same time, TMK is successfully continuing to integrate domestic assets, as evidenced by the acquisition of the CHTPZ group in 2021, which, along with the Chelyabinsk Pipe Rolling Plant, also includes the Pervouralsk New Pipe Plant.
In addition to geopolitical factors, other factors impact significantly on the change in the motivation of the Russian metal companies' management when buying or selling certain assets. The most contributing among them are the factors that determine the achievement of the sustainable development goals.
ESG factors in business strategies of Russian and Ural metal companies
The declared goals in the field of sustainable development take into account various aspects of life all over the world: social, environmental and economic [Ponomareva et al., 2019; Turgel, Bazhenov, Bozhko, 2020]. In this sense, the emergence of the Industry 5.0 concept as a new management paradigm in industry, science, and education seems
1 TMK sold its assets in the USA. Kommersant, March 22, 2019. https://www.kommersant.ru/doc/3922315. (In Russ.)
natural. In our opinion, it is necessary to allow for its basic principles when designing strategic documents for the development of the basic industries, primarily metal industries, both at the national and regional levels. Back in 2020, the central ideas of Industry 5.0 were discussed in a number of international forums. As this concept evolves, it forms the image of an industry focused not only on boosting efficiency and productivity, but also on increasing its role and contribution to the development of society. Industry 5.0 policy documents emphasise that environmental and social factors are becoming unconditional priorities.
Environmental factors. The change of priorities seriously threatens the competitiveness of the domestic metal industries in general and the Ural metal industries in particular. Experts' estimates confirm that steel is impossible to be replaced with other materials in the foreseeable future, though the inevitability of a transition to a green economy will require the most severe environmental restrictions on the functioning of metal industries, which account for 7 % of the world's greenhouse gas emissions. Large-scale investment is needed to address the decarbonisation at the global, national and regional levels. The transition to carbon-free technologies will require additional investments from the world metal industries in the amount of 215-278 billion US dollars by 20501, which is only possible with substantial state support. The government subsidies for the decar-bonisation are expected to make up a considerable share of investments in the global metal industries.
In Russia, this problem receives increasing attention. Decree of the Government of the Russian Federation no. 355 of March 14, 2022 stipulates that by the end of 2023, the activities of enterprises emitting 150 thousand tonnes or more of carbon dioxide per year will be regulated by the state. They are required to submit carbon reports that are uploaded to the government's greenhouse gas accounting system. However, in the future, the maximum volume of such emissions will be limited to 50 thousand tonnes of carbon dioxide per year2.
Many Russian metal companies are already incorporating the principles of sustainable development in their business strategies. At the same time, it is getting more and more important that ESG factors (environmental, social and governance) should be taken into account by not only the companies' management while formulating their development strategies, but also by investors and other stakeholders. There are no one-size-fits-all ESG solutions, because benchmarks vary substantially across industries, depend on their levels of maturity, etc. With regard to metal industries, the most crucial environmental
1 A new estimate of the cost of decarbonisation of world metal industries. Metal Supply and Sales, 2022, no. 1, p. 81. https://www.metalinfo.ru/emagazine/2022/01/82/. (In Russ.)
2 Decree of the Government of the Russian Federation no. 355 of March 14, 2022. http://government.ru/ news/44805/. (In Russ.)
factors are the impact of CO2 emissions and the carbon footprint of products on climate change, as well as the generation and accumulation of mining and smelting waste [Filonenko, 2018; Musial, 2020; Mulvaney et al., 2021; Rybak et al., 2021].
The introduction of a cross-border carbon tax in the EU countries will grow into a powerful factor limiting the access of Russian metal to the markets of these countries. The Ministry of Economic Development of the Russian Federation is discussing a draft plan for the implementation of the Strategy for the socioeconomic development of Russia, which provides for a low level of greenhouse gas emissions. However, this document does not intend to introduce carbon pricing in the form of taxes and quotas. The only decision in this domain is conducting a 'Sakhalin experiment', within the framework of which the system of emission quotas is tested.
To reduce environmental risks and make domestic metal products more competitive, it is appropriate to introduce a carbon emission fee in Russia, which will require preparing relevant regulations. Otherwise, since almost half of the metal produced in the country is exported, and this is mainly the metal of the primary, most carbon-intensive processing, domestic metal companies will pay sizeable sums to the budgets of the countries to which this metal is exported. But if such a fee is introduced in Russia, funds will be redistributed from carbon-intensive businesses to the state or to companies that are more efficient in terms of emissions. It is also necessary to take into consideration the high probability of allowing steel export, for example, to the EU, only if its energy intensity does not exceed the level in the European market1. This will make domestic metal producers, focused on at least partial export of steel products, enhance efforts to decrease the resource intensity of steel.
