Open Region August 2015 Ulyanovsk economic magazine

DISSENTERS ARE OFFERED 10 TO SERVE AT THE BORDER 14 THE SECOND PROBLEM AFTER ROADS 21 WHY THE ZONE EXTENDS ITS GATES 22 EXIT IS THROUGH THE WINDOW 36 THE GERMANS BECOME RUSSIANS REGION DEVELOPMENT INSTITUTES

GOVERNMENT First deputy prime minister OF THE ULYANOVSK REGION of Ulyanovsk region http://ulgov.ru Alexander Smekalin + 7 (8422) 589 395 e-mail: [email protected]

ULYANOVSK REGION +7 (8422) 737 001 — unified telephone DEVELOPMENT CORPORATION on cooperation with investors e mail: [email protected] http://ulregion.com/

Chairman of the board of directors Dmitry Ryabov

CEO Sergey Vasin +7 (8422) 444 573

First deputy CEO Igor Ryabikov +7 (8422) 444 852, +7 927 271 2526

ULYANOVSK SPECIAL CEO ECONOMIC PORT Denis Baryshnikov ZONE +7 (8422) 249 417 [email protected] http://ulsez.ru/

ULYANOVSK CEO AVIATION CLUSTER, Nikolai Shestakov ULYANOVSK REGION CENTER +7 (8422) 41 87 06, 41 84 72 OF CLUSTER DEVELOPMENT e mail: [email protected] http://www.avia-capital.ru

ULYANOVSK REGION Chairman of the board CORPORATION FOR ENTERPRISE Ruslan Gainetdinov DEVELOPMENT +7 (8422) 418 671 e mail: [email protected] http://openbusiness73.ru/

AGENCY FOR DEVELOPMENT Director OF RURAL AREAS Mariya Shpak OF ULYANOVSK REGION +7 (8422) 73 59 38 e mail: [email protected] http://agro-agent.ru/

ULYANOVSK REGIONAL Director RESOURCE CENTER FOR TOURISM Sergey Lakovsky AND SERVICE DEVELOPMENT +7 (8422) 241 804 e mail: [email protected] http://goulyanovsk.ru

ULYANOVSK TECHNOLOGY CEO TRANSFER CENTER Andrey Redkin (ULYANOVSK NANOCENTER) +7 (8422) 27 24 27 e mail: [email protected] http://www.ulnanotech.com august 2015 3 Editorial

Contents BREAKING THE BARRIERS New reality New technologies SERGEY TITOV THE PRINCIPLE OF DOUBLE- THE KEY TO THE RIGHT HEADED EAGLE TRANSMISSION Have you ever noticed Regions are looking for answers to The region is looking how grass sometimes breaks challenges ...... p. 4 for ways of technological through the hard asphalt? breakthrough ...... p. 28 Or the young shoots of huge Experts virtual round table hard poplar break through A MESSAGE ABOUT THE Innovation the pavements and seek the FUTURE WITH THE WIND IN THE HEAD sun again? How a linden grows Experts discuss prospects for 6 How to assemble and sell through the fence, moving investment...... p. an idea ...... p. 30 aside a metal grate fence, because it has taken root here and does not agree with From the first person IT “SIMPLY THERE ARE NO WHEN THE CRISIS CAME IN, the barriers. How white birch destroys red brick wall that OTHER OPTIONS” PROGRAMMERS OPENED was in the wrong place... Even such powerful obstacles Ulyanovsk region governor Sergey THE WINDOW are unable to stop the normal natural desire to live and Morozov about the way to navigate develop. To grow into a more open space where there is 10 Why IT people abandoned in new reality ...... p. Bangalore ...... p. 33 more sunshine, freedom, and opportunity. Barriers, obstacles, fences, sanctions, antisanctions are Climate control Localization GOVERNORS ARE OFFERED TO created by the man himself, who believes that it would be EVERYBODY TO THE PARK! GO BY THE MAP better. Is it always this way, time will tell, but business is a How the Germans become What did the fi rst national rating living organism, it will adapt to the new environment and Russian ...... p. 36 of investment climate in the take roots, will look for new ways, and if there are no ways, regions show ...... p. 14 it will go through obstacles. Features REGIONS BECOME When one side of the tree is blocked, it will grow into Infrastructure ACCUSTOMED TO ORIENTAL another, where there are no barriers. And our look at the PRIVATE CAPITAL INVITES CUISINE South East does not mean that Russia has turned away RESIDENTS 39 Crisis has prompted development What do the Chineze fear ...... p. from the West, no wonder the coat of arms of Russia is of industrial parks ...... p. 17 the two-headed eagle. “We respond to external constraints Economy accelerator not by closing our economy, we respond with expansion of Special conditions FAVORABLE EXCHANGE freedom, increasing openness of Russia. And it's not just SEPZ EXPANDS How much is the role of a slogan, it is the content of our actual policy, of the work THE GATES development employer, and with to create conditions for businesses, to find new partners Why SEPZ becomes more whom business intends to share and to open new markets,” said Russian president Vladimir 21 the risks ...... p. 42 accessible ...... p. Putin at the St. Petersburg International economic forum. Business hopes that it will be so. “We are the company Avia Finance which is present on the market not only in favorable times, RISE ABOVE THE FALL MONEY AT HOME but always when there is need for us. So here I am again,” Ulyanovsk aviation cluster has felt Is it possible to give part positive impact of the crisis ... p. 24 of business for credit ...... p. 44 said at the same forum Michael Vormut, branch president of Abbott American pharmaceutical corporation. Efforts and results New format “Crises come and go, but we push on the gas pedal PARTNERSHIP ACQUIRES INVESTORS OF ALL and won't take off the foot, because here, in Ulyanovsk, PROSPECTS COUNTRIES, UNITE! we cannot be afraid of every political statement from Why the interests have It is said that the club Europe, here in Russia we feel ourselves Russian and want shifted, and the dynamics is empty when there are no big to make this country independent,” said a board member remained ...... p. 26 problems ...... p. 46 of DMG MORI SEIKI AG Christian Tёrnes at a meeting with the company's suppliers, who were invited to locate in Content and layout by the “Publishing Printed by the “Aeroprint” Printing House, 18, Ulyanovsk by the top manager. Syndicate” Project and ZAO “Kommersant- Zavodskoye Shosse, Samara, Russia. Volga”, 44, Novo-Sadovaya str., Samara. Tel.: Tel.: +7 (846) 932 02 43. In today's world of globalized markets we are doomed +7 (846) 276 72 51, 276 72 52. No. of copies printed — 3000, 1000 in English. to interaction. We all the same cannot get away from Copy editor — Sergey Titov. Advertiser is liable for promo materials. All rights Graphic designer — Ivan Kosobokov. each other. reserved. No part of this publication may be Interpreters: Elena Ahmatova, the “O’K” No wonder the Russians say: “There are no closed doors, reproduced in any form or by any means. Translation Bureau. there are locks in our heads.” Correctors: Olga Mokhnacheva, Elena Distribution through special Ahmatova address sending Open your door, and you will find other doors open.  4 Open Region New reality The principle of double-headed eagle Regions are looking for answers to challenges Vadim Pilukov photo Pilukov Vadim

SERGEY TITOV sis measures but brand new action. “Of Governor Sergey Morozov, not relying on the course, we are now in a full crisis in all growth of state investments, announced the It so happened that simultaneously respects. For investments in fixed assets policy of reindustrialization for the purpose of two misfortunes came to Russia, the fall we fall almost like in 2009,” said ex-fi- technological breakthroughs, including through of world price on oil (followed by the fall nance minister, head of the Committee of partnership with foreign investors. of ruble course) and the sanctions of the civil initiatives Alexey Kudrin, speaking West. I suppose both of them are tempo- at the Federation Council (according to It is already clear that government in- rary, but, I understand, both are enough Rosstat, the dynamics of investment, vestment will be reduced, and have al- long term. Experts call the situation a year by year, was minus 4.8% ). At the ready started to decline. According to the crisis, officials often choose a neutral same time, according to him, in 2015 the economic development minister Alexey assessment of the phenomenon, calling it economy will fall more serious than it Ulyukayev, the budget share of total in- “a new economic reality”. However, they was predicted by economic development vestments will be reduced from 20% in 2013 are right in the fact that situation is going Ministry (-2.8%), and GDP will decrease to 10% in 2018, and this too will aff ect the to be long and requires not just anti-cri- by about 4%. deceleration of the whole economy. august 2015 5 New reality

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

Lubov Chilikova photo Lubov Chilikova 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.

Due to the sanctions some potential investors have chosen the policy of waiting. We hope that the experts invited to this virtual round table will help us to understand Mr. Ulyukayev, nevertheless, is to a cer- In this scenario the regions under- what new conditions arise with the new eco- tain extent optimistic in his assessments: stand the need to make the economy nomic reality, and what the regions should do. according to him, from 2017 Russian econ- more efficient without placing high We refer them the issues that interest many omy can begin to increase with the rate of hopes on government investment. Thus, people today. 4-4.5% per year. in Ulyanovsk region governor Sergey Each expert had the right to answer only In June at the St. Petersburg interna- Morozov in early June announced the those questions in which he considers himself tional economic forum (SPIEF 2015) all the launch of regional government work on competent enough, or has already established experts were unanimous, and perhaps “new industrialization of the region” his opinion. p. 6 everyone has noted that the economic and formation of a new system of gover- crisis was an incentive for reforming the nance, noting the need to create “a power- At the crossroads. Simple and clear road of economic economy and system of governance. But ful scientific and educational potential development has ended. Further we will have to choose how to do it, here opinions diff ered. Some which will allow to make a technological our way. What it will be depends on many external have stated that there were no ready-made breakthrough, to finish building close and internal factors. At the construction of Setcons recipes, while others suggested too potent relationship of technology business with center in Zavolzhye industrial park. recipes, which “chief medical offi cer” is basic and applied science.” unlikely to accept. “Now reindustrialization is the only Such situation is hardest for regions, way for the regions to be competitive, oth- in which the revenue side of the budget erwise the backlog will only get worse,” begins to decline because of the falling said Sergey Lozinsky, Strategy Partners demand for products manufactured in the Group (consulting company, included in region and, consequently, the production Sberbank of Russia) partner. According itself falls. At the same time government to him, “those will benefit who have investments on a number of projects are begun to prepare for it earlier.” At the being limited or canceled, and regional same time the regions understand that authorities are not entitled to change technological breakthrough is impossi- some fundamental economic approaches ble without investment, foreign in the on their own. first place. And those will be in the best Researcher of the HSE Center for anal- situation who have managed to create in ysis of incomes and living standards their territories a comfortable business professor Natalia Zubarevich notes that climate and a system of interaction with the budgets of the regions have faced a investors. Foreign investors will not go difficult situation, which is caused by, out from where they have invested and among other things, the need to enforce where they have taken root. But the new federal decrees on increasing salaries are already looking around, starting to to state employees. Without the use think. According to a board member of of credit resources not all the territo- DMG MORI SEIKI AG Christian Tёrnes, ries are able to meet the current social from 12 suppliers for who he called to fol- commitment, and that is a source of low them and to localize their production destabilization of the regional budgets. in Ulyanovsk 10 expressed an interest, but And if, for example, in the crisis year of two still refused. The fact that, despite 2009 the volume of transfers to the re- the crisis, foreign investors will still gions increased by 30%, in the last three come to the capacious Russian market, years phased reduction of this amount is beyond doubt, but how they will react

occurred, professor says. to changes in demand and the priorities Sergey Ershov photo 6 Open Region Experts virtual round table A message about the future

— How have the risks to foreign invest- tential. As for the risks, everybody is afraid short-term market, the others see the market ment changed in the new economic condi- of changes in the rules of the game. All would for long-term development in it. For example, tions? Where are they the greatest? like more stability and certainty. President an investor with a long-term perspective may Vladimir Putin has promised not to change the think that in 10 years Russia will be a very in- YULIA tax policy for three years. Such guarantees are teresting and tasty market and to invest now STEFANISHINA, also necessary for investors to provide clear is best, because today it is cheaper, and the KPMG international and transparent rules of the game in future. In level of competition is lower. But you need a consulting company this regard we place a lot of hope for special clear understanding or belief what will be in head of practice on investment contracts of industry and trade Russia in 10 years. And the risk is that there is management of large Ministry. no such understanding yet. infrastructure projects in Russia and CIS IWAO OHASHI, VYACHESLAV Advisor on Japan and HOLOPOV, — Among the most obvious internal risks that Asia-Pacific countries partner of Knight are emerging in Russian economy are the risks of the Association of Frank international of artificial “closing” of certain sectors which industrial parks, the consulting company are especially important for foreign investment, adviser of the ROTOBO as well as risks of loss of market due to falling (Japan Association for in-country demand for the product of inves- trade with Russia and tor's own enterprises created in Russia. Among the newly independent important factors that increase uncertainty states) Moscow for investors it is possible to note the absence representation — From my point of view, the main risks for of common approach to dealing with foreign foreign investors today is that their countries investment in terms of regulation and incentives. — Business, investment, all this is calcu- may enter sanctions against Russia and dic- There are risks and uncertainties in the policy of lation. Investing is possible only if there is an tate them to refuse from doing business in our import substitution. For example, restrictions expectation of profit. And Japanese business country, thus jeopardizing investment in our were placed on the purchase of imported phar- generally does not think about politics, let economy. Although sanctions may extend to any maceuticals, but the criteria for recognition of those who are engaged in it think about it; segment and primarily interfere with the overall products “manufactured in the RF territory” have business thinks what Russian market will be in development of the companies and their arrival not been defined, and it carries enormous risks future. Russia's economy is now in a stage of in Russia, in my view, the main blow will be in the for foreign investment. difficulties. Sales are falling. And investors are industries where we will not be able to fill the gap waiting, trying to understand what Russia will quickly: heavy machinery and machine tools, high be in two years and in ten years. We must once technology, etc. VLADIMIR again change the calculations. In my opinion, NIKITENKO, it's not the risk for individual sectors, but the — How have the interests of foreign in- the Russian-German risk associated with the development prospects vestors changed in Russia today? What may chamber of commerce, of Russian economy as a whole. There are two interest investors from the Asia-Pacifi c region deputy managing categories of investors: some see Russia as a in Russia? director 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 — 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 Source: Rosstat and generally to think about the export po- august 2015 7 Experts virtual round table

VLADIMIR NIKITENKO: changed in the crisis. If earlier Russia seemed a begin to create that very unique aura, the feeling — Russian-German chamber of commerce promising market, now, I repeat, many are waiting. of success, which actually calls for investors in conducts regular surveys of German compa- In contrast to European investors, Asian investors the region. And all the inhabitants of the area, nies about the business climate in Russia. In traditionally do not have sufficient business from small to large, must do it: from officials to general the mood is quite pessimistic now. In experience and less understand Russia, so they students, from professors to cleaners. Because January, 2015 58% of respondents said that in are even more cautious. But those Japanese com- you can create all necessary infrastructure, make comparison with 2014 the business climate has panies that were located in Russia are not going the right laws, but if people are not hardworking deteriorated. Ruble depreciation had a strong to go away, because major Japanese investors or simply show little interest in the project of influence, increase in the cost of goods and always work for the long term. investors, the success will not come. services exported to Russia leads to a drop in turnover. The demand is falling also due — What are primary interests in the choice YULIA STEFANISHINA: to funding problems: for Russian consumers of foreign investors, entering the region: — Development of infrastructure and simpli- bank loans have significantly risen in price. benefi ts, absence of barriers, infrastructure, fication of bureaucratic procedures primarily Many companies do not expect that this year cheap labor market, availability of qualifi ed contribute to the inflow of foreign investments. will be more successful, although the majority personnel, or anything else? An important factor is presence of sufficient num- of respondents believe in the long-term pros- ber of qualified personnel, since not all regions pects of the Russian market. We do not know ANATOLY of Russia have sufficient human resources, and any cases of withdrawal of German companies VAKULENKO, labor resources are not always prone to migration from the market because of sanctions: German analyst of the Finam within the country, because migration has little business considers the current situation only as investment company support from the state, and companies cannot a manifestation of a cyclical economy. always afford investment in living and social infrastructure for their potential employees. VYACHESLAV HOLOPOV: In addition to these measures, foreign inves- — The most attractive factor for foreign tors pay attention to the possibility of investment companies is high return on investment. And and long-term contracts, as well as supporting countries that do not support the sanctions export activity, which would promote deeper in the current circumstances may require (and — I think all the relationships between the re- integration of Russia into the world economy get) additional guarantees to preserve special gion and the investor should be strictly regulated and the global added value chains. conditions of their work in our country. It seems and prescribed in the documents, so that anyone, The old principle remains urgent - the prom- to me, investors are waiting from the power of a even the slightest question had a response in ises must comply with business. particular region for removal of administrative these documents, as well as there were pre- barriers and readiness to guarantee the immu- scribed forms and methods of conflict resolution VLADIMIR NIKITENKO: tability of the rules of the game for long periods between the parties. The region does not have to — Investor mainly hopes to find ready-made (15-20 years, at least), while the availability of change its policy in relation to ongoing projects infrastructure and preferences. Among other sites with necessary infrastructure is perceived in its territory, even if the investment policy as criteria it is important how it is possible to as given. The cost of labor in Russia is compa- a whole changes. World experience shows that build the work with public authorities in the rable to the costs in a number of Asia-Pacific violation of the agreements is fraught with a blow region. A serious criterion is living conditions countries, and in this way we are unlikely to be to the reputation, and it will be very difficult for of expats (foreign experts): the presence of of particular interest in terms of cost savings the region to attract investors in future. international schools, international airport, the in production. It seems to me that in addition to infrastruc- time required for investor representatives to ture, incentives, resources there is the main get from Germany to the region. These criteria IWAO OHASHI: thing: something elusive, something in the air are often not taken into account, the regions — By themselves, the interests of investors that will tell the investor that here, in this place, do not work over them, but they are often the from Asia-Pacific countries practically have not you can do business, and do it well. We must factors outweighing the scales.

