St. Petersburg metropolitan region has huge potential as a growth pole for North-West of Russia and the neighboring EU countries.

The St. Petersburg metropolitan area

Contact

Mag. Linda Michalech
Corporate Communications Manager

Sberbank Europe AG
Tel.: +43 1 22732 1300
Mobile: +43 664 8891 3662
linda.michalech@sberbank.at

Analysis: St. Petersburg: Russia’s historical gateway to the West

Location and resources

Geography, population, economy

St. Petersburg | ©FotoliaThe St. Petersburg metropolitan area (St. Petersburg City and the surrounding Leningradskaya Oblast) in the North-West District of the Russian Federation has a great history. It was the capital of the Russian Tsarist empire and operated both as a showcase of Russian culture for the Western World as well as the main entry gateway for trade, tourism and communications. It is the only big Russian population center directly bordering the European Union (Finland and Estonia). With about 7 million inhabitants, it ranks second in Russia behind Moscow.

In 2008 the Constitutional Court was moved to St. Petersburg, and other courts are due to follow. Further federal institutions may also be relocated: for instance, there are plans to move the Federal Assembly to St. Petersburg.

St. Petersburg’s location is best illustrated by the famous "white nights" between late May and mid-June and the frozen Neva in January and February. The harsh continental climate is softened by the warm but humid winds from the nearby Baltic Sea. The price of less freezing temperatures is the usually cloudy sky. It should therefore come as no surprise to see locals sunbathing whenever the sun is shining…

THE POPULATION MOVES INTO METROPOLITAN AREAS
(in thousands) 2005 2015 % change
Moscow 10,825.1 12,263.9 13.3
Moscow Oblast 6,760.3 7,274.8 7.6
Central District 38,076.5 39,027.9 2.5
Central District outside
Moscow metro area
20,491,1 19,489,2 -4.9
St. Petersburg 4,699.7 5,208.7 10.8
Leningradskaya Oblast 1,683.4 1,777.2 5.6
North-West District 13,754.9 13,848.6 0.7
North-West District outside 
St. Petersburg metro area
7,371.8 6,862.7 -6.9

The population is predominantly Russian, with relatively small numbers of mainly Slavic migrants from other CIS republics. The population of St. Petersburg metropolitan area grew by about 600,000 between 2005 and 2015, mainly because of regional migration from the surrounding North-Western Federal District. A small but psychologically important demographic factor is the turnaround in the balance of deaths and births, with the falling death rate being reflected by an increase in life expectancy. Men in particular are living longer than they did 10 years ago, with male life expectancy increasing from 61.7 years in 2005 to 69.8 years in 2015. The increase for women, from 74.3 to 78.4 years over the same time period, is less spectacular but just as significant.

CHANGE IN LIFE EXPECTANCY FOR MEN AND WOMEN 2005–2015
  Men Woman
  2005 2015 2005 2015
Moscow 66.7 73.0 76.3 80.4
Moscow Oblast 59.3 67.1 73.3 77.1
St. Petersburg 61.7 69.8 74.3 78.4
Leningradskaya Oblast 55.7 65.8 70.2 76.6

In the ten years between 2005 and 2015, St. Petersburg and Leningradskaya Oblast were among the most dynamic of Russian regions, with industrial production and services growing considerably more strongly than in the Moscow metropolitan region. An important boost for economic activity in the St. Petersburg metropolitan region was linked to the strategic decision to shift oil and gas exports from transit countries to home ports and maritime pipelines. The move has facilitated Russian energy exports to Europe with newly established ports and pipelines, and St. Petersburg has benefited from the establishment of research centers by a number of Russian conglomerates, such as Gazprom, Surgutneftegaz and Rosatom.

Between 2005 and 2015, St. Petersburg and Leningradskaya Oblast were among the most dynamic of Russian regions.

 

While clusters in machine building and medical and information technologies are competing successfully on the open markets, this is not so much the case for applied research spin-offs of scientific institutions. Foreign industrial investors mainly target the rapidly growing local consumer market. According to OECD estimates (OECD, 2015; Table 1.2 and Annex 1.A1) St. Petersburg occupies second place in terms of market potential in Russia, while the Leningradskaya Oblast is 8th. The market potential indicator is a measure that summarizes a given region's proximity to economic demand from other locations.

CHANGE IN PRODUCTION OF GOODS AND SERVICES 2005–2015  

IN %  
Moscow 403
Moscow Oblast 396
St. Petersburg 628
Leningradskaya Oblast 526
The St. Petersburg metropolitan area is a combination of all three types of growth territories that developed under the influence of globalization, agglomeration and resource factors: a large urban agglomeration; an important transport and resource region; and a border seaport region situated on major international trade routes. The city and region of St. Petersburg has regained its status of “a window to Europe”.
 

Natural resource processing

Natural resource wealth is the dominant driver of economic activity in Russia, the North-West Federal District in general and the St. Petersburg metropolitan area in particular. Processing of raw materials is still of secondary importance. This is also true of renewable resources like forests, which remain far below a sustainable extraction intensity. Russia’s economic relations with Europe are still driven by inter-industry trade (exporting energy and raw materials, importing final consumer and investment goods). Intra-industry trade (of goods belonging to the same commodity group), which is typical of the most developed economies, continues to play a minor role.