Naturally, the largest steel companies in Russia are developing their strategies in accordance with the latest global technological trends and ESG principles. Modern metal industries have certain environmental opportunities associated with their modernisation, development of clean, nature-like technologies, with hydrogen reduction of iron (H-DR). For instance, in May 2021, the Metalloinvest holding announced its desire to turn into a carbon neutral company by 2050. Given that the plant for the direct reduction of iron based on hydrogen turns out to be the key unit of the future metal industries, Metalloinvest sold 100 % of the shares of Ural Steel, its subsidiary. This company is an integrated company with a full metal production cycle, which is characterised by considerable emissions into the atmosphere. By doing this, Metalloinvest is getting rid of distressed assets and strengthening its position in the green metallurgy, concentrating its efforts on the production of direct reduced iron. This will completely eliminate the use of coking coal and cast iron from production processes, which will reduce direct greenhouse gas emissions by 48 %.
1 EUROFER - The European Steel Association. http://www.eurofer.org.
One of the leaders in the implementation of ESG factors in production is TMK. Four enterprises of this company are located in the Urals, more specifically, in the Sverdlovsk (Sinarsky, Seversky and Pervouralsky plants) and Chelyabinsk (Chelyabinsk Pipe Rolling Plant) oblasts. TMK is the initiator of sustainable development cooperation with Gazpromneft-Razvitie and Gazpromneft-Snabzhenie. The companies agreed on a joint practice of responsible procurement and developed recommendations to suppliers about complying with ESG requirements. Already in the medium term, the implementation of these recommendations will be an obligatory condition for inclusion in the list of suppliers of these companies.
The importance of addressing the issues related to ESG dictates the need to take into account the indicators characterising the achievements in this field when remunerating management in metal industries. An annual survey conducted among members of the board of directors of industrial companies in Russia found that 34 % of respondents declared the achievement of environmental goals to be a particularly important indicator for bonuses.
Social factors. Modern requirements for the metal industries' performance include ensuring not only industrial, but also national economic efficiency associated with the achievement of both environmental and social effects. The social aspect within the ESG factors implies the social responsibility of the business for both the conditions and safety of work in all supply chains, accountability for product quality, which includes the elimination of health risks and impact investment. The latter means investing in a business that guarantees, along with economic, measurable effects in the social and environmental spheres. Thus, the formation and preservation of human capital turns into the central aspect of the social responsibility of business.
This requires metal companies not only to increase expenditures on healthcare, ensure decent working conditions, give continuous training to employees, but also provide an opportunity to people to live in an environmentally friendly, comfortable region. Achieving the requirements of the best available production technologies in metal enterprises should contribute to succeeding in this task. However, it is highly likely that this process, which involves huge investments, will be lengthy. Under the conditions of toughening competition for personnel with the necessary competencies, metal producers are in a rather weak position. Heavily polluted territories where metal enterprises are based, the risks in the field of full-fledged reproduction of the population living there are real factors behind the loss of the most qualified workforce.
No less serious difficulties are posed by the growing requirements for the quality of the production environment at enterprises, the need to reduce jobs associated with harmful and dangerous working conditions. We should highlight that despite the importance of preserving human capital, there is no positive trend towards improvement of the
working environment at mining and metal enterprises of the Middle Urals. For instance, over the period from 2017 to 2020, the proportion of workers whose work is associated with danger and harm to health went up from 50.4 to 51.3 % at the manufacturing enterprises of the Sverdlovsk oblast, including in metal industries - from 69.4 to 69.5 %, and in mining - from 78.0 to 80.7 %1.
We can state that the problem of the human capital formation in the metal industries of the Urals, like in other industrial regions, is quite acute. Naturally, metal companies are interested in attracting the most capable representatives of the so-called generation Z and millennials, who by 2030 will constitute more than 70 % of the workforce worldwide. Their creative thinking is based on the principles of new sociality and new media. Therefore, the requirements for the nature and significance of the work performed, the quality of jobs and comfortable living conditions are a serious challenge for the management of metal companies.
