Preferential regimes for investors: current progress and new challenges

4 September 2019

Preferential regimes for investors: current progress and new challenges

KEY CONCLUSIONS

Preferential regimes for investors have proved to be effective

“Over a period of five years, we have seen the establishment of 20 ASEZs [Advanced Special Economic Zones – ed.], the FPV [Free Port of Vladivostok – ed.] regime operates in five regions, with 1,773 residents implementing their projects, 236 of which have already been completed and launched. Our residents are expected to invest around RUB 3.2 trillion in the Far East, with RUB 44 billion already invested. We also expect to see the creation of 129,000 jobs, with around 30,000 already created. These figures show just how much our preferential regimes are in demand,” Sergey Tyrtsev, First Deputy Minister for the Development of the Russian Far East and Arctic.

“Today, the ASEZ in Amur Region is home to 23 projects. Around 1 trillion in investment has been announced, and more than 5,000 jobs will be created in the future. We see this endeavour as a huge contribution, one that provides excellent privileges to companies who come to us,” Pyotr Pak, Deputy Prime Minister of Amur Region.

“There is nothing else in existence like the ASEZs we have in Russia. We have taken a close look not only at Russia, but the world, and this package of benefits is absolutely unique. It puts us in a position whereby we can proudly take our place in the international arena,” Vadim Medvedev, Managing Director of Investment Department, ESN Group.

The state is taking steps to further improve the business environment

“The most important thing about this mechanism [ASEZs – ed.] is something that isn’t written in a single document anywhere, but which is clearly evident today. It is that people in various places and jobs, people in various ministries view the residents’ or potential residents’ investment projects as their ‘children’. Every day, lobbyists and promoters look for ways to help residents implement their projects,” Alexander Osipov, Acting Governor of Trans-Baikal Territory.

PROBLEMS

Infrastructure is insufficiently developed

“If we were to draw up a rating of shortcomings cited by residents, then infrastructural shortcomings would come first, followed by financial shortcomings, and then staff shortages. Government bodies have recently focused a great deal on providing services and having development institutions in place,” Aslan Kanukoev, Acting General Director, Corporation for Far East Development.

“We have seen one problem from the point of view of tourism, and that is the development of infrastructure. Infrastructure requirements for tourism are higher than those for industry. For example, it is vital for us to not only have accommodation, but a road network and the ability for people to easily get to and visit various geoparks and tourist sites. We do not see provisions in ASEZs for the requisite infrastructure to be developed,” Sergey Bachin, General Director, Roza Khutor.

Special conditions for remote areas need to be put in place

“Any tool has the potential to be improved and refined, and there are some things we could do to make this regime even more effective. In our experience of working with plots of land and transferring them from one category to another, we have often found that the same requirements apply to remote or hard-to-reach areas as they do to more connected ones. In this regard, the Corporation for Far East Development could be given additional powers to expedite the process of transferring land categories for industrial use, because we find this process takes a great deal of time,” Dmitry Gavrilin, Chief Executive Officer, Tigers Realm Coal.

A shortage of qualified management staff

“A resident’s decision to join an ASEZ is not only guided by financial considerations, but to a large extent by the business climate, too. The business climate in Russia is driven by differences in management teams and ways in which the authorities can effectively work with a preferential regime. There is a need for a healthy business climate and effective institutions. Municipal and state governance must be at a high level,” Vadim Zhivulin, Deputy Minister of Economic Development of the Russian Federation.

Visa restrictions

“Border controls are so tough and archaic, that I cannot really imagine how we can attract tourists in any real numbers. ASEZs should probably focus on this area as well,” Sergey Bachin, General Director, Roza Khutor.

SOLUTIONS

Improving preferential regimes

“There is one significant difference between our ASEZs and preferential regimes in other countries, or the Asia Pacific at least. That is, we are attempting to create a preferential regime for the company in front of us. This is typically a company that manufactures goods or extracts resources – an industrial company. In other countries, the focus is on developing the services sector. It appears to me that we very rarely pay attention to the services sector,” Mikhail Orlov, Partner, Head of Tax and Legal, KPMG Russia.

“One area we have not thought about yet, but which we should, is the services sector. It currently has an extremely limited presence in the economy,” Vadim Khromov, Deputy Chairman of the Moscow Region Government.

“In addition to the work on creating a base regime which has been accomplished by our colleagues, we should add a sector-specific focus. Taxation is obviously very important, as is infrastructure. I think our colleagues will have more to say about personnel and logistics, but for us, things like the introduction of a return scheme for ethane excise are no less important,” Aleksey Kozlov, Member of the Management Board, Managing Director, SIBUR.

Ensuring fixed rules for doing business

“We currently have one request: to guarantee that the conditions proposed to investors are not subject to change, at least during the recoupment period,” Vadim Medvedev, Managing Director of Investment Department, ESN Group.

Supporting exports

“A big achievement for us has been that investors, as you know, have largely focused on the markets of Southeast Asia. We help them get their product to the end user, and exports have grown. A breakthrough on our part has been the opening of the Chinese market for grains, oil crops, and milk and dairy products. Within literally a few days, goods produced by our people in the Far East should be heading to consumers in China,” Sergey Tyrtsev, First Deputy Minister for the Development of the Russian Far East and Arctic.

Optimizing interaction between government bodies

“All administration at an ASEZ is managed by federal government bodies, namely the Ministry for the Development of the Russian Far East and the Far East Development Corporation. We are ready to submit an application to participate in an ASEZ project, but we don’t understand how to do this, because according to the rules the Ministry of Economic Development works with the regions. There needs to be a form of contact between the Ministry of Economic Development and the Ministry for the Development of the Russian Far East so that industrial parks at ASEZs can work directly according to a federal project,” Andrei Minaev — Member of the Board, Association of Industrial Parks of Russia (AIP).

Preferential regimes for investors: current progress and new challenges

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