10

14

21

22

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DISSENTERS ARE OFFERED TO SERVE AT THE BORDER

THE SECOND PROBLEM AFTER ROADS

WHY THE ZONE EXTENDS ITS GATES

EXIT IS THROUGH THE WINDOW

THE GERMANS BECOME RUSSIANS

Open RegionAugust 2015 Ulyanovsk economic magazine

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BREAKING THE BARRIERSSERGEY TITOV

Have you ever noticed

how grass sometimes breaks

through the hard asphalt?

Or the young shoots of huge

hard poplar break through

the pavements and seek the

sun again? How a linden grows

through the fence, moving

aside a metal grate fence,

because it has taken root here and does not agree with

the barriers. How white birch destroys red brick wall that

was in the wrong place... Even such powerful obstacles

are unable to stop the normal natural desire to live and

develop. To grow into a more open space where there is

more sunshine, freedom, and opportunity.

Barriers, obstacles, fences, sanctions, antisanctions are

created by the man himself, who believes that it would be

better. Is it always this way, time will tell, but business is a

living organism, it will adapt to the new environment and

take roots, will look for new ways, and if there are no ways,

it will go through obstacles.

When one side of the tree is blocked, it will grow into

another, where there are no barriers. And our look at the

South East does not mean that Russia has turned away

from the West, no wonder the coat of arms of Russia is

the two-headed eagle. “We respond to external constraints

not by closing our economy, we respond with expansion of

freedom, increasing openness of Russia. And it's not just

a slogan, it is the content of our actual policy, of the work

to create conditions for businesses, to find new partners

and to open new markets,” said Russian president Vladimir

Putin at the St. Petersburg International economic forum.

Business hopes that it will be so. “We are the company

which is present on the market not only in favorable times,

but always when there is need for us. So here I am again,”

said at the same forum Michael Vormut, branch president

of Abbott American pharmaceutical corporation.

“Crises come and go, but we push on the gas pedal

and won't take off the foot, because here, in Ulyanovsk,

we cannot be afraid of every political statement from

Europe, here in Russia we feel ourselves Russian and want

to make this country independent,” said a board member

of DMG MORI SEIKI AG Christian Tёrnes at a meeting with

the company's suppliers, who were invited to locate in

Ulyanovsk by the top manager.

In today's world of globalized markets we are doomed

to interaction. We all the same cannot get away from

each other.

No wonder the Russians say: “There are no closed doors,

there are locks in our heads.”

Open your door, and you will find other doors open.

Editorial

ContentsNew reality

THE PRINCIPLE OF DOUBLE-HEADED EAGLERegions are looking for answers to challenges ................................ p. 4

Experts virtual round table

A MESSAGE ABOUT THE FUTUREExperts discuss prospects for investment............................... p. 6

From the first person

“SIMPLY THERE ARE NO OTHER OPTIONS”Ulyanovsk region governor Sergey Morozov about the way to navigate in new reality ........................ p. 10

Climate control

GOVERNORS ARE OFFERED TO GO BY THE MAP What did the fi rst national rating of investment climate in the regions show .......................... p. 14

Infrastructure

PRIVATE CAPITAL INVITES RESIDENTSCrisis has prompted development of industrial parks ................. p. 17

Special conditions

SEPZ EXPANDS THE GATESWhy SEPZ becomes more accessible .............................. p. 21

Avia

RISE ABOVE THE FALLUlyanovsk aviation cluster has felt positive impact of the crisis ... p. 24

Efforts and results

PARTNERSHIP ACQUIRES PROSPECTSWhy the interests have shifted, and the dynamics remained ................................p. 26

New technologies

THE KEY TO THE RIGHT TRANSMISSIONThe region is looking for ways of technological breakthrough ....................... p. 28

Innovation

WITH THE WIND IN THE HEADHow to assemble and sell an idea .................................. p. 30

IT

WHEN THE CRISIS CAME IN, PROGRAMMERS OPENED THE WINDOWWhy IT people abandoned Bangalore ............................. p. 33

Localization

EVERYBODY TO THE PARK!How the Germans become Russian .................................. p. 36

Features

REGIONS BECOME ACCUSTOMED TO ORIENTAL CUISINEWhat do the Chineze fear ...... p. 39

Economy accelerator

FAVORABLE EXCHANGEHow much is the role of development employer, and with whom business intends to share the risks ................................. p. 42

Finance

MONEY AT HOMEIs it possible to give part of business for credit .............p. 44

New format

INVESTORS OF ALL COUNTRIES, UNITE!It is said that the club is empty when there are no big problems ............................... p. 46

4 Open Region

SERGEY TITOV

It so happened that simultaneously two misfortunes came to Russia, the fall of world price on oil (followed by the fall of ruble course) and the sanctions of the West. I suppose both of them are tempo-rary, but, I understand, both are enough long term. Experts call the situation a crisis, officials often choose a neutral assessment of the phenomenon, calling it “a new economic reality”. However, they are right in the fact that situation is going to be long and requires not just anti-cri-

sis measures but brand new action. “Of course, we are now in a full crisis in all respects. For investments in fixed assets we fall almost like in 2009,” said ex-fi-nance minister, head of the Committee of civil initiatives Alexey Kudrin, speaking at the Federation Council (according to Rosstat, the dynamics of investment, year by year, was minus 4.8% ). At the same time, according to him, in 2015 the economy will fall more serious than it was predicted by economic development Ministry (-2.8%), and GDP will decrease by about 4%.

It is already clear that government in-vestment will be reduced, and have al-ready started to decline. According to the economic development minister Alexey Ulyukayev, the budget share of total in-vestments will be reduced from 20% in 2013 to 10% in 2018, and this too will aff ect the deceleration of the whole economy.

The principle of double-headed eagleRegions are looking for answers to challenges

New realityVadim

Pilukov photo

Governor Sergey Morozov, not relying on the

growth of state investments, announced the

policy of reindustrialization for the purpose of

technological breakthroughs, including through

partnership with foreign investors.

5august 2015

Serg

ey E

rsho

v ph

oto

Lubov Chilikova photo

Mr. Ulyukayev, nevertheless, is to a cer-tain extent optimistic in his assessments: according to him, from 2017 Russian econ-omy can begin to increase with the rate of 4-4.5% per year.

In June at the St. Petersburg interna-tional economic forum (SPIEF 2015) all the experts were unanimous, and perhaps everyone has noted that the economic crisis was an incentive for reforming the economy and system of governance. But how to do it, here opinions diff ered. Some have stated that there were no ready-made recipes, while others suggested too potent recipes, which “chief medical offi cer” is unlikely to accept.

Such situation is hardest for regions, in which the revenue side of the budget begins to decline because of the falling demand for products manufactured in the region and, consequently, the production itself falls. At the same time government investments on a number of projects are being limited or canceled, and regional authorities are not entitled to change some fundamental economic approaches on their own.

Researcher of the HSE Center for anal-ysis of incomes and living standards professor Natalia Zubarevich notes that the budgets of the regions have faced a difficult situation, which is caused by, among other things, the need to enforce federal decrees on increasing salaries to state employees. Without the use of credit resources not all the territo-ries are able to meet the current social commitment, and that is a source of destabilization of the regional budgets. And if, for example, in the crisis year of 2009 the volume of transfers to the re-gions increased by 30%, in the last three years phased reduction of this amount occurred, professor says.

In this scenario the regions under-stand the need to make the economy more efficient without placing high hopes on government investment. Thus, in Ulyanovsk region governor Sergey Morozov in early June announced the launch of regional government work on “new industrialization of the region” and formation of a new system of gover-nance, noting the need to create “a power-ful scientific and educational potential which will allow to make a technological breakthrough, to finish building close relationship of technology business with basic and applied science.”

“Now reindustrialization is the only way for the regions to be competitive, oth-erwise the backlog will only get worse,” said Sergey Lozinsky, Strategy Partners Group (consulting company, included in Sberbank of Russia) partner. According to him, “those will benefit who have begun to prepare for it earlier.” At the same time the regions understand that technological breakthrough is impossi-ble without investment, foreign in the first place. And those will be in the best situation who have managed to create in their territories a comfortable business climate and a system of interaction with investors. Foreign investors will not go out from where they have invested and where they have taken root. But the new are already looking around, starting to think. According to a board member of DMG MORI SEIKI AG Christian Tёrnes, from 12 suppliers for who he called to fol-low them and to localize their production in Ulyanovsk 10 expressed an interest, but two still refused. The fact that, despite the crisis, foreign investors will still come to the capacious Russian market, is beyond doubt, but how they will react to changes in demand and the priorities

of new economic reality, who will come, when and where, this is still a question. Will they be able to fit into the announced Russian policy of import substitution, which actually does not demonstrate rejection of foreign investments, on the contrary, it confirms their importance, because technological breakthrough in several industries is simply impossible without them?

During Western sanctions the regions of Russia turned their attention to the South-East and the Asia - Pacifi c region; but also, preserving the historical commitment to the two-headed eagle, we do not turn away from the West. Is it possible? Will the country be able to combine the interests of Europe and Asia, uniting them? The new economic reality poses new questions.

We hope that the experts invited to this virtual round table will help us to understand what new conditions arise with the new eco-nomic reality, and what the regions should do. We refer them the issues that interest many people today.

Each expert had the right to answer only those questions in which he considers himself competent enough, or has already established his opinion. p. 6

Due to the sanctions some potential investors have chosen the policy of waiting.

At the crossroads. Simple and clear road of economic

development has ended. Further we will have to choose

our way. What it will be depends on many external

and internal factors. At the construction of Setcons

center in Zavolzhye industrial park.

New reality

6 Open Region

— How have the risks to foreign invest-ment changed in the new economic condi-tions? Where are they the greatest?

YULIA STEFANISHINA, KPMG international consulting company head of practice on management of large infrastructure projects in Russia and CIS

— Among the most obvious internal risks that

are emerging in Russian economy are the risks

of artificial “closing” of certain sectors which

are especially important for foreign investment,

as well as risks of loss of market due to falling

in-country demand for the product of inves-

tor's own enterprises created in Russia. Among

important factors that increase uncertainty

for investors it is possible to note the absence

of common approach to dealing with foreign

investment in terms of regulation and incentives.

There are risks and uncertainties in the policy of

import substitution. For example, restrictions

were placed on the purchase of imported phar-

maceuticals, but the criteria for recognition of

products “manufactured in the RF territory” have

not been defined, and it carries enormous risks

for foreign investment.

VLADIMIR NIKITENKO, the Russian-German chamber of commerce, deputy managing director

— The macroeconomic situation in Rus-

sia today is not in the best condition, and the

German business has become more cautious

when making investment decisions. Yet even

today many German companies are considering

projects to build production facilities in Russia,

seeing there a sufficient economic potential,

resources, and the market volume. For some

German companies there is also a positive im-

pact of the crisis: their business model has now

become much more attractive, since the project

has fallen in euros or dollars.

Unfortunately, in Russia German companies'

manufacturing of products for global supplies

is rare, and for the state it probably makes

sense to think about preferences for exports

and generally to think about the export po-

tential. As for the risks, everybody is afraid

of changes in the rules of the game. All would

like more stability and certainty. President

Vladimir Putin has promised not to change the

tax policy for three years. Such guarantees are

also necessary for investors to provide clear

and transparent rules of the game in future. In

this regard we place a lot of hope for special

investment contracts of industry and trade

Ministry.

IWAO OHASHI, Advisor on Japan and Asia-Pacific countries of the Association of industrial parks, the adviser of the ROTOBO (Japan Association for trade with Russia and the newly independent states) Moscow representation

— Business, investment, all this is calcu-

lation. Investing is possible only if there is an

expectation of profit. And Japanese business

generally does not think about politics, let

those who are engaged in it think about it;

business thinks what Russian market will be in

future. Russia's economy is now in a stage of

difficulties. Sales are falling. And investors are

waiting, trying to understand what Russia will

be in two years and in ten years. We must once

again change the calculations. In my opinion,

it's not the risk for individual sectors, but the

risk associated with the development prospects

of Russian economy as a whole. There are two

categories of investors: some see Russia as a

short-term market, the others see the market

for long-term development in it. For example,

an investor with a long-term perspective may

think that in 10 years Russia will be a very in-

teresting and tasty market and to invest now

is best, because today it is cheaper, and the

level of competition is lower. But you need a

clear understanding or belief what will be in

Russia in 10 years. And the risk is that there is

no such understanding yet. 

VYACHESLAV HOLOPOV, partner of Knight Frank international consulting company

— From my point of view, the main risks for

foreign investors today is that their countries

may enter sanctions against Russia and dic-

tate them to refuse from doing business in our

country, thus jeopardizing investment in our

economy. Although sanctions may extend to any

segment and primarily interfere with the overall

development of the companies and their arrival

in Russia, in my view, the main blow will be in the

industries where we will not be able to fill the gap

quickly: heavy machinery and machine tools, high

technology, etc.

— How have the interests of foreign in-vestors changed in Russia today? What may interest investors from the Asia-Pacifi c region in Russia?

Experts virtual round table

A message about the future

Lack of demand for products in the domestic market as a factor that limits development of small enterprises operating in the field of manufacturing industries, % of respondents

Source: Rosstat

7august 2015

Russian market is still the most attractive St. Petersburg economic forum (2015) participants and Internet users' survey

VLADIMIR NIKITENKO:

— Russian-German chamber of commerce

conducts regular surveys of German compa-

nies about the business climate in Russia. In

general the mood is quite pessimistic now. In

January, 2015 58% of respondents said that in

comparison with 2014 the business climate has

deteriorated. Ruble depreciation had a strong

influence, increase in the cost of goods and

services exported to Russia leads to a drop

in turnover. The demand is falling also due

to funding problems: for Russian consumers

bank loans have significantly risen in price.

Many companies do not expect that this year

will be more successful, although the majority

of respondents believe in the long-term pros-

pects of the Russian market. We do not know

any cases of withdrawal of German companies

from the market because of sanctions: German

business considers the current situation only as

a manifestation of a cyclical economy.

VYACHESLAV HOLOPOV:

— The most attractive factor for foreign

companies is high return on investment. And

countries that do not support the sanctions

in the current circumstances may require (and

get) additional guarantees to preserve special

conditions of their work in our country. It seems

to me, investors are waiting from the power of a

particular region for removal of administrative

barriers and readiness to guarantee the immu-

tability of the rules of the game for long periods

(15-20 years, at least), while the availability of

sites with necessary infrastructure is perceived

as given. The cost of labor in Russia is compa-

rable to the costs in a number of Asia-Pacific

countries, and in this way we are unlikely to be

of particular interest in terms of cost savings

in production.

IWAO OHASHI:

— By themselves, the interests of investors

from Asia-Pacific countries practically have not

changed in the crisis. If earlier Russia seemed a

promising market, now, I repeat, many are waiting.

In contrast to European investors, Asian investors

traditionally do not have sufficient business

experience and less understand Russia, so they

are even more cautious. But those Japanese com-

panies that were located in Russia are not going

to go away, because major Japanese investors

always work for the long term.

— What are primary interests in the choice of foreign investors, entering the region: benefi ts, absence of barriers, infrastructure, cheap labor market, availability of qualifi ed personnel, or anything else?

ANATOLY VAKULENKO, analyst of the Finam investment company

— I think all the relationships between the re-

gion and the investor should be strictly regulated

and prescribed in the documents, so that anyone,

even the slightest question had a response in

these documents, as well as there were pre-

scribed forms and methods of conflict resolution

between the parties. The region does not have to

change its policy in relation to ongoing projects

in its territory, even if the investment policy as

a whole changes. World experience shows that

violation of the agreements is fraught with a blow

to the reputation, and it will be very difficult for

the region to attract investors in future.

It seems to me that in addition to infrastruc-

ture, incentives, resources there is the main

thing: something elusive, something in the air

that will tell the investor that here, in this place,

you can do business, and do it well. We must

begin to create that very unique aura, the feeling

of success, which actually calls for investors in

the region. And all the inhabitants of the area,

from small to large, must do it: from officials to

students, from professors to cleaners. Because

you can create all necessary infrastructure, make

the right laws, but if people are not hardworking

or simply show little interest in the project of

investors, the success will not come.

YULIA STEFANISHINA:

— Development of infrastructure and simpli-

fication of bureaucratic procedures primarily

contribute to the inflow of foreign investments.

An important factor is presence of sufficient num-

ber of qualified personnel, since not all regions

of Russia have sufficient human resources, and

labor resources are not always prone to migration

within the country, because migration has little

support from the state, and companies cannot

always afford investment in living and social

infrastructure for their potential employees.

In addition to these measures, foreign inves-

tors pay attention to the possibility of investment

and long-term contracts, as well as supporting

export activity, which would promote deeper

integration of Russia into the world economy

and the global added value chains.

The old principle remains urgent - the prom-

ises must comply with business.

VLADIMIR NIKITENKO:

— Investor mainly hopes to find ready-made

infrastructure and preferences. Among other

criteria it is important how it is possible to

build the work with public authorities in the

region. A serious criterion is living conditions

of expats (foreign experts): the presence of

international schools, international airport, the

time required for investor representatives to

get from Germany to the region. These criteria

are often not taken into account, the regions

do not work over them, but they are often the

factors outweighing the scales.

Experts virtual round table

According to St. Petersburg international economic forum – 2015 materials

Which markets of the following do you consider the most important for your business?

8 Open Region

VYACHESLAV HOLOPOV:

— Import substitution is becoming another

popular term, while in fact any potential investor

would consider the possibility of reducing costs

and construction of production in the country of

his sales, in the presence of a market, solvency

of population, production efficiency (due to the

availability of resources, for example) and the

possibility of successful work on the neighboring

countries also.

IWAO OHASHI:

— All of the above is very important. But

this is not enough. Yet, from the standpoint of

Japanese investors, there is a lack of one very

important component. In English this is called

a message. Declaration of strategic directions

of development. Where Russia is going to go,

how it will develop itself in the context of global

business. Until now in Russia the emphasis is

laid on improving the investment climate. But

in order to attract foreign investors you still

need a strategic, proactive approach. It's a

message. For example, in China it is done very

cleverly, they have formed expectations. As in

the Soviet Union there were five-year plans, there

they also have very clear plans for at least next

five years, very clearly indicate what will the

country be like, which strategy will be in each

of the regions: what will be developed, in what

ways, what investors they would like to see. I

do not recommend returning to the centrally

planned economy, but I am talking about a

strategic approach to increase investment at-

tractiveness. China, India, Myanmar, and others

where now an investment boom is going on, are

attracting foreign investment through creation

and dissemination of a message of their intent

and direction of strategic development. This

very strong message from Russia also is badly

needed by investors.

— How have foreign investors' demands to the regions of their entry changed?

VLADIMIR NIKITENKO:

— I think the crisis has not affected the de-

mands of investors, and they have remained

the same.

IWAO OHASHI:

— The regions of Russia do much to meet the

demands of investors. But there are some key

points to be addressed. These are modernization

of transport infrastructure, especially roads,

although it is desirable to improve also aviation

and rail links, including soft infrastructure: for ex-

ample, fast and transparent customs procedures,

which also need to be upgraded to international

standard. In Turkey and South Korea industrial

parks are tied with seaports, airports, and major

cities by excellent network of modern highways.

— In what issues may requirements and interests of European investors and investors from the Asia-Pacifi c region be diff erent? Can they be combined?

YULIA STEFANISHINA:

— For the majority of investors in the West the

priority is to direct their investments where the

objects already have ready infrastructure, and

legal framework governing privileges and prefer-

ences for foreign investors is clearly spelled out. At

the same time, for investors from the Asia-Pacific

countries it is more important to create a comfort-

able environment for doing business in the region,

which implies a desirable presence of investors

from Asia-Pacific countries, already working in the

region, and availability of effective interaction with

the authorities. Though infrastructure, incentives

and preferences, of course, also interest them.

