Any region finds it is not easy to attract investors. An economic stagnation and foreign policy crisis environment makes it more difficult, especially if a region is not too wealthy. Evgeny Bogdanov, Deputy Chairman of the Veliky Novgorod Region Government, shared his views with Invest Foresight on what regional authorities can do about that in the given situation.
– The national economy growth rate is now down. Does it have an impact on dealing with investors? How do you adapt to the situation?
– It has never been simple to deal with investors. The competition among regions for attracting investors keeps growing. One must come up with fresh ideas to make an investor realize that Veliky Novgorod Region is the place to stay, the place to launch production facilities. For that, efforts in various areas are required.
At the recent St Petersburg International Economic Forum national investment climate rating was presented. We climbed up 24 positions and now find ourselves being 24th on the list, compared to 53rd a year earlier. We are also among the top ten Russian regions with the best climate improvement dynamics. These facts speak for themselves and tell a lot.
– How did you manage to ensure such a success?
– We had set some targets, a few growth points to help in attracting investments. The first growth point is forming Priority Social and Economic Development Areas. Such areas offer significant taxation advantages for investors who are their residents. In the region, we have five single-industry towns. Last February federal government issued a resolution on making Uglovka which is a single-industry town, a Priority Social and Economic Development Area. At the moment we are advancing with launching another Priority Social and Economic Development Area in Borovichy.
The second growth area is establishing special economic zones aimed at technology implementations and industrial production. It happened that when organizing such zones was possible, our region did not set one. Then, a moratorium was put on opening such new zones. Now, such options are available again and we therefore are closely communicating with the Economic Development Ministry in an effort to launch such a zone in the region. It will also provide some advantages for investors. We are certain already where the special economic zone will be situated. Land lots for it have been allocated. Respective documents are now being drafted.
The third growth area is launching industrial clusters. For that, we have also set for ourselves the targets to be pursued. One of the clusters will manufacture metering devices. Another cluster will be involved with medical rehabilitation. One of the local companies manufactures, for instance, artificial bionic limbs. Another cluster will deal with rare earth metals. Acron is a large local producer of rare metals. We intend to invite here the companies which are willing to use such metals for their manufacturing purposes.
The final growth area is industrial parks, technology parks, business incubators.
– Do you expect to get some federal funding for that?
– It happened so that when federal authorities were funding establishment of such entities, we were not involved with the process. Regrettably, no federal funding for establishing such entities is now available. Yet it is impossible for us to economically compete with the neighboring regions unless such entities are created here. Pskov Region, for example, has set an industrial park and a special economic zone. We have therefore decided to launch industrial parks, technology parks and business incubators. Unfortunately, we have no funds in our regional budget, which may be used for setting such entities. Hence, we intend to attract private investments. Last year, we had special laws and regulations passed. They envisage certain benefits for the resident companies and, most importantly, for managing companies. That is being done to get the companies which already operate in the region and which have spare facilities, involved in the process. It should be economically advantageous for them to use their facilities for establishing such entities.
– It is not about lands allocation then, but about readily available real estate.
– Mainly, those are readily available real estate sites. Some companies own lands, some have greenfields. Some of them are within the city of Veliky Novgorod. We have had some good feedback from the local companies. We have plans of launching at least one infrastructure site this year and are hoping that there will be more than one in the future.
– You have mentioned there is no funding available. Yet attracting investors requires some money. How can regional budgets improve investment attractiveness of the regions?
– The overall consolidated budget of our region for this year is about RUR 34 bln ($550 mio). A great deal is to be spent on social programs. Within the budget, the funds which may be directed towards economic development are somewhat RUR 200 mio ($3.2 mio). We thus can not expect big inflows. Yet, any port is good in a storm, so, as I mentioned, we do not provide funds for setting industrial parks and technology parks, but offer taxation benefits. We offer tax advantages to investors as well. We have a law on investment activities. It specifies the possible tax deductions for property tax, profit tax, motor vehicle tax. Those are shortfalls in budget revenues, yet it is not a direct financing. As far as direct budget funding of investments stimulating activities is concerned, we provide financing via Novgorod Region Development Agency. Last year, it was restructured. It is now the only organization investors need to deal with. It supports investment projects and promotes investment attractiveness of the region. We provide funds, including via the Development Agency, for promotion of our region, for participation in St Petersburg International Economic Forum, for example. Those are possibly the largest costs of the kind. This year we will also subsidize to some degree rent expenditures of the residents of private technology parks and business incubators, aiming to attract new residents there. Managing companies will get compensations for the shortfall in revenues due to lower rent.