Methodological approach to forming the image of the future of metal industries
Due to the extremely difficult geopolitical situation, European markets will be closed for Russian metals for an indefinite period of time. Nevertheless, our state keeps sticking to its political position on ensuring environmental safety and achieving carbon neutrality of domestic production. The compliance of projects implemented by mining and metal companies with the ESG criteria is already taken into account by investors along with traditional financial indicators when making strategic decisions and assessing the brand equity [Kukhianidze, 2021].
Non-alternative transition to the use of the best available technologies; sharp, albeit planned, increases in the rates of the tax base for organisations that are the main sources of environmental pollution; corporate policy that allows for environmental and social responsibility to society adopted by both investors and the largest companies that consume steel products all together will determine whether the principles of ESG will be upheld and developed by Russian metal producers in the domestic market. Thus, in any geopolitical situation, taking into account and following global trends for reducing emissions that pollute the atmosphere, improving the quality of the production environment, and increasing the social responsibility of business remain the most important tasks in the development of basic industries in industrial regions.
In addition to implementing the ESG principles, metal companies, as well as companies in other basic industries of industrial regions, carry out an active digital transformation of the organisational, economic and production systems of their enterprises [Pan et al., 2018; Zhang et al., 2020]. The metal producers increase the use of artificial
1 Labour and employment in the Sverdlovsk oblast, 2020. Statistical Yearbook. Ekaterinburg: Rosstat regional office of Sverdlovsk and Kurgan Regions. 2021. P. 179. (In Russ.)
intelligence technologies, acquire robots, create robotic lines, etc. According to the Association for Advancing Automation (A3), today metal industries are the fastest growing sector in terms of the number of orders for the purchase of robots1. This, obviously, plays a positive role in the digital transformation of the basic industries in industrial regions, but requires a serious study of the issue of "ensuring elastic adaptation to new technologies" [Martynov, 2021, p. 10].
Along with it, the methodological foundations of forming a new technological image of the future of industrial regions need to be developed. At the initial stages of their development it is relevant to form a methodological approach to shaping the image of the future of metal industries as the leading basic industries in a region. Our studies of the development of the metal industries in the Middle Urals, which we performed earlier, in the pre-pandemic period, made it possible to identify the prerequisites and relatively real opportunities for achieving a new technological image by 2035 [Romanova, Siro-tin, 2019b]. We proposed a model for a variable assessment of changes in the technological image of metal industries of a region based on the technology of artificial neural networks. The model allows assessing changes in the essential parameters of the metal industries in an unstable market situation. However, it is necessary to correct this methodological approach in relation to the metal industries taking into consideration the new reality.
The proposed approach (Figure 3) is implemented in three successive stages.
1. Information model is constructed to objectively justify the relationship of the object of the study with the promising areas of scientific and technological development. With this end in view, we identify the priority directions of technological development of metal industries in a region using scientometric methods. Also, at this stage, we assess the dynamics and provide a forecast for the development of the domestic consumption of metal products and its structure.
2. A factor analysis is performed to identify the essential parameters that determine the image of the future of metal industries. At this stage, we draw up a list of most important indicators that characterise the process of changes in the technological image of metal industries of a region; construct a set of non-linear economic mathematical models that is used to predict changes in the parameters of such an image. To address these problems, we apply the method of principal components; varimax method (for factor matrix rotation); methods of correlation and regression analysis, graphical and non-linear regression analysis.
1 North American companies ordered a record number of robots in 2021. Industry Hunter: Electronics and Microelectronics News. https://industry-hunter.com/v-2021-godu-severoamerikanskie-kompanii-zakazali-rekordno-
bolsoe-kolicestvo-robotov. (In Russ.)