VLADIMIR NIKITENKO:

— Of course, the German business is con-

sidering Russia's turning towards Asia as a

particular risk and, of course, is worried about

the loss of markets. According to the poll of the

Russian-German chamber of commerce, 49% of

respondents believe that Russia will now con-

centrate its efforts on cooperation with China,

while 33% of respondents believe that Russia

will be able to combine interaction with the

European Union and China. Only 8% think that

interaction with the EEC is the main direction

of Russian policy.

IWAO OHASHI:

— The interests and requirements of European

and Asian investors are alike. And the interaction

is possible and sometimes even necessary, if it is

profitable for business. So, Takata-Petri plant built

in Ulyanovsk is including Japanese investment that

came to Russia via Germany. Borsk glassworks

is a Japanese investment which came to Russia

from Belgium. Investments have no borders. At

the same time it is possible to mention some

specifics of Japanese companies' localization.

Inside the Japanese corporate structure the

decision is made by creating a consensus, the

first person does not take a decision himself, he

asserts a consensus. Therefore, the process for

investment is always long. But after the start of

plants operation the Japanese companies rarely

close them because of the long-term strategy. In

localization the Japanese attach great importance

to establishment and development of long-term

stable partnerships with local suppliers, too.

— Can foreign investors fi t into declared Russia's policy of import substitution?

YULIA STEFANISHINA:

— First let us define that the policy of import

substitution is implemented in two directions:

production of analogues of foreign goods by

domestic companies within the country, and

increasing the level of localization of foreign

companies in the country.

Localization can be in various forms: the least

capital-intensive is transfer of licenses for produc-

tion, foreign direct investment in the company's own

local enterprises (greenfield), acquisition of existing

Experts virtual round table

(US$ mln)

9august 2015

local businesses (brownfield), and creation of a joint

venture with a local company. Implementation of

greenfield, brownfield, and joint projects involves

the greatest integration of foreign companies in

the economy, and as a result, it is in the spotlight

of government measures aimed at encouraging

import substitution. Therefore I think a lot of foreign

investors may well fit into the policy of import substi-

tution through localization of production in Russia.

VLADIMIR NIKITENKO:

— I believe that import substitution is abso-

lutely for the benefit of Russia. But I think that

the market should be the driver of this process.

If there is demand, and import substituting prod-

ucts are in demand, German companies will be

happy to support import substitution, seeing their

prospects. But if it is simply to create analogs of

existing products against the background of a

shortage of trained personnel, especially the “blue

collars”, at such a low level of supply chains de-

velopment the task will not be done. I understand

that German companies are willing to engage in

the process of import substitution, supplying

certain components for Russian products. In

addition, by locating their production facilities in

Russia German investors themselves are gradually

engaged in actual import substitution, outsourc-

ing the production of components or software

for their products to Russian companies. This is

beneficial to both parties.

IWAO OHASHI:

— I believe that investors from Asia-Pacific

countries could fit into the announced rate of im-

port substitution in many industries, locating their

production facilities in Russia. But first one needs

a very clear understanding of what import substi-

tution is, we need a clear and specific mechanism,

where and how they are ready to attract foreign

investors. Again, as I said, you need a message.

— What can attract foreign investors in the Ulyanovsk region today? What needs to be improved? What are the challenges the region has to face in the short and long term?

VLADIMIR NIKITENKO:

— In Ulyanovsk region German investors are

attracted exactly by necessary infrastructure

in the form of industrial parks with all services

and connections, as well as a set of benefits.

These basic things are enough to draw attention

to the region, and also there is the openness

of the management. German managers are

often impressed when the governor personally

communicates with people to make decisions

on investments: they are not yet accustomed

to this approach in Russia. But as to the quality

of life of expatriates, the Ulyanovsk region still

has where to move.

I think in future the lagging regions will catch

up on infrastructure, and then their competition

will go into a plane of soft factors: trust in the

region and the authorities, comfortable accom-

modation. In addition, investors will pay attention

to the industries which are already present in the

region, and in order to guarantee a success in

future today it makes sense to form the respec-

tive clusters, which, incidentally, is being done

in Ulyanovsk region. An important factor will be

staff. It is a problem today, and it will remain,

especially for smaller regions with up to a million

people. If they specialize in certain industries and

raise the necessary staff for themselves, then the

problem of competition for investment will go by

the wayside itself.

VYACHESLAV HOLOPOV:

— In Ulyanovsk region the necessary work on

preparation of industrial sites, providing special

conditions at the entrance of the investor to the

region and support of the administration at all

levels are already present. Competition from

Tatarstan, Leningrad and Kaluga regions will

continue, but it is good: so investors will be able

to get the best conditions.

IWAO OHASHI:

— I think that the Ulyanovsk region is one

of the most promising regions for attracting

investment in industry. Convenient geographical

position, providing an opportunity for optimal

logistics. For example, when on different sides of

the region there are several automobile plants,

this is a very convenient place for production

of automotive components. Second are the

conditions created by regional authorities. I

think they are almost at the level of European

standards. And the problems are not problems,

because they are known in the region, but tasks

for the next period. You need good roads, high-

ways in key areas. Today it is already necessary

to compare with international standards. It is

necessary to develop human potential, highly

skilled workforce. And the third is good urban

infrastructure, comfortable living environment.

The region comes to a new phase when attract-

ing investment should mean attracting good

people. And what it is also very important is the

development of local business, local industry,

because the investor is looking for opportuni-

ties to work with reliable and high-quality local

suppliers of components.

Russia is a great country with great potential,

very intelligent people live here, and here are

interesting business opportunities. But how to

realize this potential is a large and difficult task.

When attracting investors it is important to create

“expectations for the future” by designing a smart

integrated development strategy on the basis of

consensus between government, business, and

society, and to disseminate it widely to potential

foreign investors as a message.

Experts virtual round table

10 Open RegionFrom the first person

Anastasya Stolbova photo

— Sergey Ivanovich, unlike many eco-nomic experts you always call the current Russian crisis a new economic reality. How is it diff erent from the crisis? What are the challenges facing the region?

— We have experienced a number of dif-ferent Russian and international crises. And we already know how it happens. Everybody, I mean countries and macroregions, virtual-ly were in equal conditions. Remember how economics ministers were in session on co-ordinating their economic policies in order to minimize risks. But today the situation is diff erent. Relationships with our partners have disordered, there is no conciliation, instead of supporting each other they try to annoy us … And this situation can last for many years. That's why I believe it is not a crisis but a new economic reality. We have to live it through to understand the chal-lenges and to respond to them. Challenges are an extremely unbalanced budget (today it is common to most regions of Russia), a huge number of enterprises, deprived of available credit that allowed to modernize, previously opened windows on investment programs of foreign companies localization are closed, and this may lead to a halt of some enterprises that has already happened in some regions. There is also worsening of the demographic situation, and the outfl ow of labor resources. But in abundance of our resources and investment projects we need far more than one million of working people, and not 650 thousand, as it is now. I believe that Ulyanovsk region will respond to the challenges adequately. We know what must be done, and soon will present to the expert community a set of reforms and programs of action that we are ready to implement within fi ve years.

— Have the “rules of the game”, require-ments and evaluation methods changed in the new economic reality?

“Simply there are no other options”Governor Sergey Morozov has decided to take the risk

According to the results of the investment climate fi rst national ranking Ulyanovsk region has entered the top fi ve. At the same time governor of the region Sergey Morozov said that Ulyanovsk region was faced with a number of new challenges of time. About the answers to these, the ability to look in diff erent directions, the risks of reforms, and about his ambitions the region head told in an interview with the Open Region editor Sergey Titov.

— Sure. And we set reforms at the fore-front. Clearly, it is impossible to reform all at once. But until 2020 we should focus on fi ve reforms. Among them is the reform of the management system, including the government itself. We have studied the experience of diff erent countries: Singapore, Malaysia, Indonesia, Iceland, and others, and understood that it is necessary to switch to a completely diff erent method of control, the design-target one (at the beginning of the year the head of Sberbank German Gref said about the need to go to such a principle of public administration — OR). We realized that it is much more effi cient, and we can do it, at the same time can save up to 50 percent of two billion rubles which we are spending today on maintenance of regional and municipal authorities. Also there might be the regions management reforming through creation of rural agglom-erations combining several regions, where all fi nancial and managerial resources will be focused, a uniform development program; in turn it will optimize management level and give corresponding cost savings. In our work we intend to ensure compliance with all international standards of manage-ment and project activity, existing in OECD countries. The most important response to the challenges will be handling human potential development, solution of personnel problems, and ensuring personnel elevators. In this direction we create a large project offi ce, because today it is necessary to work for the future.

— In new economic conditions, when the state purposefully directs budget for urgent development of certain areas (science, human resources, import substitution), a number of

regions focus their activities on maximum involvement of public investments. Do you think that in the period of decreased activ-ity of foreign investors this reorientation is necessary, or is there any other way?

— Ten years ago, when we had just come with a team, we discussed what path the region should choose for its develop-ment: to hope on state funds, or to begin attracting private investment. We have chosen the latter, and it was correct. And today we are not going to constantly ask for money from the state. It would not be fair: the country today already carries enormous expenses due to oil prices. It is necessary to attract private funds. And I hope we will succeed. We have suggestions for how to use private investment to build roads, and bridges, and even industrial parks.

— Ulyanovsk region has done so much to establish and develop economic relations with EU countries, primarily Germany, and suddenly foreign investors because of the sanctions slowed down their activities in Russia, after which the country turned its attention to the South-East. Has Ulyanovsk region felt the cooling itself?

— Out of 63 investment projects im-plemented today none has stopped. On the contrary, most of the partners have expressed desire to proceed with the second stage of construction: FM–Logistic, and Mars, and Legran, and Kvartsverke… In addition, we have now sent a good signal for establishment of a large industrial park associated with machine tool construction (whose basis becomes the DMG Mori Seiki plant in Zavolzhye industrial park — OR), and already at the recent Metalworking exhibition a dozen representatives of Eu-

ropean companies came to us and declared a desire to place their production facilities there. Today the region has no shortage of attention from European partners. But on the other hand, why should not we pay attention to the Asia-Pacifi c region (APR), which generates a large number of innova-tions and interesting solutions in industry?

— Is it easy to look at the same time at the West and at the South-East?

— It is diffi cult. While we have already learned to work with Europe, and took much there in terms of construction of comfortable business environment by forming relevant legislation, now we see that in the same China the law is diff erent, and in some ways has even gone beyond European. And territories of priority de-velopment, as they say at the federal level, came from there. Perhaps we will also have to adjust our legislation. Thus, the initiative of creating a free port in Vladivostok made us think about how to adjust our legisla-tion and to implement a similar form at our level, creating a free river-sea port in Ulyanovsk, which has an advantageous geographical location, good infrastructure that will allow to join to the New Silk way project as another traffi c artery, thereby connecting the East and the West.

But it is important to understand that APR investors have their own mentality. For example, European investors, having chosen the region as potential for entry, go to regional authorities and talk about their wishes and requirements. Asian ones, by contrast, do not

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Today the foundation of aviacluster development

is the state order. In the cockpit of Il-76MD-90A

navigator.

12 Open RegionFrom the first person

ask to meet them, in fact, they do not go to authorities. They settle in a hotel, live there for months, walk along the streets, read local media, attend various events, look at the re-action of people, are interested in the quality of life … Infrastructure and preferences also play a role in their decision, but for them it is still very important to make sure that the area is tolerant to them, that people are treat them well. And only then, if they take a decision, they come to the authorities. They are very cautious. We are yet an unknown planet for them. No wonder they try not to risk themselves, but to share the risk with a major Russian investor, off ering to organize a joint business. Therefore we are trying to fi nd and develop a standard of comfort for our Eastern partners.

— Experts predict a fall of the overall level of direct investment in Russia in 2015, according to various estimates, from 4.8% to 11%. At the same time, in spring you said to the deputies that you intend to continue to improve the investment attractiveness of the region and to increase the total volume of direct investments coming into the region. At what expense?

— Due to the region's stability, predict-ability and recognition of our policy and team, to implementation of our promises. Ulyanovsk region is not shaken by any events of political instability, we have no strikes, no wars between diff erent levels of government, and other unpleasant mo-ments. We have one of the best laws. In the former, more peaceful time we managed to properly dispose the means that we got from the federal budget or have cut from ours. We sent them not on eating away but on development of infrastructure. And we were right. Especially in how to get the synergies from investments that have already come to us. This idea was prompted to us by Americans who off ered their suppliers to localize their production also here, noting that otherwise they

would look for other partners. Now DMG Mori Seiki made the same off er to their suppliers, and most of them are ready to place their production here, too. In the same way we begin the second stage of working around each investor, consider-ing who might come after him, so that it could be benefi cial to all.

— In June at St. Petersburg international economic forum the fi rst national rating of the state of investment climate in regions was presented, where Ulyanovsk region was named in the top five of absolute leaders. Admittedly, it does not mean that everything is fi ne. What do you consider are the main in-dicators in formation of a favorable business environment? Where are serious gaps in the region, in your opinion?

— If you want to be successful, be suc-cessful. But between “want” and “be” there is a large and a small gap. The fact that we are in the leading position in the national ranking, in Doing Business, and others is a consequence of the fact that the execu-tive team members are both involved in this process and are passionate about it. Being in the top fi ve satisfi es and does not satisfy. To save leadership is always more

diffi cult than to win, and it is necessary to look for new forms of work. We are not satisfi ed that not the whole team is involved in the process, not all regional authorities of federal bodies of executive power and municipalities, and here we have to work hard. If a person says that he is placed here “not to give a single inch of Russian land to foreigners,” then let him go to another place, serve at the border.

— You have decided to respond to crisis with reforms, including region management reforming. You create reform management center, research institute of regional economy and agency of advanced technologies, enter risk-based supervision model, initiate new industrialization … Recently Sberbank head German Gref has said exactly that one of the main problems of modern Russia is that “the most complicated systems of government have largely remained archaic, and those win who have invested in development of systemically important institutions.” But he also doubts that in the nearest future we will be able to reform the system. Do you think you will be able to reverse the foundations established over the decades?

— We simply have no other options. We were too late to start. Although it seems that we move fast enough, we have got a large number of delays when distribution of the national wealth was going. Many of our neighbors today have completed gasifi -cation program, managed to get the funds that can be spent on major infrastructure projects, for example, Innopolis, business incubators, and more. And now we must simultaneously solve problems of gasifi ca-tion, of houses and roads repair, of cultural centers or sports facilities construction. All this distracts enormous resources. And if we are not going to seek additional internal reserves for development, the lag can become enormous.

During my work as the head of the re-gion I have passed two phases of my plan. The fi rst step was restoring order, the sec-

At the construction of Ulyanovsk machine tool plant with a member of DMG Mori Seiki

board Christian Tёrnes (Germany). The regional government intends to cooperate with foreign

investors no less actively…

... and to establish new economic ties with South East. Reception of the Chinese delegation.

Anastasya Stolbova photo

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august 2015

ond was to concentrate reserves and to return the region into the number of stable ones, and the third was to enter the leaders' position. If I am entrusted to govern the region for fi ve years more, at this time I want to make it admitted that Ulyanovsk region has returned to the leaders' club.

— Having worked as the head of the region for more than ten years, you have offi cially declared that you intend to go once again to the gubernatorial election in 2016. Next there is a diffi cult question. Quite a lot of foreign investors say they are going to the region because “the governor Morozov himself is the guarantor for the investment project.” It is clear that investors need stability and are scared of any changes. On the other hand, it is believed that periodic change of government is an essential condition for development ef-fectiveness. What is more important, in your opinion? What main slogan do you intend to take to the polls?

— Of course, it is a diffi cult question. But frequent change of power, is it good? Power is a complicated thing. It takes away a huge amount of eff ort and energy, to some extent a person empties. It causes many people not actually, but nominally to leave the family and totally get immersed in work, and all that carries great diffi culties for the family of a man working to self-oblivion. Some, un-fortunately, cannot withstand it, and go out of it. I want to say thanks to my family that understands me. But today I have not yet satisfi ed my ambitions. It is clear that I am not going to be in this position forever, but in the next fi ve years I would like to implement the most diffi cult stage, to return the region into the leaders' club. And then to pass the region to my successor with completely different economics, with a completely different, friendly social infrastructure, with population very much charged for optimism. A more specifi c election program will be based on the reforms that we are working out today. And, of course, there will be completely diff erent requirements to the team, I want to implement the project of

meritocracy (“power worthy”, the principle of control when management positions are occupied by the most capable people, regard-less of their social background and fi nancial prosperity — OR), and the team will be even more political. What is the point: if I look at the events from the point of view of a professional and a politician, the ministers only look at them like professionals, and sometimes what is logical from a profes-sional point of view, is a profound mistake in terms of policy. As with optimization of medical institutions, where in terms of economy and medicine it was justifi ed, but politically it was a mistake. And I want that ministers were elected to their positions, the parties that will win elections to the State Duma and will be included in the Legislative Assembly will have the right to delegate their representatives through independent commissions of selectors to ministerial positions.

— Remembering Alexey Kudrin statement at St. Petersburg economic forum that it is necessary to make early presidential elections to have carte blanche for reforms, I want to ask: are not you afraid that, beginning not totally popular reforms before the elections, you increase your risks? After all, even a part of your team, unwilling to lose something because of the reforms, can be opposed to you.

— It is a diffi cult question. Today we often recall the days of Leonid Ilyich, al-

most with nostalgia, as a time of stability. Although in reality it was a time of missed opportunities. It was then that we had to start to engage in serious reforms. The same here. I understand that it will be very diffi -cult to push all the reforms. Someone will be off ended, someone will resist. But I'm ready for it. Moreover, I believe that the majority of supporters understand that the time has come for a new wave of reforms, but it is they who will be able to work in the new government, and the party “Unit-ed Russia” will support them. In order to feel satisfi ed with their work they have no alternative. And most important, I am oriented to population which understands that the reforms will free up ineffi ciently spent funds and direct them to address important issues, allowing a person to develop in the region.

— Probably, you already have got poten-tial rivals in the upcoming election race for the post of governor, who we can even not know yet. What are the three main qualities of a worthy opponent you could call?

— I still owe to suggest them? They must love their work, the craft of the gover-nor, should be loyal to Ulyanovsk region, and they need to believe in their dream with which they will come.

— Are those your own qualities?— Yes.

— You have had 10 years as the head of the region. Can you say in one sentence: the main thing that you have achieved over the years?

— Stability and development.

— Having assessed the diversity of the problems of new economic reality, what mes-sage could you send to investors in the West, and what in the East?

— To both: I want them to believe us and be quiet for their money, they not only will not lose here, on the contrary, will earn much more than at home.

Thus mutually beneficial relationships with federal center and business are established. The visit of industry

and trade minister Denis Manturov. The launching of Sengileyevsk cement plant.

New challenges are forcing to seek imaginative

solutions and to work in a team.

Anastasya Stolbova photo

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14 Open RegionClimate control

SERGEY TITOV

The national rating of the state of in-vestment climate in Russian regions was presented at SPIEF, and according to it, the fi ve “absolute leaders in the integral indica-tor” included Tatarstan, Kaluga, Belgorod, Tambov, and Ulyanovsk regions.

Russian President Vladimir Putin paid attention to this study. Speaking at the plenary session of SPIEF, he noted that “the ratings should be a working tool to identify and disseminate the best regional practices throughout the country, a tool for improving the quality of governance at all levels of government.”

Recall, this is the fi rst full-scale national investment climate rating. A year ago the results were announced of a pilot ranking for 21 regions where the Ulyanovsk region was also in the top fi ve with Tatarstan, Kaluga and Kostroma regions, and Kras-noyarsk Territory.