– Looking at Veliky Novgorod Region from an investor’s perspective, what would be its strongest and weakest points?
– Our major advantage is possibly our geographic location in between Moscow and St Petersburg. Our other advantage is our attitude towards investors. Investors often say, ‘more than tax deductions, we treasure proper understanding and support of regional authorities’. We, as I have said, provide such support via Novgorod Region Development Agency. Director of the Agency can directly contact the regional governor on the subject of investment projects. In directing activities of the executive bodies, the governor tasks them with supporting investors and making that one of the priority activities. Previously, there was no such an approach. We had a regional ministry of investment policy, before that, we had a department, and their function was investors support while everybody else used to say it was none of their business. Now, we all operate as one team. Investors here feel the support of the authorities. Such a support is valuable indeed. We plan to implement some investor support instruments which do not even involve investment projects.
It should be noted, we review best practices in attracting investors. At the moment we plan to implement a practice we saw in Kaliningrad, a concierge service. The service helps investors with social issues such as arranging kindergartens or schools for children. I.e. when investors come to our region, they get assistance in sorting out some daily matters like finding accommodation. There are some business owners here, who previously lived in Moscow but now want to move here to maintain direct control over their businesses. So they move here with their families, with their children, and find themselves in a new environment they are not used to. How can they resolve their routine problems? Where is a good kindergarten? Which school is best to choose? All these are essential issues.
– What investment projects in the region should be mentioned?
– On the sidelines of St Petersburg International Economic Forum, we signed over 30 agreements, including agreements with some interested investors. Those include projects in agriculture. Batetskaya Agrofarm, for example, will launch a 500 cattle farm here. Lampel Company will also run a farm of 1,000 cattle. Novsvin intends to arrange a pig farm of 15 thousand heads. Another project involves Belgrankorm, a company which already operates in our region. It runs a large poultry farm, but it had had some problems with waste products use and disposal. Local residents were complaining about that problem, so an agreement was signed and a Japanese company will supply equipment for a facility which will recycle the wastes. That will first of all help resolve the environmental problem. Besides, as a joint venture it will help creating new jobs.
There is another project of launching production of extra strong glass. According to investors, such glass preserves heat inside the premises while letting sun heat in. Besides, we have joint projects involving large companies such as Gazprom. With them, we have long term agreements on, for instance, gas infrastructure development in Veliky Novgorod Region. Such agreements entail additional investments. With Megafon telecom provider we have a project of promoting digital economy, which means investments as well.
– In that regard, what would you expect from the federal authorities? Do you need any amendments to current laws? What sort of their assistance would you require?
– These may be just dreams, but nevertheless, we had to design a special mechanism for establishing technology parks, industrial parks and business incubators, since there are problems with funding their development from the regional budget. If federal authorities could consider a possibility of establishing such entities in the regions which have not got them so far, and of co-financing them, that would be a great help to us. It would speed up a respective infrastructure development in Veliky Novgorod Region.
– Especially since the infrastructure availability is probably the major factor for investors in choosing a production site.
– Certainly. They first check logistics, accessibility of mineral resources and markets. They then look at the infrastructure and say they would like to have a site where supply lines of natural gas, electricity and water are available. In many regions that is exactly the case. They say, ‘We are coming to Pskov. We will be connected to all supply lines and will not be charged for that. The same is the case with Tula and Kaluga and other places, but that is not the case with you’. In a situation like that, it is hard to compete with such regions for investors.
By Konstantin Frumkin