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Strategy of Investment Attraction to Rostov region

01.04.2013

MEMORANDUM

Introduction

Strategy of investment attraction in Rostov region is a program document of the region’s Administration that was drawn together with the team of consultants and experts in the National agency for direct investments.

Principles and conditions stated in the Strategy comply with the ideology of reforms that are being conducted by the President and the Government of the Russian Federation.

The Strategy realisation will enable to attract funds to new production facilities creation and to increase the number of actual jobs that will have a positive impact on cash income of the population and its effective demand.

Another very important result of the Strategy realisation will be a new role played by the Administration of Rostov region in economic activity: more clear-cut and purposeful work on certain conditions and regulations of business making, creation of favourable fiscal and business climate, development of infrastructure, guarantee of financial and political stability.

Aims of the Strategy

By 2010 the Rostov region will be among the first five leading regions of the Russian Federation with the fastest rate of economic rate and among the first ten with the fastest growth in living standards of the population.

To bring those aims into reality, economic efficiency will be improved in certain sectors of the economy and the leading companies of Rostov region by the way of attracting important investments for their development.

As the estimates show, to achieve those goals about 14.5 billion of USD should be invested into Rostov economy in fixed capital.

Strategy aims realisation also implies qualitative improvement of investment climate in the region:

  • Advanced investment legislation will be introduced in Rostov region as well as a favourable fiscal treatment.
  • In Russian and international business community Rostov region will have the image of an attractive area for investment
  • An appropriate infrastructure will be created on the territory of Rostov region to satisfy the needs of potential and existing investors, businesses and authorities of Rostov region on a professional level.

Analysing competitive strengths of the leading industrial sectors and investment priorities of Rostov region.

To determine the most promising sectors of the regional economy, an analysis was carried out of competitive capacities in the leading sectors of Rostov region. Each industry was examined on the basis of the actual state of affairs on the leading companies, their main rivals, consumers and development prospects.

Industries that are considered to have prospects for investment in Rostov region up till 2010 –see Table 1.

With regard to the changes in internal and external development tendencies in the region, investment priorities of Rostov region will be corrected in the same way.

On the basis of investment priorities, defined in the Strategy, the List of priority investment projects in Rostov region is annually prepared according to the adopted regulations. Those projects, included in the List- are of primary priority and all sorts of preferential terms will be provided in conformity with the legislation in force.

The obligatory requirement for a project is to go through expert examination in order to be put in the List of projects. The projects are examined by the Agency for investment and development of Rostov region according to regulations issues in specialized mass media.

Rostov region industries having prospects for direct investments

Among the key lines of the Strategy is attracting of direct investments into the regional economy.

Direct investments are seen as an important catalyst of economic growth for they are not only sources of new capital investment but also, and it is a very serious point, they open doors to new technologies, to efficient methods of management and marketing.

Rostov region is interested in attracting direct investment, oriented to develop local industry potential, creation of clusters and technological chains.

The analysis has shown that at present time the following sectors are the most prepared to receive direct investments:

  • Light industry
  • Trade networks
  • Development of business infrastructure
  • Cluster based on beer and alcohol-free drinks
  • Cluster based on fruit and vegetable production
  • Meat cluster
  • Organisation of distribution and servicing centre of motorcar concerns in the south of Russia
  • Organisation of assembling production for world motorcar companies.

Comparative analysis of strong and weak sides of Rostov region

To understand privileges that the region can give to potential investors and to determine positions of Rostov region among other regions-competitors, an analysis was carried out of strong and weak sides of Rostov region.

The following regions are defined as potential rivals of Rostov region:

  • Neighbouring regions, having similar geographic and resource advantages (Astrakhan region, Volgograd region, Krasnodar region, Stavropol region).
  • Regions most successful in investment legislation development (Novgorod region, Yaroslavl region).
  • Regions – competitors in main industrial and economic sectors (Volgograd region, Krasnodar region, Stavropol region, Bashkortostan, Voronezh region, Moscow region, Nizhniy Novgorod region, Sverdlovsk region, Tatarstan).

Number of factors affecting decision to invest varies depending on industrial sector of the investor. However there are some characteristics that show how much the region is attractive for the investors of all types and industries.

The analysis demonstrated that, on the basis of factors important for an investor, Rostov region had a significant competitive capacity compared to neighbouring regions. The following are advantages of the region:

  • Transport infrastructure potential
  • Cost and reliability of the power supply
  • High level of financial and insurance infrastructure development
  • Advanced scientific and technical potential
  • High consumer potential
  • Stable social and political situation
  • Favourable climatic conditions.

Transport infrastructure potential

Rostov region has an important transport infrastructure potential and is the main “corridor” linking businesses in Central Russia with their partners in Russian and foreign regions in the south.

Further development of Rostov region transport complex and improvement of the existing competitive potential will be provided due to:

  • Increase of traffic capacity of transport waterways: waterworks facilities reconstruction, deepening of navigating channels
  • Better efficiency of port facilities operation: reconstruction of the old ones and building new terminals
  • Broadening of federal highways, development of highway service infrastructure
  • Aerodrome reconstruction works and widening of the runway
  • Airport building renewal

Cost and reliability of the power supply

Energy supply in Rostov region represents a strong advantage that may be used efficiently by potential investors and their partners who plan to set up energy consuming production.

