Beyond Moscow and St. Petersburg

If you are considering the possibility of investment in Russia, then remember that there are many major cities in Russia, besides Moscow and St. Petersburg, which also have a long and rich history, and where there is already infrastructure in place, both for running a business and for living comfortably.

But together with this, it is important to keep in mind that the Russian regions are different. The regions differ according to their distance from the centre (you will need two hours to drive from Moscow to the neighbouring regions Tula and Kaluga and nine (!!!) hours to fly to Vladivostok), the availability of resources and infrastructure, quantity of population, quality of human capital and many other parameters. This inevitably influences the attractiveness of the region for conducting business. That said; all Russian regions have positive and negative characteristics from an investment point of view.

The positive may be in the form of rich natural resources, an already developed basic infrastructure (energy, transport and land), relatively developed industrial basis; sufficient cheap, qualified labour resources, relatively dense population (which guaranties wide access to the consumer market), large amount of tourist attractions - both natural and historical.

Negative factors for planned investment in the Russian regions may be high administrative barriers, physical obstacles to accessing resources, ineffective economic structure (a large quantity of people occupied in unproductive industries), low production in a majority of industries or low level of development in business enterprise.

Our company has for many years worked with the regions, and we have often worked out a strategy of development in the regions at the request of state organs and realised projects in the area of strategic planning for commercial companies concurrently. Thanks to this we are able to combine the evaluation of a particular region’s investment potential from two perspectives - from an administrative point of view and from a business point of view. Using this experience, we have worked out a system of evaluating the investment attractiveness of a region based on several parameters:

Financial parameters. Does this region offer some preferences or other financial incentives for investors? For example:

• Are there special economic zones in the region which provide certain privileges for investors?

• Is the regional administration ready to cover part of the investors’ expenditures on infrastructure, human resources, etc.?

• Does the regional administration have some powers to grant any tax advantages and preferences?

• What is the experience of other companies with the administration’s management of tax collection?

• The level of cost for operating in the region

Conditions for development of the sector. What are the competitive advantages of the region which are critical for sector development, including:

• Are there qualified human resources and educational institutions that create qualified talent pools?

• Is it possible to find available land suitable for construction of the plant?

• What is the level of logistical infrastructure providing access to consumers and suppliers?

• What is the state of the energy infrastructure and its effectiveness (electric energy, gas etc.)?

• What is the quality of water sources?

• What is the experience of other companies in your and related sectors in the region?

• What is the extent of trade union influence?

Regional authority’s reputation and effectiveness. Are the executives of the administration ready for open cooperation with investors?

• Is there an open attitude and interest in cooperation with foreign investors?

• How accessible is the head of the region?

• Are there clearly formulated priorities for regional development for the next 10-15 years?

• What is the general level of competence (can the administration’s staff interact with investors on a professional level)?

• What is the situation with the regional legislation system and law enforcement in the region from the experience of other investors?

• The level of corruption

Living conditions in the region. Is it possible to create comfortable conditions for foreign managers and their families in the region? Here what matters is:

• Availability of housing and conditions

• Ecology

• Crime, in particular towards foreigners

• Quality of public health services and infrastructure

• Leisure and cultural facilities

• Educational institutions for children from foreign families (English medium schools)

Several cities across Russia are ahead in, at least, a few of the characteristics mentioned above. These characteristics are present in several dynamic, developing cities, which are not always noticed in traditional ratings of Russian towns – Irkutsk, Krasnoyarsk, Novosibirsk (Siberian Federal District), Yekaterinburg, Chelabinsk (Ural Federal District), Krasnodar, Rostov-on-Don (Southern Federal District) Nizhniy Novgorod (Volga Federal District), Murmansk and Arkhangelsk (North-Western Federal District).