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

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

According to St. Petersburg international economic forum – 2015 materials 8 Open Region Experts virtual round table

VYACHESLAV HOLOPOV: VLADIMIR NIKITENKO: respondents believe that Russia will now con- — Import substitution is becoming another — I think the crisis has not affected the de- centrate its efforts on cooperation with China, popular term, while in fact any potential investor mands of investors, and they have remained while 33% of respondents believe that Russia would consider the possibility of reducing costs the same. will be able to combine interaction with the and construction of production in the country of European Union and China. Only 8% think that his sales, in the presence of a market, solvency IWAO OHASHI: interaction with the EEC is the main direction of population, production efficiency (due to the — The regions of Russia do much to meet the of Russian policy. availability of resources, for example) and the demands of investors. But there are some key possibility of successful work on the neighboring points to be addressed. These are modernization IWAO OHASHI: countries also. of transport infrastructure, especially roads, — The interests and requirements of European although it is desirable to improve also aviation and Asian investors are alike. And the interaction IWAO OHASHI: and rail links, including soft infrastructure: for ex- is possible and sometimes even necessary, if it is — All of the above is very important. But ample, fast and transparent customs procedures, profitable for business. So, Takata-Petri plant built this is not enough. Yet, from the standpoint of which also need to be upgraded to international in Ulyanovsk is including Japanese investment that Japanese investors, there is a lack of one very standard. In Turkey and South Korea industrial came to Russia via Germany. Borsk glassworks important component. In English this is called parks are tied with seaports, airports, and major is a Japanese investment which came to Russia a message. Declaration of strategic directions cities by excellent network of modern highways. from Belgium. Investments have no borders. At of development. Where Russia is going to go, the same time it is possible to mention some how it will develop itself in the context of global — In what issues may requirements and specifics of Japanese companies' localization. business. Until now in Russia the emphasis is interests of European investors and investors Inside the Japanese corporate structure the laid on improving the investment climate. But from the Asia-Pacifi c region be diff erent? Can decision is made by creating a consensus, the in order to attract foreign investors you still they be combined? first person does not take a decision himself, he need a strategic, proactive approach. It's a asserts a consensus. Therefore, the process for message. For example, in China it is done very YULIA STEFANISHINA: investment is always long. But after the start of cleverly, they have formed expectations. As in — For the majority of investors in the West the plants operation the Japanese companies rarely the Soviet Union there were five-year plans, there priority is to direct their investments where the close them because of the long-term strategy. In they also have very clear plans for at least next objects already have ready infrastructure, and localization the Japanese attach great importance five years, very clearly indicate what will the legal framework governing privileges and prefer- to establishment and development of long-term country be like, which strategy will be in each ences for foreign investors is clearly spelled out. At stable partnerships with local suppliers, too. of the regions: what will be developed, in what the same time, for investors from the Asia-Pacific ways, what investors they would like to see. I countries it is more important to create a comfort- — Can foreign investors fi t into declared do not recommend returning to the centrally able environment for doing business in the region, Russia's policy of import substitution? planned economy, but I am talking about a which implies a desirable presence of investors strategic approach to increase investment at- from Asia-Pacific countries, already working in the YULIA STEFANISHINA: tractiveness. China, India, Myanmar, and others region, and availability of effective interaction with — First let us define that the policy of import where now an investment boom is going on, are the authorities. Though infrastructure, incentives substitution is implemented in two directions: attracting foreign investment through creation and preferences, of course, also interest them. production of analogues of foreign goods by and dissemination of a message of their intent domestic companies within the country, and and direction of strategic development. This VLADIMIR NIKITENKO: increasing the level of localization of foreign very strong message from Russia also is badly — Of course, the German business is con- companies in the country. needed by investors. sidering Russia's turning towards Asia as a Localization can be in various forms: the least particular risk and, of course, is worried about capital-intensive is transfer of licenses for produc- — How have foreign investors' demands to the loss of markets. According to the poll of the tion, foreign direct investment in the company's own the regions of their entry changed? Russian-German chamber of commerce, 49% of local enterprises (greenfield), acquisition of existing

(US$ mln) august 2015 9 Experts virtual round table

local businesses (brownfield), and creation of a joint — What can attract foreign investors in levels are already present. Competition from venture with a local company. Implementation of the Ulyanovsk region today? What needs to Tatarstan, Leningrad and Kaluga regions will greenfield, brownfield, and joint projects involves be improved? What are the challenges the continue, but it is good: so investors will be able the greatest integration of foreign companies in region has to face in the short and long term? to get the best conditions. the economy, and as a result, it is in the spotlight of government measures aimed at encouraging VLADIMIR NIKITENKO: IWAO OHASHI: import substitution. Therefore I think a lot of foreign — In Ulyanovsk region German investors are — I think that the Ulyanovsk region is one investors may well fit into the policy of import substi- attracted exactly by necessary infrastructure of the most promising regions for attracting tution through localization of production in Russia. in the form of industrial parks with all services investment in industry. Convenient geographical and connections, as well as a set of benefits. position, providing an opportunity for optimal VLADIMIR NIKITENKO: These basic things are enough to draw attention logistics. For example, when on different sides of — I believe that import substitution is abso- to the region, and also there is the openness the region there are several automobile plants, lutely for the benefit of Russia. But I think that of the management. German managers are this is a very convenient place for production the market should be the driver of this process. often impressed when the governor personally of automotive components. Second are the If there is demand, and import substituting prod- communicates with people to make decisions conditions created by regional authorities. I ucts are in demand, German companies will be on investments: they are not yet accustomed think they are almost at the level of European happy to support import substitution, seeing their to this approach in Russia. But as to the quality standards. And the problems are not problems, prospects. But if it is simply to create analogs of of life of expatriates, the Ulyanovsk region still because they are known in the region, but tasks existing products against the background of a has where to move. for the next period. You need good roads, high- shortage of trained personnel, especially the “blue I think in future the lagging regions will catch ways in key areas. Today it is already necessary collars”, at such a low level of supply chains de- up on infrastructure, and then their competition to compare with international standards. It is velopment the task will not be done. I understand will go into a plane of soft factors: trust in the necessary to develop human potential, highly that German companies are willing to engage in region and the authorities, comfortable accom- skilled workforce. And the third is good urban the process of import substitution, supplying modation. In addition, investors will pay attention infrastructure, comfortable living environment. certain components for Russian products. In to the industries which are already present in the The region comes to a new phase when attract- addition, by locating their production facilities in region, and in order to guarantee a success in ing investment should mean attracting good Russia German investors themselves are gradually future today it makes sense to form the respec- people. And what it is also very important is the engaged in actual import substitution, outsourc- tive clusters, which, incidentally, is being done development of local business, local industry, ing the production of components or software in Ulyanovsk region. An important factor will be because the investor is looking for opportuni- for their products to Russian companies. This is staff. It is a problem today, and it will remain, ties to work with reliable and high-quality local beneficial to both parties. especially for smaller regions with up to a million suppliers of components. people. If they specialize in certain industries and Russia is a great country with great potential, IWAO OHASHI: raise the necessary staff for themselves, then the very intelligent people live here, and here are — I believe that investors from Asia-Pacific problem of competition for investment will go by interesting business opportunities. But how to countries could fit into the announced rate of im- the wayside itself. realize this potential is a large and difficult task. port substitution in many industries, locating their When attracting investors it is important to create production facilities in Russia. But first one needs VYACHESLAV HOLOPOV: “expectations for the future” by designing a smart a very clear understanding of what import substi- — In Ulyanovsk region the necessary work on integrated development strategy on the basis of tution is, we need a clear and specific mechanism, preparation of industrial sites, providing special consensus between government, business, and where and how they are ready to attract foreign conditions at the entrance of the investor to the society, and to disseminate it widely to potential investors. Again, as I said, you need a message. region and support of the administration at all foreign investors as a message.  10 Open Region From the first person “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.

— 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 Anastasya Stolbova photo within fi ve years.

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

— Sure. And we set reforms at the fore- regions focus their activities on maximum Today the foundation of aviacluster development front. Clearly, it is impossible to reform all involvement of public investments. Do you is the state order. In the cockpit of Il-76MD-90A at once. But until 2020 we should focus on think that in the period of decreased activ- navigator. fi ve reforms. Among them is the reform of ity of foreign investors this reorientation is the management system, including the necessary, or is there any other way? ropean companies came to us and declared government itself. We have studied the — Ten years ago, when we had just a desire to place their production facilities experience of diff erent countries: Singapore, come with a team, we discussed what path there. Today the region has no shortage of Malaysia, Indonesia, Iceland, and others, the region should choose for its develop- attention from European partners. But on and understood that it is necessary to switch ment: to hope on state funds, or to begin the other hand, why should not we pay to a completely diff erent method of control, attracting private investment. We have attention to the Asia-Pacifi c region (APR), the design-target one (at the beginning chosen the latter, and it was correct. And which generates a large number of innova- of the year the head of Sberbank German today we are not going to constantly ask for tions and interesting solutions in industry? Gref said about the need to go to such a money from the state. It would not be fair: principle of public administration — OR). the country today already carries enormous — Is it easy to look at the same time at We realized that it is much more effi cient, expenses due to oil prices. It is necessary the West and at the South-East? and we can do it, at the same time can save to attract private funds. And I hope we will — It is diffi cult. While we have already up to 50 percent of two billion rubles which succeed. We have suggestions for how to learned to work with Europe, and took we are spending today on maintenance of use private investment to build roads, and much there in terms of construction of regional and municipal authorities. Also bridges, and even industrial parks. comfortable business environment by there might be the regions management forming relevant legislation, now we see reforming through creation of rural agglom- — Ulyanovsk region has done so much that in the same China the law is diff erent, erations combining several regions, where to establish and develop economic relations and in some ways has even gone beyond all fi nancial and managerial resources will with EU countries, primarily Germany, and European. And territories of priority de- be focused, a uniform development program; suddenly foreign investors because of the velopment, as they say at the federal level, in turn it will optimize management level sanctions slowed down their activities in came from there. Perhaps we will also have and give corresponding cost savings. In Russia, after which the country turned its to adjust our legislation. Thus, the initiative our work we intend to ensure compliance attention to the South-East. Has Ulyanovsk of creating a free port in Vladivostok made with all international standards of manage- region felt the cooling itself? us think about how to adjust our legisla- ment and project activity, existing in OECD — Out of 63 investment projects im- tion and to implement a similar form at countries. The most important response plemented today none has stopped. On our level, creating a free river-sea port in to the challenges will be handling human the contrary, most of the partners have Ulyanovsk, which has an advantageous potential development, solution of personnel expressed desire to proceed with the second geographical location, good infrastructure problems, and ensuring personnel elevators. stage of construction: FM–Logistic, and that will allow to join to the New Silk way In this direction we create a large project Mars, and Legran, and Kvartsverke… In project as another traffi c artery, thereby offi ce, because today it is necessary to work addition, we have now sent a good signal connecting the East and the West. for the future. for establishment of a large industrial park But it is important to understand that associated with machine tool construction APR investors have their own mentality. For — In new economic conditions, when the (whose basis becomes the DMG Mori Seiki example, European investors, having chosen state purposefully directs budget for urgent plant in Zavolzhye industrial park — OR), the region as potential for entry, go to regional development of certain areas (science, human and already at the recent Metalworking authorities and talk about their wishes and resources, import substitution), a number of exhibition a dozen representatives of Eu- requirements. Asian ones, by contrast, do not 12 Open Region From 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 photo Stolbova Anastasya major Russian investor, off ering to organize a joint business. Therefore we are trying to At the construction of Ulyanovsk machine tool plant with a member of DMG Mori Seiki fi nd and develop a standard of comfort for board Christian Tёrnes (Germany). The regional government intends to cooperate with foreign investors no less actively… our Eastern partners. would look for other partners. Now DMG diffi cult than to win, and it is necessary — Experts predict a fall of the overall Mori Seiki made the same off er to their to look for new forms of work. We are not level of direct investment in Russia in 2015, suppliers, and most of them are ready to satisfi ed that not the whole team is involved according to various estimates, from 4.8% place their production here, too. In the in the process, not all regional authorities to 11%. At the same time, in spring you said same way we begin the second stage of of federal bodies of executive power and to the deputies that you intend to continue working around each investor, consider- municipalities, and here we have to work to improve the investment attractiveness of ing who might come after him, so that it hard. If a person says that he is placed here the region and to increase the total volume of could be benefi cial to all. “not to give a single inch of Russian land direct investments coming into the region. At to foreigners,” then let him go to another what expense? — In June at St. Petersburg international place, serve at the border. — Due to the region's stability, predict- economic forum the fi rst national rating of ability and recognition of our policy and the state of investment climate in regions — You have decided to respond to crisis team, to implementation of our promises. was presented, where Ulyanovsk region was with reforms, including region management Ulyanovsk region is not shaken by any named in the top five of absolute leaders. reforming. You create reform management events of political instability, we have no Admittedly, it does not mean that everything center, research institute of regional economy strikes, no wars between diff erent levels is fi ne. What do you consider are the main in- and agency of advanced technologies, enter of government, and other unpleasant mo- dicators in formation of a favorable business risk-based supervision model, initiate new ments. We have one of the best laws. In the environment? Where are serious gaps in the industrialization … Recently Sberbank head former, more peaceful time we managed region, in your opinion? German Gref has said exactly that one of the to properly dispose the means that we got — If you want to be successful, be suc- main problems of modern Russia is that “the from the federal budget or have cut from cessful. But between “want” and “be” there most complicated systems of government ours. We sent them not on eating away is a large and a small gap. The fact that we have largely remained archaic, and those but on development of infrastructure. are in the leading position in the national win who have invested in development of And we were right. Especially in how to ranking, in Doing Business, and others is systemically important institutions.” But he get the synergies from investments that a consequence of the fact that the execu- also doubts that in the nearest future we will have already come to us. This idea was tive team members are both involved in be able to reform the system. Do you think prompted to us by Americans who off ered this process and are passionate about it. you will be able to reverse the foundations their suppliers to localize their production Being in the top fi ve satisfi es and does not established over the decades? also here, noting that otherwise they satisfy. To save leadership is always more — We simply have no other options. We were too late to start. Although it seems ... and to establish new economic ties with South East. Reception of the Chinese delegation. 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 Anastasya Stolbova photo 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- 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 photo Stolbova Anastasya is a diffi cult question. Quite a lot of foreign Thus mutually beneficial relationships with federal center and business are established. The visit of industry investors say they are going to the region and trade minister Denis Manturov. The launching of Sengileyevsk cement plant. because “the governor Morozov himself is the guarantor for the investment project.” It meritocracy (“power worthy”, the principle most with nostalgia, as a time of stability. is clear that investors need stability and are of control when management positions are Although in reality it was a time of missed scared of any changes. On the other hand, it is occupied by the most capable people, regard- opportunities. It was then that we had to believed that periodic change of government less of their social background and fi nancial start to engage in serious reforms. The same is an essential condition for development ef- prosperity — OR), and the team will be even here. I understand that it will be very diffi - fectiveness. What is more important, in your more political. What is the point: if I look cult to push all the reforms. Someone will opinion? What main slogan do you intend to at the events from the point of view of a be off ended, someone will resist. But I'm take to the polls? professional and a politician, the ministers ready for it. Moreover, I believe that the — Of course, it is a diffi cult question. But only look at them like professionals, and majority of supporters understand that the frequent change of power, is it good? Power sometimes what is logical from a profes- time has come for a new wave of reforms, is a complicated thing. It takes away a huge sional point of view, is a profound mistake but it is they who will be able to work in amount of eff ort and energy, to some extent in terms of policy. As with optimization the new government, and the party “Unit- a person empties. It causes many people not of medical institutions, where in terms of ed Russia” will support them. In order to actually, but nominally to leave the family economy and medicine it was justifi ed, but feel satisfi ed with their work they have and totally get immersed in work, and all politically it was a mistake. And I want that no alternative. And most important, I am that carries great diffi culties for the family ministers were elected to their positions, oriented to population which understands of a man working to self-oblivion. Some, un- the parties that will win elections to the that the reforms will free up ineffi ciently fortunately, cannot withstand it, and go out State Duma and will be included in the spent funds and direct them to address of it. I want to say thanks to my family that Legislative Assembly will have the right important issues, allowing a person to understands me. But today I have not yet to delegate their representatives through develop in the region. satisfi ed my ambitions. It is clear that I am independent commissions of selectors to not going to be in this position forever, but in ministerial positions. — Probably, you already have got poten- the next fi ve years I would like to implement tial rivals in the upcoming election race for the most diffi cult stage, to return the region — Remembering Alexey Kudrin statement the post of governor, who we can even not into the leaders' club. And then to pass the at St. Petersburg economic forum that it is know yet. What are the three main qualities region to my successor with completely necessary to make early presidential elections of a worthy opponent you could call? different economics, with a completely to have carte blanche for reforms, I want to — I still owe to suggest them? They different, friendly social infrastructure, ask: are not you afraid that, beginning not must love their work, the craft of the gover- with population very much charged for totally popular reforms before the elections, nor, should be loyal to Ulyanovsk region, optimism. A more specifi c election program you increase your risks? After all, even a part and they need to believe in their dream will be based on the reforms that we are of your team, unwilling to lose something with which they will come. working out today. And, of course, there will because of the reforms, can be opposed to you. be completely diff erent requirements to the — It is a diffi cult question. Today we — Are those your own qualities? team, I want to implement the project of often recall the days of Leonid Ilyich, al- — 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 Anastasya Stolbova photo will not lose here, on the contrary, will earn much more than at home. 

