Moscow investment digest

February 2019

Dear colleagues!

The Moscow Department for Investment and Industrial Policy, in cooperation with the Moscow City Investment Agency, presents a new issue of the Moscow Investment Digest.

NEWS

Moscow concluded two major special investment contracts

Special Investment Contract (SIC) to create the Nizhnye Kotly industrial park in the city south was signed during the Russian Investment Forum by Moscow Mayor Sergey Sobyanin, General Director of AO Research Institute of Technical Physics and Automation (NIITFA) Sergey Kovalyov and General Director of the Nizhnye Kotly Industrial Park Management Company Vitaly Chepyakov.

The industrial park will be established on the basis of AO NIITFA. It will be engaged in scientific research and development in the field of natural and technical sciences, including nuclear medicine and radiation technologies, the production of measuring, testing and navigation instruments and devices. The park will also focus on technical monitoring, testing and analysis.

As part of SIC, the Nizhnie Kotly will perform the large-scale modernization and repair of the production and laboratory buildings in the period from 2019 to 2023. The project investments will make RUR 2.1 bn. The production site will create more than 500 additional jobs.

The second investment contract was signed by the Mayor of Moscow and OOO PK Elitgroup Invest. According thereto, the company shall build an industrial complex for meat products manufacture by 2022. It company is expected to specialize in the production of semi-finished meat products: natural, large- and small-sized, chopped, portioned, semi-finished products with dough, and minced meat. The estimated project investment will be RUR 1.2 bn. The production launch will result in creating more than 450 jobs.

The both special contracts were concluded for 10 years. On the part of the city, they provide tax incentives. According to the contracts, all benefits received should be returned if investors fail to fulfill their obligations with corresponding penalties.

Moscow signed cooperation agreements with investors

According to the agreement signed during the Russian Investment Forum, Moscow will develop the industry in cooperation with the major medicinal products manufacturer AO R-Pharm. The document regulates information exchange and new investors attraction, as well as complements the offset contract for the local production and long-term supply of medicines for the city needs, which was concluded in the fall of 2018 by the Moscow City Government and R-Opra (a part of the R-Pharm Group). The contract validity period is 10 years. The project investment will make RUR 5.8 bn. Under the offset contract, 31 medicines will be supplied to treat and prevent cancer, cardiac, endocrine and other diseases. More than half of them are not currently produced in Russia.

The agreement signed by Moscow Mayor Sergey Sobyanin and ZAO Renault Russia, provides for the creation of the company's information development center in Moscow. The center's main task will be to develop a new generation of smart systems designed to integrate the transport infrastructure with the city services. ZAO Renault Russia plans to invest at least RUR 350 m in the project. The agreement will be valid for 5 years.

Moscow's credit rating by Moody's has grown

The international rating agency Moody's Investors Service Limited raised Moscow’s credit rating from Ba1 to Baa3 investment grade with stable outlook. It was related to the fact that the region creditworthiness and the income had improved in recent years. Due to cost control and high revenues, operational performance has improved and financial flexibility for 2019–2021 has been ensured.

“Moscow’s credit rating increased after Russia's sovereign credit rating had risen, it makes perfect sense. This once again confirms Moscow’s status as a leading region in the field of economics, finance, infrastructural and social development,” Moscow Government Minister, Head of the Finance Department Elena Zyabbarova said.

She noted that the capital pursues a consistent budget policy aimed at creating a favorable investment climate, business development and life quality improvement in Moscow. The city's economy has been growing steadily with a high level of entrepreneurial activity for the last few years.

Earlier, Moscow’s investment grade was confirmed by the international agencies Fitch Ratings and Standard & Poor's.  

Moscow topped a life quality rating of Russian regions

The annual rating was comprised by the RIA Rating agency. St. Petersburg and the Moscow region rate second and third, as they did last year.

According to Vice-Mayor of Moscow for Economic Policy and Property-Land Relations Vladimir Efimov, the city life quality growth is confirmed by the dynamics of Moscow's socio-economic development in 2018. Moscow remains the scientific and educational center of Russia, with a high rate of housing construction and rapidly emerging jobs.

The unemployment rate is still one of the lowest in the country, and the citizens’ real salaries have increased. A convenient patent system contributes to the small and medium-sized business development. The rate of new individual entrepreneurs (IP) registration in Moscow is twice as high as Russia’s average. In addition, the city provides a comfortable urban environment. The most ambitious infrastructure projects include the Small Central Ring launch, the metro development beyond the Moscow Ring Road, and road construction.

In addition, Moscow has increased production in all industry branches. There has been an increase in retail and wholesale trade; the industrial production index of the Moscow processing industries has grown by 11%.

