MOSCOW INVESTMENT DIGEST

August 2019

Dear Colleagues!

The Moscow Department of Investment and Industrial Policy together with the Moscow City Investment Agency presents you the next issue of the digest of the main investment events in the capital.

NEWS

Investment Growth in Moscow Is Much Higher Than in Russia

The investments in fixed capital grew up by 19.5% in H1 2019 in Moscow in comparison to the same period in 2018. They amounted to RUR 946 bn.

“Moscow showed a good growth in fixed assets investment over the six months of this year: according to the Federal State Statistics Service, growth in the capital was almost 20%, while in Russia as a whole it was 0.6%,” said the Deputy Mayor of Moscow for Economic Policy and property and land relations Vladimir Efimov. - From 2010 to 2018 fixed capital investments in Moscow more than doubled in comparable prices. Moscow is currently having 14% of the total Russian investment in fixed capital and ca. 50% of all direct foreign investments in Russia.”

According to the results of the first two quarters of this year, the share of off-budget investments amounted to 78%, which is 4.8 percentage points more than in H1 2018. In the financing investments in fixed assets, the share of own funds increased from 59% to 62%.

Moscow Signed Another Special Investment Contract

The Moscow government has signed a special investment contract (SPIC) with DSK-1 Rostokino. The investor will invest RUR 2.6 bn in extension of its production facility from 2019 to 2021. As part of the investment project, one of the largest house-building plants in the capital is reconstructing and expanding the existing plant area from 94 to 109 thousand square meters. The number of jobs at the enterprise will increase from 410 to 1300.

“During the 10-year validity period of the special investment contract, the city guarantees the investor tax preferences, such as a 26% reduction in regional income tax (12.5% instead of 17%), zeroing the property tax rate, and 99% reduction in land rents. In total, the regional tax burden will decrease by 25%. If the investor doesn't fulfill all contract obligations taken, all enjoyed preferences are to be paid back with appropriate fines,” - said Vladimir Efimov, Moscow Vice-Mayor for Economic Policy and Property Relations.

“The goal of SPIC is to stimulate investment in the creation and modernization of the city industrial production and ensure stable business conditions, - explained Alexander Prokhorov, head of the Department of Investment and Industrial Policy of Moscow. - To date, the capital has already signed six contracts with investors: two - on the creation of food industry enterprises, one - on the construction of the production of automotive components, one - on the creation of an industrial park, another - on the expansion of the technology park and, finally, SPIC with DSK-1 Rostokino”.

Moscow Will Increase Funding for Targeted Investment Program This Year

“The Moscow government decided to increase the Moscow Targeted Investment Program by RUR 49.4 bn. This increase became possible due to a higher budget income. Thus, tax revenues to the city budget in the first half of 2019 increased by 16.8%,” – said Vladimir Efimov, Moscow Vice-Mayor for Economics and Property Relations.

The program will enable the commissioning of 51 transport infrastructure facilities, 33 km of metro lines, and 69 km of roads in 2019. 17 kindergartens, 20 schools, 8 cultural facilities, 25 sports centers, and 14 health care units will be constructed.

The program makes up 21% of the total city expenses. This ratio provides dynamic economic development based on investment growth. One ruble of budgetary investments in the capital's infrastructure attracts more than three to four rubles of private investment.

“All the main construction projects of the city are included in the Moscow Targeted Investment Program. Its volume for 2019–2021 exceeds 1.6 trillion rubles. The Moscow Targeted Investment Program for 2019 is 576.7 billion rubles and covers nearly 2,300 capital construction projects,” - added Denis Tikhonov, head of the Department of Economic Policy and Development.

Three Foreign Clinics Can Open Branches in the Moscow Medical Cluster

Three more clinics of international level can open their branches in the Skolkovo Medical Cluster. Companies from France, Germany and Israel are interested in participating in the project. “We observe a high interest of international organizations in the Skolkovo project. Negotiations are underway with Saint Charles, München-Planegg and Sheba medical clinics,” - said Marat Khusnullin, Moscow Vice-Mayor for Urban Planning and Construction.

