Russia is trying to attract foreign capital
It was on September 28, at the last year Sochi Investment Forum when the Prime Minister Dmitry Medvedev mentioned about the establishment of the Russian Agency for Foreign Investment Promotion for the first time. A few months later, Igor Slyunyaev, the Regional Development Minister, confirmed that his office, along with the National Council for Investment Climate Development creates the Russian Investment Agency. The agency, according to the minister, will work on the principle of “one-stop shop” for foreign investors, with main objectives being both – improving the investment climate in the regions as well as increasing Russia’s image in the eyes of international investors in general.
The initiative came to life surprisingly quickly. National Investment Agency “Invest in Russia” was established at the end of last year and since January it has already begun to work.
Let’s start working, gentlemen!
To this date the organizational structure of the Agency has been approved, key employees recruited, a logo designed, and a website launched – www.invest-rf.com. The Chairman of the Supervisory Board became the minister, Igor Slyunyaev, the President of the Agency – Yuri Spiridonov. The Ministry of Regional Development reports that the Agency has made even the first results : it has successfully conducted an international conference “Invest in Russia” at MIPIM 2014 in Cannes, and, in addition to that, participated in several international investment conferences and forums.
“All developed countries and the BRIC countries have similar structures – Switzerland Global Enterprise (Switzerland), Invest in Turkey (Turkey), Invest in France (France), Trade & Invest (Germany), Select USA (USA), – says Yury Voicehovsky, CEO of the National Investment Agency. In addition, more than 140 international organizations, not mentioning regional ones, united in the World Association of Investment Promotion Agencies (WAIPA), where Russia is represented by our agency only. This is a big step forward. We are very glad that we have not only been acknowledged at the international level, but also have had significant methodological and institutional support”.
The main goal of the Agency is to attract investment in the regions. This process will be carried out, on the one hand, by promoting regional projects, on the other hand, by both building and maintaining long-term relationships with foreign investors.
The structure of the new Russian organization is also interesting. The World Bank defines five institutional types of such investment promotion agencies (IPAs): they may be a structural division of the ministry, a part of the government apparatus or a part of the presidential administration, a separate ministry or an independent organization. It is important that the agency had clear performance indicators (KPI), linked to the volume of attracted investments, and also professional staff with experience in this area and fluently speaking several foreign languages.
The Ministry of Regional Development proudly declares that the newly created Agency will be “a real tool rather than another bureaucratic structure.” That is why the National Investment Agency was created in the form of a non-profit organization jointly by the Ministry and the World Association of Investment Promotion Agencies.
As regards the work with the investor itself, Yury Voicehovsky says that it is a complex and time-consuming process. “I have been working in this field for more than 20 years, including ten years in the City of London (where the year should be considered for two or even three), and I have been learning every day – says Mr. Voicehovsky. In simple words, our initial task is to understand why an investor came to us and what are his goals and wishes. Then we tell him about the possibilities for investment, success stories, about projects proposed in the regions. “If an investor is interested in the Russian partner, the Agency will offer him a fairly long list of potential projects and partners, having checked at first their reputation. If investors need lawyers or consultants, the Agency will provide him assistance in organizing the necessary infrastructure. “The main thing to remember in our work is that we cannot duplicate the functionality that the market already offers,” – emphasizes the expert.
Competition or cooperation?
Today the immediate plans of a young agency are already known. One of them is to form the Association of regional investment agencies and to create a professional community engaged in attracting investment in our economy that can respond to the challenges of today’s rapidly changing world. It is planned to invite to this association all investment promotion agencies, operating in Russia, including regional and municipal ones. It should be borne in mind that when an investor decides on whether to make capital investment or not, it primarily evaluates country risks. Therefore, regions need to understand that the success story of one region is a success story of all other regions, and vice versa. In this situation, the regions are not rivals, but partners.
By the way, the regional investment agencies have been already established in more than 50 regions of Russia. One of the first regions to think about the possibility of attracting foreign investors was the Kaluga Region. Almost 15 years ago the Regional Development Agency was created there. “Today in our area there are more than hundreds of investors, – says Anatoly Artamonov, the Governor of Kaluga Region, who was one of the main instigators of creating programs to attract foreign capital, – We have two main institutions to work with them: the first is the Regional Development Agency which is responsible for providing consulting services, the other is the Regional Development Corporation, which is engaged in business activities. Nevertheless, these two organizations only create the necessary conditions, whereas attracting foreign investors is a general task for the regional government as a whole.”