Regions were divided into groups

The initiator of this constant study was Agency for strategic initiatives (ASI); the rating actually became a joint product of ASI, “Business Russia”, “Support of Russia”, Russian union of industrialists and entre-preneurs (RUIE), and Russian chamber of commerce. Representatives of all these structures entered the rating committee. Evaluation of regions was held in 4 areas: “regulatory environment” (the timing and number of procedures for business regis-tration, obtaining building permits, con-nection to the power grid); “institutions for business” (effi ciency of organizational and informational support mechanisms for businesses, the degree of administrative pressure); “infrastructure and resources” (land relations, roads and telecommunica-tions, availability of labor force), and “sup-port for small business”. Like in the pilot rating, in addition to objective statistical data the results of surveys of business com-munity were used (230 thousand people). All in all there were 45 indicators, grouped into 18 factors. Final aggregated parameters in each direction were formed in fi ve levels, where A was the highest, E the worst.

According to the 2015 rating, Tatarstan had the best position, having received in three areas the maximum A level, and B for “support of small business”. This year Kaluga region has conceded fi rst place to Tatarstan, having slightly reduced per-formance in “support of small business” (according to ASI CEO Andrei Nikitin, it does not mean that the indicators have worsened, “just entrepreneurs increased their requests”). Ulyanovsk region ranked fi fth among the leaders, having received the maximum index in “institutions for business”, the B level for “regulatory envi-

The fi rst national rating of the state of investment climate in Russian regions, presented at St. Petersburg international economic forum (SPIEF) in June this year, according to experts, was not just an indicator of regional business environment, but also a map showing where to go, doing economic development of the region, and a method of assessing activities of regional and federal authorities. The leading regions' best practices, among them Ulyanovsk region's, will be analyzed and off ered for use in other regions. At the same time research has shown that even for leaders there are a number of common problems, one of which is traditional, the roads.

Governors are off ered to go by the mapRegion heads were shown the route

TASS photo

15august 2015Climate control

ronment”, C for “infrastructure and human resources” and “support for small business”.

Moscow moved from the fourth to the second group (“regions with favorable con-ditions for business”), improving the index-es of business registration and connection to power grid. St. Petersburg passed into the same group (from the latest) by improving the same indicators, as well as improving the quality of services on setting property to the cadastral record.

Note that in last year's pilot national rating Ulyanovsk region was on the second line, not having the highest score (D) only on infrastructure and resources. Now, however, a certain failure to level C is also observed in the direction of infrastructure and in the direction of support for small and medium businesses. Indicators of the state of road network, though improved, however, the length of roads that meets the regulatory requirements is 46.89% (level C),

while in Tatarstan the fi gure of such roads is 78.21%; a notable failure is marked (level D) in the number of procedures required for cadastral record; low percentage (1.57%) in the number of graduates who have received primary or secondary vocational education and are employed in manufacturing, agri-culture, and transport (in Tatarstan even worse, 0.86%). In support of small and me-dium businesses this time the region was at the level E due to insuffi cient number

Region

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1st group: leading regions

Republic of Tatarstan I A A A B

Kaluga region I A A C A

Belgorod region I C A A B

Tambov region I B A B C

Ulyanovsk region I B A C C

2nd group: regions with comfortable business environment

Kostroma region II B A C B

Krasnodar Territory II A C B B

Rostov region II B B B B

Chuvash Republic II A C B B

Tula region II B B C C

Penza region II D A C A

Khanty-Mansi Autonomous Okrug — Yugra

II C B B A

Moscow II B B C C

Voronezh region II B B C C

Tyumen region II D A C B

Yamalo-Nenets Autonomous District

II B B C B

Chechen Republic II D A B C

Vladimir region II B B C C

Kursk region II D B B B

Leningrad region II B B B C

Kemerovo region II C A C C

Moscow region II B B D B

Tomsk region II B B D B

Republic of Mordovia II B A C D

Kirov region II B C C B

Saint-Petersburg II D B B B

Orel region II B B B E

Chelyabinsk region II B C B D

Mari El Republic II C A C D

3rd group

Yaroslavl region III C B D B

Vologda region III B C D B

Kamchatka Territory III B D D A

Murmansk region III B B C D

Lipetsk region III D B D B

Bryansk region III B B B D

Ivanovo region III C B C C

Astrakhan region III B C C C

Altai Territory III C B D C

Region

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B: B

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Karachay–Cherkess Republic

III B D B D

Republic of Bashkortostan III B D B D

Sakha (Yakutia) Republic III D C D A

Komi Republic III B C C D

Udmurt Republic III C B D B

Republic of Karelia III B C D C

Samara region III E B C B

Nizhny Novgorod region III D B D B

Sverdlovsk region III C D D A

Primorsky Territory III C C C D

Republic of Khakassia III D C C C

Saratov region III B C E C

4th group

Republic of Buryatia IV B D D C

Stavropol Territory IV C D C C

Orenburg region IV C D B D

Sakhalin region IV B B E C

Arkhangelsk region IV D C D C

Perm Territory IV D C C C

Novosibirsk region IV D D C C

Republic of Adygea IV D D B B

Pskov region IV E C B D

Smolensk region IV C D D D

Krasnoyarsk Territory IV D D C D

Omsk region IV C D E C

Volgograd region IV B E C E

Khabarovsk Territory IV D C D E

Novgorod region IV D D D C

Magadan region IV E B D B

Kurgan region IV C D C E

Kaliningrad region IV D E C C

Tver region IV D C D D

5th group

Ryazan region V E D D D

Republic of North Ossetia–Alania

V B E E D

Altai Republic V E C E C

Amur region V E E C D

Trans-Baikal Territory V E C E D

Irkutsk region V C E E E

Tyva Republic V E E C E

Agency for strategic initiatives data

National rating of the state of investment climate in RF subjects

Open Region

of workers and entrepreneurs engaged in small business, which is 16.09% of the total employed population (in Samara region also 16,09%, and 25.58% in Tatarstan). There was also a low level of businessmen's satisfac-tion with conditions for obtaining space for rent (the highest fi gure is in Samara region and Tatarstan).

Marks were set by businessAs specifi ed in documents of the study,

the methodology of indicators calculation takes into account existing experience of the best Russian and international rank-ings. Three types of data were used: statis-tics service (Rosstat), results of surveys of experts (35-40 for each region on the basis of lists of candidates submitted by “Support of Russia”, Russian chamber of commerce, Russian union of industrialists and entre-preneurs (RUIE), “Business Russia”, and ASI), and results of surveys of direct partic-ipants of the spheres studied, businessmen (230 thousand people). And the interviews of experts and entrepreneurs became the basis of study conclusions. “The main part of performance is surveys, statistics are not as much,” explained to the Open Region (OR) Maria Glukhova, head of the rating expert council, RUIE managing director on economic policy and competitiveness. In her opinion, polls give quite objective picture, the more that “in russian statistics the element of subjectivity and incomplete-ness of data is still higher.”

It is worth noting that the rating, ac-cording to its creators, characterizes not so much the investment attractiveness of a region, as the actions of regional authorities aimed at ensuring a comfortable business climate. As fi rst deputy prime minister Igor Shuvalov said, the study “allows to show the whole palette of problems, pro-vides a comprehensive understanding of

the situation in which we are, and what needs to be changed for the better.” He was confi dent that “this methodology is much fi ner and more diverse than that off ered by “Doing business.” Rating should become a mandatory tool for those regions which are lagging behind. This will give them an opportunity to move forward,” said deputy prime minister.

“The problem is not only in the roads”

Meanwhile, we must recognize that “problems palette” in the regions is quite wide and varied. Member of the expert committee, RUIE president Alexander Shokhin drew attention to “five major adverse outcomes” inherent to virtually all regions. According to him, infrastructure received low grades. “But the problem is not just the roads (one of the participants of the presentation asked: “And the fools?”) but also the quality of telecommunications service. Improving the quality of mobile communication and Internet access lays behind business requirements. Previously Telecom received high marks, but now in the ranking its average value was only 3.61 points (out of fi ve - OR),” said the RUIE president. Entrepreneurs, he said, are also unhappy about availability of labor resources, regional business support in-struments, effi ciency of regional agencies for investment promotion, low availability of real estate, and unavailability of loan fi nancing.

Mrs. Glukhova noted that “the work of special development agencies in the regions is worse than the roads, it's a disaster. And if roads condition requires intervention of the federal center, this is completely the area of responsibility of regional author-ities, in contrast to heavy infrastructure such as transport or even staff .” However, in her opinion, staff is still a big problem for all, “although the situation there is not as critical as with the roads.”

Studies have shown that a common disaster for the regions is still the factor of corruption. “Marks came out to be very sad,” said Maria Glukhova. “Even in the best regions the proportion of companies that are faced with manifestations of cor-ruption is about 10 percent, in regions with very serious marks it is more than 20 percent. That is, in these regions every fi fth, and in some even every fourth com-pany every year is faced with at least one case of corruption. This is a very alarming statistics. This is what obviously requires reaction not only from the regional author-ities, but also from the federal.”

Picture to three addressesThe expert council acknowledges that

in correcting the situation not everything depends on regional authorities. In fact, the study carries three messages: fi rst to regional authorities about the shortcom-ings and the ways to improve, second to the federal center on general problems under its purview, and third to the investors themselves on where to direct their eff orts and what to look for. As it was explained by Maria Glukhova to OR, the expert council intends not only to spread the best practices of the leaders for use in other regions, but also to send a “picture with all the bottle-necks” to regional authorities as well as to federal structures.

Alexander Shokhin believes that national rating becomes a good tool in formation of a comfortable business climate in the country, the regional authorities will cer-tainly respond to the results of research and apply the best practices, which was shown by the results of comparison with a pilot rating.

Ulyanovsk region first deputy prime minister Alexander Smekalin, who heads the region development unit, said that the government of the region analyzes the short-comings and intends to maintain its leading position in the future. “A year ago the region had a problem with building permits, it was one of the worst practices, and today we have become one of the best in this. It shows that we can infl uence the processes, and we will do it. We will only move up, we have all the chances for it,” he concluded.

Iwao Ohashi , advisor on Japan and Asia-Pacifi c region for Association of indus-trial parks, considers that ASI and Ministry of economic development “have created a very good tool for development, but now you cannot leave the results in silence. Now it is important to be able to show to foreign investors, to declare loudly what has been done and how the business climate will improve,” said Mr. Ohashi. However, the advisor noted that the decisive factor in decision-making of investors will still be a clear calculation of the future.

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Alexander Shokhin believes that the problem

is not only in roads.

17august 2015Infrastructure

TATIANA FADEEVA

The state, in response to changing conditions, in order to support Russian business and attract foreign investment, a few years ago started to implement the mechanism of industrial parks by tak-ing over the funding of engineering and transport infrastructure to the border of land plot, providing tax incentives. Almost all regions have actively begun to build industrial parks, focusing on experience of the pioneers, the Republic of Tatarstan, Kaluga and Ulyanovsk regions.

Today In Ulyanovsk region seven indus-trial sites are formed. The main are special economic zone and Zavolzhye industrial park, where such world famous compa-nies as EFES, MARS, Schaeffl er, TAKATA, Bridgestone, DMG MORI SEIKI, Nemak, Jokey Plastik, and others work today.

The format of industrial parks came out to be in demand, and now a trend appeared: foreign and Russian companies have begun to enter the market, creating private in-dustrial parks without state participation.

In Ulyanovsk region there is one example of private parks, the project of an agro-industrial park implemented by the Swiss development company DEGA Group. Initially the project was planned to be implemented as a multi-special-ty industrial park, but because of the changed foreign policy the concept had to be revised, currently it is reconverted into a specialized agro-industrial park for processing of agricultural products. A full cycle Dega Ulyanovsk agropark model contemplates implementation of full-scale agricultural production on an area of over 200 hectares, including a variety of directions (greenhouses, recycling ready agricultural products, meat processing and confectionery plants, factories for production of dairy products). After imple-mentation Agropark capacities will allow

to provide agricultural products not only for Ulyanovsk region, but also for export to neighboring regions. It is planned to provide the park territory with fully au-tonomous infrastructure. DEGA Group's partner on the project is the E.ON com-pany, which will ensure the park's own generation of electricity by building on its territory an autonomous thermal power plant. Investor, in turn, will build gas, water, and wastewater networks. At the end of project implementation about 6,000 workplaces will be created in the park.

“Processing of agricultural products in the framework of a specialized industrial park is a new direction, which we have not encountered. Earlier we created parks for non-food industries. This is a new example that we have to implement together with DEGA group,” said the head of the develop-ment corporation of the Ulyanovsk region Sergey Vasin. “The corporation will look

for investors and help to solve problems on infrastructure construction. It is more diffi cult to create such a park because we will seek investors only in one direction; however, in terms of development of the region this is a plus: in one area a cluster of agricultural processing will be actually formed, including a full cycle of production of agricultural products.”

Note, crisis conditions have prompted a number of large industrial enterprises to formation of industrial parks on their fairly large areas, vacated in the course of production optimization, the use of new technologies and transition to out-sourcing. Wherein, instead of extra cost of additional ineffi cient areas, businesses earn extra income by renting or purchas-ing industrial park plots and also fi nd new partners among residents. Thus, in June, 2015 UAZ industrial park was officially opened in Ulyanovsk region. Brownfi eld

Private capital invites residents

The new economic reality dictates its conditions. On the one hand, both small and large investors are trying to organize new businesses with minimal capital expenditure and select areas with existing infrastructure, on the other hand, large industrial enterprises, optimizing business processes, have started creating their industrial parks. All this allows to adapt to the crisis and to consider it as an opportunity to develop, to see not only disadvantages but also advantages. And also allows them and their partner companies to earn.

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In Simbirsk industrial park potential residents can already look at ready premises.

18 Open Region

type park is formed on free areas of the automobile plant. In the industrial area of 56 hectares 23 formed real estate objects are located on total area of over 377,000 square meters. Today Sollers-Isuzu company for production of ISUZU commercial trucks implements its project in the park. In the near future another resident, BM Auto, will begin its work.

Another two Russian companies, Capital holding and Inprom Estate, implement projects of private industrial parks in the region. They form platforms of built-to-lease type: off er space for rent to businesses, where you can just come and rent a ready-made area for placement of production facilities or offi ces. Zavolzhye technopark (Capital HC) will be built in the left bank part of Ulyanovsk, it will have a total area of production and storage facilities of 20,000 m2. All necessary infrastructure will be brought to the site. Currently the company is engaged in designing, for the summer months it is planned to carry out preparatory work at the site and then to be-gin construction. Simbirsk industrial park of Inprom Estate company will be located at the base of one of the buildings of the Ulyanovsk city former radio lamp plant. At the moment the investor completes reconstruction and repair of the building. The area of production, warehouse, and offi ce space will be more than 11,000 m2. These sites are created not so much for external, but for domestic investors, for Ulyanovsk small and medium business. Local entrepreneurs can come here and rent good quality premises. In Simbirsk park it is already possible to come and see almost

fi nished premises, in Zavolzhye industrial park you can “do a project for yourself” at the design stage.

The state, in response to new trends in development of industrial parks, forms support measures for the subjects of the Russian Federation, parks management companies and investors who implement their projects in them. Since July, 2015 the Federal law “On Industrial Policy in the Russian Federation” came into force. It legislatively strengthens the status of the industrial park. Experts point out that the new law is intended to have a stimulating effect on development of the branch of industrial parks.

Last year the state, represented by RF Ministry of industry and trade, introduced an additional measure of support, subsidiz-ing interest rates on loans for infrastruc-ture in industrial parks. This year the Min-

istry held a competition for the “Industrial Parks” subprogram in the frame of state program “The development of industry and increase of its competitiveness” for the right to provide subsidies to RF subjects for the costs incurred in creating infra-structure of industrial parks. Request from the region, prepared by Ulyanovsk region development corporation, was among the 28 requests which were approved by the Ministry of industry.

Sergey Vasin believes that today a strong support of industrial parks on the federal level is required not only for state parks, but also for private ones, “because private investors put their money in construction of infrastructure and are forced to pay back the invested costs”, while, for example, special economic zones, being federal territories, receive land free of charge and build infra-structure through the budget.

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UAZ relieves part of its areas for the industrial park, which is now able to accommodate UAZ component

suppliers and other companies. The governor of the region Sergey Morozov (left) is satisfied that there will be

new jobs, and UAZ CEO Vadim Shvetsov with the fact that the plant is now exempt from the cost of extra space,

receiving new partners in exchange.

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ZAVOLZHYE INDUSTRIAL PARK

One of Russia's first certified industrial parks.

The site type: greenfield.

Provided with all necessary engineering and transport infra-

structure.

Residents: EFES, MARS, TAKATA, nanocenter, Bridgestone, Nemak,

Schaeffler, DMG MORI SEIKI, Jokey Plastik, Legrand, CCA Engineering,

Hempel, Martur, Narodny Plastic, Molvest.

Support for residents is provided by the region industrial parks

management company (subsidiary of Ulyanovsk region development

corporation).

ULYANOVSK SPECIAL ECONOMIC PORT ZONE

Federal site for placement of industrial production with a special

status: tax breaks for 15 years, provided in the region for invest-

ment projects, as well as customs privileges, stipulated by federal

legislation.

The site type: greenfield.

Residents: AAR Rus, FL Technics Ulyanovsk, InterAvionika,

PROMTEH-Ulyanovsk, Volga-Dnepr Technics Ulyanovsk.

DEGA ULYANOVSK AGRO-INDUSTRIAL PARK

The site type: greenfield.

Full cycle park for processing agricultural products is created in

the region by DEGA Group Swiss company. The main directions of

agricultural production, presumed by the park concept: greenhouses,

recycling of finished agricultural products, meat processing and

confectionery plants, dairy products factory.

NOVOULYANOVSK INDUSTRIAL PARK

The site type: greenfield.

Located in 10 km from the city of Ulyanovsk. In the immediate

vicinity of the town of Novoulyanovsk.

Distance to:

● federal highway: 1 km.

● airport: 15 km.

● cargo river port: 3 km.

Residents:

● Globus company: a logistics complex.

● Technonikol corporation: production of extruded polystyrene

foam.

● Technonikol corporation: factory for production of glass wool.

NOVOSPASSKOE INDUSTRIAL PARK

The site type: greenfield.

Ulyanovsk region, Novospasskoye settlement, 840 to 847 km

from M5 Ural highway.

Novospassky district minerals:

deposits of oil, oil shale, phosphorite.

Residents: Starately company: production of dry construction

mixtures.

DAAZ INDUSTRIAL PARK

(Dimitrovgrad)

The site type: brownfield.

Industrial buildings with all necessary infrastructure, storage and

office space, favorable logistical status of the area.

UAZ INDUSTRIAL PARK

(Ulyanovsk)

The site type: brownfield.

Industrial buildings with all necessary infrastructure, storage and

office space, favorable logistical status of the area.

ZAVOLZHYE TECHNOPARK

The site type: built-to-suit.

Russian Capital HC private industrial park with production, storage,

administrative, and office space for lease.

SIMBIRSK INDUSTRIAL PARK

The site type: built-to-suit.

Russian Inprom Estate company private industrial park with

production, storage, and office space for lease. The project is imple-

mented on basis of one of the buildings of former radio tube plant

in Ulyanovsk city.

INZA INDUSTRIAL PARK

The site type: complex.

Includes three industrial sites for placement of production facilities

in Inza district of Ulyanovsk region. Distance to the regional center

(Ulyanovsk): 164 km.

DIMITROVGRAD INDUSTRIAL PARK

The site type: complex.

For placement of industrial facilities. Located in the Research insti-

tute of atomic reactors industrial area within the city of Dimitrovgrad.

Distance to the regional center (Ulyanovsk): 90 km.

KRASNY GULYAI INDUSTRIAL PARK

The site type: complex.

Located in Sengileevsky district of Ulyanovsk region, Krasny Gulyai

and Silicatny settlements. Distance to the federal highway: 30 km.

Specialization: building materials, glass industry.

Residents: Tashlinsky mining and processing plant, Silikatchik,

Quartz, Henkel Bautechnik, Unis company group, Simbirsky kamen,

Finance+, Sedrus.