High level of financial and insurance infrastructure development

One of characteristic features of Rostov region is a high level of financial and insurance infrastructure development which offers organisational basis to attract investment resources in the actual sector of economics.

Main lines of financial infrastructure development in Rostov region include developing equity market as a highly efficient mechanism of resource redistribution contributing to investment attraction into the economy.

Advanced scientific and technical potential

Scientific and technical potential of the region is of special importance for investors willing to develop hi-tech manufacturing.

As one of the lines of development it is envisaged to create innovative infrastructure providing for development and commercialisation of new technologies in the sectors in which the region has scientific and technical potential sufficient to become national and international leaders.

High consumer potential

Rostov region is characterized by big consumer potential. Retail and wholesale turnover demonstrates pronounced tendencies to grow. Along with advantageous geographical position, presence of navigable rivers and outlet to the sea, that factor determines Rostov region potential as the national logistic centre in the south of Russia.

Stable social and political situation

Rostov region is reputed for a stable social and political situation, more favourable than in other regions of the federation within the Southern federal district.

Favourable climatic conditions

Climate in Rostov region is favourable to farming production, crops growing and cattle and poultry breeding.

Main lines of investment attraction increase of Rostov region

The following are the main lines to increase investment attraction of Rostov region, defined in the Strategy of investment attraction:

  • Elaborating and realising communication strategy
  • Developing innovation activity
  • Improving investment process control system
  • Creating Investment Fund for development
  • Organising system of direct investment marketing
  • Developing business infrastructure
  • Reconstructing housing and communal facilities
  • Staff training for priority investment projects.

Communication strategy

The aim of communication strategy is to create an image of the region, interesting for potential investors.

Priority tasks of Rostov region communication strategy are:

  • Rostov region promotion in Russian and international investment community
  • Rostov region image-making as the leader among Russian regions
  • Anti-crisis PR system elaboration to prevent negative events affecting the image of the region

To realize communication strategy a PR campaign will be organized that will include three stages:

1st stage.Drawing attention of potential investors to Rostov region and creating positive opinion in business-community about the region as of favourable place for investment.

Main goals of the 1st stage of PR-campaign are:

  • To make basic information about Rostov region available to maximum number of possible investors as well as “influence agents” and information distributors
  • To diffuse positive information about competitive advantages of Rostov region
  • To get rid of stereotypes that have a negative impact on the image of Rostov region.

2nd stage.Promotion of the image of the region among potential investors.

PR-campaign of the 2nd stage will be realised simultaneously with realisation of investment marketing program and implies:

  • Participation and organisation of social events/conferences/forums for potential investors. Presentations of the region in target countries
  • Composing and distributing profile information/analytic information among target investors/influence agents

3rd stage.Measures to form support among local population and business community for Rostov region authorities in their efforts to attract more investment.

Main goals of the 3rd stage PR-campaign consist in Rostov region:

  • Work in order to generate support for the efforts to attract investment among local population
  • To make representatives of business and political elite understand clearly the necessity of investment attracting to the region as well as to form common norms of constructive cooperation with potential investors
  • Active involvement of public opinion leaders (representatives of administrations, businessmen, cultural institutions, journalists, etc.) into to the process of investment attracting.

Creation of direct investment marketing system in Rostov region

To attract target investors for priority industries of the region, Rostov region intends to use instruments of direct investment marketing.

Target investors, main lines and instruments of marketing campaign were defined in the framework of the Strategy from the point of view of priority industries for investment

Target countries – potential sources of investments for priority industries of Rostov regionsee Table 2.

Orientation of Rostov region to promote its image in the target countries does not eliminate the possibility to work on special offers from potential investors from other countries. Moreover, regarding such highly concentrated industries as agricultural machine building, the main attention will be drawn to the world leading manufacturers despite their national origin.

The list of potential investors, defined in the Strategy, in the target countries includes:

  • The largest multinational corporations independently of their industrial orientation;
  • Medium multinational corporations from the target countries, working in key industries;
  • The companies that have been placing large investments in Russia recently;
  • Other promising countries, working in key industries, in the target countries.

Rostov region is aware that every investor is interested in certain characteristics of the region as a potential place for investment placing. Therefore, target investor “expectation profiles” will be prepared to be presented to potential investors of priority industries together with estimations of those characteristics compared to alternative variants for investment placing

In compliance with post-project investor’s service program, the needs of existing investors on the territory of the region will be examined and worked on in terms of information facilities and administrative support.

Innovative activity development

Rostov region has chosen innovative model of economic development. In order to develop innovative activity, Rostov region’s Administration prepared regional target Program of innovative activity development in Rostov region for the period of 2004-2006. The program implies reforming scientific and technical sphere, beginning with applied research to serial manufacturing of high technology products and its output to the world market. The main element enabling to achieve those goals is perfection of innovative infrastructure of Rostov region.

Perfection of investment process control system

To attain maximum efficiency in investment attracting and Rostov region promotion certain functions on investment facility support of state authorities may be given to an independent professional organisation.