New challenges are forcing to seek imaginative solutions and to work in a team. 14 Open Region Climate control

SERGEY TITOV Governors are off ered The national rating of the state of in- vestment climate in Russian regions was presented at SPIEF, and according to it, the to go by the map fi ve “absolute leaders in the integral indica- tor” included Tatarstan, Kaluga, Belgorod, Tambov, and Ulyanovsk regions. Russian President Vladimir Putin paid Region heads were shown attention to this study. Speaking at the plenary session of SPIEF, he noted that the route “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

TASS photo TASS 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 The fi rst national rating of the state of investment data the results of surveys of business com- munity were used (230 thousand people). All climate in Russian regions, presented at St. Petersburg in all there were 45 indicators, grouped into international economic forum (SPIEF) in June this 18 factors. Final aggregated parameters in each direction were formed in fi ve levels, year, according to experts, was not just an indicator where A was the highest, E the worst. of regional business environment, but also a map According to the 2015 rating, Tatarstan had the best position, having received in showing where to go, doing economic development three areas the maximum A level, and B for “support of small business”. This year of the region, and a method of assessing activities of Kaluga region has conceded fi rst place to regional and federal authorities. The leading regions' Tatarstan, having slightly reduced per- formance in “support of small business” best practices, among them Ulyanovsk region's, will (according to ASI CEO Andrei Nikitin, it be analyzed and off ered for use in other regions. At the does not mean that the indicators have worsened, “just entrepreneurs increased same time research has shown that even for leaders their requests”). Ulyanovsk region ranked there are a number of common problems, one of which fi fth among the leaders, having received the maximum index in “institutions for is traditional, the roads. business”, the B level for “regulatory envi- august 2015 15 Climate control ronment”, C for “infrastructure and human Note that in last year's pilot national while in Tatarstan the fi gure of such roads resources” and “support for small business”. rating Ulyanovsk region was on the second is 78.21%; a notable failure is marked (level Moscow moved from the fourth to the line, not having the highest score (D) only D) in the number of procedures required for second group (“regions with favorable con- on infrastructure and resources. Now, cadastral record; low percentage (1.57%) in ditions for business”), improving the index- however, a certain failure to level C is also the number of graduates who have received es of business registration and connection observed in the direction of infrastructure primary or secondary vocational education to power grid. St. Petersburg passed into the and in the direction of support for small and are employed in manufacturing, agri- same group (from the latest) by improving and medium businesses. Indicators of the culture, and transport (in Tatarstan even the same indicators, as well as improving state of road network, though improved, worse, 0.86%). In support of small and me- the quality of services on setting property however, the length of roads that meets the dium businesses this time the region was to the cadastral record. regulatory requirements is 46.89% (level C), at the level E due to insuffi cient number

National rating of the state of investment climate in RF subjects

Region Region Small Business Small Business Resources and Infrastructure Resources and Infrastructure Regulatory Environment Regulatory Environment Business Oriented Institutes Business Oriented Institutes Rank А: B: C: D: Support of Rank А: B: C: D: Support of st Karachay–Cherkess 1 group: leading regions IIIBDBD Republic Republic of Tatarstan I AAAB Republic of Bashkortostan IIIBDBD Kaluga region I AACA Sakha (Yakutia) Republic III D C D A Belgorod region ICAAB Komi Republic III B C C D Tambov region I BABC Udmurt Republic III C B D B Ulyanovsk region IBACC Republic of Karelia III B C D C 2nd group: regions with comfortable business environment Samara region III E B C B Kostroma region II B A C B Nizhny Novgorod region IIIDBDB Krasnodar Territory II A C B B Sverdlovsk region III C D D A Rostov region IIBBBB Primorsky Territory III C C C D Chuvash Republic II A C B B Republic of Khakassia III D C C C Tula region II B B C C Saratov region III B C E C Penza region IIDACA 4th group Khanty-Mansi Autonomous II C B B A Okrug — Yugra Republic of Buryatia IV B D D C Moscow II B B C C Stavropol Territory IVCDCC Voronezh region II B B C C Orenburg region IVCDBD Tyumen region II D A C B Sakhalin region IV B B E C Yamalo-Nenets Autonomous IIBBCBArkhangelsk region IVDCDC District Perm Territory IVDCCC Chechen Republic II D A B C Novosibirsk region IV D D C C Vladimir region II B B C C Republic of Adygea IV D D B B Kursk region IIDBBB Pskov region IV E C B D Leningrad region IIBBBC Smolensk region IV C D D D Kemerovo region IICACC Krasnoyarsk Territory IVDDCD Moscow region IIBBDB Omsk region IV C D E C Tomsk region IIBBDB Volgograd region IVBECE Republic of Mordovia II B A C D Khabarovsk Territory IVDCDE Kirov region IIBCCB Novgorod region IVDDDC Saint-Petersburg IIDBBB Magadan region IVEBDB Orel region IIBBBE Kurgan region IVCDCE Chelyabinsk region IIBCBD Kaliningrad region IV D E C C Mari El Republic IICACD Tver region IVDCDD 3rd group 5th group Yaroslavl region III C B D B Ryazan region VEDDD Vologda region III B C D B Republic of North Ossetia– VBEED Kamchatka Territory III B D D A Alania Murmansk region III B B C D Altai Republic VECEC Lipetsk region IIIDBDBAmur region VEECD Bryansk region III B B B D Trans-Baikal Territory VECED Ivanovo region III C B C C Irkutsk region VCEEE Astrakhan region III B C C C Tyva Republic VEECE Altai Territory III C B D C Agency for strategic initiatives data Open Region

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.”

TASS photo TASS Picture to three addresses The expert council acknowledges that in correcting the situation not everything Alexander Shokhin believes that the problem the situation in which we are, and what depends on regional authorities. In fact, is not only in roads. needs to be changed for the better.” He was the study carries three messages: fi rst to confi dent that “this methodology is much regional authorities about the shortcom- of workers and entrepreneurs engaged in fi ner and more diverse than that off ered by ings and the ways to improve, second to the small business, which is 16.09% of the total “Doing business.” Rating should become federal center on general problems under employed population (in Samara region also a mandatory tool for those regions which its purview, and third to the investors 16,09%, and 25.58% in Tatarstan). There was are lagging behind. This will give them an themselves on where to direct their eff orts also a low level of businessmen's satisfac- opportunity to move forward,” said deputy and what to look for. As it was explained by tion with conditions for obtaining space prime minister. Maria Glukhova to OR, the expert council for rent (the highest fi gure is in Samara intends not only to spread the best practices region and Tatarstan). “The problem is not only of the leaders for use in other regions, but in the roads” also to send a “picture with all the bottle- Marks were set by business Meanwhile, we must recognize that necks” to regional authorities as well as to As specifi ed in documents of the study, “problems palette” in the regions is quite federal structures. the methodology of indicators calculation wide and varied. Member of the expert Alexander Shokhin believes that national takes into account existing experience of committee, RUIE president Alexander rating becomes a good tool in formation the best Russian and international rank- Shokhin drew attention to “five major of a comfortable business climate in the ings. Three types of data were used: statis- adverse outcomes” inherent to virtually all country, the regional authorities will cer- tics service (Rosstat), results of surveys of regions. According to him, infrastructure tainly respond to the results of research experts (35-40 for each region on the basis received low grades. “But the problem is and apply the best practices, which was of lists of candidates submitted by “Support not just the roads (one of the participants shown by the results of comparison with of Russia”, Russian chamber of commerce, of the presentation asked: “And the fools?”) a pilot rating. Russian union of industrialists and entre- but also the quality of telecommunications Ulyanovsk region first deputy prime preneurs (RUIE), “Business Russia”, and service. Improving the quality of mobile minister Alexander Smekalin, who heads ASI), and results of surveys of direct partic- communication and Internet access lays the region development unit, said that the ipants of the spheres studied, businessmen behind business requirements. Previously government of the region analyzes the short- (230 thousand people). And the interviews Telecom received high marks, but now in comings and intends to maintain its leading of experts and entrepreneurs became the the ranking its average value was only 3.61 position in the future. “A year ago the region basis of study conclusions. “The main part points (out of fi ve - OR),” said the RUIE had a problem with building permits, it was of performance is surveys, statistics are not president. Entrepreneurs, he said, are one of the worst practices, and today we have as much,” explained to the Open Region also unhappy about availability of labor become one of the best in this. It shows that (OR) Maria Glukhova, head of the rating resources, regional business support in- we can infl uence the processes, and we will expert council, RUIE managing director struments, effi ciency of regional agencies do it. We will only move up, we have all the on economic policy and competitiveness. for investment promotion, low availability chances for it,” he concluded. In her opinion, polls give quite objective of real estate, and unavailability of loan Iwao Ohashi , advisor on Japan and picture, the more that “in russian statistics fi nancing. Asia-Pacifi c region for Association of indus- the element of subjectivity and incomplete- Mrs. Glukhova noted that “the work of trial parks, considers that ASI and Ministry ness of data is still higher.” special development agencies in the regions of economic development “have created a It is worth noting that the rating, ac- is worse than the roads, it's a disaster. And very good tool for development, but now cording to its creators, characterizes not if roads condition requires intervention of you cannot leave the results in silence. Now so much the investment attractiveness of a the federal center, this is completely the it is important to be able to show to foreign region, as the actions of regional authorities area of responsibility of regional author- investors, to declare loudly what has been aimed at ensuring a comfortable business ities, in contrast to heavy infrastructure done and how the business climate will climate. As fi rst deputy prime minister such as transport or even staff .” However, improve,” said Mr. Ohashi. However, the Igor Shuvalov said, the study “allows to in her opinion, staff is still a big problem advisor noted that the decisive factor in show the whole palette of problems, pro- for all, “although the situation there is not decision-making of investors will still be vides a comprehensive understanding of as critical as with the roads.” a clear calculation of the future.  august 2015 17 Infrastructure 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.

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 illustration ESTATE INPROM to be in demand, and now a trend appeared: In Simbirsk industrial park potential residents can already look at ready premises. foreign and Russian companies have begun to enter the market, creating private in- to provide agricultural products not only for investors and help to solve problems dustrial parks without state participation. for Ulyanovsk region, but also for export on infrastructure construction. It is more In Ulyanovsk region there is one to neighboring regions. It is planned to diffi cult to create such a park because we example of private parks, the project of provide the park territory with fully au- will seek investors only in one direction; an agro-industrial park implemented by tonomous infrastructure. DEGA Group's however, in terms of development of the the Swiss development company DEGA partner on the project is the E.ON com- region this is a plus: in one area a cluster Group. Initially the project was planned pany, which will ensure the park's own of agricultural processing will be actually to be implemented as a multi-special- generation of electricity by building on its formed, including a full cycle of production ty industrial park, but because of the territory an autonomous thermal power of agricultural products.” changed foreign policy the concept had plant. Investor, in turn, will build gas, Note, crisis conditions have prompted to be revised, currently it is reconverted water, and wastewater networks. At the a number of large industrial enterprises into a specialized agro-industrial park end of project implementation about 6,000 to formation of industrial parks on their for processing of agricultural products. A workplaces will be created in the park. fairly large areas, vacated in the course full cycle Dega Ulyanovsk agropark model “Processing of agricultural products in of production optimization, the use of contemplates implementation of full- the framework of a specialized industrial new technologies and transition to out- scale agricultural production on an area park is a new direction, which we have not sourcing. Wherein, instead of extra cost of over 200 hectares, including a variety of encountered. Earlier we created parks for of additional ineffi cient areas, businesses directions (greenhouses, recycling ready non-food industries. This is a new example earn extra income by renting or purchas- agricultural products, meat processing that we have to implement together with ing industrial park plots and also fi nd new and confectionery plants, factories for DEGA group,” said the head of the develop- partners among residents. Thus, in June, production of dairy products). After imple- ment corporation of the Ulyanovsk region 2015 UAZ industrial park was officially mentation Agropark capacities will allow Sergey Vasin. “The corporation will look opened in Ulyanovsk region. Brownfi eld 18 Open Region Infrastructure 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- photo Stolbova Anastasya lease type: off er space for rent to businesses, where you can just come and rent a ready- UAZ relieves part of its areas for the industrial park, which is now able to accommodate UAZ component made area for placement of production 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, facilities or offi ces. Zavolzhye technopark receiving new partners in exchange. (Capital HC) will be built in the left bank part of Ulyanovsk, it will have a total area fi nished premises, in Zavolzhye industrial istry held a competition for the “Industrial of production and storage facilities of park you can “do a project for yourself” at Parks” subprogram in the frame of state 20,000 m2. All necessary infrastructure the design stage. program “The development of industry will be brought to the site. Currently the The state, in response to new trends in and increase of its competitiveness” for the company is engaged in designing, for the development of industrial parks, forms right to provide subsidies to RF subjects summer months it is planned to carry out support measures for the subjects of the for the costs incurred in creating infra- preparatory work at the site and then to be- Russian Federation, parks management structure of industrial parks. Request from gin construction. Simbirsk industrial park companies and investors who implement the region, prepared by Ulyanovsk region of Inprom Estate company will be located their projects in them. Since July, 2015 the development corporation, was among the at the base of one of the buildings of the Federal law “On Industrial Policy in the 28 requests which were approved by the Ulyanovsk city former radio lamp plant. Russian Federation” came into force. It Ministry of industry. At the moment the investor completes legislatively strengthens the status of the Sergey Vasin believes that today a strong reconstruction and repair of the building. industrial park. Experts point out that the support of industrial parks on the federal The area of production, warehouse, and new law is intended to have a stimulating level is required not only for state parks, offi ce space will be more than 11,000 m2. effect on development of the branch of but also for private ones, “because private These sites are created not so much for industrial parks. investors put their money in construction of external, but for domestic investors, for Last year the state, represented by RF infrastructure and are forced to pay back the Ulyanovsk small and medium business. Ministry of industry and trade, introduced invested costs”, while, for example, special Local entrepreneurs can come here and rent an additional measure of support, subsidiz- economic zones, being federal territories, good quality premises. In Simbirsk park it ing interest rates on loans for infrastruc- receive land free of charge and build infra- is already possible to come and see almost ture in industrial parks. This year the Min- structure through the budget. 