Investors, realizing particularly significant projects in Ulyanovsk

region territory, are provided with 15-year tax holiday, allowing to

save from 30% to 40% of all costs.

DEVELOPMENT TERRITORIES

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VIKTORIYA CHERNYSHEVA

Successful timeAccording to JSC Ulyanovsk SEPZ

(SEPZ managing company) director De-nis Baryshnikov, the past six months in the development of the port area clearly manifested three major trends. The fi rst concerns the motives of the arrival of in-vestors in the port zone. Many large foreign companies, which generally use western funding, loans from banks, due to fi nancial sanctions against Russia suspended their projects, moved to the stage of waiting. But mid-sized companies came to life, both foreign and domestic, those who rely on their own financial resources. “We see the demand, we receive from them a large number of applications for rendering business cases, provided that they imple-ment them in SEPZ. In addition to this, suspension of a number of Western projects opened a large number of market niches for the Asia-Pacifi c region countries which do not accept sanctions or treat them much softer,” explains Mr. Baryshnikov.

The second trend is the economic one. Ruble devaluation has made foreign in-vestment in Russia much more eff ective than six months ago. The cost of construc-tion, staff salaries practically have not changed, actually reducing the dollar value. Companies of the “second wave” can take advantage of these opportunities, those of medium-sized businesses which are less dependent on political conjuncture and can use their own resources.

The third is “active state policy in the fi eld of import substitution, prompting a number of Russian projects to a quick start. Earlier they did not have enough oppor-tunities for realization, they were forced to compete with big transcontinental companies. Now Western countries have artifi cially eliminated this competition themselves,” says CEO. According to him, now SEPZ leadership is negotiating with many companies from the public sector, involved in import substitution program; among the main areas are aviation indus-try, power generation, production of du-al-use goods, composite industry. Already

existing SEPZ residents plan to be entered into the program of import substitution, such as PROMTEH-Ulyanovsk which makes cable network for the entire product line of aircraft produced in Russia.

Other residents of the port zone see more pros than cons in the new economic reality. Thus, Mikhail Vinogradov, head of the AAR Rus company (MRO and logistics, the company's owner is Muharbek Aushev) who has received, despite the crisis, the

confirmation of its credit facility from Vnesheconombank to the extent necessary, considers that “the crisis can be best time for the investment phase of the project, so that by the time of economic growth resumption we could enter the market with a new company.” He also believes that the direction which resident origi-nally planned to deal with, maintenance and repair (MRO) of domestic and foreign aircraft, in the situation of cheapened ruble

SEPZ expands the gatesUlyanovsk special economic port zone (SEPZ) management plans to complete creation of infrastructure for the fi rst launch complex this autumn, after which residents will be able to accelerate SEPZ project implementation. However, by the time of “gate opening” a new factor has added that directly aff ects zone development, the new economic reality, which led to the need for SEPZ course correction.

Special conditions

Ulyanovsk SEPZ expands the types of possible activities, but the aviation direction remains one of the major

ones. On the zone layout prospects of its development are demonstrated to UAC head Yuri Slyusar.

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has best prospects, because “about half the cost of maintenance and repair is the cost of staff , which became much lower in dollar equivalent. This opens the opportunity for Russian providers to return most of the work from abroad to Russia, even despite the decreasing volume of traffi c and airlines problems,” said Mikhail Vinogradov.

Given the new perspectives on the back-ground of the crisis, the AAR Rus has ad-justed their course and came to exploring the possibility of establishing in SEPZ a MRO center not only for aircraft but also for aircraft engines, both Russian and foreign. This trend, according to the head of the company, may be a separate project in SEPZ.

“Gentleman's set”It is worth noting that today SEPZ

changes its strategy: fi rst it was intended solely for enterprises of aviation industry. Now changes in the federal legislation have removed former requirements that allowed residents to carry out activities in the fi elds of aviation and logistics.

“We have fully worked out the aviation industry. We already know who will come to us from the aviation industry and can come in the next fi ve years. Aircraft construction projects are long-term, taking much time, predictable, additional work to attract in-vestors is not required,” says Denis Barysh-nikov. He said that “a number of aircraft types just have not got off the paper, they are under experimental de velopment, but over time these businesses will get mature and come here themselves, they will need the set up infrastructure. Among them are a large number of cases of MS-21 project,” as well as the Rostec project (together with Austrian Diamond Aircraft Industries) for construction of multi-functional small aircraft made of composite materials with diesel engines and 9-19 places (Aerocom-posite plant location in Ulyanovsk is also in favor of in this project ).

We must admit that list of SEPZ resi-dents has changed today. “Having become a victim of circumstances”, a project to build Vityaz aircraft factory for production of Canadian aircraft DHC-6 Twin Otter Series 400 was closed. However, Mr. Baryshnikov says that in the segment of small aircraft a program of import substitution is being actively implemented, and therefore soon-er or later a domestic analog will appear, which, with high probability, will come to the port zone. “The maximum number of competencies required for production of these aircraft is in our territory. It would be completely unreasonable and irrational to bypass Ulyanovsk: such business combi-nations to implement new air projects in Russia are virtually present nowhere else,” says the head of Ulyanovsk SEPZ.

Meanwhile, after removal of restrictions on the business profi le the circle of zone residents has expanded, zone has got a unique advantage over other federal SEZs: only in Ulyanovsk residents are now able to conduct operations without restrictions in logistics, trade, production in any area. “Today our “gentleman's set” is very broad. We can register the entire spectrum of businesses, from the lightest: trade, sim-ple assembly operations, to more complex and profound technological cycles,” Denis Baryshnikov explains.

Ulyanovsk region development corpo-ration" (URDC, engaged in attracting in-vestment, the minority shareholder is SEPZ Ulyanovsk) specifi es that they are working today “with a variety of manufacturing companies, especially if they are related to import substitution or plan to work not only in Russia but also in the foreign markets. Today it became possible to attract investors who did not work in Russia, but now, after ruble devaluation and sanctions, are interested in coming here. We try to calculate and find them. In particular, these are companies from China, South

Korea, who have poor knowledge of the Russian market, our legislative realities, and specifi cs of doing business here, and therefore are looking for partners,” said the URDC head Sergey Vasin.

It is interesting to note that a new trend has appeared in SEPZ development: the zone began to grow with not so much new residents, but with new projects of residents. PROMTEH-Ulyanovsk company, once in the import substitution program, now expands scope of activities. Same with AAR Rus that in addition to MRO plans to get engaged in logistics. In this area the company is focused on Chinese partners and already intends to sign a number of agreements before the end of the summer. One of the priorities is the development of Silk Road economic area, in connection with which it is already expected to expand the SEPZ warehouse, construction of a railway terminal with container area, establishment of a regular container train from the Chinese border to the port area. “Customs preferences allow us to offer Chinese companies a competitive integrated logistics solution for delivery of goods from producers to end-customers in the Volga Federal Dis-trict,” said Mr. Vinogradov. According to him, AAR Rus also hopes for implementa-tion of long-standing plans of the region government and Volga-Dnepr SC to create an aviation hub on the basis of SEPZ: “It is high time to stop carrying everything through Moscow. Only in a radius of 500 kilometers from SEPZ over 30 million people live, and decentralization of cargo fl ows is long overdue.” The company is willing to join the project by providing their logistics services, warehousing and rail infrastructure, as well as a hangar for maintenance and repair of aircraft.”

Cooperation “magnet”Despite the empowerment, SEPZ

residents are selected by following the main principle: the priority are sectors with a competitive advantage for plac-ing exactly in Ulyanovsk region. This, according to Denis Baryshnikov, “allows us to build effective interaction cluster and co operative ties, especially because experience of Ulyanovsk Zavolzhye in-dustrial park residents shows that in addition to various benefits one of im-portant factors for investors' entering are the markets. Cooperative ties with

Now SEPZ is waiting for new residents, this time

from China. A memorandum has been signed

with the Chinese association for development of

enterprises abroad (China overseas development

association Russian center) on cooperation in the

field of investment. “We are confident that in future

we will have many joint projects,” said Ulyanovsk

SEPZ CEO Denis Baryshnikov.

Ulyanovsk SEPZ photo

23august 2015

customers or suppliers must be viewed. Rightly chosen combination of business-es in the territory forms intangible assets: we become appealing simply because we have placed right businesses in our territory. And scale effect within indus-tries attracts new companies to the same segment,” said the SEPZ head. According to him, such SEPZ strategy will not give rapid effect, but it will pay dividends in the future when correct cooperation is formed, which will become a magnet for additional businesses.

Already there are examples of such at-traction. AAR Rus company is ready to work with SEPZ resident Volga-Dnepr Technic Ulyanovsk to carry out modernization and maintenance of An-124-100 aircraft. After completion of the hangar complex the company also intends to participate in production programs for new and prom-ising SSJ and MS-21 aircraft in terms of customization.

At the same time collaboration is planned with Spektr-Avia painting com-pany and with another resident, InterAvi-onika company, specializing in avionics systems. In addition, for businesses of engineering and machine-building cluster AAR Rus is ready to off er customs clearance and consolidation services of imported pro-duction. As explained by Mr. Vinogradov, “unlike traditional customs procedures with temporary storage, free customs zone procedure will allow import in less time, with less risk and cost.”

SEPZ Ulyanovsk management also plans to build a hangar complex for maintenance and repair of aircraft, it will be a little hangar for single-aisle aircraft for lease to residents. It is noted in SEPZ that “so investment risks are reduced for residents, easing their entry into the project.”

A niche is foundThe following year at the SEPZ territory

an industrial park will be put into operation with production and storage facilities, of 10 thousand square meters total area. By 60 percent it has already been booked by potential investors.

The region fi rst deputy prime minister Alexander Smekalin notes that “experi-ence has shown that this infrastructure is very important,” if earlier greenfield industrial parks were created (networks and area are ready, come and build), in the new economic reality medium busi-nesses are actively coming to Russia. And it is most important for them to go to the market quickly, to fi x, to understand the niche, and only after that to decide on investments, on their own construction. Thus, the industrial park in SEPZ is a kind of business incubator for medium-sized companies,” says Mr. Smekalin. According to him, this is a new step in development of infrastructure in the region in response to a serious nowadays inquiry. Besides this, the regional authorities have an idea of creating in SEPZ a various equipment maintenance and repair center as well as a showroom, including helicopters.

"We have found our way and work in niches where we have our own unique competitive advantage, which other SEZs have not got. I don't think that it's right for federal zones to compete among them-selves, dumping, “getting undressed” be-fore the investor. In this case investors start to locate not where it is naturally advantageous, but where the benefi ts are artifi cially created. Our natural advantages are location, proximity to airport, system of aircraft, autocomponents, and composites cooperation ties that exist only here and nowhere else. The practice of effective

cooperation between the zones already exists: for example, PROMTEH-Ulyanovsk has a design offi ce in Dubna, and its mass production is here. And there will be more such examples,” sums up Mr. Baryshnikov.

The head of Aviaport analytical services agency Oleg Panteleyev is not sure that Rostec project to assemble small aircraft will receive a signifi cant development in the next few years, because “now it is not the best time to rely on budgetary support, and Rostec has not got suffi cient amount of own funds to fully invest the project.” According to the analyst, “SEPZ aviation potential was shaken a few due to the fact that the Canadian projects (Vityaz and Bom-bardier) were closed. Besides the obvious political factor, no less obvious currency factor had its infl uence: there is no doubt that under the current ruble exchange rate investors could not fi nd customers in Rus-sia,” said Mr. Panteleyev. At the same time he is confi dent that “we cannot consider that the main, aviation component of the port zone is practically closed: international cooperation will still, to a greater or lesser degree, be restored, and prerequisites for development of international projects will resume, and thus there again will be a clear need for business on SEPZ territory. In ad-dition, interest in creation of MRO centers will sooner or later rise since the park of foreign aircraft operating in Russia was not radically reduced, and in conditions when the ruble fell signifi cantly these projects only increased their appeal. Russia has a window of opportunities to increase the vol-ume of repair operations and, theoretically, to attract foreign carriers,” said the expert.

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AAR Rus completes construction of a warehouse

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SERGEY TITOV

Ulyanovsk aviation cluster was one of the fi rst that were under the infl uence of the crisis, sanctions, and deterioration of relations between Russia and Ukraine. Events in Ukraine led to the fact that implementation of the Russian-Ukrainian project to resume An-124 Ruslan production has become virtually impossible. Due to the Ukrainian ban on dual-use items exports to Russia (including engines) the modernization program of AN-124 aircraft working in Russia has stalled. Canadian Bombardier has stopped its joint project with Rostec to create a joint venture on Q400 aircraft assem-bly in Ulyanovsk, Vityaz aviation plant company has suspended implementation of its project for production of Canadian aircraft DHC-6 Twin Otter, because of the sanctions the American AAR Corporation has abandoned their intentions (AAR Rus company owned by Muharbek Aushev remains SEPZ resident).

Ulyanovsk aviation cluster as a form of interaction between geographically adjacent interconnected enterprises began to take its shape in 2009, today it includes 69 enterprises and organizations. The cluster core is Ulyanovsk Avi-astar-SP aircraft plant, the only Russian special economic port zone (SEPZ) on the basis of Ulyanovsk-Vostochny airport becomes the second most important area of interaction; among the cluster significant participants there are also

Aerocomposite plant, Volga- Dnepr airline, Ulyanovsk instrument design bureau, branches of JSC Tupolev, National institute of aviation technologies (NIAT) and all-Russia scientific institute of aviation materials (VIAM), Ulyanovsk high school of civil aviation (UVAU GA). One of the aviation cluster goals is attracting foreign investors for introduction of modern aviation technologies.

However, Aviastar-SP itself, unlike other engineering compa-nies, has not felt any serious consequences of the crisis. According to the company CEO Sergey Dementiev, it is due to the fact that the plant has a reliable state defense order for production of IL-76MD-90A (39 aircraft of various modifi cations of this type are to be constructed until 2018, it is estimated that by 2025 the plant can produce more than 100 aircraft of this type). Moreover, said CEO, “the crisis had a positive impact on Aviastar personnel problem, and now foreigners are coming to the plant. This is about the aviation personnel arriving from Ukraine, and many of them are highly qualifi ed professionals who have gained great experience at the Ukrainian aircraft plants.”

It is worth noting that the crisis has pushed Aviastar to more rapid solution of the problem of minor works transmission to outsource, while earlier the aircraft plant was reluctant for that. But the need to save money and to improve production effi ciency has forced the company to start the transfer of some operations

The crisis did not lead to a deterioration of the Ulyanovsk Aviastar-SP aircraft plant and the Ulyanovsk aviation cluster positions. In the end they have even got new impetus to their development, including the direction of import substitution. Meanwhile, experts believe that in civil production the aviation industry should not drop out from cooperative chains; on the contrary, the formed ruble exchange rate opens a window of opportunities for Russian and foreign companies.

Rise above the fallUlyanovsk aviation cluster has felt positive impact of the crisis

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The state defense order for IL-76MD-90A production became the basis for stability of the aviation cluster.

25august 2015Avia

to third-party companies, some of which will be located in the immediate vicinity, on SEPZ territory or in Zavolzhsky industrial park. In addition, as it was explained to the Open Region by the CEO of the UAC-Transport Aircraft business unit Vildan Zinnurov, “it is time for everybody to think whether in terms of the budget defi cit it is worth buying en masse new expensive imported machine tool and other equipment, when non-core work can be given to outsourcing. This should be done to focus on reducing assembly cycle of aircraft, so that it would be not two years but 14 months. Bottlenecks are many, and they should be removed, and only this way it can be done quickly. And the crisis is forcing to make it more soon,” said Mr. Zinnurov.

According to Sergey Dementiev, Aviastar-SP has already begun outsourcing large volumes of work. Thus, PROMTEH-Ulyanovsk (SEPZ resident) has started to produce sets of all necessary cabling for aircraft manufactured in Ulyanovsk. “And, in addition, the plant makes cable networks for the entire product line of aircraft produced in Russia, both military and civilian subjects,” said the Ulyanovsk SEPZ CEO Denis Baryshnikov. Also, according to him, an aircraft customization center is being formed at the SEPZ terri-tory (interior installation, painting, fi nishing). Sergey Dementiev said that currently Aviastar also intended to outsource activities on machining. It is expected that Ulyanovsk machine tool plant (100% German-Japanese DMG Mori Seiki concern), located in Zavolzhsky industrial park, will take over part of the work.

Sergey Dementiev recognized that there was only one problem yet, implementation of AN-124 Ruslan modernization program. It has been suspended until the problem of aircraft engines D18-T repair in Russia is resolved, “but the problem is being solved.” And prospects for Tu-204SM production, he said, remain unclear yet.

Vildan Zinnurov confi rmed that “the crisis has not yet had any signifi cant eff ect on Ulyanovsk aviacluster and specifi cally on Aviastar-SP, all parameters of the state order were retained, and although there were additional diffi culties associated with Ukraine, all other projects go according to the plan.” The Tu-204SM project, according to Mr. Zinnurov, “was not buried, and to maintain competence the production of aircraft in diff erent versions for special customers (management department of the Russian president, Federal space agency, and others) is going on. The sanctions case seems to have aff ected Tu-204SM positively, commercial customers have also developed an interest, and there are inquiries from potential buyers,” said the UAC-TA head, noting that it was premature to disclose the specifi c interested parties.

Plans are retained to deploy in the long term the assembly of Russian-Indian MTA and the line of Ermak project heavy transport on Aviastar-SP (IL-114 production project is frozen yet). Moreover, the project of establishment the Russian transport aviation Center in Ulyanovsk on the basis of aviacluster remains in force. But Mr. Zinnurov does not deny that the basis of aviacluster development and Aviastar-SP's effi ciency is public investment and fi rm state order. However, part of the investment can pay off : UAC, according to Vildan Zinnurov, intends to focus eff orts on development of Russian aircraft sales, especially since “the interest in Ulyanovsk Il-76MD-90A by all countries that have previously used the Tashkent IL-76 is already enormous” (this is primarily India and China). In addition, the head of UAC-TA believes that in outsourcing and in supply of components the door remains open for foreign investors also “if they are willing to provide a very deep level of localization of their production in Russia, particularly in Ulyanovsk, and if they are able to prove that their products will meet our requirements.”

Meanwhile, the head of Aviaport analytical services agency Oleg Panteleyev, who confi rms that today Aviastar-SP's positions have even grown stronger, said that “wherein the main risk for Ulyanovsk aviacluster and for Aviastar in particular is that most of the eggs are in one basket in the form of state defense order, it makes sense for Ulyanovsk to do a detailed calculation without

politics, continuing to work both on attracting foreign investors in terms of localization of their business, and on entry into the supply chain of aircraft components abroad. For example, there are no insurmountable obstacles for Aviastar aggregate produc-tion to become a supplier to some of the western producers,” said Oleg Panteleyev. Note that the current ruble exchange rate makes these supplies even more profi table.

According to the expert, the ruble fall has not only negative impact on aviation, but also positive: “Aircraft, including Tu-204SM, have got very attractive price. However, lack of their operation ex-perience does not give foreign companies grounds to believe that this is a good buy, and for reducing risk they still prefer Boeing and Airbus. So it will not work to get a positive eff ect at once from exchange rate diff erences. It is because of the ruble exchange rate that foreign design aircraft assembly in Russia temporarily became irrelevant” (including Ulyanovsk projects Bombardier Q400 and DHC-6 Twin Otter), because their dollar nominated price would have become insurmountable obstacle for the demand. But he is sure that MRO projects, on the contrary, become more attractive since the bulk of their cost price is ruble expenses, and for foreign investors “the window of these opportunities is still open.”

“From the point of view of common sense and just of money today it can be extremely profi table for the Europeans to cooper-ate with Russia in the fi eld of aircraft, but the political risk is yet high,” said the expert.

Vildan Zinnurov notes that because of relationship with Ukraine further

difficulties have arisen with AN-124 aircraft, at the same time “the sanctions

case has influenced positively” Tu-204SM project.

