Three "pillars" for investment in the Middle Urals

19.11.2012 — Analysis

The economy of the Sverdlovsk Region lacks fair tax benefits, effective laws and influential lobbying manager.

The conclusion was drawn by the participants of the first meeting of the Investment Council under Governor Yevgeny Kuivashev. The RusBusinessNews reporter kept track of the discussion instigated by manufacturers, entrepreneurs and officials.

The Sverdlovsk Region ranks among the ten best regions of the Russian Federation in the total amount of fixed investment. In 2011 this amount increased 1.4 times – to 372 billion rubles. 

The discussion was opened by the regional head who did not intend to tranquilize the audience’s minds by triumphant reports. He saw problems requiring urgent solution behind the impressive statistics.

"Our objective is to double the amount of investment by 2015 against the level of 2010 (to 480-525 billion rubles) and reach the rate of investment not less than 35% of GRP. Only then will we be able to create more than 700 thousand high-tech jobs, boost modernization of the economy, solve the problems of single-industry towns, accomplish the tasks set in the May decrees of the Russian president regarding the actual improvement of quality of our people’s life," Ye. Kuivashev said.

Unfortunately, the Middle Urals ranks only twentieth among the Russian regions in the total amount of investment per capita of population and fifty third – per ruble of the shipped products in the production sector. The portion of investment earmarked for development of the processing sector is steadily shrinking. From 2007 to 2011 it decreased from 38% to 23%. 

"It is a worrying sign, as this sector generates one third of the gross regional product. As a result, there is considerable underfinancing of the manufacturing industry, economic growth retardation, lagging in such critical indicator as labor productivity," Ye. Kuivashev pointed out.

The region does not have much to boast of high labor productivity in the production sector. Based on the results of 2011, it was 2.2 times as low as the world level and 1.3 times as low as the average Russian level.

The governor also uttered his disapproval of the investment being concentrated solely in the regional center and large cities. In 2011, Ekaterinburg accounted for the largest amount of investment (more than 101 billion rubles), Zarechny (23.5 billon) and Nizhny Tagil (12.2 billion rubles). This trend remains unchanged in 2012. Due to the financial starvation, small towns and remote areas are not able to form their own sources of social and economic growth, to provide the decent standards of living to the population.

"Investors will not come to the region solely on their own initiative. There must be measures taken to attract them, and it must be done professionally. It is necessary to increase attractiveness of the areas, to create an environment for trouble-free business, and to reduce administrative burdens," Ye. Kuivashev noted.

The governor made the decision on establishing the investment council that will address the above issues; it will combine the functions of two entities operating previously – the Committee for Modernization and Technological Development of the Economy and the Advisory Council for Foreign Investment.

"The objective of the council is to become an operating, effective and efficient mechanism able to maintain a direct dialogue with business regarding new approaches and implementation of the investments policy, consolidation of positions, creating a comfortable environment for doing business," the head of the region summarized.

There is a large amount of work to be done by the relevant ministries. Due to the lack of regulations, the Sverdlovsk Region is not able to take full advantage of the public-private partnership mechanism. The governor entrusted the government with the task to bridge the gap within the shortest possible time.

The system of tax benefits also requires urgent attention. "A number of organizations set up in the region after January 1, 2011 have a preferential profit tax rate. The companies investing capital in fixed assets are granted exemption from property tax as it pertains to their fixed assets," Alexey Orlov, the deputy chairperson of the regional government, explained.

In the opinion of Ye. Kuivashev, fiscal preferences and guarantees must, first of all, be granted to the investors who create jobs, pay decent wages to their employees, respect the environmental laws and develop high-tech production.

The governor’s perspective was expanded by Andrey Kozitsyn, the general director of UMMC –Holding, LLC. He posed the question why the preferences are not available to the companies that were set up before 2011 and that are active investors in the regional economy. "I suggest making amendments to the applicable laws. There should be clear criteria established so that any investor who invested a certain amount of money in development of the regional manufacturing should have the right to be qualified for benefits," the metallurgist came forward with the initiative.

He noted that this policy was opted for by the Tyumen and Vladimir Regions. The regional authorities sign agreements with investors, specifying the rights and obligations of the parties. A. Kozitsyn thinks that the tax burden can also be alleviated for entities who invest money in development of healthcare service.

The establishment of the "single window" system for entrepreneurs is another area of focused efforts of the regional authorities. The plans also include the launching and maintaining of the special-purpose portal where investors can receive information about the social and economic profile of the municipalities, government support available to business people, prospective sites for implementation of projects.

The development of the Special Economic Zone – the Titanium Valley – is still deemed as the key investment project of the Sverdlovsk Region. Ye. Kuivashev confirmed that the federal authorities are ready to render their assistance to the region in its implementation. The Russian budgetary funds will be allocated to the development of the SEZ projects that cannot expect financial return in the near future. The other projects will be developed through other sources of financing, including loan funds.

The Middle Ural Development Corporation, OJSC, is going to play a special role in future projects of the region. Alexey Bagaryakov, the chairman of the Board of Directors, has reported that the operator of the largest regional investment projects intends to focus its efforts on three objectives.

The first objective deals with the dialogue to be established between the government authorities and investors. Specifically, the corporation is going to eliminate the excessive administrative barriers, to tune up the single-window system of services provided to business people. MUDC also intends to improve the investment passport of the region and to continue promotion of the Middle Urals on the Russian and international markets.

The second objective is development of industrial park projects. One of them will be developed without budgetary infusions – solely through loan funds.

In addition, the head of MUDC offered the governor to look into the project of large-scale construction of day-care facilities in the region through bank loans. After the construction is completed, the buildings will be sold on installments to municipalities. This program will help to fulfill one of the most important presidential orders – to eliminate the daycare waiting list by 2016.

A. Bagaryakov stated that all these ambitious plans will come into fruition more efficiently, if the Board of Directors is headed by the influential lobbyist – Ye. Kuivashev.

"If the law permits me to head the corporation, I will be its head," the governor said.

The top officials of the regional government are ready to work at the command of the new investment "helmsman" of the Sverdlovsk Region. "The objectives set to us are ambitious. The investment for the Sverdlovsk Region is not a goal in itself; it is a means that will help to create a comfortable environment for more than 4.3 million residents of the region and it is a fundamental source for further planned development and progressive growth," Alexey Orlov noted.