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august 2015 19

DEVELOPMENT TERRITORIES

ZAVOLZHYE INDUSTRIAL PARK DAAZ INDUSTRIAL PARK One of Russia's first certified industrial parks. (Dimitrovgrad) The site type: greenfield. The site type: brownfield. Provided with all necessary engineering and transport infra- Industrial buildings with all necessary infrastructure, storage and structure. office space, favorable logistical status of the area. Residents: EFES, MARS, TAKATA, nanocenter, Bridgestone, Nemak, Schaeffler, DMG MORI SEIKI, Jokey Plastik, Legrand, CCA Engineering, UAZ INDUSTRIAL PARK Hempel, Martur, Narodny Plastic, Molvest. (Ulyanovsk) Support for residents is provided by the region industrial parks The site type: brownfield. management company (subsidiary of Ulyanovsk region development Industrial buildings with all necessary infrastructure, storage and corporation). office space, favorable logistical status of the area.

ULYANOVSK SPECIAL ECONOMIC PORT ZONE ZAVOLZHYE TECHNOPARK Federal site for placement of industrial production with a special status: tax breaks for 15 years, provided in the region for invest- The site type: built-to-suit. ment projects, as well as customs privileges, stipulated by federal Russian Capital HC private industrial park with production, storage, legislation. administrative, and office space for lease. The site type: greenfield. Residents: AAR Rus, FL Technics Ulyanovsk, InterAvionika, SIMBIRSK INDUSTRIAL PARK PROMTEH-Ulyanovsk, Volga-Dnepr Technics Ulyanovsk. The site type: built-to-suit. Russian Inprom Estate company private industrial park with DEGA ULYANOVSK AGRO-INDUSTRIAL PARK production, storage, and office space for lease. The project is imple- The site type: greenfield. mented on basis of one of the buildings of former radio tube plant Full cycle park for processing agricultural products is created in in Ulyanovsk city. the region by DEGA Group Swiss company. The main directions of agricultural production, presumed by the park concept: greenhouses, INZA INDUSTRIAL PARK recycling of finished agricultural products, meat processing and The site type: complex. confectionery plants, dairy products factory. Includes three industrial sites for placement of production facilities in Inza district of Ulyanovsk region. Distance to the regional center NOVOULYANOVSK INDUSTRIAL PARK (Ulyanovsk): 164 km. The site type: greenfield. Located in 10 km from the city of Ulyanovsk. In the immediate DIMITROVGRAD INDUSTRIAL PARK vicinity of the town of Novoulyanovsk. The site type: complex. Distance to: For placement of industrial facilities. Located in the Research insti- ● federal highway: 1 km. ● airport: 15 km. tute of atomic reactors industrial area within the city of Dimitrovgrad. ● cargo river port: 3 km. Distance to the regional center (Ulyanovsk): 90 km. Residents: ● Globus company: a logistics complex. KRASNY GULYAI INDUSTRIAL PARK ● Technonikol corporation: production of extruded polystyrene The site type: complex. foam. Located in Sengileevsky district of Ulyanovsk region, Krasny Gulyai ● Technonikol corporation: factory for production of glass wool. and Silicatny settlements. Distance to the federal highway: 30 km. Specialization: building materials, glass industry. NOVOSPASSKOE INDUSTRIAL PARK Residents: Tashlinsky mining and processing plant, Silikatchik, The site type: greenfield. Quartz, Henkel Bautechnik, Unis company group, Simbirsky kamen, Ulyanovsk region, Novospasskoye settlement, 840 to 847 km Finance+, Sedrus. from M5 Ural highway. Novospassky district minerals: Investors, realizing particularly significant projects in Ulyanovsk deposits of oil, oil shale, phosphorite. Residents: Starately company: production of dry construction region territory, are provided with 15-year tax holiday, allowing to mixtures. save from 30% to 40% of all costs. 20 Open Region ULYANOVSK REGION INDUSTRIAL PARKS INDUSTRIAL REGION ULYANOVSK august 2015 21 Special conditions SEPZ expands the gates

Ulyanovsk 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.

VIKTORIYA CHERNYSHEVA Successful time According 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 Sergey Ershov photo fi eld of import substitution, prompting a Ulyanovsk SEPZ expands the types of possible activities, but the aviation direction remains one of the major number of Russian projects to a quick start. ones. On the zone layout prospects of its development are demonstrated to UAC head Yuri Slyusar. Earlier they did not have enough oppor- tunities for realization, they were forced existing SEPZ residents plan to be entered confirmation of its credit facility from to compete with big transcontinental into the program of import substitution, Vnesheconombank to the extent necessary, companies. Now Western countries have such as PROMTEH-Ulyanovsk which makes considers that “the crisis can be best time artifi cially eliminated this competition cable network for the entire product line of for the investment phase of the project, themselves,” says CEO. According to him, aircraft produced in Russia. so that by the time of economic growth now SEPZ leadership is negotiating with Other residents of the port zone see resumption we could enter the market many companies from the public sector, more pros than cons in the new economic with a new company.” He also believes involved in import substitution program; reality. Thus, Mikhail Vinogradov, head of that the direction which resident origi- among the main areas are aviation indus- the AAR Rus company (MRO and logistics, nally planned to deal with, maintenance try, power generation, production of du- the company's owner is Muharbek Aushev) and repair (MRO) of domestic and foreign al-use goods, composite industry. Already who has received, despite the crisis, the aircraft, in the situation of cheapened ruble Open Region

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. 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 Ulyanovsk SEPZ photo SEPZ Ulyanovsk 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 has best prospects, because “about half the We must admit that list of SEPZ resi- with AAR Rus that in addition to MRO cost of maintenance and repair is the cost dents has changed today. “Having become a plans to get engaged in logistics. In this of staff , which became much lower in dollar victim of circumstances”, a project to build area the company is focused on Chinese equivalent. This opens the opportunity for Vityaz aircraft factory for production of partners and already intends to sign a Russian providers to return most of the Canadian aircraft DHC-6 Twin Otter Series number of agreements before the end of work from abroad to Russia, even despite 400 was closed. However, Mr. Baryshnikov the summer. One of the priorities is the the decreasing volume of traffi c and airlines says that in the segment of small aircraft development of Silk Road economic area, problems,” said Mikhail Vinogradov. a program of import substitution is being in connection with which it is already Given the new perspectives on the back- actively implemented, and therefore soon- expected to expand the SEPZ warehouse, ground of the crisis, the AAR Rus has ad- er or later a domestic analog will appear, construction of a railway terminal with justed their course and came to exploring which, with high probability, will come container area, establishment of a regular the possibility of establishing in SEPZ a to the port zone. “The maximum number container train from the Chinese border MRO center not only for aircraft but also for of competencies required for production of to the port area. “Customs preferences aircraft engines, both Russian and foreign. these aircraft is in our territory. It would allow us to offer Chinese companies a This trend, according to the head of the be completely unreasonable and irrational competitive integrated logistics solution company, may be a separate project in SEPZ. to bypass Ulyanovsk: such business combi- for delivery of goods from producers to nations to implement new air projects in end-customers in the Volga Federal Dis- “Gentleman's set” Russia are virtually present nowhere else,” trict,” said Mr. Vinogradov. According to It is worth noting that today SEPZ says the head of Ulyanovsk SEPZ. him, AAR Rus also hopes for implementa- changes its strategy: fi rst it was intended Meanwhile, after removal of restrictions tion of long-standing plans of the region solely for enterprises of aviation industry. on the business profi le the circle of zone government and Volga-Dnepr SC to create Now changes in the federal legislation have residents has expanded, zone has got a an aviation hub on the basis of SEPZ: “It removed former requirements that allowed unique advantage over other federal SEZs: is high time to stop carrying everything residents to carry out activities in the fi elds only in Ulyanovsk residents are now able through Moscow. Only in a radius of 500 of aviation and logistics. to conduct operations without restrictions kilometers from SEPZ over 30 million “We have fully worked out the aviation in logistics, trade, production in any area. people live, and decentralization of cargo industry. We already know who will come to “Today our “gentleman's set” is very broad. fl ows is long overdue.” The company is us from the aviation industry and can come We can register the entire spectrum of willing to join the project by providing in the next fi ve years. Aircraft construction businesses, from the lightest: trade, sim- their logistics services, warehousing and projects are long-term, taking much time, ple assembly operations, to more complex rail infrastructure, as well as a hangar predictable, additional work to attract in- and profound technological cycles,” Denis for maintenance and repair of aircraft.” vestors is not required,” says Denis Barysh- Baryshnikov explains. nikov. He said that “a number of aircraft Ulyanovsk region development corpo- Cooperation “magnet” types just have not got off the paper, they ration" (URDC, engaged in attracting in- Despite the empowerment, SEPZ are under experimental de velopment, but vestment, the minority shareholder is SEPZ residents are selected by following the over time these businesses will get mature Ulyanovsk) specifi es that they are working main principle: the priority are sectors and come here themselves, they will need today “with a variety of manufacturing with a competitive advantage for plac- the set up infrastructure. Among them are companies, especially if they are related ing exactly in Ulyanovsk region. This, a large number of cases of MS-21 project,” to import substitution or plan to work according to Denis Baryshnikov, “allows as well as the Rostec project (together with not only in Russia but also in the foreign us to build effective interaction cluster Austrian Diamond Aircraft Industries) for markets. Today it became possible to attract and cooperative ties, especially because construction of multi-functional small investors who did not work in Russia, but experience of Ulyanovsk Zavolzhye in- aircraft made of composite materials with now, after ruble devaluation and sanctions, dustrial park residents shows that in diesel engines and 9-19 places (Aerocom- are interested in coming here. We try to addition to various benefits one of im- posite plant location in Ulyanovsk is also calculate and find them. In particular, portant factors for investors' entering in favor of in this project ). these are companies from China, South are the markets. Cooperative ties with august 2015 23 Special conditions customers or suppliers must be viewed. A niche is found cooperation between the zones already Rightly chosen combination of business- The following year at the SEPZ territory exists: for example, PROMTEH-Ulyanovsk es in the territory forms intangible assets: an industrial park will be put into operation has a design offi ce in Dubna, and its mass we become appealing simply because with production and storage facilities, of production is here. And there will be more we have placed right businesses in our 10 thousand square meters total area. By such examples,” sums up Mr. Baryshnikov. territory. And scale effect within indus- 60 percent it has already been booked by The head of Aviaport analytical services tries attracts new companies to the same potential investors. agency Oleg Panteleyev is not sure that segment,” said the SEPZ head. According The region fi rst deputy prime minister Rostec project to assemble small aircraft to him, such SEPZ strategy will not give Alexander Smekalin notes that “experi- will receive a signifi cant development in rapid effect, but it will pay dividends in ence has shown that this infrastructure the next few years, because “now it is not the future when correct cooperation is is very important,” if earlier greenfield the best time to rely on budgetary support, formed, which will become a magnet for industrial parks were created (networks and Rostec has not got suffi cient amount additional businesses. and area are ready, come and build), in of own funds to fully invest the project.” Already there are examples of such at- the new economic reality medium busi- According to the analyst, “SEPZ aviation traction. AAR Rus company is ready to work nesses are actively coming to Russia. And potential was shaken a few due to the fact with SEPZ resident Volga-Dnepr Technic it is most important for them to go to the that the Canadian projects (Vityaz and Bom- Ulyanovsk to carry out modernization market quickly, to fi x, to understand the bardier) were closed. Besides the obvious and maintenance of An-124-100 aircraft. niche, and only after that to decide on political factor, no less obvious currency After completion of the hangar complex investments, on their own construction. factor had its infl uence: there is no doubt the company also intends to participate in Thus, the industrial park in SEPZ is a kind that under the current ruble exchange rate production programs for new and prom- of business incubator for medium-sized investors could not fi nd customers in Rus- ising SSJ and MS-21 aircraft in terms of companies,” says Mr. Smekalin. According sia,” said Mr. Panteleyev. At the same time customization. to him, this is a new step in development he is confi dent that “we cannot consider At the same time collaboration is of infrastructure in the region in response that the main, aviation component of the planned with Spektr-Avia painting com- to a serious nowadays inquiry. Besides port zone is practically closed: international pany and with another resident, InterAvi- this, the regional authorities have an idea cooperation will still, to a greater or lesser onika company, specializing in avionics of creating in SEPZ a various equipment degree, be restored, and prerequisites for systems. In addition, for businesses of maintenance and repair center as well as development of international projects will engineering and machine-building cluster a showroom, including helicopters. resume, and thus there again will be a clear AAR Rus is ready to off er customs clearance "We have found our way and work in need for business on SEPZ territory. In ad- and consolidation services of imported pro- niches where we have our own unique dition, interest in creation of MRO centers duction. As explained by Mr. Vinogradov, competitive advantage, which other SEZs will sooner or later rise since the park of “unlike traditional customs procedures have not got. I don't think that it's right foreign aircraft operating in Russia was not with temporary storage, free customs zone for federal zones to compete among them- radically reduced, and in conditions when procedure will allow import in less time, selves, dumping, “getting undressed” be- the ruble fell signifi cantly these projects with less risk and cost.” fore the investor. In this case investors only increased their appeal. Russia has a SEPZ Ulyanovsk management also plans start to locate not where it is naturally window of opportunities to increase the vol- to build a hangar complex for maintenance advantageous, but where the benefi ts are ume of repair operations and, theoretically, and repair of aircraft, it will be a little artifi cially created. Our natural advantages to attract foreign carriers,” said the expert.  hangar for single-aisle aircraft for lease are location, proximity to airport, system of to residents. It is noted in SEPZ that “so aircraft, autocomponents, and composites AAR Rus completes construction of a warehouse investment risks are reduced for residents, cooperation ties that exist only here and complex on SEPZ territory and then proceeds easing their entry into the project.” nowhere else. The practice of effective to MRO project realization. Ulyanovsk SEPZ photo Marina Lysceva photo Lysceva Marina

The state defense order for IL-76MD-90A production became the basis for stability of the aviation cluster. Rise above the fall Ulyanovsk aviation cluster has felt positive impact of the crisis 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.

