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The Russian Far East: An Investor’s Perspective

September 07, 19:30 UTC+3
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Key conclusions

Foreign investors show exceptional interest in the Far East

“The Far East is the richest region. This is supported by the presence of a large number of investment projects, especially with the participation of foreign capital,” said Alexey Suvorov, General Director, New Technologies LLC. 

“Business activity is so high that I had to rush out in the midst of a session to sign agreements. Together with our Thai colleagues, we have just signed a document to the tune of 16 bln rubles. <…> Dozens of countries are interested in the Far East and the percentage of profits earned by our company carrying out these projects is evidence that they raise huge investments,” said Denis Tikhonov, General Director, Corporation for Far East Development. 

Challenges

Cutbacks in regional business support program

“The cutbacks in regional business support programs in general should not be overlooked. In other words, authorities rely on federal programs and slash their own, probably to replenish their budgets,” Alexey Suvorov noted.

Red tape tying up investors

“To qualify for residency status we must comply with certain requirements, we have to be a food producing company, which is not exactly the case. We provide additional processing services not just for food production but also for drugs and raw materials for manufacturing cosmetics. Tax benefits therefore might be invalidated based on technicalities,” noted Sergey Budnik, Managing Partner of Tecleor.

Distrust of the judicial system

“This entails not only such extensive matters such as corruption, but also more trivial ones, like our judges’ lack of competence,” said Vyacheslav Yugay, Head of the Far East Practice Group, Egorov Puginsky Afanasiev & Partners.

Lack of service infrastructure

“Some technical problems exist, for example, with the visa system. We are able to file documents for an electronic visa in advance and get it at the airport. Many Japanese businessmen participated in the forum this time but the majority was apprehensive. Therefore, we submitted documents in a customary fashion and got the visa. This is because there were instances of being denied a visa at the airport,” noted Kunio Okada, General Director of the Institute for Russian and NIS Economic Studies, Japan Association for Trade with Russia and NIS.

“Foreign investors believe the Far East does not have companies capable of supporting their business and providing high quality services such as legal, financial, and corporate secretary services,” Vyacheslav Yugay added.

Underdeveloped transport system

“Despite the unique geographic position of Vladivostok – 2 hours by air to Tokyo. 1.5-2 hours to Seoul and 2.5 hours to Beijing – if someone traveled to China, he will understand me pretty well – there are just two flights to Beijing from Vladivostok. If you are making short business trips, and this is all you can afford if you are a busy man, then it will be rather challenging for you to make them,” Vyacheslav Yugay noted.

Solutions

Customized approach when working with investors

“I felt that the organization dealing with raising investment was so deeply involved in the issue in technical terms that they worked out certain specific matters for our business even better than we did,” said Nikita Demekhin, General Director, Research and Development Center Pozhengineering LLC.

Ongoing monitoring and site status control

“An excellent package was prepared for us with respect to all sites and parameters we stated and all meetings were promptly arranged. I would like to specifically highlight that a good presentation is available for each site, right down to some photos shot from a drone,” Nikita Demekhin noted.

“My advice on the changes is that actual information about sites should be on hand and personal visits to sites should be made, to avoid such cases that upon our arrival at the site, representatives of the agency are surprised at what they see there,” Alexey Suvorov said. 

Efficient HR policy to attract investors

“I started gathering employees myself and held training sessions and drills. We selected good staff for the agency,” said Vyacheslav Shport, Governor of the Khabarovsk Region.

Laying down conditions for business’ legal operations

“The main vector is to provide conditions for business to work on the books. A business operating “on the books” should have an advantage against those business working “off the books”,” said Andrei Belousov, Aide to the President of the Russian Federation. 

Interaction between government and business

“I gather a group, not one of 50 or 100 individuals because this is useless. 10-12 persons of a certain industry are gathered, say, representatives of trade and service. I enter the lecture hall, not in any government office, I take off my tie and then I indeed get a real feedback,” said Alexander Levintal, Governor of the Jewish Autonomous Region.

Simplifying and enhancing access to official information

“Given the enormous amount of organizations dealing with development, it is practically impossible to find that specific phone number you need to dial or even be able to get through to it. <…> It is essential to create a single web portal to support all investment projects, so that there is a single entry point set up online in cyber space and off-line,” Denis Tikhonov said.

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