Russia’s regions can boost their investment appeal by improving legislation, developing transportation, and supporting small business

Yuri Korotetsky and Maxim Rubchenko

In late June, Yaroslavl hosted the Regional Development Technologies investment forum organized by the provincial administration with help from Expert RA. Representatives from 49 federation subjects and 47 financial institutions took part. RF Economic Development and Trade Minister German Gref and Governor of Yaroslavl Province Anatoly Lisitsyn co-chaired the forum. The meeting coincided with an important event: the Expert RA-AK&M Consortium gave the province an A investment rating “with positive short-term prospects.” In a comprehensive survey conducted by Expert RA analysts, Yaroslavl Province was ranked first in Russia in terms of investment appeal. Naturally, the folks from Yaroslavl were eager to share with the leaders of other Russian provinces their experience in attracting investments to a region that doesn’t have considerable natural resources at its disposal. In terms of natural resources, Yaroslavl Province is only ranked 80th in Russia.
Nevertheless, the province has become a leader among Russian regions in terms of investment appeal. Moreover, average salaries in the region come in third after Moscow and Moscow Province, and in industrial output per capita, Yaroslavl ranks second. The region has the third highest levels of total investment in the Central Federal District. Three years ago, Yaroslavl Province, once a region heavily subsidized by the federal budget, started sending revenues to the federal government.
The reasonable investment policy pursued by Yaroslavl provincial authorities is behind all these achievements. “Yaroslavl Province’s investment policy rests on the region’s main resource – the intellectual potential of its residents,” Lisitsyn stated at the forum.

A decade of work

Yaroslavl Province has worked for its current investment achievements for the last ten years. In 1994, the regional administration gained a new department, the Investment Policy Department which later united with other agencies to become the Economic Development, Investment, and International Cooperation Department. This department’s task was to implement regional investment policy via multifaceted support for investors. Unlike many other regions trying to lure investors with tax breaks and subsidies, Yaroslavl Province decided to abandon direct budget financing of private investment projects. Banks, and not local officials, should decide whether projects in the Province are promising or not. Only when a bank agrees to finance an entrepreneur’s project, the provincial administration joins in by providing guarantees and reimbursing interest on loans. Another fundamental point is that the regional authorities give support not to moribund enterprises in the province but to economic leaders creating jobs and production facilities and introducing new technologies.
Today, Yaroslavl Province allows investors to take advantage of support from the regional administration at virtually any stage of project implementation. In the beginning, a potential investor receives information and organizational assistance. Once project implementation has started, the investor receives regional guarantees, as well as reimbursement of interest on bank loans. Once a company starts launching its new products, the enterprise is exempted from all payments to the regional and local budgets. Finally, the enterprise can receive additional subsidies from district budgets to expand distribution and increase production output, or in other words to develop its business rapidly. At the same time, Yaroslavl provincial authorities decided to purge regional legislation of the administrative absurdities that made entrepreneurs waste time and energy on collecting unnecessary references, permits, and approvals. To obtain access to the full system of perks effective in the region, businesspeople only have to submit basic documents, such as a registration certificate, company bylaws, and a business plan. If an official needs more information about the enterprise, he has to get it himself.
The province annually draws up an important investment document, the List of Priority Investment Projects in Yaroslavl Province, on the basis of proposals made by entrepreneurs. It includes several dozen investment projects and public programs. The mechanism is clear and fine-tuned, and regulatory agencies, including police, fire inspectors and the SES, know not to hassle projects on the list of priorities.
Most importantly, however, at every level of administration, officials strive to keep their promises to investors and honor agreements between government and business. As a result, according to regional administration data, in 2003 the local government earned 18.50 rubles of private investment and 4.20 rubles of additional tax revenues for every ruble of state support to investors in the form of tax breaks and subsidies. “Every kopeck from investors will remain in the region,” Governor Lisitsyn noted with considerable pride during his talk at the forum.
Yaroslavl Province has managed to attract foreigners as well. In 2003, according to the administration, almost $150 million in foreign investment came to the province. Among the major projects being implemented in the region with foreign investors, the most notable include the construction of the Arena-2000 sports center (Finnish Skanska has invested $83.7 million)and the reconstruction of Slavneft-Yaroslavlnefteorgsintez thanks to a $220 million loan from the Japanese Ex-ImBank. Baltic Beverage Holding has invested $55 million into reconstruction of the Yarpivo brewery. Eastman Kodak is funding a photo finishing treatment facility that will cost the company $17 million.
In July, a Metro Cash & Carry Hypermarket opened in Yaroslavl. Local officials believe that this indicates investor confidence in Yaroslavl Province’s economic potential.  According Metro representatives, it will promote small business in the region: private entrepreneurs like small caterers, retailers, and other businesspeople are major customers for this type of store. As for mid-sized and large businesses, they stand to benefit from Yaroslavl Province’s investment rating. “With such a high investment rating, even more investments will pour into the province,” promised Grigory Marchenko, Head of the Region Ratings Department at Expert RA, in a his speech to the forum. 

Keeping up with Yaroslavl

The example of Yaroslavl Province proves that a region can boost its investment appeal. Expert RA has developed a plan of action for regional authorities hoping to attract investments, which it presented at the forum. The first step in creating an investment boom is to carry out strategic planning, or more specifically, a realistic assessment of resources available in the region and their potential. These estimates should be established in a number of documents, such as socio-economic development projections, strategic development plans, and long-term programs broken down into implementation stages with investment programs for each stage.
Practical implementation of investment plans in a region starts with improving and expanding investment-oriented legislation, which always enhances a region’s appeal in the eyes of investors.
However, legislative activity alone is not enough. Business needs infrastructure to operate. Only when this is in place will production expand, which means better financial performance and, accordingly, an increase in tax revenues to regional budgets.

What attracts investors in Yaroslavl Province

1. The region’s economic and political stability and the lack of internal conflict between legislative and executive authorities.
2. Regional legislation enabling investors to invest at minimum risk.
3. A specialized division in the province administration that addresses an entire range of issues related to investments. Information for investors is public and accessible.
4. The opportunity to obtain tax breaks and subsidies for investment projects of top priority to the region and thereby cut the cost of project implementation.

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