The scope for local processing of extracted renewable and non-renewable resources in Russia depends largely on the ability to contain the influence of fluctuations in international raw material prices on the domestic economy. Furthermore, stepping up international participation in global value chains requires trust, underpinned by the rule of law implemented by an independent and efficient judiciary.

A further step in this direction would be the development of St. Petersburg city and its environs into a functional metropolitan area, ensuring that municipal and regional services are sufficiently harmonized for the needs of sophisticated international business.

Transport infrastructure

The role of the North Stream Pipelines should not be underestimated. They make Russian energy exports much less vulnerable to ups and downs in its relations with transit countries. Furthermore, the capacities of regional sea/land transport facilities have greatly increased, in turn reducing the temptation to use transit transport as a reward for political concessions. While this demonstrates the ability to implement clearly articulated and centrally prioritized mega-projects of Russia- wide importance in order to make St. Petersburg a “world city” again, less progress has been made with the provision of infrastructure to meet the needs of dynamically emerging bottom- up market entrants.

The role of the North Stream Pipelines should not be underestimated.

 

Thanks to the development of new port facilities in Primorsk, Vysotsk (with a planned LNG terminal), Ust-Luga, and Bronka, together with the capacity- increasing investments in Saint Petersburg, the annual cargo tonnage (2011) at the Russian ports on the Gulf of Finland is approaching 120 million tons, which is comparable to the turnover achieved by the biggest German port, Hamburg. The construction of a ring road has given additional impetus to the development of the maritime function of the St. Petersburg agglomeration.

St. Petersburg could be described as the container monopolist of Russia’s North-West. The major port of St. Petersburg handles more than 90% of all regional container cargoes, and, as the economic center of Russia’s North- West, the city is the destination for most processed imports. One of the most promising projects is the Ust-Luga Baltiysk (Kaliningrad) ferry line, linking the St. Petersburg metropolitan area to Kaliningrad, the Russian exclave on the Baltic, and simultaneously intensifying cargo and passenger traffic with the EU. Plans are under way for the construction of three new ferries.

The passenger airport has the second largest capacity for passenger transport in Russia, with connections to most international hubs in Europe and overseas. The opening of a cargo airport is planned for 2018. The “Allegro” high-speed rail link between St. Petersburg and Helsinki as well as the high-speed train to Moscow contribute a lot to the development of the city.

Key economic indicators

Education and labor market developments

Educational attainment in Russia is very high, and the share of population with a tertiary degree is one of the highest in the world. However, university education is biased in favor of economics, law and business studies. St. Petersburg University is ranked among the top 400 higher education institutions in the Shanghai Index.

The share of population with an internet subscription is rising rapidly, albeit from a low level. An overwhelming share of school leavers aspires to gain employment with a government institution or a big government- owned firm. There is little desire to establish a business of their own. Unemployment is very low, at around 2%, and wages are increasing rapidly. Major efforts to improve productivity are thus required in order to stay competitive.
UNEMPLOYMENT IN % OF LABOR FORCE
  2005 2015
Moscow 0.8 1.8
Moscow Oblast 3.2 3.3
St. Petersburg 2.2 2.1
Leningradskaya Oblast 7.2 5.1
 

Innovation

Federal development funds play an important role in the foundation and expansion of science and technology parks. A ranking of regions according to their technological and innovation developments puts the Leningradskaya Oblast in first place.

The replacement of the Soviet financing system of innovation spending by private funding of science parks has not yet achieved tangible results. Hightech firms depend on government demand for their products, and science investors remain small in number and pay relatively low wages. Technology and science parks do not provide sufficient management capacities, but are capable of providing public benefits.

The St. Petersburg metropolitan area is among the top innovation locations in Russia. A problem to be addressed in the further course of strengthening intellectual property rights is the dominance of innovation support by public institutions. As a first step in this direction it makes sense to attract FDI, because foreign firms are usually more productive and invest more in human capital and innovation activities, leading to a larger share of new products and services.

The local economy

Following the completion of the Lakhta Tower, St. Petersburg will host the headquarters of the Gazprom group, Russia's biggest company. Plant and equipment for the car manufacturing companies of foreign investors (Toyota, General Motors, Nissan) have been provided by famous machinery producers like the Kirov plant. Major industrial producers operate in the shipbuilding, optics, electronics, food and metallurgy sectors. The growing tourism industry is becoming an important employer.

Economic outlook (GDP per capita, supply and demand structure, etc.)

An appropriate macroeconomic policy framework, including the shift to a fully operational inflation targeting framework with flexible interest rates, would tremendously widen the outlook for the transition to a diversified, innovation- driven and human capital-intensive economy in the St. Petersburg metropolitan area.

The St. Petersburg agglomeration has the potential for a huge multiple dividend, because it is attractive:

  • to foreign suppliers tapping the large purchasing power of its inhabitants
  • to high-tech investors as a location for research units close
  • to technical universities to Russian and Eurasian conglomerates as a stepping stone into the neighboring EU market
  • as a logistics node on the northern branch of the Silk Road with multiple opportunities.

Together with Kaliningrad, the St. Petersburg metropolitan region can generate a mutually beneficial growth pole in both the North-West of Russia and the neighboring EU countries.


Andreas Wörgötter,
Adjunct Associate Professor, Institute of Statistics and Mathematical Methods in Economics, TU Wien

Open contact