Foreign business sees no place for itself in the Middle Urals

11.07.2011 — Analysis

The Innoprom-2011 International Exhibition is opening in Ekaterinburg in a few days. The Sverdlovsk Region’s authorities believe that this pompous event will help to attract new investors to the region. Experts do not share the officials’ optimism: Business, first and foremost, will assess the conditions offered to Russian and foreign entrepreneurs rather than exhibition premises. The authorities of the Middle Urals have nothing to boast about: The RusBusinessNews columnist has found out that municipal officials openly sabotage federal laws, while the regional government simulates its support given to business.  

The Kaluga Region has moved ahead of all the other Russian regions in the thorny path of propelling business. Its gross regional product demonstrated a 40% annual increase before the crisis. In 2008, the economic growth slowed down slightly, though still retaining the upward trend. The experts believe that the success was predetermined by the regional governor’s interest in attracting investors, development of the adequate infrastructure, personnel training and lowering of administrative barriers. The Sverdlovsk Region showed no notable achievements in any of these areas.  

Maxim Popov, General Director of OMIYA Rus, LLC, notes that foreign entrepreneurs are not interested in doing business in the Middle Urals due to unavailability of land and poor operation of the transport infrastructure. The cadastral value of land parcels has increased by 48 times within the last three years; the owners of rail cars collude with each other to increase rates for their services, thus making transportation unprofitable. The representative of the Swiss holding pointed out that land in other Russian regions is much cheaper and infrastructure availability poses much fewer problems.  

Mikhail Maksimov, First Deputy Chairman of the Sverdlovsk regional government, has to admit that the business environment leaves much to be desired: The regional Investment Ministry has about 400 projects to consider, and these projects will not be able to succeed without office or production facilities being made available to companies. 

Ivan Vechersky, Deputy General Director of Sukholozhsktsement, OJSC, the company controlled by foreign investors, says that due to organizational procrastination the project aimed to expand production and introduce new technology took twice more time to be implemented in Sukhoy Log than it had been planned initially. Traditional problems with the laws and regulations, availability of land and network connection were aggravated by the shortage of skilled personnel. It turned out that it is difficult to find engineers in the Sverdlovsk Region, who would speak foreign languages. The situation s very odd, especially taking into account that for fifteen years the region has been talking about its intention to attract foreign investors to the Middle Urals and is still offering the world’s leading machine-building concerns to build a car assembly factory in the Sverdlovsk Region.  

The domestic business has even less comfort in the Sverdlovsk Region. Elena Artyukh, head of the Bureau for Supervision over Observance of Entrepreneurs’ Rights, OPORA ROSSIYI (Backbone of Russia) Sverdlovsk regional organization, says that, in fact, the municipal authorities sabotage Federal Law No. 159, under which business people are allowed to buy out the municipal property leased by them. The legal right, when exercised, results in losses. For example, the owner of a bakery business spent 300 thousand rubles on court costs and fight against officials, by trying to obtain the leased premises into his ownership. Having won the suit in the arbitration court, he received state reimbursement equal to 100 thousand rubles. The net loss was 200 thousand rubles, which he is undoubtedly going to recover through increased prices for bread.  

The reason for all these troubles might be in the fact that the Sverdlovsk regional government has a very peculiar idea about the investment climate and the ways of its creation. The authorities set up the Corporation for Development of the Middle Urals, having injected 5 billion rubles into it, and embarked on building of Ekaterinburg-EXPO, a 9-billion-ruble exhibition center, where the local business has nothing to show. At the same time, the regional government continues to shelve promising projects, putting off financing decisions for months. According to the entrepreneur Boris Zyryanov, his innovative projects passed the crush test in May; however, the issue on allocation of quite moderate budget funds is scheduled for discussion in September. The officials’ logic is understandable: to give money to a private businessman is as difficult as to withstand the temptation to inflate the estimate of an ambitious construction project.  

The reasons for such deferment are very clear: Neither federal nor municipal officials bear any financial or administrative liability for neglecting of the legislation. Entrepreneurs are reimbursed by the budget, meaning that taxpayers pay for the officials’ abuse of power. Experts think that no bait will be able to lure investors into the Sverdlovsk Region favoring such policy.  

Vladimir Terletsky