The Saint Charles hi-tech medical clinic uses the fast-track rehabilitation technology. The idea of this strategy is to decrease the patient body’s stress reaction and to enable the fastest rehabilitation of surgery. So, certain methods of anesthesia, minimally invasive methods of surgical treatment are selected, postoperative recovery is accelerated.

The Sheba clinic is the largest medical center in Israel and within the world leading TOP 10 (according to the Newsweek survey from the 21th of March, 2019). Haim Sheba Hospital consists of 150 departments and clinics and is designed for 1990 hospital beds. It employs more than 1 thousand doctors and about 5.8 thousand people of secondary medical, administrative and technical personnel.

The German München-Planegg clinic of urology, andrology and men’s health is the largest private urology clinic. It is equipped with modern medical equipment for the diagnosis, conservative and surgical treatment of patients with a urooncological, nephrological and general urological profile.

Investor Will Build a Logistics Complex in South Butovo

A modern production and logistics complex will appear on Varshavskoye Highway, which will include two warehouse buildings, loading and unloading areas for heavy vehicles, treatment facilities, sewage pumping stations, and a fire tank.

It is planned to build up an area of 11.5 hectares. Now at this place there is already a warehouse complex and a base for servicing vehicles of the Sovtransavtoexpedition Logistics Company. Their total area is 24.6 thousand square meters. As a result, the area of the object will increase almost three times - up to 68.9 thousand square meters.

Thanks to the project, 35 new jobs will be created. Thus, the company will employ 116 people. The volume of investments in the creation of a production and logistics complex will be more than 1 billion rubles.

Business Goes Online

Moscow investors are increasingly signing up for inspection of auction objects through the Moscow Investment Portal. Since the beginning of 2019, entrepreneurs submitted about 25 thousand applications. The special service of the Investment Portal allows you to submit an application online and inspect objects put up for sale by the city at a convenient time. You can sign up for a property inspection in minutes in the card of the selected object in the section “Auction. Property".

The opportunity to submit an application for inspection online allows you to save time for entrepreneurs and simplifies participation in competitive procedures. In total, about 78 thousand electronic applications have been submitted by investors since the launch of the service in early 2016.

“Users of the Moscow Investment Portal have access to 17 online services with which you can also apply for the status of an industrial complex, a resident of the Technopolis Moscow special economic zone, calculate the cost of a patent, contact the Moscow Government through a direct application line, subscribe to news or an investment digest and much more,” - said Leonid Kostroma, director of the Moscow Investment Agency (a resource operator).

MACROECONOMICS

Moscow Industrial Export Amounted to USD 7.9 Bn

“The Moscow industrial export amounted to USD 7.9 bn in H1 2019. It increased by 9% or by USD 634 m in comparison to H1 2018. The most demanded Moscow industrial products were mechanical equipment, computers, and automotive equipment”, – said Vladimir Efimov, Moscow Vice-Mayor for Economic Policy and Property Relations.

In terms of industries, 38% of Moscow’s exports are machine-building - this is $ 2.6 billion. The products of the pharmaceutical and cosmetic industries are also among the most popular export sectors: in monetary terms, they account for $ 299.7 mln. The export volume of light industry grew by more than 8% and amounted to $ 241.7 mln.

This country imported $ 1.02 bn worth of Moscow products. Great Britain rose to the second line in this rating. The volume of exports from Moscow there amounted to $ 1.01 bn, and growth - 147%. From January Moscow also intensively exported to Kazakhstan, USA, and Germany. The volume of exports to other countries amounted to $ 3.72 bn, which is approximately 47% of the total export volume of industrial complex products.

SMEs Increase Their Contribution to Moscow Economy

The SMEs have paid to the Moscow budget RUR 254.7 bn in the first 6 months of 2019. It is by 15.7% higher than the same time last year. The Moscow budget has received RUR 1,253.4 bn in total in the first half of 2019.

The share of small and medium enterprises (SMEs) in the city’s economy is constantly growing. In 2014, revenues from SMEs (including revenues from individual entrepreneurs) accounted for about 17% of all budget revenues. The contribution of SMEs and individual proprietors has reached 22.7%.