That organisation will be found through a tender and receives the status of the Agency for investment and development of Rostov region.

Activities of the Agency

The main lines of activities of the Agency for investment and development are:

  • Image-making and promotion of the region:

PR: presentations and participations in forums and symposia;

Marketing: contacts and negotiations with target potential investors;

Promotion: organisation of meetings and seminars, presentations, conferences and forums, receiving and organisation of missions, visits of top officials;

Advertising: advertising campaigns on TV and in other mass media, booklets and brochures, web-site maintaining, etc.

  • Services for investors and support for the companies:

New investors: professional accompanying, including search for investment site and/or partner, organisation and participation in negotiations, representation of interests in government bodies.

Existing investors and companies: encouragement for new investment – in individual support projects.

  • Territory development:

Organisation of financing: for key elements of infrastructure (sewage system, housing and communal facilities, water supply, other) by international organisations;

Human resources development: employment programs, educational courses, staff training for new manufacturing sites;

Territory reconstruction: creation of industrial and technological parks, clusters, support/creation of companies and other.

  • Strategy and monitoring of realisation:

Strategy: preparation of master-plan and monitoring of the strategy realisation;

Research: markets and tendencies analysis and choice of target investors;

Authorities and business: interface between business and state authorities, dialogue ensuring;

Legislation: improvement of investment legislation.

  • Development of innovative sphere:

Planning and coordinating of innovative activity on the territory of Rostov region;

Organisation of work on innovative projects;

Attracting finances from venture funds;

Commercial application of innovations.

Improvement of investment legislation

Rostov region has chosen a liberal model of investment policy and offers a maximally full package of incentive mechanisms for an investor. Those mechanisms will be secured in the acts of the regional legislation:

  • Tax vacation and tax allowances for the period of  recoupment of priority projects, according to the Strategy of investment attracting, preferential taxation, for investors and organisations of investment infrastructure that take part in investment attracting.
  • Direct funding from the regional budget or co-funding with the help of specially organised joint-stock investment funds, partial insurance of non-commercial risks, subsidised interest rate, and others.
  • Improvement of environment for investors, including organisation of funding for infrastructure facilities by the  federal  budget and international organisations, financing of educational programs for local personnel within new investment projects.

Moreover, it will be stated in the legislation the status of the Agency for investment and development of Rostov region and principles of organisation and functioning of investment fund for development of Rostov region.

Creation of Investment Fund for Development

The Rostov region Investment Fund for Development will be created to finance those sectors and industries that were defined as investment priorities in Rostov region.

Purposes of the Fund:

  • Attracting long-term direct investments into dynamically developing companies of the region.
  • Improvement of investment rating of the region;
  • Keeping Funds’ actives liquid by the way of:

Paying of estimated dividends for Funds profits;
Public placingt of the Fund’s shares on Russian stock exchanges;
Selling of company’s shares to strategic investors;
Forming capital of the next fund to reinvest in new projects on the territory of the region.

Preliminary structure of the Fund

Fund’s capital will be formed in the following way:

  • The Administration of Rostov region or its plenipotentiary representative organ/company – (30%);
  • International institutional investors – (30%);
  • Russian investors - (15%-20%);
  • Group of foreign private investors - (15-20%)

Development of business infrastructure

Low level of business infrastructure development has a negative impact on the general image of the region in the mind of the specific region, limiting business-making possibilities and creating an impression of poverty of the region and inefficiency of the local administration. Development of business infrastructure in Rostov region implies, in priority, investment in modern hotel and business-centres construction, development of non-manufacturing businesses, improvement of international airport.

Reconstruction of housing and communal facilities

One of the lines to increase investment attractiveness of the region is improvement of efficiency, stability and reliability of housing and communal facilities operation in Rostov region.

The regional and local budget cannot provide all the necessary funds to reconstruct and further develop housing and communal facilities of Rostov region.

So, the practice of attracting off-budget funds to finance investments into the housing and communal facilities of Rostov region should be one of the priority orientations in the process of improvement of investment attractiveness of the industry through competition development.

Staff training for priority investment projects

Realisation of the Strategy of investment attraction implies staff training paid from the budget within specialized programs for realisation of projects that imply organisation of new production sites and which are included in the List of priority investment projects of Rostov region.

Conclusion

The Strategy of investment attraction to Rostov region is a program document that defined basic principles and lines of investment development in the region.

At the same time, the Strategy is the instrument of realisation of the Program of economic and social development of Rostov region in medium-term prospect.

The Strategy will be kept up to date through constant monitoring of changes in the exterior environment and internal potential of Rostov region.

Realisation of the Strategy implies elaboration of the annual program (master-plan), which will include detailed description of the works, efficiency criteria, responsible persons, terms, necessary resources and sources of funding.

Investment attracting is a hard and long-lasting process that requires joint effort of the government and businesses of the region together with systematic purposeful realisation of the Strategy.

In his Message 2003, the President of the Russian Federation put forward a strategic goal of economic development of the country – to double the Gross national product by 2010. In Rostov region that goal will be achieved by 2006.

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