Leonid Kostroma: Moscow welcomes investments of all sizes

Russia’s capital has been insistently encouraging investment and production localization while Moscow City Investment Agency is particularly efficient in pursuing that goal. Leonid Kostroma, Director of the Agency, offered his assessments of the role of foreign business in the economy of the capital city and laid out the attitudes of the municipal authorities.

Moscow is one of the global investment centers and is a strong rival to other world megacities in competing for attracting investment. The city has such advantages as a well developed transport and business infrastructure, high-quality labor force, etc.

Investors come to the Russian capital from all over the world, yet the largest of them are from Europe: Germany, France, Austria, Sweden. Significant investments are also coming from North America (US) and Asia (Japan, Kazakhstan, China, Turkey, South Korea). The accumulated foreign direct investment from such countries as Italy, Israel, Finland, Singapore has grown markedly too.

Foreign investors primarily invest in companies engaged in finance, insurance, trade, manufacturing and high technology sectors, as well as in real estate. The interest of foreign investors in research and development, transportation, warehousing and real estate has grown.

According to the data of the Central Bank of the Russian Federation, as of April 1, 2019, the accumulated FDI in Moscow was $238.4 bln, which is 6.2% more than as of January 1, 2019.

There are quite a lot of successfully localized foreign enterprises in Moscow. The Wika Mera plant, for instance, was launched in 2017. It is a subsidiary of Germany’s WIKA, a global leader in the manufacture of pressure and temperature measuring instruments. Germany’s SVEA, one of the world leaders in design and manufacture of equipment for LonWorks distributed control networks and building automation, has become a resident of the Otradnoye technopark.

The factory of the French Renault Group is successfully operating in Moscow. It has the highest level of production localization among all foreign automakers operating in Russia – 66%. The number of its employees is about 5K. In April 2013, an agreement was signed between the Moscow City Government and Renault Russia to develop an automobile production project in the city. Between 2013 and 2018, Renault Russia invested about RUR 16 bln ($300 mio) while some 700K vehicles were produced at the plant’s facilities. In December 2018, the Moscow City Government granted the company the official status of a manufacturer of motor vehicles and supported the company’s participation in the federal special investment contract with AvtoVAZ carmaker. Renault Russia will thus have an opportunity to maintain a high level of investment in its own development, increase revenue and exports, and hire new employees.

Alfa Automotive Technologies set by the Japan’s heavy engineering IHI Corporation and Likhachev Automobile Plant will arrange production of components and accessories for motor vehicles in Russia’s capital. The company is one of the leading Russian manufacturers of car body parts with an output of over 9.5 mio parts per year, used in the assembly of more than 300K car kits. In 2019 through 2022 the investor will invest at least RUR 1.2 bln ($18.4 mio) in the construction of the plant. The enterprise will be equipped with modern machinery, including a robotic line. The plant will have 385 new high-paying jobs.

This March the first Russian plant of Germany’s KSB pumps and pumping equipment concern was launched at the Indigo industrial park. This manufacturer is well known in Moscow as it is a supplier to Mosenergo power generating company and Mosvodokanal water supply and sanitation provider and played an important role in the construction of such facilities as the Moscow Oil Refinery, Moskvarium (the largest aquarium in Europe) and Moscow City business district. The plant launched is mainly equipped with Russian-made machines and 110 new jobs were created there, while investments in construction amounted to RUR 750 mio ($12,4 mio). The anticipated revenue of the plant in its first year of operation is over RUR 2 bln. ($31 mio).

Foreign business is implementing a number of healthcare projects in the Moscow International Medical Cluster (MIMC), located in the Skolkovo Innovation Center. The Israeli Hadassah Medical Center has already been opened there. The openings of the South Korean smart hospital of the future, Bundang, and the Spain’s Roman Fernandez Center of Cancer are expected in 2022. Also, the French Orpea group of companies will open a rehabilitation center in MIMC. Today, a system of tax and customs benefits for cluster members is being actively introduced.

The world’s oldest scientific and technological healthcare company Merck opened an innovative laboratory in the Technopolis Moscow special economic zone (SEZ) in 2017.

Last July, a Russian-Slovak production of medical equipment was launched in Pechatniki SEZ where Chirana+ will produce anesthesia devices and mechanical ventilation devices. The famous European manufacturer of medical equipment, Chirana is one of the leaders in medical products in Eastern Europe and will invest RUR 174 mio ($2,7 mio) in localization of its enterprise in Moscow where 30 new jobs will be created.

As for the investment climate in general, the capital city authorities do not drive dividing line between foreign and Russian investors. Foreign entrepreneurs along with domestic ones can enjoy a number of preferences granted by the Moscow City Government. To support new investment projects in industries, the city offers benefits in income tax, property tax, land tax and land rent thus reducing regional taxation by 25%.

Entrepreneurs who have localized production in the Technopolis Moscow SEZ can have their regional tax burden cut by 47%. A free customs zone regime applies to all SEZ residents and all goods and equipment imported to the SEZ territory are exempt from customs taxes and duties. The SEZ also offers its residents a free technological connection.

Moscow is always ready to offer broad investment opportunities to foreign entrepreneurs. To accommodate the businesses, special platforms have been created and are developing. So, one of the most important objects of the innovation infrastructure of the city is the Technopolis Moscow SEZ. Its residents have the opportunity to implement the so-called greenfield, i.e. to build up production from scratch on empty industrial land plots. In addition, entrepreneurs can rent ready-made offices, laboratory and production facilities (the so-called brownfield projects).

Also, investors can make offset contracts with Moscow City Government, which involve long-term state orders in exchange for the localization of production in the nation’s capital. Contracts are made for a period of up to 10 years and the minimum investment is RUR 1 bln ($15.3 mio). For an investor, an offset contract is a long-term guarantee of stable products supplies to a highly reliable buyer. To date, Moscow has made two contracts for the launch of high-tech production of medicines to be subsequently supplied for the needs of the city. The volume of investments will amount to RUR 8.8 bln ($135 mio) and the volume of supplies to RUR 32.4 bln ($496 mio). More such contracts are expected to be made in such industries as medicine, transport, construction machinery and materials, computers, telecom equipment, food processing.

To sum up, Moscow welcomes investment initiatives of all sizes and is always open for cooperation with foreign investors.

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