SERGEY TITOV Aerocomposite plant, Volga- Dnepr airline, Ulyanovsk instrument design bureau, branches of JSC Tupolev, National institute of aviation technologies (NIAT) and Ulyanovsk aviation cluster was one of the fi rst that were under all-Russia scientific institute of aviation materials (VIAM), Ulyanovsk high school the infl uence of the crisis, sanctions, and deterioration of relations of civil aviation (UVAU GA). One of the aviation cluster goals is attracting foreign between Russia and Ukraine. Events in Ukraine led to the fact investors for introduction of modern aviation technologies. that implementation of the Russian-Ukrainian project to resume An-124 Ruslan production has become virtually impossible. Due to However, Aviastar-SP itself, unlike other engineering compa- the Ukrainian ban on dual-use items exports to Russia (including nies, has not felt any serious consequences of the crisis. According engines) the modernization program of AN-124 aircraft working to the company CEO Sergey Dementiev, it is due to the fact that in Russia has stalled. Canadian Bombardier has stopped its joint the plant has a reliable state defense order for production of IL- project with Rostec to create a joint venture on Q400 aircraft assem- 76MD-90A (39 aircraft of various modifi cations of this type are to bly in Ulyanovsk, Vityaz aviation plant company has suspended be constructed until 2018, it is estimated that by 2025 the plant can implementation of its project for production of Canadian aircraft produce more than 100 aircraft of this type). Moreover, said CEO, DHC-6 Twin Otter, because of the sanctions the American AAR “the crisis had a positive impact on Aviastar personnel problem, Corporation has abandoned their intentions (AAR Rus company and now foreigners are coming to the plant. This is about the owned by Muharbek Aushev remains SEPZ resident). aviation personnel arriving from Ukraine, and many of them are highly qualifi ed professionals who have gained great experience Ulyanovsk aviation cluster as a form of interaction between geographically at the Ukrainian aircraft plants.” adjacent interconnected enterprises began to take its shape in 2009, today it It is worth noting that the crisis has pushed Aviastar to more includes 69 enterprises and organizations. The cluster core is Ulyanovsk Avi- rapid solution of the problem of minor works transmission to astar-SP aircraft plant, the only Russian special economic port zone (SEPZ) on outsource, while earlier the aircraft plant was reluctant for that. the basis of Ulyanovsk-Vostochny airport becomes the second most important But the need to save money and to improve production effi ciency area of interaction; among the cluster significant participants there are also has forced the company to start the transfer of some operations august 2015 25 Avia to third-party companies, some of which will be located in the politics, continuing to work both on attracting foreign investors immediate vicinity, on SEPZ territory or in Zavolzhsky industrial in terms of localization of their business, and on entry into the park. In addition, as it was explained to the Open Region by the supply chain of aircraft components abroad. For example, there CEO of the UAC-Transport Aircraft business unit Vildan Zinnurov, are no insurmountable obstacles for Aviastar aggregate produc- “it is time for everybody to think whether in terms of the budget tion to become a supplier to some of the western producers,” said defi cit it is worth buying en masse new expensive imported Oleg Panteleyev. Note that the current ruble exchange rate makes machine tool and other equipment, when non-core work can be these supplies even more profi table. given to outsourcing. This should be done to focus on reducing According to the expert, the ruble fall has not only negative assembly cycle of aircraft, so that it would be not two years but impact on aviation, but also positive: “Aircraft, including Tu-204SM, 14 months. Bottlenecks are many, and they should be removed, have got very attractive price. However, lack of their operation ex- and only this way it can be done quickly. And the crisis is forcing perience does not give foreign companies grounds to believe that to make it more soon,” said Mr. Zinnurov. this is a good buy, and for reducing risk they still prefer Boeing According to Sergey Dementiev, Aviastar-SP has already begun and Airbus. So it will not work to get a positive eff ect at once from outsourcing large volumes of work. Thus, PROMTEH-Ulyanovsk exchange rate diff erences. It is because of the ruble exchange rate (SEPZ resident) has started to produce sets of all necessary cabling that foreign design aircraft assembly in Russia temporarily became for aircraft manufactured in Ulyanovsk. “And, in addition, the irrelevant” (including Ulyanovsk projects Bombardier Q400 and plant makes cable networks for the entire product line of aircraft DHC-6 Twin Otter), because their dollar nominated price would produced in Russia, both military and civilian subjects,” said the have become insurmountable obstacle for the demand. But he is Ulyanovsk SEPZ CEO Denis Baryshnikov. Also, according to him, sure that MRO projects, on the contrary, become more attractive an aircraft customization center is being formed at the SEPZ terri- since the bulk of their cost price is ruble expenses, and for foreign tory (interior installation, painting, fi nishing). Sergey Dementiev investors “the window of these opportunities is still open.” said that currently Aviastar also intended to outsource activities “From the point of view of common sense and just of money on machining. It is expected that Ulyanovsk machine tool plant today it can be extremely profi table for the Europeans to cooper- (100% German-Japanese DMG Mori Seiki concern), located in ate with Russia in the fi eld of aircraft, but the political risk is yet Zavolzhsky industrial park, will take over part of the work. high,” said the expert.  Sergey Dementiev recognized that there was only one problem yet, implementation of AN-124 Ruslan modernization program. It Vildan Zinnurov notes that because of relationship with Ukraine further has been suspended until the problem of aircraft engines D18-T difficulties have arisen with AN-124 aircraft, at the same time “the sanctions repair in Russia is resolved, “but the problem is being solved.” And case has influenced positively” Tu-204SM project. 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 Pavel Shalagin photo 26 Open Region Efforts & results Partnership acquires prospects Results of investment activity in the region have shown positive dynamics

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).

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 Luybov Chilikova photo building a tire plant, the Danish Hempel Ulyanovsk region development corporation CEO Sergey Vasin admits that “it has become more difficult to (paint production, 800 million rubles), work: european and american companies are cautiously looking at Russia.” the Japanese-German DMG MORI SEIKI (machine tool plant, more than 3 bllion CCA Engineering intends to build a train- attracting investments, 100% owned by rubles), the Mexican Nemak (automotive ing center and a hotel, a Turkish Martur the region), new types of industrial sites components, the investment of 2 billion company is to organize production of are also formed in the region. In addition rubles) and German Jokey Plastik (plas- automotive components. to parks such as greenfield there are tic packaging, 900 million rubles) are According to Ulyanovsk region devel- brownfield grounds (based on existing completing construction work. German opment corporation (URDC, engaged in industrial buildings) and built-to-lease august 2015 27 Efforts & results

(rented buildings). Such projects are ac- tively implemented by private compa- Ratings 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- 2014, 2015 anovsk region government and devel- opment corporation are looking for new forms of work, develop new approaches potential markets. Also there are new investor,” emphasizes Sergey Vasin. The and proposals for Russian and foreign business opportunities related to ruble priorities of center for PPP development companies. This is due to the fact that, depreciation and the government's policy will be: improving legal and regulatory as recognized by corporation CEO Sergey on import substitution. We are forming framework in the region in the field of Vasin, “work has become more difficult: and sending specifi c investment proposals PPP; concept development of PPP projects; European and American companies are to companies,” explains URDC CEO. development of cooperation with leading cautiously looking at Russia. If these According to him, the main industry, in Russian institutions of public-private companies that had already come here which attracting investors is carried out, partnerships, introduction of methodical were convinced of favorable investment are sectors defi ned by development strat- recommendations and best practices of climate in Russia as a whole and in egy of the region: aviation and automotive other regions; coordination of activities Ulyanovsk region in particular, and con- industries, food processing, construction of ministries and local authorities in the tinue to invest, then the new, who are materials, and others. In the current eco- region in development of PPP sphere. only planning to enter our country, are nomic situation less companies, involved Mechanisms for public-private partner- very careful, they are slower at taking de- in production of automotive components, ships have been applied in Ulyanovsk cisions and slow down projects. But none are in negotiation stage due to the fall in region since 2006. At the end of 2014 the of investors who already implemented demand in the automotive market; the region ranked 12th on the level of PPP, projects in our region gave up their im- interest has shifted to segments of food showing the highest growth among all plementation and stopped construction,” industry and agriculture, building mate- subjects of the Russian Federation, hav- says Sergey Vasin. rials and machine tool industry. ing risen at once by 60 positions. The In this situation the region expands New promising direction of corpora- success has been made possible thanks the horizons of cooperation and forging tion work this year has been development to a number of steps: adoption of the partnerships with Eastern countries, such of public-private partnership. In 2015 a regional law on PPP in 2014, conducting as China, South Korea, Turkey, the United center for development of public-private training seminars for representatives of Arab Emirates. “Not leaving the work in partnerships (PPP), based on the corpo- authorities and municipalities, as well the western direction, we are actively ration, began operating, which will deal as implementation of large capital - in- looking for investors in Asia. But since with “packaging” and accompanying tensive projects over the past few years. we have just started to work in this area, projects. “The state has the need to cre- Most recently governor Sergey Moro- the fi rst results are expected not earlier ate social objects in the fields of culture, zov has given instructions for creation than next year,” says Sergey Vasin. An- medicine, transport, sport, housing and of a new mechanism for development of other new focus of URDC work in new communal services, while private part- industries which will be implemented in economic environment became develop- ners have their own or credit means, Ulyanovsk region in the next two years, it ment of ready-made business solutions they are ready to invest in construction will be the formation of so-called “project for potential investors. "We are working of new or reconstruction of old build- offi ces” in the industries. In each industry on options for business development in ings with a view to continue providing a “project offi ce” will be created on the terms of favorable logistical position of quality services. Our task is to escort basis of the development corporation (out- Ulyanovsk region in the center of the Vol- similar transactions qualitatively, so side of the government, organizationally ga Federal District, the European part of that they benefit both the Ulyanovsk acting as a commercial organization), Russia, from the point of view of shipping region population in the form of new which will be purposefully engaged in by sea and river Volga and availability of hospitals, clinics, kindergartens, and the development of its area. 

Direct investments by years, bln rubles 28 Open Region New technologies The key to the right transmission The region is looking for ways of technological breakthrough

VASILY PETROV Ulyanovsk government announced that it was preparing At the meeting of Ulyanovsk regional a program of the region new industrialization government in mid-June governor Sergey “to make a technological breakthrough”. It is expected Morozov announced the need to create a new program of region industrialization. that the program will be the basis for changing the According to Mr. Morozov, it is necessary “to create a powerful scientifi c and educa- system of regional management. However, experts tional potential to make a technological believe that it requires modernization of management, breakthrough.” According to him, the pro- gram should “fi nish building close relation- which may be the most diffi cult task. 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 Sergey Ershov photo that development of the park will boost the number of small innovative enterprises in Apparently, this situation in time of to Russian economy,” development of own the region is not yet implemented, active sanctions makes regional authorities industrial base on the basis of technologies cooperation of foreign investors with local launch a new program of industrialization. of the future. businesses and scientifi c community in Recall, already in 2011 “Support of Rus- There are yet no details of Ulyanovsk re- the fi eld of modern technologies has not sia” public organization of entrepreneurs industrialization plan. The regional agency been established (the exception was the for the fi rst time announced this need, of advanced initiatives, technologies and Ulyanovsk nanocenter). As the Ulyanovsk being concerned with apparent degradation projects (under registration) was intended region development corporation (URDC) of production sector in Russia. In the road to develop this program. According to the CEO Sergey Vasin noted, “today local busi- map of new industrialization proposed governor adviser Sergey Galant, head of nesses interact with foreign investors by “Support of Russia” an action plan was the created structure, the agency will act almost exclusively in provision of ser- off ered, including transition of state ad- as a project offi ce of the program, similar vices: transportation, utilities, storage ...” ministration to the design, target-orien- to the federal program, for which Agen- Scientifi c developments of Ulyanovsk sci- ted principle, improvement of business cy for strategic initiatives (ASI) and the entists, as a rule, remain unclaimed at climate, import substitution, removing structures of RBC have become the project the enterprises. The fact that companies, any barriers with EU (“creation of a single offi ces. Mr. Gallant notes that the program solving immediate problems, do not hurry economic space of Large Eurasia in future”), fi rst stage for the next fi ve years should be to invest in research and development, was “stimulating foreign direct investment, import substitution; reindustrialization stated in June this year at St. Petersburg necessary to attract fi nancial resources and “as introduction of new world technology” economic forum. latest technologies in order to adapt them is considered as a medium-term objective august 2015

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- Sergey Ershov photo gion for technological breakthrough are Thanks to state support scientific research institute of atomic reactors has managed to maintain and backed by a number of factors that rein- develop competences in nuclear innovation sphere, to introduce new unique technologies. Today various force each other: developed production and types of its products are in demand abroad. administrative infrastructure, presence of a decent human capital and existing Strategy Partners Group experts are of the attractive for investors, in which, passing industrial ecosystem, as well as unique same opinion. to deep localization, they will be interest- geographical location. Strategy Partners How, and by what means import of ed in working with local manufacturers Group partner Sergey Lozinsky believes technologies will happen, is still unknown. and developers. Thus, DMG MORI SEIKI that Ulyanovsk region gets a great chance Regional Ministry of economy expressed company (Ulyanovsk machine tool plant) to leap in development. cautious optimism that accomplished ruble has already expressed its desire to devel- However, according to experts, yet there depreciation has created favorable condi- op technology together with Ulyanovsk is nothing specifi c in plans of technologi- tions for foreign investors (reduction of enterprises. cal breakthrough implementation. Finam costs for salaries and infrastructure) for Experts believe that Russia (Ulyanovsk Management leading expert Dmitry Ba- deep localization of their production, and region in particular) has strong research ranov notes that it is yet unclear in what this in turn may contribute to import of and design capabilities in a number of ways it is planned to achieve the goal, and technology. However, Mr. Baranov believes ways. We just have to break the chain what resources would be required: “So far that “no foreign company will create a of distrust for Russian developments, all this is at the level of though correct, but competitor for itself with its own hands, believes vice-rector on science of Uly- yet a declaration of intent, although such so it is useless to speak of industry deve- anovsk state technical university Nade- a declaration can already be considered a lopment, based on technologies that foreign zhda Yarushkina. In her opinion, it is success.” investors use.” necessary to demonstrate success sto- Meanwhile, co-chairman of the council “This is not a reason to refuse from ries to elicit the interest of investors: “a on national competitiveness, World Bank foreign investments,” Strategy Partners competitor has succeeded, I will try this expert Andrey Shestopalov considers that Group experts say, noting that “no country experience.” program implementation requires reor- in the world could carry reindustrial- So far only Ulyanovsk nanocenter and a ganization of administrative apparatus ization without involvement of foreign number of city enterprises associated with in the fi rst place. “The control system is investors,” and Ulyanovsk region cannot military-industrial complex successfully archaic and does not account for the rate of be an exception. integrate foreign and domestic develop- change,” states the interlocutor, adding that At the same time, regional government ments and technologies. At the same they innovation is fi rst needed not in industry, hopes that the course taken in the region to use radically diff erent approaches: if nano- but exactly in the fi eld of management; cluster development creates an ecosystem 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. 

Sergey Ershov photo Ershov Sergey 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 possible. 30 Open Region Innovation With the wind at the head 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.