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26 Open RegionEfforts & results

FADEEVA TATIANA

Experts also note positive dynamics in development. Ulyanovsk region entered the top fi ve leading regions on the state of investment climate in RF subjects. The results of annual ranking of national in-vestment climate in the Russian Federation were announced at St. Petersburg interna-tional economic forum (see page 14).

Region industrial parks development has also received recognition of experts. Within the framework of the VI interna-tional investment forum “Industrial proj-ects in Russia – 2015” Ulyanovsk governor Sergey Morozov has received the award “For special contribution to development of the sector of industrial parks”.

Today in Zavolzhye, one of the fi rst cer-tifi ed industrial parks in Russia, situated in Ulyanovsk region, more than 10 projects were implemented, more than 250 hectares of land were fi lled, and yet more than 300 hectares of vacant land are awaiting in-vestors. In 2014-15 the German Schaeffl er company (automotive components, the investments volume of 2 billion rubles) and the French Legrand (electrical equipment, investments of 500 million rubles) built their production, a new workshop was opened by American MARS (440 million rubles of investments). The EFES company (Turkey, investment more than 7.2 billion rubles), TAKATA (Japan, 1 billion rubles), two MARS factories (more than 6 billion rubles), and Nanotechnology center (1.3 billion rubles) have been actively working for several years.

At present the Japanese Bridgestone company (12,5 billion rubles) is actively building a tire plant, the Danish Hempel (paint production, 800 million rubles), the Japanese-German DMG MORI SEIKI (machine tool plant, more than 3 bllion rubles), the Mexican Nemak (automotive components, the investment of 2 billion rubles) and German Jokey Plastik (plas-tic packaging, 900 million rubles) are completing construction work. German

CCA Engineering intends to build a train-ing center and a hotel, a Turkish Martur company is to organize production of automotive components.

According to Ulyanovsk region devel-opment corporation (URDC, engaged in

attracting investments, 100% owned by the region), new types of industrial sites are also formed in the region. In addition to parks such as greenfield there are brownfield grounds (based on existing industrial buildings) and built-to-lease

Eff orts, undertaken by the regional government, to reduce the impact of unstable global economy situation on the Ulyanovsk region, have brought their results. The region has again shown an increase in investment attraction. The volume of investments in fi xed assets in 2014 amounted to 82.2 billion rubles (against 76.2 billion rubles in 2013).

Partnership acquires prospectsResults of investment activity in the region have shown positive dynamics

Ulyanovsk region development corporation CEO Sergey Vasin admits that “it has become more difficult to

work: european and american companies are cautiously looking at Russia.”

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(rented buildings). Such projects are ac-tively implemented by private compa-nies. For example, at present the Russian company Capital HC is building an indus-trial complex for lease, another company, Inprom Estate, ends to create a complex with ready industrial, warehouse, and office space in the city of Ulyanovsk. The Swiss DEGA Group company is engaged in creation of a private full cycle agro-in-dustrial park.

The foreign policy situation certainly has an impact on strategy and mecha-nisms of work with investors. The Uly-anovsk region government and devel-opment corporation are looking for new forms of work, develop new approaches and proposals for Russian and foreign companies. This is due to the fact that, as recognized by corporation CEO Sergey Vasin, “work has become more difficult: European and American companies are cautiously looking at Russia. If these companies that had already come here were convinced of favorable investment climate in Russia as a whole and in Ulyanovsk region in particular, and con-tinue to invest, then the new, who are only planning to enter our country, are very careful, they are slower at taking de-cisions and slow down projects. But none of investors who already implemented projects in our region gave up their im-plementation and stopped construction,” says Sergey Vasin.

In this situation the region expands the horizons of cooperation and forging partnerships with Eastern countries, such as China, South Korea, Turkey, the United Arab Emirates. “Not leaving the work in the western direction, we are actively looking for investors in Asia. But since we have just started to work in this area, the fi rst results are expected not earlier than next year,” says Sergey Vasin. An-other new focus of URDC work in new economic environment became develop-ment of ready-made business solutions for potential investors. "We are working on options for business development in terms of favorable logistical position of Ulyanovsk region in the center of the Vol-ga Federal District, the European part of Russia, from the point of view of shipping by sea and river Volga and availability of

potential markets. Also there are new business opportunities related to ruble depreciation and the government's policy on import substitution. We are forming and sending specifi c investment proposals to companies,” explains URDC CEO.

According to him, the main industry, in which attracting investors is carried out, are sectors defi ned by development strat-egy of the region: aviation and automotive industries, food processing, construction materials, and others. In the current eco-nomic situation less companies, involved in production of automotive components, are in negotiation stage due to the fall in demand in the automotive market; the interest has shifted to segments of food industry and agriculture, building mate-rials and machine tool industry.

New promising direction of corpora-tion work this year has been development of public-private partnership. In 2015 a center for development of public-private partnerships (PPP), based on the corpo-ration, began operating, which will deal with “packaging” and accompanying projects. “The state has the need to cre-ate social objects in the fields of culture, medicine, transport, sport, housing and communal services, while private part-ners have their own or credit means, they are ready to invest in construction of new or reconstruction of old build-ings with a view to continue providing quality services. Our task is to escort similar transactions qualitatively, so that they benefit both the Ulyanovsk region population in the form of new hospitals, clinics, kindergartens, and the

investor,” emphasizes Sergey Vasin. The priorities of center for PPP development will be: improving legal and regulatory framework in the region in the field of PPP; concept development of PPP projects; development of cooperation with leading Russian institutions of public-private partnerships, introduction of methodical recommendations and best practices of other regions; coordination of activities of ministries and local authorities in the region in development of PPP sphere. Mechanisms for public-private partner-ships have been applied in Ulyanovsk region since 2006. At the end of 2014 the region ranked 12th on the level of PPP, showing the highest growth among all subjects of the Russian Federation, hav-ing risen at once by 60 positions. The success has been made possible thanks to a number of steps: adoption of the regional law on PPP in 2014, conducting training seminars for representatives of authorities and municipalities, as well as implementation of large capital - in-tensive projects over the past few years.

Most recently governor Sergey Moro-zov has given instructions for creation of a new mechanism for development of industries which will be implemented in Ulyanovsk region in the next two years, it will be the formation of so-called “project offi ces” in the industries. In each industry a “project offi ce” will be created on the basis of the development corporation (out-side of the government, organizationally acting as a commercial organization), which will be purposefully engaged in development of its area.

Direct investments by years, bln rubles

Ratings

2014, 2015

28 Open RegionNew technologies

VASILY PETROV

At the meeting of Ulyanovsk regional government in mid-June governor Sergey Morozov announced the need to create a new program of region industrialization. According to Mr. Morozov, it is necessary “to create a powerful scientifi c and educa-tional potential to make a technological breakthrough.” According to him, the pro-gram should “fi nish building close relation-ship of technological business with funda-mental and applied science,” introduce new educational programs that would motivate young people to study engineering special-ties and to scientifi c activities, and correct investment legislation. In close connection with the program of new industrialization should be a program of state government modernization, believes the governor.

Note, the task of re-equipment of en-terprises and technological breakthrough was put by regional authorities long ago, but there were no noticeable results (at the end of 2014 high-tech economic activities occupied slightly more than 1.5 per cent in the total turnover of regional small businesses). Although on July, 2 at Moscow VI International forum “Investment proj-ects of Russia – 2015” achievements of the Ulyanovsk region in development of indus-trial parks were highlighted (at Zavolzhye industrial park 19 investment projects were implemented with total investment of over 44 billion rubles), the original idea that development of the park will boost the number of small innovative enterprises in the region is not yet implemented, active cooperation of foreign investors with local businesses and scientifi c community in the fi eld of modern technologies has not been established (the exception was the Ulyanovsk nanocenter). As the Ulyanovsk region development corporation (URDC) CEO Sergey Vasin noted, “today local busi-nesses interact with foreign investors almost exclusively in provision of ser-vices: transportation, utilities, storage ...” Scientifi c developments of Ulyanovsk sci-entists, as a rule, remain unclaimed at the enterprises. The fact that companies, solving immediate problems, do not hurry to invest in research and development, was stated in June this year at St. Petersburg economic forum.

Apparently, this situation in time of sanctions makes regional authorities launch a new program of industrialization.

Recall, already in 2011 “Support of Rus-sia” public organization of entrepreneurs for the fi rst time announced this need, being concerned with apparent degradation of production sector in Russia. In the road map of new industrialization proposed by “Support of Russia” an action plan was off ered, including transition of state ad-ministration to the design, target-orien-ted principle, improvement of business climate, import substitution, removing any barriers with EU (“creation of a single economic space of Large Eurasia in future”), “stimulating foreign direct investment, necessary to attract fi nancial resources and latest technologies in order to adapt them

to Russian economy,” development of own industrial base on the basis of technologies of the future.

There are yet no details of Ulyanovsk re-industrialization plan. The regional agency of advanced initiatives, technologies and projects (under registration) was intended to develop this program. According to the governor adviser Sergey Galant, head of the created structure, the agency will act as a project offi ce of the program, similar to the federal program, for which Agen-cy for strategic initiatives (ASI) and the structures of RBC have become the project offi ces. Mr. Gallant notes that the program fi rst stage for the next fi ve years should be import substitution; reindustrialization “as introduction of new world technology” is considered as a medium-term objective

Ulyanovsk government announced that it was preparing a program of the region new industrialization “to make a technological breakthrough”. It is expected that the program will be the basis for changing the system of regional management. However, experts believe that it requires modernization of management, which may be the most diffi cult task.

The key to the right transmissionThe region is looking for ways of technological breakthrough

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for 5-15 years. Long-term goal is “to ensure technological breakthroughs” by working with the markets that will arise until 2035 (horizons are so far because of the need to work proactively, for it is “diffi cult to enter the market today”), said Sergey Galant. ASI is conducting the work to identify promising markets. By the way, ASI is considering Ulyanovsk region as “one of the most promising regions” in terms of technology development. “The theme is very interesting, if it works, it will be one of the best practices,” says the head of ASI Ulyanovsk branch Yuri Korotin.

According to Strategy Partners Group analysts, the prospects of Ulyanovsk re-gion for technological breakthrough are backed by a number of factors that rein-force each other: developed production and ad ministrative infrastructure, presence of a decent human capital and existing industrial ecosystem, as well as unique geographical location. Strategy Partners Group partner Sergey Lozinsky believes that Ulyanovsk region gets a great chance to leap in development.

However, according to experts, yet there is nothing specifi c in plans of technologi-cal breakthrough implementation. Finam Management leading expert Dmitry Ba-ranov notes that it is yet unclear in what ways it is planned to achieve the goal, and what resources would be required: “So far all this is at the level of though correct, but yet a declaration of intent, although such a declaration can already be considered a success.”

Meanwhile, co-chairman of the council on national competitiveness, World Bank expert Andrey Shestopalov considers that program implementation requires reor-ganization of administrative apparatus in the fi rst place. “The control system is archaic and does not account for the rate of change,” states the interlocutor, adding that innovation is fi rst needed not in industry, but exactly in the fi eld of management;

Strategy Partners Group experts are of the same opinion.

How, and by what means import of technologies will happen, is still unknown. Regional Ministry of economy expressed cautious optimism that accomplished ruble depreciation has created favorable condi-tions for foreign investors (reduction of costs for salaries and infrastructure) for deep localization of their production, and this in turn may contribute to import of technology. However, Mr. Baranov believes that “no foreign company will create a competitor for itself with its own hands, so it is useless to speak of industry deve-lopment, based on technologies that foreign investors use.”

“This is not a reason to refuse from foreign investments,” Strategy Partners Group experts say, noting that “no country in the world could carry reindustrial-ization without involvement of foreign investors,” and Ulyanovsk region cannot be an exception.

At the same time, regional government hopes that the course taken in the region to cluster development creates an ecosystem

attractive for investors, in which, passing to deep localization, they will be interest-ed in working with local manufacturers and developers. Thus, DMG MORI SEIKI company (Ulyanovsk machine tool plant) has already expressed its desire to devel-op technology together with Ulyanovsk enterprises.

Experts believe that Russia (Ulyanovsk region in particular) has strong research and design capabilities in a number of ways. We just have to break the chain of distrust for Russian developments, believes vice-rector on science of Uly-anovsk state technical university Nade-zhda Yarushkina. In her opinion, it is necessary to demonstrate success sto-ries to elicit the interest of investors: “a competitor has succeeded, I will try this experience.”

So far only Ulyanovsk nanocenter and a number of city enterprises associated with military-industrial complex successfully integrate foreign and domestic develop-ments and technologies. At the same they use radically diff erent approaches: if nano-center focuses on import and development of technology, the companies operating in defense industry focus on exports and im-plementation of their own deve lopments. A number of companies have managed to ad-vance in development of their own systems of automatic design, in Dimitrovgrad the production of Ulyanovsk developed “smart house” system began, developments of own operating systems became relevant in the framework of strategy of independence from import.

Maybe this very kind of developments will become such success stories.

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Thanks to state support scientific research institute of atomic reactors has managed to maintain and

develop competences in nuclear innovation sphere, to introduce new unique technologies. Today various

types of its products are in demand abroad.

Ulyanovsk Utes, producing tools and parts for

aerospace equipment, automotive components,

and medical equipment even now is ready to join

the program of import substitution as much as

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30 Open RegionInnovation

ANDREY VASILYEV

In spring Ulyanovsk centre for technol-ogy transfer (UCTT, Ulyanovsk nanocenter) announced the launch of a large project for development of alternative energy. It is expected that by September the project that has received the code name “wind park” will be fi nalized and will take part in federal competition to support projects in the fi eld of alternative energy. “Wind park” has become the fi rst really big project of Ulyanovsk nanocenter.

The initiator of wind park project de-velopment was Simbirskaya energy sales nomination company (SESNa, sells elec-tricity in Zavolzhsky district of Ulyanovsk). Wind park project, developed by VINDEC research center, commissioned by SESNa, was fi rst presented in 2011 at the fi rst in-ternational conference on wind energy in Moscow.

According to the project developer Sergey Gribkov, scientifi c secretary of the committee on renewable energy of the Russian union of scientifi c and engineer-ing associations, the decision to establish a wind park was taken by SESNa because of lack of 6 MW of generating capacity in Zavolzhsky district. Wind park site was chosen near the village of Arkhangelskoye at the city eastern border. The project en-visaged construction of a wind park of 10 turbines with total capacity of 25 MW, with a view to increasing capacity to 45 MW.

Provided the use of imported wind tur-bines, the launch date of project was esti-

mated at 4-5 years (2016-2017), and it had to pay off in 5-7 years with an investment of 150-200 million dollars.

However, according to Sergey Gribkov, “we had to give up foreign partners for the sake of ensuring necessary degree of localization to obtain state support”: at the start of designing the necessary degree of equipment localization for participation in the state program of development of alternative energy was 35%, and has cur-

rently reached 55%, that already calls for organization of wind turbines production in Russia.

As a result nanocenter has engaged in wind park. According to nanocenter deputy CEO Oleg Paderin, “the project is now at the stage of assembly,” and two main scenarios for its implementation are considered. According to the fi rst, the original model will be used with purchase of foreign (Chinese are regarded) wind

Ulyanovsk nanocenter is on the verge of launching the largest project in its history, related to alternative energy. The project promises to give impetus to development of a number of new areas of work. It is planned to use the model of venture investment, which has proved its eff ectiveness in existing nanocenter projects.

With the wind at the head

HISTORY• In 2010 the Ulyanovsk region development

corporation (URDC) application has been recognized as one of the winners of the competition organised by Rosnano fund for infrastructure and educational programs to create nanocenters in regions, in autumn of 2011 investment agreements were signed, and Ulyanovsk centre for technology transfer was created. Its founders were Rosnano fund for infrastructure and educational programs (43%) and Ulyanovsk nanotechnology center (UNC, 57%), in turn, UNC founders were URDC (75%) and Simbirsk foundry company (24%). As a

result, two years ago on the territory of Zavolzhye special economic zone Ulyanovsk nanocenter was opened.

• The nanocenter business model is based on venture investments: UCTT provides co-financing in exchange for a stake in business, and conditions for participation in projects can be very different. So, Ulyanovsk nanocenter has invested in already upcoming projects by capital contribution, purchase of necessary equipment, as well as by providing necessary expertise.

• In 2015, the UCTT budget was increased from 1.28 to 2.15 billion rubles. About half of this amount, 470 million rubles, were provided by Rosnano fund for infrastructure and educational programs in the form of a loan. More than 300 million rubles were provided by co-investors of the project, Ulyanovsk region development corporation and Simbirskaya foundry company. The decision on additional financing of the project was accepted to ensure nanocenter portfolio growth, which together with the general partner will be the main investor in the new project.

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turbines. The second provides location of wind turbines production in Ulyanovsk.

According to fi rst vice-premier of the regional government Alexander Smeka-lin, some agreements have been reached, and “all the elements of localization are present”, there are companies willing to make wind turbine towers and blades in Ulyanovsk, a potential investor was found who is ready to assemble wind turbines, al-though “the project has yet to be packaged” (companies names are withheld).

According to unoffi cial data, Ulyanovsk Aerocomposite enterprise is considered to be one of potential producers of blades, however, nanocenter management notes that “there are no fi nal agreements yet.” The second probable partner is manufac-turer of wind turbines Russian wind com-

pany (Cheboksary), attracted by SESNa. Selection of a model for project realization, according to Mr. Gribov, will depend on conditions of the federal program for de-velopment of alternative energy: if in the near future it will be amended, reducing the degree of localization to 35%, the proj-ect can develop to the initial scenario.

According to Oleg Paderin, wind park has the key, but not the only role in the project, “around it a certain number of companies must be formed that will be engaged in research in the fi eld of alter-native energy, will develop new materials, and so on.” Three basic activity objectives under the project are already formulated. Besides the wind park it is planned to develop associated services, as well as to assemble teams of developers in the fi eld of alternative energy. Duration of the project is estimated at 1.5-2 years. That's how much time it can take to fi nd sources of fi nancing, to launch the wind park, and to work out key competencies.

It is working out key competencies that is the basis of successful business venture, assures nanocenter CEO Andrew Redkin:

“The main strategy of launching startups is creation of technology companies which would be a center of competence in certain topics.”

At the same time they note in nanocen-ter that all mechanisms have been already worked out. “Now the new project start is not a fi ction but a set of measures that we know how to take,” said Oleg Paderin. According to him, in two years of active work nanocenter managed to accumulate core competencies in three basic areas of work. These are construction technologies, genetic research, and composite materials. Another two are at development stage: fi lm coatings and microelectronics.

Alexander Smekalin believes that “the results of nanocenter work can be consid-ered successful, and the concept is justi-fi ed.” According to him, UCTT has already reached the break-even, “for two more years it will work as infrastructural, and then profi t is expected.”

At the same time Oleg Paderin notes that “direct payback is out of question yet. At present little money (6-7 million) is earned by 10 from three dozen projects launched by nanocenter. It is expected that this year nanocenter will come out from a part of successful projects through the sale of its stake. Payback period of nanocenter projects is only 3-5 years, and the period of launching a company from the moment of decision on its creation to the start of work is “from several months to half a year, depending on complexity of technological

Innovation

Nanocenter imposes special hope on one of the

most complex projects of Comberry technological

company to create multi-functional thin-film

coatings for photovoltaics, displays, smart

windows, light-emitting diodes. As noted in

nanocenter, “there are no analogues of this

installation neither in Russia, nor in Europe.”

The project envisages construction of a wind park

of 10 turbines with a total capacity of 25 MW.

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32 Open RegionInnovation

process.” The fi gures are qualitatively dif-ferent from the usual, less technological ones, whose payback and launch periods are much longer. Mr. Smekalin says that the reason is venture investing, when “an-other principle acts: a project is produced, then we are looking for investors for it,” project quality depends on nanocenter itself. Oleg Paderin says that “within two years of project activities for various rea-sons only 15 of the 87 projects selected at the time of launch were closed, and from the actually running 30 are in the active stage,” and according to specialty rating, these indexes are higher than in average Russian nanocenters network.