1. Identifying priority thrusts of the technological development of a region's metal
industries
• bibliometric analysis
• analysis of patent activity
• harmonisation of regions' references bases
• systématisation of the revealed priority thrusts of the development of a region's metal industries
• harmonisation of the revealed priority thrusts of the development of a region's metal industries with programmes for the development of the sectors consuming metal products
no
yes
T~
2. Evaluating the parameters of the technological image of a region's metal industries based on the method of principal components
• compilation of the research database
• construction of the correlation matrix, data preparation
• evaluation of total variance of factor loadings
• rotation of factor matrices
• obtaining, analysing and interpreting results
results of modelling are unsatisfactory the model is of good quality, but some principal components obtained are bulky and poorly interpretable the model is of high quality, all principal components are easily interpretable
Understanding the possibilities and market priorities of the development of a region's metal industries under modern conditions
Choice of a balanced decision at the corresponding stage of creation of the new technological image of a region's metal industries
Models are brought to a non-linear form
Assessment of the road map implementation based on the suggested neural network model
3. Assessing the formation of the new technological image
of a region's metal industries based on the neural network
model of the image recognition
• formation of the sample based on the forecasted values of the parameters and market conditions that determine the stages in the emergence of the new technological image of a regions metal industries
• choice of a type of connection between neurons (network architecture)
• identification of activation (transmission) functions of system elements
• formation of a training sample
• execution of a network training algorithm that takes into account possible modifications of synaptic weights (weight coefficients) of connections between neurons
• testing of the adequacy of neural network operation
inadequate
adequate
Preservation of the source code of the network creation of a shell for working with the network as part of the evaluation of the implementation of programmes that take into account the formation of the new technological image of a region's metal industries
Development of a road map for the formation of the new technological image of a region's metal industries
Fig. 3. Algorithm for the implementation of a methodological approach to assessing the formation of a new technological image of a regions metal industries
3. Changes in the established parameters of the metal industries under the impact of multiple external factors and risks are evaluated. The most important task fulfilled by recognition systems is the qualitative classification of object states according to a set of attributes [Ansari, 2014; Heaton, 2015]. In this regard, the designed system, built on the basis of neural network algorithms, showed itself perfectly1. This stage handles two parallel tasks: (i) substantiates and systematises the forecasted values of the factors that determine the parameters of the gradually created new technological image of a region's metal industries as well as the conditions accompanying this process. This allows creating a table of forecasted values of the factors being assessed, which can be strengthened by a road map for forming an image of the future built on the basis of a scenario approach; (ii) constructs a mathematical model for recognition of technological images of the metal industries based on neural network algorithms.
The algorithm in Figure 3 includes the development of a road map for the formation of a new technological image of the metal industries of a region, the implementation of which is evaluated on the basis of an artificial neural network. The neural network built and trained according to the algorithm analyses each individual parameter of the system and gives a comprehensive assessment of their impact on the technological image of the regional metal industries.
We believe that it is particularly important that performing the function of predictive variant assessment for a set of nonlinear parameters of the system gives grounds for considering such a neural network model as a tool for additional justification of management decisions.
Conclusion
The research demonstrates that the transformation of the identified trends and patterns of the development of the basic sectors of the Russian industry is a consequence of the increasing influence of geopolitical factors, mounting environmental and social requirements, and the growing importance of digitalisation of production systems. In the new reality, when the domestic market is assigned a priority, the success of the metal industries as well as other basic industries will largely depend on structural reforms that will help production to adapt rapidly to the changing demand as well as on the strengthening of the cooperation among regions, the ability of manufacturers and consumers of industrial products to build mutually beneficial partnerships.
We believe that the strategic thrust of the development of domestic basic industries, including metal industries, will be defined not exclusively by the latest technological
1 Romanova O. A., Sirotin D. V. The program for assessing the repositioning of metal industries of a region. Certificate number: RU 2019614462. Patent registration date: April 5, 2019. https://sciact.uiec.ru/ru/public/pat-ent/5. (In Russ.)
trends, but also by those institutional and managerial innovations that will allow creating a more attractive image of the future of our economy. To achieve this, the state must be able to attract financial, technological and labour resources in order to amass the wealth of the country. This is one of the most essential characteristics of the maturity and competitiveness of the economy, which determines the possibilities for further modernisation and efficient development of the basic industries in industrial regions.
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Information about the authors
Olga A. Romanova, Dr. Sc. (Econ.), Chief Researcher at the Center for Structural Policy, Institute of Economics (Ural branch of RAS), 29 Moskovskaya St., Ekaterinburg, 620014, Russia Phone: +7 (343) 371-61-66, e-mail: romanova.oa@uiec.ru
Dmitry V. Sirotin, Cand. Sc. (Econ.), Sr. Researcher at the Center for Structural Policy, Institute of Economics (Ural branch of RAS), 29 Moskovskaya St., Ekaterinburg, 620014, Russia Phone: +7 (343) 379-90-92, e-mail: sirotind.umk@mail.ru
© Romanova O. A., Sirotin D. V., 2022