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 Inara Nikishina photo Russian union of scientifi c and engineer- ing associations, the decision to establish mated at 4-5 years (2016-2017), and it had to rently reached 55%, that already calls for a wind park was taken by SESNa because pay off in 5-7 years with an investment of organization of wind turbines production of lack of 6 MW of generating capacity in 150-200 million dollars. in Russia. Zavolzhsky district. Wind park site was However, according to Sergey Gribkov, As a result nanocenter has engaged chosen near the village of Arkhangelskoye “we had to give up foreign partners for in wind park. According to nanocenter at the city eastern border. The project en- the sake of ensuring necessary degree of deputy CEO Oleg Paderin, “the project is visaged construction of a wind park of 10 localization to obtain state support”: at the now at the stage of assembly,” and two turbines with total capacity of 25 MW, with start of designing the necessary degree of main scenarios for its implementation a view to increasing capacity to 45 MW. equipment localization for participation are considered. According to the fi rst, the Provided the use of imported wind tur- in the state program of development of original model will be used with purchase bines, the launch date of project was esti- alternative energy was 35%, and has cur- of foreign (Chinese are regarded) wind HISTORY • In 2010 the Ulyanovsk region development result, two years ago on the territory of • In 2015, the UCTT budget was increased corporation (URDC) application has been Zavolzhye special economic zone Ulyanovsk from 1.28 to 2.15 billion rubles. About recognized as one of the winners of the nanocenter was opened. half of this amount, 470 million rubles, competition organised by Rosnano fund for were provided by Rosnano fund for infrastructure and educational programs to • The nanocenter business model is based infrastructure and educational programs create nanocenters in regions, in autumn of on venture investments: UCTT provides in the form of a loan. More than 300 million 2011 investment agreements were signed, co-financing in exchange for a stake in rubles were provided by co-investors of and Ulyanovsk centre for technology business, and conditions for participation the project, Ulyanovsk region development transfer was created. Its founders were in projects can be very different. So, corporation and Simbirskaya foundry Rosnano fund for infrastructure and Ulyanovsk nanocenter has invested in company. The decision on additional educational programs (43%) and Ulyanovsk already upcoming projects by capital financing of the project was accepted to nanotechnology center (UNC, 57%), in contribution, purchase of necessary ensure nanocenter portfolio growth, which turn, UNC founders were URDC (75%) and equipment, as well as by providing together with the general partner will be Simbirsk foundry company (24%). As a necessary expertise. the main investor in the new project. august 2015 31 Innovation

The project envisages construction of a wind park of 10 turbines with a total capacity of 25 MW.

“The main strategy of launching startups is creation of technology companies which would be a center of competence in certain Photo from enginrussia.ru from Photo 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. turbines. The second provides location of pany (Cheboksary), attracted by SESNa. According to him, in two years of active wind turbines production in Ulyanovsk. Selection of a model for project realization, work nanocenter managed to accumulate According to fi rst vice-premier of the according to Mr. Gribov, will depend on core competencies in three basic areas of regional government Alexander Smeka- conditions of the federal program for de- work. These are construction technologies, lin, some agreements have been reached, velopment of alternative energy: if in the genetic research, and composite materials. and “all the elements of localization are near future it will be amended, reducing Another two are at development stage: fi lm present”, there are companies willing to the degree of localization to 35%, the proj- coatings and microelectronics. make wind turbine towers and blades in ect can develop to the initial scenario. Alexander Smekalin believes that “the Ulyanovsk, a potential investor was found According to Oleg Paderin, wind park results of nanocenter work can be consid- who is ready to assemble wind turbines, al- has the key, but not the only role in the ered successful, and the concept is justi- though “the project has yet to be packaged” project, “around it a certain number of fi ed.” According to him, UCTT has already (companies names are withheld). companies must be formed that will be reached the break-even, “for two more years According to unoffi cial data, Ulyanovsk engaged in research in the fi eld of alter- it will work as infrastructural, and then Aerocomposite enterprise is considered to native energy, will develop new materials, profi t is expected.” be one of potential producers of blades, and so on.” Three basic activity objectives At the same time Oleg Paderin notes that however, nanocenter management notes under the project are already formulated. “direct payback is out of question yet. At that “there are no fi nal agreements yet.” Besides the wind park it is planned to present little money (6-7 million) is earned The second probable partner is manufac- develop associated services, as well as to by 10 from three dozen projects launched turer of wind turbines Russian wind com- assemble teams of developers in the fi eld by nanocenter. It is expected that this of alternative energy. Duration of the year nanocenter will come out from a part project is estimated at 1.5-2 years. That's of successful projects through the sale of Nanocenter imposes special hope on one of the how much time it can take to fi nd sources its stake. Payback period of nanocenter most complex projects of Comberry technological of fi nancing, to launch the wind park, and projects is only 3-5 years, and the period of company to create multi-functional thin-film coatings for photovoltaics, displays, smart to work out key competencies. launching a company from the moment windows, light-emitting diodes. As noted in It is working out key competencies that of decision on its creation to the start of nanocenter, “there are no analogues of this is the basis of successful business venture, work is “from several months to half a year, installation neither in Russia, nor in Europe.” assures nanocenter CEO Andrew Redkin: depending on complexity of technological UCTT photo 32 Open Region Innovation 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- UCTT photo ready implementing promising projects. Comberry research platform allows to accelerate investigation cycles in dozens of times and to perform The closest to implementation are proj- hundreds of experiments simultaneously. ects of TestGen and Genext companies, engaged in development and manufacture Metal-composite R & D production en- of introducting developed innovations, of test systems for molecular genetic diag- terprise under guidance by nanocenter is and it does not allow to make accurate nostics. Developed tests allow at the 10th engaged in development and production of predictions. According to Anna Materova, week of pregnancy to determine sex and composite materials; it has developed and press secretary of the ROSNANO fund for Rh factor of a child by a woman's blood starts mass production of substrate mem- infrastructure and educational programs, test. According to nanocenter residents, ber for aircraft of the fi fth generation and “examples of introduction of innovative the developed test systems have already in- is also working in the fi eld of application Russian decisions are yet not as numerous terested foreign pharmaceutical companies of metallomatrix composite materials in as we would like.” Stroylab CEO Polad Saleh- and laboratories, but in the end TestGen high-power LED lighting, and is creating Zade sees one of the reasons in conserva- and Genext decided to open their own materials of armor protection. This year tism of buyers, who while compiling their production of test systems in Ulyanovsk. commercialization of research will begin. budgets often just “do not think about what Nanocenter imposes much hope on one Exit to serious operating profi t is expected can be improved, saving money not only for of the most complex projects developed by from Stroylab (innovative materials for the client but also for the ultimate owner.” Comberry technology company (creation concrete-based construction) and Artek According to nanocenter residents, vir- of multifunctional thin-fi lm coatings for Composites (composite materials) com- tually all are faced with a lack of qualifi ed photovoltaics, displays, smart windows, panies. personnel. Anna Materova notes that “often light-emitting diodes), but the company However, the companies do not name there is simply no staff with suitable quali- is yet refusing to evaluate the possible any specifi c numbers of expected fi nan- fi cation at the market, and universities do profi t, noting that it actually has “to create cial results due to the fact that most of not implement programs to prepare them.” a market that does not exist.” nanocenter projects face the challenge 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.”  Lyubov photo Chilikova

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.” august 2015 33 IT 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.

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 Pavel Shalagin photo Shalagin Pavel 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 34 Open Region

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 Sergey Ershov photo Ershov Sergey 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- Ulyanovsk programmers have realized that only having united, they can solve ticipation in the program of import substitution. “It's interesting for common problems. everyone. IT-companies will receive a stable order, the enterprises of import substitution program, which led to an increase in the will get execution, and the region will get tax revenues,” said Mr. number of long-term orders. Efremov. “The cluster is no longer regarded as a bunch of startups. The largest Russian IT consulting company, IBS, which opened In Ulyanovsk software is developed almost for the entire Navy, and its branch in Ulyanovsk at the beginning of the year, celebrates all the software for aircraft. It was fi nally realized that the cluster another new niche: “One of the most promising areas is support core is diff erent, and they are not the center of the universe,” adds of already implemented information systems, as the cost of USTU vice rector Nadezhda Yarushkina. proprietary support of foreign systems has almost doubled, and Denis Efremov said that “now the principles of interaction are companies are forced to look for a reasonable alternative.” practiced, but it's a slow process,” and the reasons for deceleration Market participants note that “serious industry growth has are several. Among them is the problem of restructuring of IT expectedly led to competition between companies for staff and, companies themselves. Most of them work in the area of applica- consequently, to emergence of staff shortages.” IT community tion and not system software (although the market participants began to speak about this threat a few years ago. It was the prob- themselves believe that “the work in IT industry initially suggests lem of staff shortage that three years ago became one of the main that you should quickly change and adapt”). There are also the reasons for the initiative of leading IT companies on formation of complexity of certifi cation, of obtaining necessary admissions, regional IT cluster, which would systematize the industry activity and transition to work on state standards, as well as the problem and would allow to develop joint mechanisms to educate staff , of coordinating eff orts. “All four key enterprises of the region are to attract investment, to promote local development products, as concern members, they all have their leadership in Moscow, there well as to highlight the industry at the federal level. is no coordination at the local level,” that is how Denis Efremov The result was the industry development strategy, worked indicates the problem. And he says that coordinating council out in April last year, providing for three basic scenarios of its of chief designers being created now will face it. This council is evolution: self-development of companies, development around required to complement the existing council for IT. a large IT company with insertion into programs of activity of The desire to implement joint projects with the Ulyanovsk enterprises of radio-electronic industry, Russian engineering enterprises was yet expressed by four large enough IT companies: centers, aviacluster, etc.; and the Bangalore script (a town in India Creative development, Simbirsksoft, Simteh, and MST. For their called India's Silicon Valley), implying the industry development part, the companies Mars and Spark expressed a desire to transfer in the region through off shore programming. part of their public procurement to outsourcing. The developers of application software, the initiators of the Nadezhda Yarushkina believes that “companies need to be cluster creation considered fi rst script a higher priority. However, expanded to new markets,” noting that “the process has already the regional government has chosen the second path, proposing begun.” At the same time, she said, it's not just about private IT to concentrate around large companies related to defense industry companies that expressed willingness to work in this new fi eld and electronics: Mars (part of Morinformsystem – Agat group), of software for industry and defense, but also about large enter- Ulyanovsk mechanical plant (manufacturer of air defense means, prises willing to work out civil subjects. For example, Mars in part of Almaz –Antei air defense concern), Iskra (manufacturer of the presence of orders is ready to develop management systems components for electronic devices, part of Almaz –Antei air defence of government services. ITM company photo august 2015 35 IT

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 Simtec company photo company Simtec 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- Russian conference “Stachka”, held annually in Ulyanovsk (among the ment of a project offi ce of the structure created, design bureau participants there are also programmers of the CIS countries, Europe, America, work was begun to coordinate interaction between IT people and etc.), by definition of its participants, “carries a rebellious spirit and orientation businesses. According to Denis Efremov, possible fi rst joint project to the quality of education in the field of IT.” within the cluster, the center of chip design, has acquired defi nite shape. It is supposed to cover the Ulyanovsk companies' need in Meanwhile, experts assess the prospects of new markets very microelectronics. It is planned that the center will include the high. “There is a big market at the intersection of these technolo- developers of logics, a design bureau that implements the chips gies (electronics and IT), only now people began to realize that a scheme, as well as a production site. However, it is not required. very large margin is here,” said Ulyanovsk nanocenter resident, “The centers may be worldwide, and production in China,” says founder of the Futurelab laboratory for development of electronics Mr. Efremov. Vasily Zhuravsky. Executive director of the “Domestic software” "Clearly seen vector in the direction of conceptual development association of software developers Evgeny Vasilenko agrees with is quite the right decision in connection with the tasks facing the him: “I believe that such a turnaround is right, it should be a country. Now there are a lot of application systems on the market, partnership. If joint products are created, it will be a good help but a few fundamental developments,” said Evgenya Vasilenko.  for import substitution.” At the same time IBS notes that opportunities off ered by import Experts believe that today IT companies need to be built in cooperation substitution are not limited to interaction at the intersection of with major electronics manufacturers, and “it will be a good help electronics and software. “Because of the dollar growth imported for import substitution.” In the photo there is a part of production process technologies have become less competitive in price, and economic at the Iskra plant. 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.” Sergey Ershov photo 36 Open Region Localization Everybody to the park! Leaders of the machine tool industry are calling suppliers to locate their production in the Ulyanovsk region Sergey Titov photo Titov Sergey

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

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.

VIKTORIYA CHERNYSHEVA on the Day of localization cooperation work in Russia, they, together with us, agreements have been signed with two talk to suppliers about the advantages Core for development companies: Mayfran (Dutch manufac- of placement in Russia. Thus, we want At the Day of localization, interna- turer of chip conveyor) and Gondrand to continue to bring new machine tool tional conference which was held in (Swiss company operating in the fi eld of builders to us, and after them to attract Ulyanovsk, DMG MORI SEIKI AG board logistics). Also 10 other DMG MORI SEIKI component manufacturers for machine member Tёrnes Christian said about his partners expressed their intention to lo- tool, creating favorable conditions,” said intention to invite long-term partners calize production in Ulyanovsk. the head of the Ulyanovsk region devel- “with production of first-class quality “We expect that Ulyanovsk machine opment corporation (URDC) Sergey Vasin. and attractive prices” to the territory of tool plant will become the core and center In late May at the Metalworking interna- Zavolzhye industrial zone. The goal of of gravity, but not for machine manu- tional exhibition in Moscow the region has investors is to create in the region “a Rus- facturers who are working in diff erent signed an investment agreement on estab- sian machine tool center which would be niches and have low cooperation, but lishment a supplier park of German-Japa- independent from political fl uctuations.” for manufacturers of accessories. The nese group in Zavolzhye industrial zone. It The call has already received a response: company has serious plans for long-term is expected that the volume of investments august 2015

Japanese suppliers are interested in localization, but are very careful. 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, Sergey Titov photo aerospace, automotive, and mechanical engineering industries. In addition the The result is logical: many plants that “A good step forward,” according to Mr. plant will have its own development center, operated successfully in the Soviet and Smekalin, was an agreement signed by the which will deal with technology transfer post-Soviet times have gone bankrupt. In leadership of the Ulyanovsk plant of heavy and development of innovative machine Ulyanovsk Simbirsk machine tool plant, and unique machines (UPHUM, included in tool products. working in the territory of Ulyanovsk plant Rostok SC) and regional authorities, accord- Production capacity will be about 1,000 of heavy and unique machines (UPHUM), ing to which new production of machine machines a year.Construction is expected has closed this way. tools will be located in the territory of the to be completed in late September - early However, the fi nancial crisis and in- plant. The company, maintaining the brand October. troduction of Western countries' sanc- of the former machine tool giant, will pro- The plant has already started local as- tions against Russia have given impetus duce machines for the needs of the railway sembly of universal lathe CTX 310 ecoline, to development of import substitution. (the volume of investments is more than vertical machining centers DMC 635 V Last year, as specifi ed on the RF Minis- 300 million rubles, the planned release is ecoline / DMC 1035 V ecoline, and univer- try of industry and trade offi cial website, 30 - 40 machines per year, exit to design sal milling machine DMU 50 ecoline. The the share of imports in the machine tool capacity is planned for 2017). next step will be placing local orders for industry exceeded 90%. The government Mr. Smekalin said that UPHUM is also all products from sheet metal. Ultimately, has set a target to reduce dependence of “actively negotiating and has already re- as specifi ed in the company, most of the the industry most critical sectors from ceived a license for Italian and Czech ma- machining operations will be carried out imports to 50-60%. At the same time, ac- chines assembly.” According to him, the on their own with obtaining many kinds cording to deputy minister of industry and investor understands that there is the of parts from local suppliers. trade Sergey Tsyba, machine tool is one of supertask to restore scientifi c and engi- Mr. Tёrnes said that in the long term a the most promising industries for import neering base for machine tools manufac- new series of machines will be developed substitution. turing. “Releasing means of production is in machine tool center, already by Russian “Recently the market situation has aerobatics, the main engine of engineering specialists. changed, the attitude of investors and their industry. Machine- tool is the “pearl in the partners to machine tools has changed, crown”, which we have always been proud “Jewel in the crown” there appeared a belief in the market, un- of,” stresses deputy prime minister. He says Machine tool industry in the past two derstanding that it is in demand. Localiza- that today Ulyanovsk manufacturing in- decades has gone through diffi cult times. tion of production is the task of yesterday dustries, which include machine tools, give According to Stankoinstrument Associ- and today, and localization of development, a fi fth of the gross regional product, “more ation of manufacturers of machine tools, scientifi c and technological bases, of to- than any other sector of the economy.” from 1991 to 2012 the volume of production morrow. But we need to do it today,” said at domestic enterprises sector fell by more the fi rst deputy chairman of the Ulyanovsk The goal is to promote than 20 times, from 70 thousand to just region government Alexander Smekalin. Regional government notes that it in- over 3 thousand pieces. The depreciation He believes that the signs of “a qualitative tends to return the status of machine of machinery reached 80%, companies lose breakthrough, a leap” are already here, it tool leader to Ulyanovsk region. “We have up to 50 million units a year. This is one of is Ulyanovsk machine tool plant's own every chance to do this: the staff has been the most crisis sensitive sectors, sharply design bureau, which is already beginning saved, there are schools, general favor- reacting to drop in demand. to design its own tools for Russia. able investment climate, recognizability Open Region

Mr. Tёrnes is convinced that in future new series of machines will be developed already by Ulyanovsk specialists.