Nanocenter spent about 340 million rubles on equipment of 30 projects in the active stage, wherein seven technology companies have been formed that are al-ready implementing promising projects.

The closest to implementation are proj-ects of TestGen and Genext companies, engaged in development and manufacture of test systems for molecular genetic diag-nostics. Developed tests allow at the 10th week of pregnancy to determine sex and Rh factor of a child by a woman's blood test. According to nanocenter residents, the developed test systems have already in-terested foreign pharmaceutical companies and laboratories, but in the end TestGen and Genext decided to open their own production of test systems in Ulyanovsk.

Nanocenter imposes much hope on one of the most complex projects developed by Comberry technology company (creation of multifunctional thin-fi lm coatings for photovoltaics, displays, smart windows, light-emitting diodes), but the company is yet refusing to evaluate the possible profi t, noting that it actually has “to create a market that does not exist.”

Metal-composite R & D production en-terprise under guidance by nanocenter is engaged in development and production of composite materials; it has developed and starts mass production of substrate mem-ber for aircraft of the fi fth generation and is also working in the fi eld of application of metallomatrix composite materials in high-power LED lighting, and is creating materials of armor protection. This year commercialization of research will begin. Exit to serious operating profi t is expected from Stroylab (innovative materials for concrete-based construction) and Artek Composites (composite materials) com-panies.

However, the companies do not name any specifi c numbers of expected fi nan-cial results due to the fact that most of nanocenter projects face the challenge

of introducting developed innovations, and it does not allow to make accurate predictions. According to Anna Materova, press secretary of the ROSNANO fund for infrastructure and educational programs, “examples of introduction of innovative Russian decisions are yet not as numerous as we would like.” Stroylab CEO Polad Saleh- Zade sees one of the reasons in conserva-tism of buyers, who while compiling their budgets often just “do not think about what can be improved, saving money not only for the client but also for the ultimate owner.”

According to nanocenter residents, vir-tually all are faced with a lack of qualifi ed personnel. Anna Materova notes that “often there is simply no staff with suitable quali-fi cation at the market, and universities do not implement programs to prepare them.”

One of possible solutions to the problem of training may become consulting services from partners, including foreign ones. As an example nanocenter names Comberry, which was organized in close cooperation with a US company that undertook not only equipment supply, but also consulting. “As a result the customer gets an opportunity to bring a product to market quickly,” said Vladimir Chugunov, equipment engineer of Comberry company.

Such interaction is yet possible in terms of sanctions, said Anna Materova. Accord-ing to her, the Russian market has great potential and continues to be of interest for foreign partners, and “in this respect the sanctions did not signifi cantly aff ect ROSNANO and Ulyanovsk nanocenter ac-tivities.”

Comberry research platform allows to accelerate investigation cycles in dozens of times and to perform

hundreds of experiments simultaneously.

Nanocenter CEO Andrey Redkin: “The basic

strategy of startups launch is creation

of technology companies which would be a center

of competences in certain subjects.”

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IVAN TOKAREV

In recent years Ulyanovsk region IT industry evolved faster than the all-Russian. Each year the region IT companies have shown and still show sig-nifi cant growth: according to Association of computer and information technology and to the industry research, conducted in 2014 by Ulyanovsk technical university (USTU), in 2014 the industry growth rate in the region was 10% higher than the all-Russian, and total tax revenue from the industry companies exceeded 200 million rubles. While average wages in this sector, according to Head Hunter, was 2.4 times higher than average for the region.

Over the past fi ve years in the region the number of people employed in this sector has almost dou-bled, and the majority of companies, expanding, passed into the status of medium-sized businesses. Thus, according to USTU study, the average number of employees in IT companies increased from 6-7 in 2008 to 35-36 in 2014.

Analysis of regional data on areas of activity ex-plains Ulyanovsk outstrip: among the major market participants companies operating in foreign markets occupy a signifi cant part, as well as enterprises related to defense industry. Both groups in the new economy get additional competitive advantages. The fi rst got them by reducing labor costs of developers due to the ruble fall, the second in connection with the launch

When the crisis came in, programmers opened the window

Analysts of IDC international agency estimate the growth of Russian IT market in 2014 about 2%. Their forecast for 2015 is a drop of 1%. However, negative forecasts may not come true: IT industry is being actively reconstructed, starting to exploit new opportunities for growth that were opened due to new economic conditions. IT cluster created in Ulyanovsk region turned out to be in line with this trend, having received a new impetus for development.

IT

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34 Open Region

of import substitution program, which led to an increase in the number of long-term orders.

The largest Russian IT consulting company, IBS, which opened its branch in Ulyanovsk at the beginning of the year, celebrates another new niche: “One of the most promising areas is support of already implemented information systems, as the cost of proprietary support of foreign systems has almost doubled, and companies are forced to look for a reasonable alternative.”

Market participants note that “serious industry growth has expectedly led to competition between companies for staff and, consequently, to emergence of staff shortages.” IT community began to speak about this threat a few years ago. It was the prob-lem of staff shortage that three years ago became one of the main reasons for the initiative of leading IT companies on formation of regional IT cluster, which would systematize the industry activity and would allow to develop joint mechanisms to educate staff , to attract investment, to promote local development products, as well as to highlight the industry at the federal level.

The result was the industry development strategy, worked out in April last year, providing for three basic scenarios of its evolution: self-development of companies, development around a large IT company with insertion into programs of activity of enterprises of radio-electronic industry, Russian engineering centers, aviacluster, etc.; and the Bangalore script (a town in India called India's Silicon Valley), implying the industry development in the region through off shore programming.

The developers of application software, the initiators of the cluster creation considered fi rst script a higher priority. However, the regional government has chosen the second path, proposing to concentrate around large companies related to defense industry and electronics: Mars (part of Morinformsystem – Agat group), Ulyanovsk mechanical plant (manufacturer of air defense means, part of Almaz –Antei air defense concern), Iskra (manufacturer of components for electronic devices, part of Almaz –Antei air defence

concern), Ulyanovsk instrument manufacturing design bureau (part of the radio-electronic technology concern of Rostec state corporation). Programmers initially expressed dissatisfaction; however, according to the governor's adviser on the development of IT Denis Efremov, after their meeting in December 2014 with the companies' representatives who said that their companies were interested in local IT companies' becoming their contractors, mu-tual understanding seemed to be found. So, according to observers, Ulyanovsk IT companies, not yet knowing what forms the crisis will acquire, have secured a new window of opportunity and par-ticipation in the program of import substitution. “It's interesting for everyone. IT-companies will receive a stable order, the enterprises will get execution, and the region will get tax revenues,” said Mr. Efremov. “The cluster is no longer regarded as a bunch of startups. In Ulyanovsk software is developed almost for the entire Navy, and all the software for aircraft. It was fi nally realized that the cluster core is diff erent, and they are not the center of the universe,” adds USTU vice rector Nadezhda Yarushkina.

Denis Efremov said that “now the principles of interaction are practiced, but it's a slow process,” and the reasons for deceleration are several. Among them is the problem of restructuring of IT companies themselves. Most of them work in the area of applica-tion and not system software (although the market participants themselves believe that “the work in IT industry initially suggests that you should quickly change and adapt”). There are also the complexity of certifi cation, of obtaining necessary admissions, and transition to work on state standards, as well as the problem of coordinating eff orts. “All four key enterprises of the region are concern members, they all have their leadership in Moscow, there is no coordination at the local level,” that is how Denis Efremov indicates the problem. And he says that coordinating council of chief designers being created now will face it. This council is required to complement the existing council for IT.

The desire to implement joint projects with the Ulyanovsk enterprises was yet expressed by four large enough IT companies: Creative development, Simbirsksoft, Simteh, and MST. For their part, the companies Mars and Spark expressed a desire to transfer part of their public procurement to outsourcing.

Nadezhda Yarushkina believes that “companies need to be expanded to new markets,” noting that “the process has already begun.” At the same time, she said, it's not just about private IT companies that expressed willingness to work in this new fi eld of software for industry and defense, but also about large enter-prises willing to work out civil subjects. For example, Mars in the presence of orders is ready to develop management systems of government services.

Ulyanovsk programmers have realized that only having united, they can solve

common problems.

Sergey Ershov photo

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35august 2015IT

Meanwhile, experts assess the prospects of new markets very high. “There is a big market at the intersection of these technolo-gies (electronics and IT), only now people began to realize that a very large margin is here,” said Ulyanovsk nanocenter resident, founder of the Futurelab laboratory for development of electronics Vasily Zhuravsky. Executive director of the “Domestic software” association of software developers Evgeny Vasilenko agrees with him: “I believe that such a turnaround is right, it should be a partnership. If joint products are created, it will be a good help for import substitution.”

At the same time IBS notes that opportunities off ered by import substitution are not limited to interaction at the intersection of electronics and software. “Because of the dollar growth imported technologies have become less competitive in price, and economic instability forces customers to pay more attention to planning their expenses,” as it was noted in the company, thereby illustrat-ing the idea that restrictions on technology supply in Russia should make customers to pay more attention to domestic products.

According to Mrs. Vasilenko, serious turning point should occur in 2 – 3 years. She estimates that by that time this year's measures to support domestic software developers will give result: “In 3 years up to 75% of software can be domestic.”

In such circumstances the IT industry in the region has a chance to increment growth rate: on the one hand, due to costs reduction conditions improve in the foreign markets, by which many companies are guided; on the other, new domestic markets open up. However, the participants of the market note that “in this situation the problem of training in the industry arises with renewed strength.” Because of the industry development new professionals may be needed even more than it was expected, “those having the competences which have not been claimed before by regional labor market.”

It is planned to solve this problem through development of IT education in the region, assures ITM Group CEO Kamil Kalim-ullin. He notes that “professional education in IT is a priority,” and it is important to establish a complete chain of learning: “Pupils should be engaged in technical creativity, it is a question of career counseling, and students and graduates should be able to get practical experience.” According to Mr. Efremov, regional government has heard this call, and the task of teaching is chosen as a priority, but expanded with teaching of companies' leaders and project managers: “This project is under deep implementation and starts in September in form of a course.”

However, it must be recognized that for small and medi-um-sized businesses of IT sphere not everything is so bright, there are risks of personnel washout by large companies, mentioned by IT people in their Strategy, and they become a serious concern in connection with IBS offi ce opening in Ulyanovsk. “They see a competitor in staff , in salary, this is a normal concern of small businesses, and IBS's front is offi ce. They came because “the well” is ready, we are preparing IT people. The company came to Polytech at once and said what master's programs they need,” says Nadezhda Yarushkina.

But the Ulyanovsk companies acted the same way. To date, the polytechnic institute opened a number of basic departments of companies and enterprises that are preparing specialists for themselves together with the university. “Polytech sees itself as a generator of knowledge and staff , we consider ourselves part of the cluster,” says the USTU vice-rector.

We can say that the process of a real IT cluster formation has started: at the end of June an agreement was signed on establish-ment of a project offi ce of the structure created, design bureau work was begun to coordinate interaction between IT people and businesses. According to Denis Efremov, possible fi rst joint project within the cluster, the center of chip design, has acquired defi nite shape. It is supposed to cover the Ulyanovsk companies' need in microelectronics. It is planned that the center will include the developers of logics, a design bureau that implements the chips scheme, as well as a production site. However, it is not required. “The centers may be worldwide, and production in China,” says Mr. Efremov.

"Clearly seen vector in the direction of conceptual development is quite the right decision in connection with the tasks facing the country. Now there are a lot of application systems on the market, but a few fundamental developments,” said Evgenya Vasilenko.

Russian conference “Stachka”, held annually in Ulyanovsk (among the

participants there are also programmers of the CIS countries, Europe, America,

etc.), by definition of its participants, “carries a rebellious spirit and orientation

to the quality of education in the field of IT.”

Experts believe that today IT companies need to be built in cooperation

with major electronics manufacturers, and “it will be a good help

for import substitution.” In the photo there is a part of production process

at the Iskra plant.

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36 Open RegionLocalization

VIKTORIYA CHERNYSHEVA

Core for developmentAt the Day of localization, interna-

tional conference which was held in Ulyanovsk, DMG MORI SEIKI AG board member Tёrnes Christian said about his intention to invite long-term partners “with production of first-class quality and attractive prices” to the territory of Za volzhye industrial zone. The goal of investors is to create in the region “a Rus-sian machine tool center which would be independent from political fl uctuations.” The call has already received a response:

on the Day of localization cooperation agreements have been signed with two companies: Mayfran (Dutch manufac-turer of chip conveyor) and Gondrand (Swiss company operating in the fi eld of logistics). Also 10 other DMG MORI SEIKI partners expressed their intention to lo-calize production in Ulyanovsk.

“We expect that Ulyanovsk machine tool plant will become the core and center of gravity, but not for machine manu-facturers who are working in diff erent niches and have low cooperation, but for manufacturers of accessories. The company has serious plans for long-term

work in Russia, they, together with us, talk to suppliers about the advantages of placement in Russia. Thus, we want to continue to bring new machine tool builders to us, and after them to attract component manufacturers for machine tool, creating favorable conditions,” said the head of the Ulyanovsk region devel-opment corporation (URDC) Sergey Vasin.

In late May at the Metalworking interna-tional exhibition in Moscow the region has signed an investment agreement on estab-lishment a supplier park of German-Japa-nese group in Zavolzhye industrial zone. It is expected that the volume of investments

German-Japanese concern DMG MORI SEIKI AG, realizing in territory of Zavolzhye industrial zone its project to build a machine tool factory in Ulyanovsk, appealed to its suppliers to locate their production in the neighborhood. The investor is ready to become a pioneer in restoring the industry, which once was the pride of Russia. In fact, it is the revival of machine tool cluster, which was traditionally strong in the Ulyanovsk region, but has not survived economic problems of the post-Soviet period.

Everybody to the park!Leaders of the machine tool industry are calling suppliers to locate their production in the Ulyanovsk region

DMG MORI SEIKI AG board member Christian Tёrnes called for parts suppliers to follow his example and get localized in Ulyanovsk.

Sergey Titov photo

august 2015

in construction from businesses that will decide to locate their production facilities near Ulyanovsk will be at least 4 billion eu-ros. Suppliers will receive the same benefi ts as the core plant: as it was emphasized in the DMG MORI, “the ideal base for plant and technology center is good infrastructure and supplier base in the region, and also proximity to many potential and existing customers in emerging industries, such as aerospace and automotive, high degree of industrialization, with the presence of strong production capacity, which will allow to place orders near the enterprise in future.”

To date the main parameters of the in-vestment project, implemented by Ger-man-Japanese group, is a built-up area about 21 thousand square meters, assembly plant takes about 3.3 thousand square me-ters. Technology center takes approximate-ly 640 square meters, where it is supposed to provide 12 high-tech machines, as well as to present turnkey solutions for aviation, aerospace, automotive, and mechanical engineering industries. In addition the plant will have its own development center, which will deal with technology transfer and development of innovative machine tool products.

Production capacity will be about 1,000 machines a year.Construction is expected to be completed in late September - early October.

The plant has already started local as-sembly of universal lathe CTX 310 ecoline, vertical machining centers DMC 635 V ecoline / DMC 1035 V ecoline, and univer-sal milling machine DMU 50 ecoline. The next step will be placing local orders for all products from sheet metal. Ultimately, as specifi ed in the company, most of the machining operations will be carried out on their own with obtaining many kinds of parts from local suppliers.

Mr. Tёrnes said that in the long term a new series of machines will be developed in machine tool center, already by Russian specialists.

“Jewel in the crown”Machine tool industry in the past two

decades has gone through diffi cult times. According to Stankoinstrument Associ-ation of manufacturers of machine tools, from 1991 to 2012 the volume of production at domestic enterprises sector fell by more than 20 times, from 70 thousand to just over 3 thousand pieces. The depreciation of machinery reached 80%, companies lose up to 50 million units a year. This is one of the most crisis sensitive sectors, sharply reacting to drop in demand.

The result is logical: many plants that operated successfully in the Soviet and post-Soviet times have gone bankrupt. In Ulyanovsk Simbirsk machine tool plant, working in the territory of Ulyanovsk plant of heavy and unique machines (UPHUM), has closed this way.

However, the fi nancial crisis and in-troduction of Western countries' sanc-tions against Russia have given impetus to development of import substitution. Last year, as specifi ed on the RF Minis-try of industry and trade offi cial website, the share of imports in the machine tool industry exceeded 90%. The government has set a target to reduce dependence of the industry most critical sectors from imports to 50-60%. At the same time, ac-cording to deputy minister of industry and trade Sergey Tsyba, machine tool is one of the most promising industries for import substitution.

“Recently the market situation has changed, the attitude of investors and their partners to machine tools has changed, there appeared a belief in the market, un-derstanding that it is in demand. Localiza-tion of production is the task of yesterday and today, and localization of development, scientifi c and technological bases, of to-morrow. But we need to do it today,” said the fi rst deputy chairman of the Ulyanovsk region government Alexander Smekalin. He believes that the signs of “a qualitative breakthrough, a leap” are already here, it is Ulyanovsk machine tool plant's own design bureau, which is already beginning to design its own tools for Russia.

“A good step forward,” according to Mr. Smekalin, was an agreement signed by the leadership of the Ulyanovsk plant of heavy and unique machines (UPHUM, included in Rostok SC) and regional authorities, accord-ing to which new production of machine tools will be located in the territory of the plant. The company, maintaining the brand of the former machine tool giant, will pro-duce machines for the needs of the railway (the volume of investments is more than 300 million rubles, the planned release is 30 - 40 machines per year, exit to design capacity is planned for 2017).

Mr. Smekalin said that UPHUM is also “actively negotiating and has already re-ceived a license for Italian and Czech ma-chines assembly.” According to him, the investor understands that there is the supertask to restore scientifi c and engi-neering base for machine tools manufac-turing. “Releasing means of production is aerobatics, the main engine of engineering industry. Machine- tool is the “pearl in the crown”, which we have always been proud of,” stresses deputy prime minister. He says that today Ulyanovsk manufacturing in-dustries, which include machine tools, give a fi fth of the gross regional product, “more than any other sector of the economy.”

The goal is to promoteRegional government notes that it in-

tends to return the status of machine tool leader to Ulyanovsk region. “We have every chance to do this: the staff has been saved, there are schools, general favor-able investment climate, recognizability

Japanese suppliers are interested in localization,

but are very careful.

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among foreign manufacturers as a terri-tory favorable for investments,” says Mr. Vasin. At the same time he admits that the region now needs to create (or update) the staff training system for the machine tool, noting that “in Soviet times it was present, but when the enterprises that needed these staff ceased to operate, a failure turned out. Therefore, our task is to build a system of training of middle and junior staff part, workers and foremen, and the regional government has a plan for development of dual education, including in cooperation with Ulyanovsk machine tool plant,” says the corporation head.

According to Mr. Smekalin, today the trend is to attract new investors in ma-chine tool industry, and a pool of com-panies has already formed from Eastern Europe and countries with which negoti-ations are underway. “But we believe that we should not just build the plant, but also attract technology. Foreigners have

learned to do a lot of interesting things, and we must not shun the use of their technology, but must make our advance on their basis. It's better than if we try once again to go our own way,” said the fi rst vise prime minister, noting that the option of the “own way” should not be excluded, “then it will be an additional opportunity to make not one step but two.” He welcomes the advent of competitors, calling not to be afraid of competition, which “has always been the engine of development.”