Most of the total funds received were provided by enterprises operating in the field of trade - 26.8%. Entrepreneurs engaged in the construction business transferred 22.5% to the city budget. Another 8.2% was received from service enterprises, 7.7% - from manufacturing enterprises.

The volume of revenues under the simplified taxation system is also increasing. So, compared with the first half of 2018, they grew by 20.8% and amounted to RUR 58.4 bn.

200 Sole Proprietors Are Daily Registered in Moscow

According to the results of the first half of 2019, about 829 thousand small and medium-sized enterprises (SMEs) were registered in the capital: 549 thousand - legal entities, 280 thousand - individual entrepreneurs (IP). Thus, as of July 1, the share of Moscow in SMEs is 13% of their total number in the Russian Federation.

For comparison: by the end of 2018, about 793 thousand SMEs were registered (538 thousand legal entities and 255 thousand individual entrepreneurs), by the end of 2017, 800 thousand SMEs (577 thousand legal entities and 223 thousand individual entrepreneurs) were registered.

“Moscow is facing a growing number of sole proprietors: it increased by 7% in 7 months of 2019 and amounted to over 342,000 people. The total number of sole proprietors grew has doubled since 2010. Over 200 of them are registered in Moscow every day”, – said Vladimir Efimov, Vice Mayor for Economic Policy and Property Relations.

Sole proprietors actively develop their businesses and create new jobs in the Russian capital. The number of employees working at Sole proprietors organizations amounted to 97.15 thousand people in August 1, 2019, having increased by 18% since the beginning of the year.

SUPPORT MEASURES

Two Moscow Technology Parks Granted Land Lease Exemption

The Moscow City Property Department provided Prioritet LLC and Energo Estate LLC, which confirmed the status of the Technopark, at a reduced land rental rate of 0.01% of its cadastral value.

If earlier the Prioritetcompany paid 489 thousand rubles a year for the lease of land, now the annual lease of the land, taking into account the privilege, will amount to 3.3 thousand rubles. Thus, the rental price decreased by 150 times. For Energo Estate LLC, the preferential cost of the annual rent is 16.3 thousand rubles. The preferential rate under the site lease agreement is applied for the period of validity of the technopark status.

The city provides property support to industrial parks, industrial polices and industrial complexes, providing a reduced annual rental rate of 0.3% of the cadastral value of the leased land to industrial complexes and 0.01% to industrial parks and industrial parks.

“In total, 37 technoparks and industrial complexes currently receive preferential land lease terms,” - commented Maxim Gaman, head of the City Property Department.

Four Companies Will Continue to Receive Preferences in the Status of Industrial Complexes

The status of the industrial complex was confirmed by four Moscow companies: Moscow Bread-baking Plant No. 22, Start OJSC, Binnopharm JSC and the Ostankinskiy Zavod Baranochnih Izdeliy (OZBI). Companies will continue to receive tax credits from the Moscow Government.

“The status of the industrial complex allows enterprises to reduce the tax burden by 25%. To obtain a special status of an industrial complex, production must meet certain indicators, including: investment (per hectare), revenue from industrial activities (per hectare), wage fund (per hectare), and average wage level. To date, 49 companies have been assigned the status of the industrial complex,” - said Alexander Prokhorov, head of the Moscow Investment and Industrial Policy Department.

Bread-baking Plant No. 22 CJSC produces bread from premium wheat flour, bread from rye and wheat flour, grain and dietary bread, butter, pastry and puff pastries, Easter cakes. At the moment, the company employs 579 people. In 2018, it invested RUR 23 mln in its own development; these funds were used to purchase modern production equipment. The bakery plans to invest up to RUR 50 mln in improving the working conditions of employees in 2019–2022.

Start OJSC, a leading manufacturer of school uniforms, children's and teenage clothes, has had the status of an industrial complex since 2016. Over the past year, benefits for the company amounted to RUR 3.4 mln. Thanks to the support of the city only in 2018, the company acquired new sewing, cash and retail equipment with a total value of RUR 3.9 mln. In addition, Start has launched a retail store, with a cost of RUR 2.4 mln. The company plans to invest more than RUR 45 mln in development until 2022: to purchase new technological equipment, modernize the property complex, and open two more company stores.

