South Urals Prepared "Green House" for Heavy Investment

26.04.2011 — Analysis

The Chelyabinsk Region is a one-of-a-kind area. There, manufacturing operations exist side by side with pristine and pure lakes, technological innovations go hand-in-hand with centuries-old traditions, and administrative authorities are interested in foreign investors. The "RusBusinessNews" columnist saw for himself that the region is ready to provide a growth site for international business.

The crisis is over, and fear goes away from hearts of investors everywhere in the world. Investors uncase their bank accounts to wake up "dormant" money and put it to work. However, disposable capital has hard time to make itself useful in the Old World. "Very large companies have sizeable amounts of cash, but are not able to invest it in their own economy because it is not growing, its boundaries are constricted" - South Ural Governor Mikhail Yurevich notes.

Money is like rivers, looking for stream-ways that are not clogged. It needs growing markets that are able to cope with investments. The South Urals is one of the most promising growth points in Russia.

M. Yurevich admits that for investors, the Chelyabinsk Region - "is an enormous niche that must be occupied on time". Following technological upgrading, local manufacturing companies will boost their operational efficiency and set sail to conquer new industrial peaks. "For the Chelyabinsk Region, the issue of investment is a number one issue! Investors should be different - local, federal, international" - that is the objective set by the governor for the regional government.

Everything is clear about our own investor, but foreign entrepreneurs tend to shy away from Russia, feeling shaky in the subtleties of the post-Soviet legislation. They are wary of stumbling over local administrative barriers, knocking against corrupt officials. Addressing their concerns, M. Yurevich spearheaded the idea of setting up a "launch office" that would help to make life of investors much easier.

Key to Ignition!

A foreign entrepreneur frequently lacks familiar working environment in another country. During his first steps, he needs, at least, a room for negotiations, a capable interpreter and an adviser. This sort of help will be provided to non-resident business people by the "launch office" supported from the regional budget and operating at the Ministry of Economic Development of the Chelyabinsk Region.

However, it will be much more than an access to a desk and a fax machine. The employees working in the new outfit are ready to take newcomers "by the hand" and lead them through administrative offices to avoid unwanted red tape. Elena Murzina, Minister of Economic Development, notes that such work is not new to departmental employees. They are already providing administrative support to investors, using a "single window" technique, and are willing to give any assistance to prospective partners in future.

Being introduced to the idea, Hungarian diplomats accepted it with enthusiasm. The Consulate General of Hungary in Ekaterinburg intends to forward the information about the "launch office" to their country to facilitate strengthening of mutually beneficial cooperation between this European country and the Chelyabinsk Region.

As it was pointed out by Bajtai Csaba, head of the diplomatic mission, M. Yurevich's initiative, undoubtedly, will gives an impetus to birth of new joint business projects.

Investment Leaps and Bounds of South Urals

Viability of investment in the Chelyabinsk Region is shown best by statistics. For many years, manufacturing companies of the region were moving forward, primarily, through their own investment. Two out of three rubles spent on development of production were invested from their own profit.

The year 2010 ushered in a pivotal event: as M. Yurevich metaphorically described it, "the flywheel effect was initiated to gain momentum in attracting investors". Foreign business increased its investment in the regional economy by 30%, totaling US 3.33 bn, while ruble investment amounted to RUR 138.8 bn.

The achievements of the Chelyabinsk Region caught the eye of Standard & Poor's rating agency, which at the end of 2010 awarded the region with a long-term credit rating - "ВВ+" (based on the national scale - "ruAA+"), assessing it as "Stable".

Metallurgical Might of Chelyabinsk Region

Many years back, during the Soviet period, the Chelyabinsk Region built up its metallurgical strength that brought world-wide fame to the region. The most significant projects are still connected with this industry.

In July 2010, two landmark facilities were put into operation: Vysota 239, a pipe welding shop of the Chelyabinsk Tube Rolling Plant, OJSC, and a facility for manufacturing of high-quality stainless steel at the Chelyabinsk metallurgical Plant, OJSC. The significance of these facilities for the Russian economy was evidenced by presence of the Chairman of the Russian government Vladimir Putin who took part in the start-up ceremonies.

Another example is the project of manufacturing one hundred-meter rails in the Chelyabinsk Metallurgical Plant, OJSC; the construction of Mill-2000 is coming to its completion at the Chelyabinsk Metallurgical Plant, the reconstruction of the steel-smelting and foundry production facilities at the Asha Metallurgical Plant, OJSC, is going through the final stage.

Business Rainbow

The authorities of South Urals also need investors in other, first of all, in non-core sectors of the regional economy. The proposals have been outlined and placed for them in several languages at websites: econom-chelreg.ru and oblinvest74.ru.

For example, the doors are open in the electric power sector: The region needs construction of large and small-size power generating facilities, energy-saving programs. Here, if interested, business people can make investment in projects aimed at development of the Chelyabinsk single heat supply loop, construction of a mini HPP at the Argazi Reservoir, improvement of energy efficiency of street-car transport in Zlatoust.

Investors can try their hand at utilities. The regional government is ready to entrust the private sector with construction of the fourth phase of the treatment facilities in Verkhny Ufalei or renovation of the heat supply system of Bakal. The agreement on establishment of long-term rates effective within the "payback period of the project + 2 years" will serve as a guarantee for foreign business people that their investment will be returned.

Experts expect a lot from South Ural logistics. The favorable geographical location of the region encourages projects in construction of world-level logistics centers.

Increasing construction propels expansion of facilities manufacturing building materials. A convincing example to it is the launch of facilities, largest in this sector, which took place in 2010. For example, YunisUral, LLC, commenced manufacturing of dry mixes (about 3 million standard bags a year); Alternativa, CJSC, launched a structural steel manufacturing facility (240 tons a year); Mramorpromresurs, LLC, put into operations grinding mills for manufacturing of finely dispersed marble (72 thousand tons a year).

Despite its image of "Russia's steel heart", the Chelyabinsk Region can be very interesting to tourists. First of all, these are unique pure lakes and surrounding pristine nature. The regional government is sure that such recreation areas can be most attractive to many thousands of Russian and foreign visitors. At present, there are 467 lots available for construction of health resorts, recreation centers and small-scale suburban construction.

A number of flagship international companies have already demonstrated their confidence in the Chelyabinsk Region. For example, the region has successfully implemented joint projects with Carbo Ceramics, Henkel, Metro Cash & Carry, Rexam, Omiya, Fortum, Lafarge, Emerson, and Knauf Gips.

Under the Government's Wing

When in South Urals, investors will be able to feel continuous care and support from the local government. The program adopted by the government gives them the right for guarantees and secured support. The regional budget compensates business people for part of the interest rate on investment loans as well as part of leasing expenses. In 2010, such assistance for RUR 12.5m was provided to 13 companies. In the nearest time, investors will also be given tax benefits - the relevant law draft is being prepared by deputies of the Legislative Assembly of the Chelyabinsk Region.

To help business people to avoid excessive red tape, the regional government entered into agreements with major natural monopolies (the South-Ural Railways, Chelyabenergo, Chelyabinskgazkom, Chelyabregiongaz) ensuring that investment projects will be attended and served within the shortest possible time, following the single window principle.

Rephrasing a well-known saying, we can admit that if the only what you do is repeating of the word «halvah», you do not make the life of investors sweeter. Things become different when instead of listening to the words of praise about favorable investment climate, business people can see by themselves comfortable environment. In case of the Chelyabinsk Region, it is important to be among the first who decided to come.