At the same time Sergey Vasin thinks that today the industry does not have enough state support: “If someone needs help today, it is aerospace and machine tool. They are backbone industries, creating around themselves an opportunity for de-velopment of other productions from other areas, and that means new investment and jobs. Especially since now Russian companies are experiencing huge demand

for machines park renewal.” According to him, the region provides investors with tax incentives, “and if they are placed in the special economic port zone, they can get federal benefi ts also. But it would be good if the subsidies were added for staff training and for compensation of interest rate on loans. This could promote the industry forward,” adds URDC CEO.

Mr. Smekalin believes that the region is already becoming a center of attraction for machine tool industry enterprises through creation of engineering and resource cen-ters, clearly linked to specifi c projects in the Ulyanovsk enterprises: “These are additional competencies. For us it is im-portant to attract qualifi ed professionals to the region, to examine and change the migration flow; today not quantity but quality is important. Ulyanovsk each time received a new impetus for development when large enterprises came to the region. It was transfer of automobile plant here, and research institute of atomic reactors construction, and construction of avia-tion complex, when professionals came here and stayed to live. And now there is a chance to make a breakthrough.” In his opinion, locating unique enterprises in its territory, the region solves a complex of problems.

First deputy CEO of Stankoprom (the Russian system integrator of machine tool, part of Rostec) Eugeny Polkanov be-lieves that machine tool investors are interested in localization of suppliers, because “it is one of the ways to overcome restrictive measures of Russian state on import into the country of equipment similar to that being produced in Russia. And equipment is considered Russian, ac-cording to the government decree №1224, when not less than 50% of its cost are Russian-made components,” he said to OR. At the same time, according to Mr. Polkanov, deep localization “facilitates the transfer of competencies in the fi eld of advanced technologies, which generally increases the level of Russian machine tool industry.”

Alexander Smekalin agrees with Stan-koprom representatives, but he adds that the crisis (in particular, the ruble depreci-ation) opened new opportunities for such investors in the form of lower production costs in Russia and generating additional revenue for export products. “And it is also a signifi cant attractive factor for new future investors in machine tool industry, who are to come,” stressed the fi rst deputy chairman of the regional government.

Mr. Tёrnes is convinced that in future new series

of machines will be developed already by

Ulyanovsk specialists.

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39august 2015Features

ALEXEY KOVALEV

Making up for lost timeGovernor of the Ulyanovsk region Sergey

Morozov in January this year, while sub-mitting his traditional investment mes-sage, set the task to bring to the region at least ten new large companies, saying that “more attention should be paid to Asian investors.”

“We did not stop relations with Western partners and do not want to do it now. As for the “course to the East”, we began to develop relations with Asia long before the sanctions, but still we underestimat-ed the market of the East. In addition, to be honest, it was easier for us to work with the Europeans due to similarity of our mentality. And also the market there is more lively. Now we have to catch up, discovering Japan, China, Turkey, South Korea,” says the fi rst deputy chairman of the government of the Ulyanovsk region Alexander Smekalin.

The regional government considers cooperation with the Japanese side the most fruitful. Such players as Bridge-stone, TAKATA Rus, DMG Mori Seiki are already present here; however, their arrival took place before the confl ict in Ukraine. Nevertheless, these investors do not in-tend to seriously reconsider their plans in Russia, and moreover to curtail their production. According to Mr. Smekalin, currently the government is actively ne-gotiating with the Turkish side for organi-zation of production of electrodes, welding wire, high-precision casting in Zavolzhye industrial park.

The booming China was declared the fi rst and most important Russian coun-terpart in the East. The scope of Chinese investment in Russia is development of mineral resources, construction, wood-working, and Russian investment in China go into processing industry, con-struction, and transport. Preferences of the Chinese in the Ulyanovsk region look somewhat diff erent. “The interest of

the Chinese business in the Ulyanovsk region is very large, despite our lack of large oil and gas deposits,” says Alexan-der Smekalin. “There are already several successful projects implemented jointly, for example, construction of a new dry method cement plant on the basis of Uly-anovskcement, launching production of light and medium trucks and buses by BAW-RUS Motor Corporation.” Currently several joint investment projects are being explored. These include creation of grain processing and storage plant on the basis of grain reception enterprise in Vesh-kaymsky district. Negotiations are under way on construction of a cement plant in Starokulatkinsky district. Among the pro-spective Russian-Chinese projects there is also construction of a tea packaging plant in the territory of special economic port zone which is being actively created in Ulyanovsk.

Difficulty levelsInteraction with China representatives

has its own specifics. According to the director of the Moscow institute of foreign relations (MGIMO) Center for East Asia and Shanghai Cooperation Organization (SCO) Alexander Lukin, it is more diffi cult to invite to Russia business partners from China than from any other country. “It is necessary to submit a letter of guarantee stating the fl ights by which a delegation will arrive and depart, and even to tell in precisely which room the Chinese visitors will live,” he said. Mr. Smekalin said about certain rules of business etiquette: “If in the course of negotiations with western companies we were able to go directly to their top managers, in the case with the Eastern partners each time we have to pass certain levels.”

“This is a completely diff erent mental-ity and way of negotiating. The Chinese

Regions become accustomed to oriental cuisine

Under the new economic reality in order to maintain relations with Western partners the Ulyanovsk authorities are increasingly looking to the Asia-Pacifi c region. However, to attract investment from China, India, and Japan, the region management requires restructuring the entire system of relations with potential investors, and the local business requires readiness to cooperate with them on the basis of joint ventures.

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40 Open RegionFeatures

partners are oriented not to the immediate analysis of the market, but analyze it in the long term, not for 2-3 years, but for 20 years or more. Therefore we are doing our utmost to understand our Eastern partners, to off er them an environment which they are accustomed to at home, and which they expect from us,” says Ulyanovsk region development corporation director (URDC is engaged in investment) Sergey Vasin.

Contacts with investors from China have shown that they are willing to co-operate, but only on the basis of joint ventures. Deputy Chairman of the Rus-sian-Chinese Committee of friendship, peace, and development, Deputy Chair-man of the State Duma on economic pol-icy, entrepreneurship and innovation development Victor Zvagelsky believes that the ground for involvement Chinese business into active work in Russia is still far from the ideal. According to him, the Chinese business, having come to Russia one of the fi rst in the early 1990s, when “wild capitalism” still reigned here, has experienced some fear, “now there is a

reason to overcome that fear, but for the Chinese it is very diffi cult to understand the Russian laws and paperwork, they tend to share the risks and to have expe-rience represented by a Russian partner who would protect them in an unknown market. Ulyanovsk region and China are at a long distance, and remote control of complex production issues is sometimes impossible. This is another role for a Rus-sian partner,” adds Sergey Vasin.

Waiting for technology and finance

In turn, Russian companies in new economic conditions have become more active, looking for new forms of develop-ment, including recourse to investment agencies. According to Alexander Smeka-lin, “some two or three years ago Russian businessmen treated prospects of creating joint ventures with Chinese companies very cautiously, but now more and more Ulyanovsk enterprises demonstrate sincere interest in such cooperation, waiting for new technologies from the Chinese side,

for modern standards of management and for fi nancial resources that have become scarce.” According to Sergey Vasin, over the past few months it became possible to convince several dozen businessmen and to organize their contacts with Asian inves-tors; 10 or 15 of them have already declared their fi rm intention to “take a chance” to work in joint partnership, “in particular, the owners of Alev dairy plant have spotted the opportunity to create a new production of dry soy milk, and in the most uncertain time, in December last year.”

Leaders of the region do not limit the number of sectors in which investment is waited. “In each case, if the project meets the requirements of the Russian and re-gional legislation, we are ready to provide a site taking into account enterprise speci-fi city, to provide maximum support,” notes URDC director. “At the same time we have identifi ed priority areas for development of our economy, they are production of aviation and car components, building materials, and food industry.”

According to Mr. Vasin, “oriental inves-tors are showing interest in most diff erent spheres of production. They see Russia as a new market for their products, so they fi nd out what products are in demand here in the fi rst place. And in this choice we help them actively to form kind of business cases, ready proposals on investment. For example, the region has got well developed production of furniture. At the same time almost all the components, fillers, and textiles are imported. By placing their

The Japanese feel themselves comfortable at

Ulyanovsk land. Takata-Petri Rus (in Zavolzhye

industrial park) has been operating at full

capacity already from 2013, supplying Russian

car manufacturers with steering wheels, airbags,

and seat belts. Japanese TAKATA concern is one

of the world leaders in design and manufacture

of automotive safety systems.

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production here businessmen will get a market and a way of delivery of raw ma-terials, which we have calculated, too.”

Due to introduction of Russian embar-go on foodstuff s from EU, US, and their partners the supply of fruit and vegetables from the East has increased, especially from Turkey. Currently the corporation generates a business case for creation a distribution center in Ulyanovsk region.

Director of Real Estate business direc-tion of Strategy Capital Advisor company Natalia Kruglova said that “the Chinese have chosen a good moment for a political agreement on investment, they will get more preferences in that situation for the same money.” Secretary of the Shanghai Cooperation Organization (SCO) research center at the Chinese academy of social sciences Sun Zhuangzhi notes that sanc-tions and oil prices falling was a serious blow to the Russian economy and slowed its development. “The next two years are to be crucial, because during that time you need not only to stabilize the foreign currency earnings and the situation in the money market, but also to restructure the economy,” he said during President Xi Jinping visit to Moscow in May. “In about

the same period China needs to move to the “new norm” of economic development, increasing the level of openness of its econ-omy in conditions of a slowdown of its growth. Therefore the problems of Russia and China are similar, and our interests coincide in many respects.”

Understanding cultureMr. Vasin said that, according to business-

men of both sides, “for productive cooperation they are often lacking knowledge about the realities of another country, and for better development of business relations they must fi rst learn each other's culture more deeply.” For this reason the regional government has off ered Chinese partners to become partici-pants and guests of honor at the traditional Ulyanovsk international cultural forum in September, 2015, “as well as to pay attention to cooperation projects at universities and schools level. Eastern vector is also marked in Strategy for development of Ulyanovsk until 2030 (currently being developed). Estab-lishment of schools for study of the Chinese language is provided,” says URDC CEO.

Management of the region has great expectations for realization of the tourist project “Red Route”. Within framework

of the project on June, 29 a Memorandum of understanding and cooperation was signed for the years 2015-2017 between the National tourism administration of China and the Federal tourism agency of Russia. A similar agreement was reached between the People's government of Hunan province of China and the government of Ulyanovsk region. “Our main task is to es-tablish foreign trade relations with China and to try to attract Chinese companies to the Ulyanovsk market. But fi rst we must show the Chinese entrepreneurs that they are guaranteed to do safe business in Uly-anovsk. We are interested, fi rst of all, in technology, knowledge, and competencies which the Chinese side has got, we want that with participation of our Chinese partners new modern high-tech jobs were created fi rst of all for the residents of our region,” said Alexander Smekalin.

FACTSAccording to the China State customs

administration data, in 2014 the Russian-

Chinese trade turnover increased by 6.8%,

to $ 95.3 billion in comparison with 2013.

Wherein Russian imports from China

exceeded Russian exports in this country

by 3.3 percentage points. While last year

Russia ranked 9th in the ranking of 20 major

trading partners of China, China for four

consecutive years (since 2010) headed the

rating list of the major trade partners of

Russia. At the same time the growth rate of Russian-Chinese trade in 2014 were higher than the average in China's trade with other countries, including trade turnover - by 3.4 percentage points, Russian export - by 5.3 percentage points, Russian imports - by 2.1 percentage points.

Curious is the ratio of structures of Russian exports to China and the Chinese imports to Russia. Most of Russian exports are mineral fuel, oil and petroleum products

(in value 71.63%, + 10.7% in 2013), wood

and products made of it (6.97%, + 11.1%),

non-ferrous metals (3.96% -1.7%). Imports of

machinery and equipment from China in 2014

(1st place) rose to $ 19.44 billion (+ 3.3%)

and is 41.4 times greater than the volume

of Russian exports of this commodity group

in China. The imbalance in favor of China in

machinery and equipment has increased

by 2.2% for 2014 compared with 2013 and

totaled $ 18.9 billion.

Chinese companies have already expressed interest

in the region. Ulyanovsk region governor in the

presence of prime minister Dmitry Medvedev signs

a memorandum with the Anhui foreign economic

construction company that wishes to participate

in construction of SEPZ infrastructure, as well

as to become a co-investor of one of its residents.

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42 Open RegionEconomy accelerator

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Assistance in exchange for development

Many economists state that in times of economic crisis public investments are beginning to have a special meaning, when directed usually to maintain demand and infrastructure development; the impor-tance of state order is strengthening. In fact, in such periods the state is the main client for development. In this regard the Ulyanovsk region, with a number of en-terprises of major engineering works, in-cluding defense, shows a relatively good economic performance even in a crisis. According to Rosstat, the index of indus-trial production in the region in January - May 2015 amounted to 109.0% (a fall in average in Russia by 2.3%). The increase is almost entirely associated with processing industries (115.3%) and, in particular, with production of vehicles (160%). Aviastar-SP, of course, became the main driver, for it is busy in assembling IL-76MD-90A under a contract with the defense Ministry.

The fi rst deputy chairman of the Uly-anovsk region government Alexander Sme-kalin recognizes that all leading regional enterprises, operating the state order, “are structural units of state corporations and major concerns, and therefore key decisions on them are taken in Moscow.” He says that the regional government not only defends major regional player's interests at the fe-deral level, but also provides real fi nancial support. “On the one hand, we can take over non-core assets of a company, on the other, we can provide tax breaks and other privileges. Wherein there should be a clear understanding where the savings will be sent. If for “eating up”, we are not satisfi ed. Our principle is: help in exchange for de-velopment. All businesses that we support have adopted production and investment programs for years and even decades to come, a serious development is going on there,” explains the fi rst vice-premier.

As an example of successful imple-mentation of such support the region-al administration referred to the joint project of Aviastar-SP, Sberbank, Zapad-2 development company, and the region government, in which due to tax pref-erences granted to aircraft factory and government guarantees to the bank young professionals of enterprises are able to acquire concessional housing at below market price. Aviastar itself helps them with the initial payment, giving each of the best employees 150 thousand rubles. According to Aviastar-SP CEO Sergey De-mentiev, since 2012 415 factory workers have become the program participants, “although the overall demand is at least 5.5 thousand apartments until 2020.”

The region also intends to provide hous-ing on favorable terms for young specialists of the nuclear industry. The government commits to establish engineering infra-structure of the future Center for medical radiology in Dimitrovgrad, including con-structing residential sector (26 low-rise houses) of the future Akademgorodok (76 ha area), as well as creating social facili-

ties there: kindergartens, shops , schools, medical facilities (for these purposes 210 million rubles from the region budget are planned to be spent).

No need to persuadeIn times of crisis the state, acting as

an accelerator of the economy, should cre-ate “hard” and “soft” infrastructure for

State support of processing industry civil sectors will not decrease, said industry and trade minister Denis

Manturov in July during a working visit to Ulyanovsk. “Ideally, we should achieve a situation where absolutely

everyone will know as ABC all the basic support measures and incentives to which they are entitled,” said the

minister. In the photo: during a visit to Aerocomposite-Ulyanovsk plant.

Favorable exchangeDuring the crisis business hopes for state aid

43august 2015Economy accelerator

business, according to Ulyanovsk region development corporation (URDC) director Sergey Vasin. URDC understands “hard” in-frastructure as construction of roads, net-works (including approval of investment programs of natural monopolies), and site preparation, i.e. creating special economic port zone and industrial parks. Formation of “soft” infrastructure encompasses orga-nizational and legal issues: simplifying negotiation and licensing procedures, re-ducing the time of business registration, obtaining technical conditions, and gener-ally creating a favorable business climate.

The region management notes that Western sanctions force to look for new ways of development, and one of them is innovation. “Of course, the support of fundamental science is not a prerogative of regional or municipal authorities, much depends on our universities, fi nanced from the federal budget, but we support private small and medium-sized enterprises which invest in innovation (for implementation of the regional target program “Development of innovative activity in 2011-2015” 2.1 bil-lion rubles were provided, including 394.2 million rubles from the regional budget),” adds Vasin. “Best practice is creation of Ulyanovsk nanocenter (offi cial name is Uly-anovsk technology transfer center (UTTC)).”

Recall, UTTC (built in 2013 by invest agreement with the Fund for infrastructure and educational programs, total amount of funding is about 1.277 billion rubles, major shareholder is URDC) fi nances in-novation and technology startups, orga-nizes business in the sphere of innovation, provides partial replacement of startups project teams and is also committed to commercialization of R & D; the main source of UTTC income is the profit of

established enterprises (UTTC is involved in co-fi nancing projects in exchange for a stake in business, as a rule, 49%). In fact, as they noted in URDC, at the expense of public funds “a professional team was set up capable of “packaging” business cases for projects in the innovation sphere and of raising funds.” The results of the UTTC project companies work are innovative technologies or fi nal products (for more details - p. 27).

Meanwhile, representatives of busi-nesses believe that “support for innovative companies should be provided at all levels of the investment elevator. The fact that money began to be allocated for develop-ment of ideas, for conducting R & D, for technology development, is a big plus. But when construction phase of enterprise, based on innovation, comes, the cost is hundreds of million rubles already, and there are practically no available funds,” says chairman of the Ulyanovsk Diamiks group (production and development of products based on diatomite) Evgeny Niki-forov. According to him, “expensive loans and long-term licensing and certifi cation lead to the fact that as a result a Russian entrepreneur either becomes bankrupt or is sold on the cheap, often to a Western partner. Competent approach is to share the risks with the state and to attract in-vestments,” assures Mr. Nikiforov.

However, the state does not have enough funds to solve these problems. Sergey Hes-tanov, Otkrytie brokerage house CEO advi-sor on macroeconomics, confi rming that in times of crisis the traditional approach in the world is state performance in the role of customer of infrastructure projects, notes that “wherein in Russia the problem is in low effi ciency of these government

spending.” According to the analyst, it would make sense to extend the practice of sending budget funds to regions on the principles of competition to be included in federal targeted programs; however, “the federal center is still supporting develop-ment by transfers in manual mode.”

Meanwhile, in Ulyanovsk region, being conscious of the fact of limited budgets, we are going to increase the investment com-ponent. URDC head Sergey Vasin says that in times of crisis, “while budget revenues are reducing, there is increased need for in-vestment, so the government is betting on development of public-private partnership: it may be purely commercial projects, such as construction of infrastructure (ports, toll roads, etc.), and social ones: health, education, sports, and culture. Here our main objectives are: “packaging” of proj-ects, search for investors, forming legal and fi nancial principles, so that investors could come to clear terms with a guarantee of a refund by the state.”

BY THE WAYAccording to RBC data, industry and

trade Ministry hopes that the federal budget will allocate about 600 billion rubles for all the programs of import substitution before 2020, and 2 trillion more will be invested by business.

The leading role in the process is given to industry development fund. In Ulyanovsk region a similar regional fund is being created, which "will support realization of scientific technical projects." About 50 million rubles will be allocated annualy from the regional budget for its recapitalization.

44 Open RegionFinance

ARTEM GORBUNOV

The Ulyanovsk region government has launched the initiative to form a single federal structure of regional SME devel-opment banks with state participation. Final proposals were sent to the Ministry of economic development in May, 2015, the Ministry supported the initiative, although a decision on introducing the system is pending. Probably, formation of regional development banks will be gradual, it is possible that Ulyanovsk will be selected as the pilot region.

Ruslan Gainetdinov, chairman of the regional corporation for enterprise devel-opment (which has been preparing the package of proposals), explained that the initiative was put forward due to the fact that the current banking system is not designed to work with small businesses: “It is diffi cult for businessmen to work with large commercial banks. For example, they do not have their representations in some districts of the region. As a result the loan takes time, increases workfl ow. In addition, the regional branches of banks do not focus on working with small and medium busi-nesses, do not take into account regional specifi cities, and are limited in size to lend.” Note that the Federal Law “On the develop-ment of small and medium enterprises in the Russian Federation”, adopted in 2007, also does not provide any preferences in granting loans for SMEs.