Pavel Gagarin, the Chairman of audit and consulting group “Gradient Alpha” in their analytical study assesses the investment attractiveness of Russian regions in the following way: “In addition to the Moscow metropolitan area, neighboring Kaluga region, St. Petersburg and Leningrad region, as well as major industrial regions of Siberia the Volga region is very attractive to foreign and Russian investors”. First of all, it relates to Tatarstan with its own special investment climate, Nizhny Novgorod, Ulyanovsk, Samara, Saratov and Volgograd regions.
By the way, Ulyanovsk region has long been a depressed region: the industry was in decline, unemployment has risen steadily. Today this region together with the neighboring regions represents industrial potential of central Russia. Industry is reviving, new enterprises are set up, substantial investments are directed to agriculture, housing and tourism sectors.
In general, the most attractive regions for capital investments are primarily those territories in which transparent and honest relationship with investors is established. Regions become attractive for businesses to invest also through the creation of industrial parks (let’s remember Kaluga), innovation clusters and other areas with special taxation regimes and simplified business administration and registration.
No less important factor is the presence of special structures to work with investors in the region, which are separated from the regional administrations, but at the same time have sufficient authority within the regional government. Yet another factor of the investment attractiveness of the region is creating conditions for new enterprises to be engaged in production, to participate in the development of educational institutions, thus contributing to solving not only their personnel issues, but also social problems in the region.
It is not just the Ministry
The above initiative to create the investment promotion agency in Russia is not the only one. Russian Direct Investment Fund (RDIF) and the Agency for Strategic Initiatives which promotes new projects (ASI) also signed agreements on the coordination of activities aimed at improving the investment climate and promotion of investment opportunities in Russia. In order to do this, Investment Promotion Centre was established at the end of December 2013.
Organizations divided the responsibilities between themselves as follows: RDIF will focus on attracting foreign investment in specific regional projects in the framework of the Center. In turn, the activity of ASI will be more focused on the distribution of information on the specific conditions of doing business in the regions, including data on investment markets, institutions and measures of investor support (tax incentives, administrative support, regional subsidies, etc.).
Information about investment conditions in the subjects of the Russian Federation will be presented at the Investment portal of Russian regions (www.investinregions.ru). The Centre is funded by the Russian Direct Investment Fund. Press Service of the Fund explains that the new organization is not a classic investment promotion agency. As part of the Russian Direct Investment Fund, the center complements the work of the Fund, being involved in promotion of promising investment projects in the regions of Russia and in the international arena.
The Centre operates on the following principles: if the initiative of cooperation comes from the investor, the Center gives him full information about the investment projects in different regions, taking into account the priorities of the investor (by volume, by industry , by region , etc.), as well as provides necessary contacts to the investor with the project initiators. If there is significant amount of investment involved RDIF may consider an opportunity to participate in the development of the project together with the investor. Now the Center works with more than 80 subjects of the Russian Federation.
Similar initiative was put forward by the All-Russian Public Organization of Small and Medium Enterprises “Support of Russia”. According to Alexander Brechalov, the President of the organization, in two or three weeks the Investment Promotion Agency launched by “Support of Russia” should already start earning. “We launch the agency not at the expense of the budget, but on commercial terms – commented Mr. Brechalov, – Since the Ministry of Regional Development has not supported us, we decided to compete with the state and start our own project. The Agency will have two management centers – in Moscow and in the Far East. We have already established links with the regions and with investors. “Given the fact that regional investment agencies do not work efficiently (they rather talk a lot about activities, than can attract a large number of investors), in our work we will focus primarily on achieving practical results”, – assures Mr. Brechalov.
A large number of ideas and developments aimed at attracting foreign capital in Russia, reflect the fact that the process of establishing special investor assisting structures, though delayed, has finally begun. And we all believe that it will not be smooth only on paper, rather do we expect real results in the near future – new contracts, new businesses and new jobs.