The Binnopharm company (part of the Alium group of companies combining the pharmaceutical assets of Sistema JSFC) is a manufacturer of biotechnological and aerosol medications. Last year, the enterprise’s investment in development exceeded RUR 376 mln, 253 jobs were created at the production site with an average salary of more than RUR 95 thousand.

OZBI produces dryers, bagels, bread sticks and lingering cookies. During the year, the plant received RUR 2.5 mln in benefits from the Moscow Government. In 2018, the company upgraded the raw material preparation section and 4 production lines, having invested RUR 17 mln. The plans of the OZBI include the acquisition of equipment and the installation of a new line of snack products, a line for the production of complex cookies and much more. The total amount of planned costs for the development of the enterprise in 2019–2022 is RUR 660 mln.

Moscow Introduces Support Measures for Franchise SMEs

Franchising will be supported in the capital. The resolution “On approval of the procedures for granting subsidies from the Moscow budget to SMEs engaged in entrepreneurial activities under the commercial concession agreement” was adopted by the Moscow Government. Such support measures are being introduced in the city for the first time.

For opening new facilities franchisees can get the following costs and expenses compensated:

  1. loan interests:
    • for purchasing foreign-built equipment – 7.25%, within the key rate of the Bank of Russia (7,25%);
    • for purchasing Russian-built equipment – 12.25% within the key rate of the Bank of Russia, plus five percentage points (12.25%), but not more than the interest rate on the loan specified in the loan agreement;
  2. for purchasing equipment from own funds – up to 25% of costs employed;
  3. for leasing payment upon leasing contracts.
    • for purchasing foreign-built equipment – до 25%;
    • for purchasing Russian-built equipment – до 35%.

The maximum subsidy size is RUR 1 m.

AUCTIONS

A Plot in New Moscow for the Construction of an Industrial Complex is Put Up for Auction

The city put up for auction a land plot for public production with an area of 0.36 hectares in the Novomoskovsk administrative district. The facility is located in the village of Desenovskoye (Desna village).

“In September, investors will be able to bid on the lease of a land plot in the Novomoskovsky District, intended for the construction of a multifunctional public production complex. The total floor area of the construction project is 5 828.8 square meters. A contract for 3 years 2 months will be concluded with the winner of the tender, during this period the tenant must complete all construction work of the facility” - commented Maxim Gaman, head of the City Property Department.

The initial size of the annual rent for a land plot is 617.8 thousand rubles. Based on the construction results, the investor will be able to acquire the land in the property or conclude a long-term lease for 49 years. Applications for participation in tenders are accepted until September 16. Auction will take place on September 19.

Moscow Invites Investors to Take Part in Nekrasovka Transfer Hub Development

The new owner of a 99% stake in the authorized capital of the transport and transfer hub (TIH) Nekrasovka will build a multifunctional center. The tender winner will construct a multi-functional center with shops, leisure facilities, eating places. The total floor space will exceed 48,000 square meters. The project provides for the construction of underground parking.

“When choosing a winner, not only the proposed price of the contract will be evaluated, but also the relevant experience in implementing development projects, as well as the combination of revenue and net assets,” commented Gennady Degtev, head of the Moscow City Competition Policy Department.

The transfer hub will be located next to the Nekrasovka metro station of the metro line with the same name. According to experts, this hub will be used by 25.6 million passengers a year. The interchange hub will become an important link in the transport infrastructure of the district of the same name, since residential neighborhoods are located around the future TIH.

The starting lot price is RUR 99 m. Applications are to be submitted by September 17, 2019. Opening of applications will take place on September 18.

Moscow Department of Investment and Industrial Policy

www.mos.ru/dipp

Moscow City Investment Agency

www.investmoscow.ru/agency

Supplier Portal

www.zakupki.mos.ru

The digest archive is presented at the Moscow Investment Portal.