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 Sergey Titov photo Titov Sergey 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 among foreign manufacturers as a terri- learned to do a lot of interesting things, import into the country of equipment tory favorable for investments,” says Mr. and we must not shun the use of their similar to that being produced in Russia. Vasin. At the same time he admits that technology, but must make our advance And equipment is considered Russian, ac- the region now needs to create (or update) on their basis. It's better than if we try cording to the government decree №1224, the staff training system for the machine once again to go our own way,” said the when not less than 50% of its cost are tool, noting that “in Soviet times it was fi rst vise prime minister, noting that the Russian-made components,” he said to present, but when the enterprises that option of the “own way” should not be OR. At the same time, according to Mr. needed these staff ceased to operate, a excluded, “then it will be an additional Polkanov, deep localization “facilitates failure turned out. Therefore, our task is opportunity to make not one step but two.” the transfer of competencies in the fi eld to build a system of training of middle and He welcomes the advent of competitors, of advanced technologies, which generally junior staff part, workers and foremen, and calling not to be afraid of competition, increases the level of Russian machine the regional government has a plan for which “has always been the engine of tool industry.” development of dual education, including development.” Alexander Smekalin agrees with Stan- in cooperation with Ulyanovsk machine At the same time Sergey Vasin thinks koprom representatives, but he adds that tool plant,” says the corporation head. that today the industry does not have the crisis (in particular, the ruble depreci- According to Mr. Smekalin, today the enough state support: “If someone needs ation) opened new opportunities for such trend is to attract new investors in ma- help today, it is aerospace and machine investors in the form of lower production chine tool industry, and a pool of com- tool. They are backbone industries, creating costs in Russia and generating additional panies has already formed from Eastern around themselves an opportunity for de- revenue for export products. “And it is Europe and countries with which negoti- velopment of other productions from other also a signifi cant attractive factor for new ations are underway. “But we believe that areas, and that means new investment future investors in machine tool industry, we should not just build the plant, but and jobs. Especially since now Russian who are to come,” stressed the fi rst deputy also attract technology. Foreigners have companies are experiencing huge demand chairman of the regional government.  august 2015 39 Features 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.

ALEXEY KOVALEV Making up for lost time Governor 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 Sergey Ershov photo most fruitful. Such players as Bridge- stone, TAKATA Rus, DMG Mori Seiki are the Chinese business in the Ulyanovsk Difficulty levels already present here; however, their arrival region is very large, despite our lack of Interaction with China representatives took place before the confl ict in Ukraine. large oil and gas deposits,” says Alexan- has its own specifics. According to the Nevertheless, these investors do not in- der Smekalin. “There are already several director of the Moscow institute of foreign tend to seriously reconsider their plans successful projects implemented jointly, relations (MGIMO) Center for East Asia in Russia, and moreover to curtail their for example, construction of a new dry and Shanghai Cooperation Organization production. According to Mr. Smekalin, method cement plant on the basis of Uly- (SCO) Alexander Lukin, it is more diffi cult currently the government is actively ne- anovskcement, launching production to invite to Russia business partners from gotiating with the Turkish side for organi- of light and medium trucks and buses by China than from any other country. “It is zation of production of electrodes, welding BAW-RUS Motor Corporation.” Currently necessary to submit a letter of guarantee wire, high-precision casting in Zavolzhye several joint investment projects are being stating the fl ights by which a delegation industrial park. explored. These include creation of grain will arrive and depart, and even to tell in The booming China was declared the processing and storage plant on the basis precisely which room the Chinese visitors fi rst and most important Russian coun- of grain reception enterprise in Vesh- will live,” he said. Mr. Smekalin said about terpart in the East. The scope of Chinese kaymsky district. Negotiations are under certain rules of business etiquette: “If in investment in Russia is development of way on construction of a cement plant in the course of negotiations with western mineral resources, construction, wood- Starokulatkinsky district. Among the pro- companies we were able to go directly to working, and Russian investment in spective Russian-Chinese projects there their top managers, in the case with the China go into processing industry, con- is also construction of a tea packaging Eastern partners each time we have to pass struction, and transport. Preferences plant in the territory of special economic certain levels.” of the Chinese in the Ulyanovsk region port zone which is being actively created “This is a completely diff erent mental- look somewhat diff erent. “The interest of in Ulyanovsk. ity and way of negotiating. The Chinese 40 Open Region Features

partners are oriented not to the immediate reason to overcome that fear, but for the for modern standards of management and analysis of the market, but analyze it in Chinese it is very diffi cult to understand for fi nancial resources that have become the long term, not for 2-3 years, but for 20 the Russian laws and paperwork, they scarce.” According to Sergey Vasin, over years or more. Therefore we are doing our tend to share the risks and to have expe- the past few months it became possible to utmost to understand our Eastern partners, rience represented by a Russian partner convince several dozen businessmen and to to off er them an environment which they who would protect them in an unknown organize their contacts with Asian inves- are accustomed to at home, and which they market. Ulyanovsk region and China are tors; 10 or 15 of them have already declared expect from us,” says Ulyanovsk region at a long distance, and remote control of their fi rm intention to “take a chance” to development corporation director (URDC complex production issues is sometimes work in joint partnership, “in particular, is engaged in investment) Sergey Vasin. impossible. This is another role for a Rus- the owners of Alev dairy plant have spotted Contacts with investors from China sian partner,” adds Sergey Vasin. the opportunity to create a new production have shown that they are willing to co- of dry soy milk, and in the most uncertain operate, but only on the basis of joint Waiting for technology and time, in December last year.” ventures. Deputy Chairman of the Rus- finance Leaders of the region do not limit the sian-Chinese Committee of friendship, In turn, Russian companies in new number of sectors in which investment is peace, and development, Deputy Chair- economic conditions have become more waited. “In each case, if the project meets man of the State Duma on economic pol- active, looking for new forms of develop- the requirements of the Russian and re- icy, entrepreneurship and innovation ment, including recourse to investment gional legislation, we are ready to provide development Victor Zvagelsky believes agencies. According to Alexander Smeka- a site taking into account enterprise speci- that the ground for involvement Chinese lin, “some two or three years ago Russian fi city, to provide maximum support,” notes business into active work in Russia is still businessmen treated prospects of creating URDC director. “At the same time we have far from the ideal. According to him, the joint ventures with Chinese companies identifi ed priority areas for development Chinese business, having come to Russia very cautiously, but now more and more of our economy, they are production of one of the fi rst in the early 1990s, when Ulyanovsk enterprises demonstrate sincere aviation and car components, building “wild capitalism” still reigned here, has interest in such cooperation, waiting for materials, and food industry.” experienced some fear, “now there is a new technologies from the Chinese side, 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

Pavel Shalagin photo Shalagin Pavel 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. RF government head press service photo production here businessmen will get a the same period China needs to move to Chinese companies have already expressed interest market and a way of delivery of raw ma- the “new norm” of economic development, in the region. Ulyanovsk region governor in the terials, which we have calculated, too.” increasing the level of openness of its econ- presence of prime minister Dmitry Medvedev signs Due to introduction of Russian embar- omy in conditions of a slowdown of its a memorandum with the Anhui foreign economic go on foodstuff s from EU, US, and their growth. Therefore the problems of Russia construction company that wishes to participate partners the supply of fruit and vegetables and China are similar, and our interests in construction of SEPZ infrastructure, as well from the East has increased, especially coincide in many respects.” as to become a co-investor of one of its residents. from Turkey. Currently the corporation generates a business case for creation a Understanding culture of the project on June, 29 a Memorandum distribution center in Ulyanovsk region. Mr. Vasin said that, according to business- of understanding and cooperation was Director of Real Estate business direc- men of both sides, “for productive cooperation signed for the years 2015-2017 between tion of Strategy Capital Advisor company they are often lacking knowledge about the the National tourism administration of Natalia Kruglova said that “the Chinese realities of another country, and for better China and the Federal tourism agency of have chosen a good moment for a political development of business relations they must Russia. A similar agreement was reached agreement on investment, they will get fi rst learn each other's culture more deeply.” between the People's government of Hunan more preferences in that situation for the For this reason the regional government has province of China and the government of same money.” Secretary of the Shanghai off ered Chinese partners to become partici- Ulyanovsk region. “Our main task is to es- Cooperation Organization (SCO) research pants and guests of honor at the traditional tablish foreign trade relations with China center at the Chinese academy of social Ulyanovsk international cultural forum in and to try to attract Chinese companies to sciences Sun Zhuangzhi notes that sanc- September, 2015, “as well as to pay attention the Ulyanovsk market. But fi rst we must tions and oil prices falling was a serious to cooperation projects at universities and show the Chinese entrepreneurs that they blow to the Russian economy and slowed schools level. Eastern vector is also marked are guaranteed to do safe business in Uly- its development. “The next two years are in Strategy for development of Ulyanovsk anovsk. We are interested, fi rst of all, in to be crucial, because during that time until 2030 (currently being developed). Estab- technology, knowledge, and competencies you need not only to stabilize the foreign lishment of schools for study of the Chinese which the Chinese side has got, we want currency earnings and the situation in language is provided,” says URDC CEO. that with participation of our Chinese the money market, but also to restructure Management of the region has great partners new modern high-tech jobs were the economy,” he said during President Xi expectations for realization of the tourist created fi rst of all for the residents of our Jinping visit to Moscow in May. “In about project “Red Route”. Within framework region,” said Alexander Smekalin.  FACTS According to the China State customs Russia. At the same time the growth rate of (in value 71.63%, + 10.7% in 2013), wood administration data, in 2014 the Russian- Russian-Chinese trade in 2014 were higher and products made of it (6.97%, + 11.1%), Chinese trade turnover increased by 6.8%, than the average in China's trade with other non-ferrous metals (3.96% -1.7%). Imports of to $ 95.3 billion in comparison with 2013. countries, including trade turnover - by 3.4 machinery and equipment from China in 2014 Wherein Russian imports from China percentage points, Russian export - by 5.3 (1st place) rose to $ 19.44 billion (+ 3.3%) exceeded Russian exports in this country percentage points, Russian imports - by 2.1 and is 41.4 times greater than the volume by 3.3 percentage points. While last year percentage points. of Russian exports of this commodity group Russia ranked 9th in the ranking of 20 major Curious is the ratio of structures of in China. The imbalance in favor of China in trading partners of China, China for four Russian exports to China and the Chinese machinery and equipment has increased consecutive years (since 2010) headed the imports to Russia. Most of Russian exports by 2.2% for 2014 compared with 2013 and rating list of the major trade partners of are mineral fuel, oil and petroleum products totaled $ 18.9 billion. 42 Open Region Economy accelerator

ALEXEY KOVALEV Assistance in exchange Favorable exchange for development Many economists state that in times of economic crisis public investments are During the crisis business hopes beginning to have a special meaning, when directed usually to maintain demand and for state aid 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 photo Stolbova Anastasya development company, and the region State support of processing industry civil sectors will not decrease, said industry and trade minister Denis government, in which due to tax pref- Manturov in July during a working visit to Ulyanovsk. “Ideally, we should achieve a situation where absolutely erences granted to aircraft factory and everyone will know as ABC all the basic support measures and incentives to which they are entitled,” said the government guarantees to the bank young minister. In the photo: during a visit to Aerocomposite-Ulyanovsk plant. professionals of enterprises are able to acquire concessional housing at below The region also intends to provide hous- ties there: kindergartens, shops , schools, market price. Aviastar itself helps them ing on favorable terms for young specialists medical facilities (for these purposes 210 with the initial payment, giving each of of the nuclear industry. The government million rubles from the region budget are the best employees 150 thousand rubles. commits to establish engineering infra- planned to be spent). According to Aviastar-SP CEO Sergey De- structure of the future Center for medical mentiev, since 2012 415 factory workers radiology in Dimitrovgrad, including con- No need to persuade have become the program participants, structing residential sector (26 low-rise In times of crisis the state, acting as “although the overall demand is at least houses) of the future Akademgorodok (76 an accelerator of the economy, should cre- 5.5 thousand apartments until 2020.” ha area), as well as creating social facili- ate “hard” and “soft” infrastructure for august 2015 43 Economy accelerator

business, according to Ulyanovsk region established enterprises (UTTC is involved spending.” According to the analyst, it development corporation (URDC) director in co-fi nancing projects in exchange for a would make sense to extend the practice Sergey Vasin. URDC understands “hard” in- stake in business, as a rule, 49%). In fact, of sending budget funds to regions on the frastructure as construction of roads, net- as they noted in URDC, at the expense of principles of competition to be included in works (including approval of investment public funds “a professional team was set federal targeted programs; however, “the programs of natural monopolies), and site up capable of “packaging” business cases federal center is still supporting develop- preparation, i.e. creating special economic for projects in the innovation sphere and ment by transfers in manual mode.” port zone and industrial parks. Formation of raising funds.” The results of the UTTC Meanwhile, in Ulyanovsk region, being of “soft” infrastructure encompasses orga- project companies work are innovative conscious of the fact of limited budgets, we nizational and legal issues: simplifying technologies or fi nal products (for more are going to increase the investment com- negotiation and licensing procedures, re- details - p. 27). ponent. URDC head Sergey Vasin says that ducing the time of business registration, Meanwhile, representatives of busi- in times of crisis, “while budget revenues obtaining technical conditions, and gener- nesses believe that “support for innovative are reducing, there is increased need for in- ally creating a favorable business climate. companies should be provided at all levels vestment, so the government is betting on The region management notes that of the investment elevator. The fact that development of public-private partnership: Western sanctions force to look for new money began to be allocated for develop- it may be purely commercial projects, such ways of development, and one of them ment of ideas, for conducting R & D, for as construction of infrastructure (ports, is innovation. “Of course, the support of technology development, is a big plus. But toll roads, etc.), and social ones: health, fundamental science is not a prerogative when construction phase of enterprise, education, sports, and culture. Here our of regional or municipal authorities, much based on innovation, comes, the cost is main objectives are: “packaging” of proj- depends on our universities, fi nanced from hundreds of million rubles already, and ects, search for investors, forming legal the federal budget, but we support private there are practically no available funds,” and fi nancial principles, so that investors small and medium-sized enterprises which says chairman of the Ulyanovsk Diamiks could come to clear terms with a guarantee invest in innovation (for implementation of group (production and development of of a refund by the state.”  the regional target program “Development products based on diatomite) Evgeny Niki- of innovative activity in 2011-2015” 2.1 bil- forov. According to him, “expensive loans lion rubles were provided, including 394.2 and long-term licensing and certifi cation BY THE WAY million rubles from the regional budget),” lead to the fact that as a result a Russian adds Vasin. “Best practice is creation of entrepreneur either becomes bankrupt or According to RBC data, industry and trade Ministry hopes that the federal Ulyanovsk nanocenter (offi cial name is Uly- is sold on the cheap, often to a Western budget will allocate about 600 billion anovsk technology transfer center (UTTC)).” partner. Competent approach is to share rubles for all the programs of import Recall, UTTC (built in 2013 by invest the risks with the state and to attract in- substitution before 2020, and 2 trillion agreement with the Fund for infrastructure vestments,” assures Mr. Nikiforov. more will be invested by business. and educational programs, total amount However, the state does not have enough of funding is about 1.277 billion rubles, funds to solve these problems. Sergey Hes- The leading role in the process is major shareholder is URDC) fi nances in- tanov, Otkrytie brokerage house CEO advi- given to industry development fund. In novation and technology startups, orga- sor on macroeconomics, confi rming that Ulyanovsk region a similar regional fund nizes business in the sphere of innovation, in times of crisis the traditional approach is being created, which "will support provides partial replacement of startups in the world is state performance in the realization of scientific technical projects." project teams and is also committed to role of customer of infrastructure projects, About 50 million rubles will be allocated annualy from the regional budget for its commercialization of R & D; the main notes that “wherein in Russia the problem recapitalization. source of UTTC income is the profit of is in low effi ciency of these government 44 Open Region Finance Money at home Regional development banks could help small businesses 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.

