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WEF recommends investing in best Russian regions

January 23, 2014, 16:14 UTC+3 Alexandrova Lyudmila
© AP Photo/Michel Euler

MOSCOW, January 23. /ITAR-TASS/. - Foreign investors should turn attention not to Russia as a whole, but to its certain regions, believe the experts who presented an investment report at the annual World Economic Forum (WEF) in Davos, Switzerland, on Wednesday. The main economic spurts, in their opinion, are already outside Moscow and should be held up as an example for the rest of the country.

The WEF’s Global Agenda Council in Russia presented a report entitled Russia’s Regions: Drivers of Growth 4х4 primarily aimed at international investors and heads of Russia’s regions. A group of experts led by former Russian finance minister, Aleksey Kudrin, and a Yale University professor, Oleg Tsyvinsky, believes some regions have already advanced in their institutional reforms further than Russia as a whole and say the best examples are worth investors’ attention.

Noting the need for comprehensive, not selective reforms, the authors give four easy-to-follow recommendations: fighting corruption, providing simpler access to financing, eliminating excess red tape, and upgrading labor force’s qualification. Growth prospects in the regions rather depend on a governor’s personality and his or her team, they add.

The experts added that eleven regions had shown better economic results and investment appeal indicators than the country’s average citing the best three model ones: Ulyanovsk Region, Republic of Tatarstan and the Kaluga Region.

Each of them has its own winning formula. Ulyanovsk has made its way to the top ranking thanks to the business-friendly local authorities and efficient work to reduce administrative pressures. The region’s investment policy is based on the 10 ‘I’ principle: innovations, infrastructure, integration, intensification etc.

Meanwhile, Kaluga clinched the exemplary regions’ status by means of attracting direct foreign investments in industry and high qualification of labor force. Lately, Tatarstan focused on transparent regulation, private-public partnership and development of small and medium business. As for the latter, its governor, Rustam Minnikhanov particularly emphasizes creation of regional engineering centers.

In 2012 the World Bank released a rating of ‘business easiness’ in Russia’s 30 major cities. Ulyanovsk, Saransk and Vladikavkaz performed best, while Moscow and St. Petersburg lagged behind at the bottom of the ranking.

So far, most researchers focus on weak points of the Russian institutions and business climate and forget about incredible disparities among the Russian regions, the WEF’s founder and president, Klaus Schwab, says in the report. Meanwhile, certain regions are doing much better than the country as a whole and have carried out institutional reforms over the last decade and improved business environment.

“We wanted to show that some of them have become benchmarks among the world’s best practices,” one of the contributors to the report, managing partner of EY Russia, Alexander Ivlev, told RBC daily. “Notwithstanding the overall situation in Russia they managed to become competitive internationally.”

Last year's forum in Davos presented three development scenarios for Russia till 2030, and the regional scenario, Regional Rebalancing, proved the most optimistic one. The experts then cited investments in agriculture and affiliated industries, infrastructure development in border areas and reducing trade barriers in Russia’s East as the regions’ main potential for growth.

Such plans are already afoot in Russia’s Far East - the region may create its own special economic zones, Deputy Minister of Economic Development, Oleg Saveliev, told the Vedomosti daily. Talks with Japanese partners planning to grow crops, soya and buckwheat are already underway.

But regional development has its risks in it, the experts said, as it is fraught with splitting the country into flourishing and depressive regions. Expert RA rating agency points to only five regions that can boast the maximal investment potential with low risks: Moscow and Moscow Region, St. Petersburg, Krasnodar Territory and the Republic of Tatarstan.

Besides, investors need infrastructures the regions are unable to build at this point: social expenses made up 70-75 percent of spending in 23 regions over the first six months of 2013, says the Independent Institute for Social Policy. Meanwhile, debts are increasing: S&P rating agency forecasts that about 20 regions will be able to retain budget surplus and moderate debt burden by late 2015, the rest are already in hazard. According to Finance Minister, Anton Siluanov, the regional budgets’ deficits swelled 2.5 times to 700 billion roubles (about $21.2 billion) over 2013.

Even so, the most thriving Russian regions will now be able to take foreign currency loans in the international market, as follows from the decision approved this week by Prime Minister Dmitry Medvedev.

Russia’s regions previously had this right but by early 2000 their external debt had reached 2.4 billion, or 1.4 percent of GDP, a critical amount. This made the authorities freeze the regions’ external borrowing in 2000. By early 2013 the regions’ aggregate debt decreased to 0.56 billion, or 0.03 percent of GDP.

Access to the international market will be available not for everyone, though, but only the most reliable regions that have a credit rating similar to the sovereign rating. Only two Russian regions now comply with the requirement, federal scale cities Moscow and St. Petersburg, say the government’s materials. According to Finance Ministry, the current criteria will also permit external lending in foreign currency to the Khanty-Mansi Autonomous Territory.


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