Over USD 246 bn USD were invested by foreigners in Moscow economy

The accumulated foreign direct investment in Moscow exceeds USD 246 bn. This value shows that the city is confidently competing with the leading megalopolises of the world.

“Today, Moscow is one of the largest urban economies in the world competing for investments with the leading megalopolises of the planet. Thanks to the Moscow Government consistent work to create attractive living and business conditions, the capital currently accounts for more than 12% of the total investments in fixed assets and half of the foreign direct investments in Russia,” Head of the Moscow Department of Investment and Industrial Policy Aleksandr Prokhorov explained.

Foreign investors mainly invest in construction, communications, trade, public catering, the financial sector, production and hi-tech industries.

Six companies became residents of Technopolis Moscow special economic zone

In total, they will invest over RUR 7.3 bn, with more than 450 new jobs to be created in Moscow. In the course of the Russian Investment Forum, SEZ resident certificates were granted to the microcircuit manufacturer OOO Micron Security Printing and the integrated microcircuit developer OOO Milandr SVCh.

The agreements for the implementation of activities in the technology and innovation special economic zone "Technopolis Moscow" were signed by: the manufacturer of artificial skin for wound and burn treatment OOO Akrus BioMed, the developer and manufacturer of medical equipment for people lacking intestine fragments OOO Gematekh, the manufacturer of energy-efficient motors and generators OOO SovElMash, the mixed plastics processing company OOO Ecoplast.

“The Russian capital offers all the necessary conditions for high-tech companies operation. The Technopolis Moscow special economic zone provides both a ready infrastructure for starting production, and additional services. However, investors are mostly attracted by the unique financial conditions: tax benefits allow the SEZ residents to reduce the amount of mandatory payments by 47%,” Head of the Moscow Department of Investment and Industrial Policy Aleksandr Prokhorov stated.

"Breakthrough of the year": best entrepreneurs will be selected in Moscow

Moscow will hold the "Breakthrough of the Year" competition among the city entrepreneurs. This was announced by Sergei Sobyanin on Twitter:  "We are launching a competition among Moscow entrepreneurs - #BreakthroughoftheYear. Muscovites themselves the business community will select the winners. The application submission will begin on March 4, and we will award the winners in May, on the Day of Entrepreneurship. See nominations at:  http://pg.mbm.ru».

The winners will be chosen from among young businessmen, entrepreneurs over 55, exporters and mothers who run companies. In addition, we have nominations for the socially responsible business representatives, foreign entrepreneurs, as well as for the projects that returned to the market after they had been closed.

The competition includes four stages. From March 4 to April 16, online applications can be submitted, after which they will be evaluated by experts. On May 21 a meeting of the competition expert council will be held, and the winners will be awarded on May 29.

The information about the winners’ businesses will be on billboards. Each of them will get an audio clip that will be broadcast by radio stations, and a video that will be shown by the Moscow media. In addition, there will be a film about the award winners.

MACROECONOMICS

The number of individual entrepreneurs in Moscow has increased

Now, it is 12.5% higher against early last year. “Moscow has strengthened its position as the Russian capital of individual entrepreneurship: as of January 1, 2019, the number of individual entrepreneurs in Moscow exceeded 320,000. This is twice as much as, for example, in St. Petersburg,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations Vladimir Efimov said.

In 2018, the number of new individual entrepreneurs increased by 15.9% against 2017. On average, 193 new individual entrepreneurs were daily registered in Moscow last year.

“Thanks to the patent system development, it has become easier and more convenient for small and medium-sized businesses to operate. The small business support system implemented in Moscow helps entrepreneurs to get rolling. The huge consumer market of the Moscow agglomeration is also important, because it brings demand and profits to individual entrepreneurs’ business,” the Vice-Mayor added.

Since 2010, the number of individual entrepreneurs in Moscow has grown by 98%. Over 60% of Moscow entrepreneurs specialize in services, and about 25% work in the retail sector. Over the past three years, the share of individual entrepreneurs engaged in production activities has increased by 13%.

Best value: Moscow industrial output increased by 11%

“The growth reached 11% over the past year, against 1.7% in 2017. This is the best value during the last 10 years,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations Vladimir Efimov stated.

The highest growth rates in 2018 were registered in such industries as paper and paper products manufacture (plus 38.6%), leather and leather products manufacture (plus 33.8%), chemicals and chemical products manufacture (plus 26%), coke and petroleum production (plus 18.2%), and printing (plus 17.5%).

Today, there are about 650 large and medium-sized industrial enterprises in the city, including 44 industrial complexes and the Technopolis Moscow special economic zone that has more than 50 residents. Moscow industrial enterprises employ 628,000 people.