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 Sergey Titov photo august 2015

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. 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 Sergey Titov photo businesses does not exceed 10%. It should be noted that Western Eu- experts that will be aware of characteris- The region business community, seeing rope already has a large experience in sup- tics and trends of small and medium-sized the initiative very positively, is cautious porting small businesses through “home businesses,” and will have to lend and to in forecasts. Board member of Ulyanovsk banks”, and this system was developed in finance business projects; if necessary, association of entrepreneurs Hamza Yam- post-war fi fties, when there was economic to enter them as a co-founder and earn baev believes that much in project reali- recovery. For example, in Germany regional extra income from capitalization growth zation “will depend on the actions of the development banks exist in all the lands of new businesses. “If an entrepreneur has authorities.” According to him, banks and are owned by the state. All of them, in no possibility to take a loan, the state may should be aware that “their work enables contrast to commercial banks, are engaged buy a stake in the capital, and thus provide young people to start their business, they in fi nancing SMEs and high-risk projects working capital for the period of formation. simply do not have other means, only (innovation, agribusiness, startups, young At the same time, when business is gaining loans. What it is necessary for small busi- scientists and entrepreneurs). This includes momentum and a merchant stands fi rmly ness? Availability of credit, nothing more. lending through participation of banks in on his feet, the bank has the opportunity to They do not have collateral base, in most the capital of companies. “Home banks” are buy back its stake,” explains Mr. Gainetdi- cases this business sector is a creative directly related to the federal development nov. He notes that “such “domestic banks”, initiative, and often an entrepreneur has bank that provides them with certain priv- in contrast to the commercial, should be nothing else other than intelligence and a ileges. The stakes in such institutions are aware of all the small businesses, who sort of “know-how”, that is, his own ideas. from 2% to 5.5% per annum. does what, and what are the prospects of Now you cannot open your business, sim- Ulyanovsk corporation for enterprise de- development,” and they promise to be more ply having chosen to do so, as in the 90s. velopment acknowledges that in preparing loyal to businesses due to the fact that their Today even the procedure of registration their proposals they based on the experi- bank will possess great deal of information is costly, and where can an entrepreneur ence of similar banks in Western Europe. about potential borrowers compared to any get the money? Only in banks. Small busi- In addition, they also fi nd it necessary to commercial bank. “It must be some kind nesses should have easy access to credit apply the experience of German cooperative of a center for development of small and products,” emphasizes Mr. Yambaev. He banks (small credit institutions to support medium-sized businesses,” emphasizes Mr. believes that regional development bank small businesses and agriculture, which Gainetdinov. He believes that the “home will have to learn to take risks. “Not all operate on the principle of self-government bank”, being interested in development projects pay off , but the majority of them and shared responsibility), “because their of its customers, will provide necessary “shoot”, and therefore the bank itself will functionality is very important for very analytics, consulting, and try to assist in ultimately benefi t.” small farms and artisans.” diffi cult situations. According to the head of committee on “In our proposals we formulated a model It is proposed to create a network of entrepreneurship of regional commerce of how to reform the existing infrastructure regional development banks on the basis chamber Konstantin Leontiev, another so that in ideal we could come to the nation- of the existing network of relationships of positive aspect of creation of a regional al system of regional development banks SME Bank with regional business develop- development bank is the synergy of large for small and medium-sized businesses,” ment funds. and small businesses, it becomes especially explains Mr. Gainetdinov. According to Meanwhile, “Support of Russia” execu- important in connection with the new him, the model suggests that regional de- tive director Andrey Shubin believes that policy of cluster development, which began velopment banks should be formed at the before launching the project “the advantag- to be realized in the region. expense of the state, and their main pur- es and possible risks should be weighted. “If we are able to realize the idea of re- pose should not be extraction of profi t but Yes, indeed, local banks better understand gional development banks, it will help to implementation of development programs the needs of businesses and react more implement major investment projects in and strengthening of entrepreneurship quickly, but will there be enough capacity the region, and will cause the explosive in the region. The bank, according to the and managers? In general, is it appropriate eff ect of emergence of new small business- concept, “should have a powerful team of to create an entire structure?” es,” said Hamza Yambaev.  Luybov Chilikova photo Chilikova Luybov

Investors of all countries, unite!

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.

ALEXEY KOVALEV companies working in the region, to social environment and are used to solve discuss the adjustment of regional in- problems on their own. In addition, we are Without ties vestment program. in constant contact with investors, trying Ulyanovsk region intends to revive As Dmitry Ryabov, at that time URDC to solve problems in the manual mode. This an informal association of Russian and CEO, has noted, “the main objective of the also reduces the need to merge.” foreign businessmen, investors club, to club activity is not in the form of offi cials' However, the regional leadership is con- give them an opportunity to freely discuss reports, but in live dialogue, to get feed- fi dent that the investors club is still needed. common problems, find new forms of back from investors, to understand what “The club could become a platform for an cooperation, and prepare joint proposals problems the region government, Business exchange of views on improving invest- to regional authorities. According to Uly- Russia, regional development block must ment climate in the region. Leading global anovsk region development corporation address to improve the investment climate. investors, multinational corporations are (URDC) CEO Sergey Vasin, there are spe- We will remove problems that prevent working virtually around the world, so cifi c achievements for this; but both the existing businesses to develop, and solve they have something to say about current corporation and the regional authorities, problems in attracting new investors,” situation in the region, what needs to be sending this peculiar message about the declared Mr. Ryabov at that time. done to create favorable conditions for doing need of informal association, do not intend It was decided that the club will meet on business and how. It is also very important to engage in organization “from the top” a quarterly basis, but since that only a few to involve companies and their employees and wait for initiative from the investors meetings were held. Sergey Vasin explains in the region life. It is essential that inves- themselves. this by decrease in demand for unifi caton tors who came to us and are building their Note that the idea has appeared long on the part of investors. “Investors club as a production would give jobs, move forward ago: the first time it was spoken about platform for dialogue, for solving pressing the region's economy, and feel themselves in 2011, and on 24 June the same year issues was in demand at the beginning, a part of our region,” said the fi rst deputy with support of Business Russia regional especially among expats (international chairman of the Ulyanovsk region govern- department its first meeting was held in representatives): foreigners had to adapt ment Alexander Smekalin. Ulyanovsk. The general meeting, which to new conditions. But in the process of Head of administration issues and pub- was attended by the region governor starting production the management is lic relations department of Ulyanovsk Sergey Morozov, gathered more than 60 replaced by Russians, and these people machine tool plant (DMG Mori Seiki con- representatives of Russian and foreign are, with rare exception, more involved in cern) Alexandra Zueva agrees with him. august 2015 47 New format

She believes that the club “should become formal association that would coordinate resource plays an important bridging role a city-forming unit.” According to her, actions of members, but in any case should between business community and author- “there are many newcomers in established not form any general line.” ities, regulatory bodies, municipal agen- companies, and Ulyanovsk for them is Alexandra Zueva stands for synthesis of cies,” adds Alexander Zuev. “For example, something new, unknown, the more that organizers. Administrative support from now for Zavolzhye industrial park residents they spend most of time at work. The the government should be combined with problem №1 is labor shortage. Schools do club would promote their socialization, self-organization of the most initiative not prepare those who are needed, so we inclusion in life of the city, of the region. employees of the enterprises “that would put the question of expanding the scope of In my opinion, this is the main feature become a sticky tape” which would connect a particular specialty or, on the contrary, that such a union could fulfi ll. Further- all aspects of the dialogue, she believes: of narrowing specialization. Authorities, more, the structure will give impetus to “The region government and the deve- inviting a rector or a dean to a meeting exchange of ideas, knowledge, and expe- lopment corporation of the region due to with investors, thereby greatly simplify rience,” said Mrs. Zueva. According to her, their credibility could interest investors and expedit the solution. As part of the club “offi cials are often trapped in legal acts, in something. Recognizable face here is as we could conduct questioning of managers regulations, and everyone has his own important as in show business.” and ordinary employees of enterprises, and scope of thinking, and when the problem “Private investment should go where it make a rating of importance of problems requires innovative solutions, diffi culties is possible to earn capital. And for coordi- that could be a guide for joint action of arise,” while the club meetings could help nation of such investments this club may government and business.” to remove these problems. be important. Club members can receive According to Mrs. Zueva, formats of Ideally, the club of investors should timely information on the status of certain communication at the investors club be created “from below” by the investors sectors of economy, on investment oppor- should be varied. “I have studied the ex- themselves, says URDC CEO: “Taking tunities in the region and, accordingly, will perience of Kaluga region (where the club the managerial role entirely to ourselves, sooner direct investments to where they of investors has been operating since 2008). we run the risk to turn the club into yet will yield the greatest return. Basically it holds offi cial meetings, when another bureaucratic body, the interest to Features of the club can be used for people in ties sit in conference rooms at which will eventually fade away. We can implementation of related projects that the round table, discussing some pre-set coordinate actions of the asset, but initia- require participation of companies from theme. It is evident that they are very tive still has to come from the business several sectors, especially that such pro- tense. Such measures are only good as one community. If such a structure is created jects tend to be the most high-margin. On of the formats. People have a need to move, by authority, the club cannot exactly be such a site it will be easier for investors to need action. The experience of our charity named so, but probably a self – regulating agree on joint projects,” says Anton Soroko. relay “Residents of industrial zone, unite!”, organization, or, if you prefer, a federal organized in July last year, showed it. It state unitary enterprise,” says the Finam “Remove the tension!” was the fi rst attempt to organize them- investment holding analyst Anton Soroko. Despite the desire to make the club an selves (preparation for the event took half a “To a greater extent this should be an in- informal association of investors, the in- month), we wanted to see how many people vestors themselves are increasingly in- would come. The result exceeded all our At a club meeting in September, 2014 the region terested in formal questions. According expectations. Most importantly, the event governor Sergey Morozov said that “the club to Sergey Vasin, most business leaders was attended by business leaders, giving should become a platform for discussion have expressed a desire to meet with the example of activity to their employees.” of proposals on improvement of regional governor, the leadership of customs bodies, Sergey Vasin also sees a utilitarian task investment policy.” recruitment agencies. “Administrative that could be performed by the club. “The URDC photo 48 Open Region New format

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. 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” Luybov Chilikova photo In Russia investors association are, as a rule, created on the initiative of author- initial stage and during implementation of including banks. All of them are major play- ities. At the federal level there is Advisory investment projects. The main format of ers in the real estate market, “entry ticket” council for foreign investments (ACFI), the ACFI activity is annual meeting chaired into the union suggests that the company which was created in 1994 to discuss issues by the RF prime minister. It is also known has at least 30 billion annual turnover and related to investment attractiveness of Rus- about establishment of investors clubs in Moscow projects of total footage at least 1 sian economy. During the council 20-year Kaluga and Nizhny Novgorod regions. But million square meters. history it was attended by over 60 foreign these clubs also do not diff er in activity and When in October, 2010 a new mayor companies and banks. Today it includes 51 originality of formats. was elected in the capital, and a year later heads of major foreign companies, whose However, business structures often Moscow construction complex curator total investment in Russian economy is self-organize when faced with a common Vladimir Resin has resigned after many more than $ 120 billion. Now the council's major problem. In August, 2013 the Moscow years in power, the new city administra- activities are shifted to prompt solution of investors club was formed which now in- tion de facto imposed a moratorium on all foreign investors' problems, arising in the cludes representatives from 45 companies, 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. 

The club enables informal discussion of the URDC photo URDC investors' problems with top officials. Mikhail Volkov, CEO of Schaeffler Manufacturing Rus plant, and Sergey Morozov, governor of the region. INVESTOR ROADMAP

INVESTOR'S APPEAL (letter of intention for project implementation)

ULYANOVSK ULYANOVSK REGION REGION GOVERNMENT DEVELOOPMENT First deputy CORPORATION chairman CEO of the government Sergey Vasin Alexander Smekalin + 7 (8422) 589 395; +7 (84222) 737 001; [email protected] [email protected] http://ulgov.ru/ http://ulrrege ion.com/

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, Selection of the sites survey, meetings with the leaders of Ulyanovsk region optimal variant of placing development corporation, with supplying organization, with investors by investor. already operating in the region.

Assistance Support for investment project at all stages in obtaining state of implementation in “one stop shop”: support measures — at the stage of registration of land; in accordance — in obtaining technical specifications; with the Ulyanovsk — in design; region Law from — in construction and installation works; 15.03.2005 № 019-3O — in plant start; “On the development — assistance in building cooperative ties; of investment activity — and in all matters on the investment project. in Ulyanovsk region”. COMMON REGIONAL INCENTIVES FOR INVESTORS

BENEFITS FOR RESIDENTS OF ULYANOVSK SPECIAL ECONOMIC PORT ZONE Validity period since Russia, Taxes SEPZ the beginning Ulyanovsk region of the taxable base On profit 20% 2% 10 years On property 2,2% 0% 15 years On land 1,5% 0% 10 years Differenti- On transport 0% 10 years ated 0% on added value, For SEPZ lifetime created when VAT 18% (no less than providing services 45 years) in SEPZ

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. august 2015 51

LABOUR RESOURCES OF ULYANOVSK REGION

On the whole in the Ulyanovsk region, according to the data of THE STRUCTURE OF ECONOMICALY ACTIVE POPULATION Ulyanovsk statistical office (based on 2014), there are 652.6 thousand OF ULYANOVSK REGION ACCORDING of economically active people (336.1 are men, 315.5 are women); TO EDUCATION, on 1 June, 2015, % employed in the economy are 95.2%; 4.8% are unemployed.

In processing industries 137.8 thousand people are employed, Higher professional in wholesale and retail trade and technical services there are 80.7 (including postgraduate) thousand people. In construction there are 40.2 thousand people, in 26,9 education government there are 35.7 thousand people, 48.3 thousand people 17,7 Secondary professional in education, 42.6 thousand people in health care. education The average monthly salary of employees in economy amounted Primary vocational education to 21.3 thousand rubles. Secondary complete general 24,5 education The highest average monthly salaries are: in mining (36.9 thousand 25,7 Basic general education rubles), in financial sector (33.3 thousand rubles), in construction (21.1 No basic general education 0,3 thousand rubles), in processing industries (21.5 thousand rubles). 4,9 In unemployment structure at the end of March, 2015 31.2% of people have higher education, 44.4% have secondary vocational LEADING SCIENTIFIC ORGANIZATIONS education. In the structure of economically active population there are 29.1% — Research institute of atomic reactors (RIAR); of young people under 24 years. — Ulyanovsk research and technological design institute In 2015 Ulyanovsk institutes released more than 6,000 specialists of machine building; with higher education. Specifically, 59 people in engineering, 260 — Ulyanovsk state university (earlier a branch of Lomonosov people in information technologies specialties. About 9,000 people Moscow state university); are employed in science, including 250 doctors and 1,400 candidates — Ulyanovsk state technical university; of sciences. — 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; 4,8% — 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; 31,600 RUB 22,683 RUB 21,300 RUB — Ulyanovsk institute of radio electrical engineering (branch of RF academy of sciences).

IMPORTANT FACTS 52 Open Region

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

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.