Explaining the need to create a network of regional development banks, the corpo-ration pays attention to the fact that since 2009 it became more diffi cult for small and medium enterprises to obtain loans due to complexity of procedures and increase in interest rates; as a result the number of

Ulyanovsk region proposes to create a network of so-called “home banks” for small and medium-sized enterprises (SMEs), which would provide entrepreneurs with access to credit and become a kind of center for SMEs development. The idea was approved by RF Ministry of economic development, but when and how it will be implemented is unknown. Ulyanovsk region is ready to take on the role of the pilot region and to try the principles that are already applied in Western Europe. “Support of Russia”, agreeing with the arguments of the region, noted that not everything is clear, and fi rst the risks must be calculated.

Money at homeRegional development banks could help small businesses

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august 2015

loans issued to SMEs has decreased signifi -cantly. According to RBC, today the needs of small and medium-sized businesses are met by no more than 15-17%. This is one of the reasons why in one year after the date of registration only 60-70% of small businesses survive, analysts say.

Business representatives are paying at-tention to another problem: now in Russia the interest rate for small business starts with a mark of 20%. “In such circumstances it is impossible to develop, and the SME sector is in a state of stagnation,” said the Ulyanovsk chamber of commerce head Yuri Rogov. According to him, the rate in the regional development banks must not exceed 8%, since profi tability of most businesses does not exceed 10%.

It should be noted that Western Eu-rope already has a large experience in sup-porting small businesses through “home banks”, and this system was developed in post-war fi fties, when there was economic recovery. For example, in Germany regional development banks exist in all the lands and are owned by the state. All of them, in contrast to commercial banks, are engaged in fi nancing SMEs and high-risk projects (innovation, agribusiness, startups, young scientists and entrepreneurs). This includes lending through participation of banks in the capital of companies. “Home banks” are directly related to the federal development bank that provides them with certain priv-ileges. The stakes in such institutions are from 2% to 5.5% per annum.

Ulyanovsk corporation for enterprise de-velopment acknowledges that in preparing their proposals they based on the experi-ence of similar banks in Western Europe. In addition, they also fi nd it necessary to apply the experience of German cooperative banks (small credit institutions to support small businesses and agriculture, which operate on the principle of self-government and shared responsibility), “because their functionality is very important for very small farms and artisans.”

“In our proposals we formulated a model of how to reform the existing infrastructure so that in ideal we could come to the nation-al system of regional development banks for small and medium-sized businesses,” explains Mr. Gainetdinov. According to him, the model suggests that regional de-velopment banks should be formed at the expense of the state, and their main pur-pose should not be extraction of profi t but implementation of development programs and strengthening of entrepreneurship in the region. The bank, according to the concept, “should have a powerful team of

experts that will be aware of characteris-tics and trends of small and medium-sized businesses,” and will have to lend and to finance business projects; if necessary, to enter them as a co-founder and earn extra income from capitalization growth of new businesses. “If an entrepreneur has no possibility to take a loan, the state may buy a stake in the capital, and thus provide working capital for the period of formation. At the same time, when business is gaining momentum and a merchant stands fi rmly on his feet, the bank has the opportunity to buy back its stake,” explains Mr. Gainetdi-nov. He notes that “such “domestic banks”, in contrast to the commercial, should be aware of all the small businesses, who does what, and what are the prospects of development,” and they promise to be more loyal to businesses due to the fact that their bank will possess great deal of information about potential borrowers compared to any commercial bank. “It must be some kind of a center for development of small and medium-sized businesses,” emphasizes Mr. Gainetdinov. He believes that the “home bank”, being interested in development of its customers, will provide necessary analytics, consulting, and try to assist in diffi cult situations.

It is proposed to create a network of regional development banks on the basis of the existing network of relationships of SME Bank with regional business develop-ment funds.

Meanwhile, “Support of Russia” execu-tive director Andrey Shubin believes that before launching the project “the advantag-es and possible risks should be weighted. Yes, indeed, local banks better understand the needs of businesses and react more quickly, but will there be enough capacity and managers? In general, is it appropriate to create an entire structure?”

The region business community, seeing the initiative very positively, is cautious in forecasts. Board member of Ulyanovsk association of entrepreneurs Hamza Yam-baev believes that much in project reali-zation “will depend on the actions of the authorities.” According to him, banks should be aware that “their work enables young people to start their business, they simply do not have other means, only loans. What it is necessary for small busi-ness? Availability of credit, nothing more. They do not have collateral base, in most cases this business sector is a creative initiative, and often an entrepreneur has nothing else other than intelligence and a sort of “know-how”, that is, his own ideas. Now you cannot open your business, sim-ply having chosen to do so, as in the 90s. Today even the procedure of registration is costly, and where can an entrepreneur get the money? Only in banks. Small busi-nesses should have easy access to credit products,” emphasizes Mr. Yambaev. He believes that regional development bank will have to learn to take risks. “Not all projects pay off , but the majority of them “shoot”, and therefore the bank itself will ultimately benefi t.”

According to the head of committee on entrepreneurship of regional commerce chamber Konstantin Leontiev, another positive aspect of creation of a regional development bank is the synergy of large and small businesses, it becomes especially important in connection with the new policy of cluster development, which began to be realized in the region.

“If we are able to realize the idea of re-gional development banks, it will help to implement major investment projects in the region, and will cause the explosive eff ect of emergence of new small business-es,” said Hamza Yambaev.

Chairman of the board of regional corporation

for enterprise development Ruslan Gainetdinov

is confident that domestic banks should become

a kind of centers for enterprise development.

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ALEXEY KOVALEV

Without tiesUlyanovsk region intends to revive

an informal association of Russian and foreign businessmen, investors club, to give them an opportunity to freely discuss common problems, find new forms of cooperation, and prepare joint proposals to regional authorities. According to Uly-anovsk region development corporation (URDC) CEO Sergey Vasin, there are spe-cifi c achievements for this; but both the corporation and the regional authorities, sending this peculiar message about the need of informal association, do not intend to engage in organization “from the top” and wait for initiative from the investors themselves.

Note that the idea has appeared long ago: the first time it was spoken about in 2011, and on 24 June the same year with support of Business Russia regional department its first meeting was held in Ulyanovsk. The general meeting, which was attended by the region governor Sergey Morozov, gathered more than 60 representatives of Russian and foreign

companies working in the region, to discuss the adjustment of regional in-vestment program.

As Dmitry Ryabov, at that time URDC CEO, has noted, “the main objective of the club activity is not in the form of offi cials' reports, but in live dialogue, to get feed-back from investors, to understand what problems the region government, Business Russia, regional development block must address to improve the investment climate. We will remove problems that prevent existing businesses to develop, and solve problems in attracting new investors,” declared Mr. Ryabov at that time.

It was decided that the club will meet on a quarterly basis, but since that only a few meetings were held. Sergey Vasin explains this by decrease in demand for unifi caton on the part of investors. “Investors club as a platform for dialogue, for solving pressing issues was in demand at the beginning, especially among expats (international representatives): foreigners had to adapt to new conditions. But in the process of starting production the management is replaced by Russians, and these people are, with rare exception, more involved in

social environment and are used to solve problems on their own. In addition, we are in constant contact with investors, trying to solve problems in the manual mode. This also reduces the need to merge.”

However, the regional leadership is con-fi dent that the investors club is still needed. “The club could become a platform for an exchange of views on improving invest-ment climate in the region. Leading global investors, multinational corporations are working virtually around the world, so they have something to say about current situation in the region, what needs to be done to create favorable conditions for doing business and how. It is also very important to involve companies and their employees in the region life. It is essential that inves-tors who came to us and are building their production would give jobs, move forward the region's economy, and feel themselves a part of our region,” said the fi rst deputy chairman of the Ulyanovsk region govern-ment Alexander Smekalin.

Head of administration issues and pub-lic relations department of Ulyanovsk machine tool plant (DMG Mori Seiki con-cern) Alexandra Zueva agrees with him.

The development unit of Ulyanovsk region government together with business community tries to choose a format of regional club of investors, being created in the region. Employers want it to be an instrument of feedback from government agencies, of their employees socialization, and the government also wants it to be a collective way to develop eff ective solutions in attracting new investors. Analysts, noting that associations created “from above” lack vitality, believe that it should be only informal.

Investors of all countries, unite!

Luybov Chilikova photo

47august 2015New format

She believes that the club “should become a city-forming unit.” According to her, “there are many newcomers in established companies, and Ulyanovsk for them is something new, unknown, the more that they spend most of time at work. The club would promote their socialization, inclusion in life of the city, of the region. In my opinion, this is the main feature that such a union could fulfi ll. Further-more, the structure will give impetus to exchange of ideas, knowledge, and expe-rience,” said Mrs. Zueva. According to her, “offi cials are often trapped in legal acts, regulations, and everyone has his own scope of thinking, and when the problem requires innovative solutions, diffi culties arise,” while the club meetings could help to remove these problems.

Ideally, the club of investors should be created “from below” by the investors themselves, says URDC CEO: “Taking the managerial role entirely to ourselves, we run the risk to turn the club into yet another bureaucratic body, the interest to which will eventually fade away. We can coordinate actions of the asset, but initia-tive still has to come from the business community. If such a structure is created by authority, the club cannot exactly be named so, but probably a self – regulating organization, or, if you prefer, a federal state unitary enterprise,” says the Finam investment holding analyst Anton Soroko. “To a greater extent this should be an in-

formal association that would coordinate actions of members, but in any case should not form any general line.”

Alexandra Zueva stands for synthesis of organizers. Administrative support from the government should be combined with self-organization of the most initiative employees of the enterprises “that would become a sticky tape” which would connect all aspects of the dialogue, she believes: “The region government and the deve-lopment corporation of the region due to their credibility could interest investors in something. Recognizable face here is as important as in show business.”

“Private investment should go where it is possible to earn capital. And for coordi-nation of such investments this club may be important. Club members can receive timely information on the status of certain sectors of economy, on investment oppor-tunities in the region and, accordingly, will sooner direct investments to where they will yield the greatest return.

Features of the club can be used for implementation of related projects that require participation of companies from several sectors, especially that such pro-jects tend to be the most high-margin. On such a site it will be easier for investors to agree on joint projects,” says Anton Soroko.

“Remove the tension!”Despite the desire to make the club an

informal association of investors, the in-vestors themselves are increasingly in-terested in formal questions. According to Sergey Vasin, most business leaders have expressed a desire to meet with the governor, the leadership of customs bodies, recruitment agencies. “Administrative

resource plays an important bridging role between business community and author-ities, regulatory bodies, municipal agen-cies,” adds Alexander Zuev. “For example, now for Zavolzhye industrial park residents problem №1 is labor shortage. Schools do not prepare those who are needed, so we put the question of expanding the scope of a particular specialty or, on the contrary, of narrowing specialization. Authorities, inviting a rector or a dean to a meeting with investors, thereby greatly simplify and expedit the solution. As part of the club we could conduct questioning of managers and ordinary employees of enterprises, and make a rating of importance of problems that could be a guide for joint action of government and business.”

According to Mrs. Zueva, formats of communication at the investors club should be varied. “I have studied the ex-perience of Kaluga region (where the club of investors has been operating since 2008). Basically it holds offi cial meetings, when people in ties sit in conference rooms at the round table, discussing some pre-set theme. It is evident that they are very tense. Such measures are only good as one of the formats. People have a need to move, need action. The experience of our charity relay “Residents of industrial zone, unite!”, organized in July last year, showed it. It was the fi rst attempt to organize them-selves (preparation for the event took half a month), we wanted to see how many people would come. The result exceeded all our expectations. Most importantly, the event was attended by business leaders, giving example of activity to their employees.”

Sergey Vasin also sees a utilitarian task that could be performed by the club. “The

At a club meeting in September, 2014 the region

governor Sergey Morozov said that “the club

should become a platform for discussion

of proposals on improvement of regional

investment policy.”

UR

DC

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48 Open RegionNew format

presence of such a union, I think, makes not the least impact on the region invest-ment attractiveness, helping to attract investors. After all, if employees of enter-prises feel comfortable here, it is broadcast-ed to their leadership, and from them, in turn, to their partners, potential investors,” he believes.

“Create a common problem, and we will unite”

In Russia investors association are, as a rule, created on the initiative of author-ities. At the federal level there is Advisory council for foreign investments (ACFI), which was created in 1994 to discuss issues related to investment attractiveness of Rus-sian economy. During the council 20-year history it was attended by over 60 foreign companies and banks. Today it includes 51 heads of major foreign companies, whose total investment in Russian economy is more than $ 120 billion. Now the council's activities are shifted to prompt solution of foreign investors' problems, arising in the

initial stage and during implementation of investment projects. The main format of the ACFI activity is annual meeting chaired by the RF prime minister. It is also known about establishment of investors clubs in Kaluga and Nizhny Novgorod regions. But these clubs also do not diff er in activity and originality of formats.

However, business structures often self-organize when faced with a common major problem. In August, 2013 the Moscow investors club was formed which now in-cludes representatives from 45 companies,

including banks. All of them are major play-ers in the real estate market, “entry ticket” into the union suggests that the company has at least 30 billion annual turnover and Moscow projects of total footage at least 1 million square meters.

When in October, 2010 a new mayor was elected in the capital, and a year later Moscow construction complex curator Vladimir Resin has resigned after many years in power, the new city administra-tion de facto imposed a moratorium on all new construction projects. In order not to lose their business direct competitors were able to join together to lobby their initiative skillfully at both municipal and federal level. For example, in 2014 the club managed to achieve a smooth introduction of the tax rate on real estate, providing the benefi ts of up to 75%.

At the turn of 1990-2000-ies the ten-dency to unite investors in all sorts of as-sociations was observed in Kazakhstan. The goal was to protect their interests and to increase influence. In particular, in 2000 Kazakhstan petroleum association sharply stepped up its activity, ongoing a campaign against the decision of Kazakh government to limit oil export. The work was a success, the country's government had to compromise. It seems that, inspired by this example, 36 companies of European Union and European Commission dele-gation, operating in Kazakhstan, created EUROBAK business association for collective discussions with Kazakh authorities and “presentation of European business point of view by forming a collective authoritative voice.” And this time the authorities had to listen to the members of the association.

In ordinary time a Pole Tomasz Kanevsky, engineer

at DMG Mori Seiki, monitors the quality of a

building construction in the Ulyanovsk machine

tool plant. The relay race “Residents of industrial

zone, unite!” was the first attempt of investors' self

– organization. All in all 12 resident companies of

the industrial park took part in the relay race.

The club enables informal discussion of the

investors' problems with top officials. Mikhail

Volkov, CEO of Schaeffler Manufacturing Rus plant,

and Sergey Morozov, governor of the region.

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INVESTOR'S APPEALentation)(letter of intention for project impleme

INVESTOR ROADMAP

ULYANOVSK REGION

GOVERNMENT

First deputy chairman

of the government Alexander Smekalin+ 7 (8422) 589 395;

invest@ulgov.ru http://ulgov.ru/

NOVSK ULYANGION REGOPMENT DEVELO

ORATIONCORPO

CEOCey VasinSerge

2) 737 001;+7 (8422region.cominfo@ulrregion.com/http://ulre

Selection of a partner company

for the project if necessary.

Creation of a joint venture.

Direction of technical specifications for selection of a site (including area, volume of investment,

number of jobs, need for utility services: gas, water, and electricity)

Selection of accommodation options and direction of investment proposal to the investor:

— industrial parks; — SEZ;

— municipal development zones;— Ulyanovsk region development corporation;

— Ulyanovsk SEPZ (+7 8422 249 417)

Visit of investor to the region: acquaintance with Ulyanovsk region, sites survey, meetings with the leaders of Ulyanovsk region

development corporation, with supplying organization, with investors already operating in the region.

Selection of the optimal variant of placing

by investor.

Assistance in obtaining state support measures

in accordance with the Ulyanovsk

region Law from 15.03.2005 № 019-3O “On the development of investment activity in Ulyanovsk region”.

Support for investment project at all stages of implementation in “one stop shop”:— at the stage of registration of land;

— in obtaining technical specifications;— in design;

— in construction and installation works;— in plant start;

— assistance in building cooperative ties;— and in all matters on the investment project.

BENEFITS FOR RESIDENTS OF ULYANOVSKSPECIAL ECONOMIC PORT ZONE

TaxesRussia,

Ulyanovsk regionSEPZ

Validity period since

the beginning of the taxable

base

On profit 20% 2% 10 years

On property 2,2% 0% 15 years

On land 1,5% 0% 10 years

On transport Differenti-

ated 0% 10 years

VAT 18%

0% on added value, created when

providing services in SEPZ

For SEPZ lifetime (no less than

45 years)

COMMON REGIONAL INCENTIVES FOR INVESTORS

On the territory of special

economic port zone free customs

area regime is acting, which

provides the opportunity to

import foreign goods to SEPZ

without paying customs duties,

VAT, and excise duties (including

materials, structures, machinery

and equipment for creation of

enterprises, as well as accessories,

spare parts, etc.) . The period of

storage of such products in SEPZ

without issuing release into the RF

customs territory is not limited.

51august 2015

On the whole in the Ulyanovsk region, according to the data of Ulyanovsk statistical office (based on 2014), there are 652.6 thousand of economically active people (336.1 are men, 315.5 are women); employed in the economy are 95.2%; 4.8% are unemployed.

In processing industries 137.8 thousand people are employed, in wholesale and retail trade and technical services there are 80.7 thousand people. In construction there are 40.2 thousand people, in government there are 35.7 thousand people, 48.3 thousand people in education, 42.6 thousand people in health care.

The average monthly salary of employees in economy amounted to 21.3 thousand rubles.

The highest average monthly salaries are: in mining (36.9 thousand rubles), in financial sector (33.3 thousand rubles), in construction (21.1 thousand rubles), in processing industries (21.5 thousand rubles).

In unemployment structure at the end of March, 2015 31.2% of people have higher education, 44.4% have secondary vocational education.

In the structure of economically active population there are 29.1% of young people under 24 years.

In 2015 Ulyanovsk institutes released more than 6,000 specialists with higher education. Specifically, 59 people in engineering, 260 people in information technologies specialties. About 9,000 people are employed in science, including 250 doctors and 1,400 candidates of sciences.

LEADING SCIENTIFIC ORGANIZATIONS

— Research institute of atomic reactors (RIAR);

— Ulyanovsk research and technological design institute

of machine building;

— Ulyanovsk state university (earlier a branch of Lomonosov

Moscow state university);

— Ulyanovsk state technical university;

— Ulyanovsk centre for technology transfer (UCTT);

— Ulyanovsk state agricultural academy;

— research institute of aviation technology and production

organization;

— Ulyanovsk science and technology center of All-Russian

research institute of aviation materials;

— branch of the national research nuclear university of Moscow

engineering physics institute;

— Iskra regional design bureau;

— Mars ;

— Ulyanovsk research institute of agriculture of Russian

agricultural academy;

— Ulyanovsk instrument design bureau;

— Ulyanovsk institute of radio electrical engineering (branch

of RF academy of sciences).

51

LABOUR RESOURCES OF ULYANOVSK REGION

THE STRUCTURE OF ECONOMICALY ACTIVE POPULATION OF ULYANOVSK REGION ACCORDING TO EDUCATION, on 1 June, 2015, %

24,5

26,9

17,7

25,7

4,90,3

Higher professional(including postgraduate) education

Secondary professional education

Primary vocational education

Secondary complete general education

Basic general education

No basic general education

4,8%

21,300 RUB22,683 RUB31,600 RUB

IMPORTANT FACTS

52 Open Region

Open Region. Ulyanovsk. Economic Magazine. August 2015, № 8.

On the front cover TASS photo: St. Petersburg international economic forum SPIEF 2015.

Presentation of the first national ranking of investment climate. Ulyanovsk region is in the top five.

The window of opportunities. Who will manage to use it?Ulyanovsk nanocenter. Combinatorial research platform Comberry.