SUPPORT MEASURES

Production opportunities: the city supports 91 companies

91 companies are already receiving tax preferences under the real economy support program implemented in Moscow. The companies that have been granted statuses of an industrial complex, a technology park, an anchor resident, a vehicle manufacturer, and an investment priority project (IPP) are entitled to preferences. Existing enterprises that have been granted such statuses can reduce their regional tax burden by 17–25%.

Last year alone, new statuses were assigned to 16 companies. Among them are 5 industrial complexes, 2 technoparks and 3 technopark anchor residents, as well as 1 vehicle manufacturer.

“In total, 44 industrial complexes, 34 technoparks, and 7 anchor residents are currently operating in Moscow. Those employ ca. 103,500 people, with the overall investment over the past five years amounting to RUR 87.9 bn,” Head of the Moscow City Investment Agency Leonid Kostroma explained.

According to him, the city also actively supports the investors implementing new projects in Moscow.  Such companies are assigned the IPP status. Investors can get tax benefits as early as at the project stage.

Moscow offers a new type of small and medium-sized business support

The Moscow Guarantee Fund is now providing a new support measure for small and medium-sized businesses, namely a guarantee on letter of credit. This will expand access to credit resources for entrepreneurs and further stimulate the small business development in the city.

A letter of credit is a special account that is opened in a bank when a trading relationship is started. The amount on this account can be reserved for trading operations. The account is opened by the buyer at his own expense or on the terms of the loan agreement. The bank also acts as a guarantor to ensure timely settlements between the buyer and the seller and protects all transaction participants. In case the parties fully comply with the agreement, the bank pays the agreed amount to the recipient.

A letter of credit significantly facilitates the commodity transactions and allows you to use state support without entering into a loan agreement. Guarantees cover up to 70% of the letter of credit, but not more than RUR 100 m. The rate is 0.75% per annum.

The first contract was concluded between the city and a company manufacturing industrial infrastructure facilities and supplying airfield special equipment. The company had a letter of credit issued by the bank for the purchase of equipment worth more than RUR 50 m. The organization partly covered the transaction security due to the guarantee of the Moscow Guarantee Fund.

Moscow extended the validity of corporate property tax rates

The Moscow City Duma approved amendments to the law “On Corporate Property Tax”: in 2019 the tax rate will be 1.6% instead of 2%. Late last year, the Opora Russia public organization addressed the Moscow authorities with a request to extend the validity of the preferential corporate property tax rate. The Moscow Government accommodated the entrepreneurs’ request and put forward a motion to the Moscow City Duma to extend the transition period, setting a rate of 1.6% for 2019, 1.7% for 2020, 1.8% for 2021, 1.9% for 2022, 2% for 2023 and subsequent years.

“The Moscow Government decided to support entrepreneurs, leaving the funds the budget had not received due to the extension of the preferential tax regime, in the city’s economy. And it adds up to quite a lot: RUR 49 bn for five years. We hope that entrepreneurs will invest the saved funds in their own production and development," Vice-Mayor of Moscow for Economic Policy and Property-Land Relations, Head of the Department of Economic Policy and Development of Moscow Vladimir Efimov said.

Socially oriented organizations saved RUR 3.6 bn on rent in 2018

In 2018, the preferential city programs allowed the organizations providing services in the fields of education, healthcare, sports, culture and religion to save RUR 3.6 bn. Thus, for the above companies, the rental rate is not the standard 1.5% of the cadastral value, but 0.05%, which reduces costs 30 times.

The city authorities actively provide property support to the organizations providing services in the fields of education, healthcare, sports, culture and religion, through establishing preferential land rental rates. “To date, a preferential land rental rate has been set for 577 social organizations that are renting, in total, 1,200 ha of land,” Head of the City Property Department Maksim Gaman said. 

AUCTIONS

Investors rented 7.5 ha from the city in 2018

In 2018, 33 land plots with a total area of 7.5 ha worth RUR 178.3 m were leased at the Moscow city land lease auctions. The plots are mainly located in the Troitsky, Novomoskovsky, Western, South-Western, Southern and Zelenogradsky Administrative Districts and are intended for the construction of individual houses, garages, fitness centers, public and commercial facilities.

The most expensive lot leased in 2018 was a 0.47 ha land plot on Akademika Glushko Street (Severnoe Butovo Area, South-Western Administrative District) intended for the construction of a 4,000 sq. m car dealership. The total annual rental rate established after the auction amounted to RUR 27.2 m.

To date, the city has announced the auction for the right to conclude lease agreements for 43 land plots intended for the construction of retail, household, public, administrative, warehouse, and industrial facilities, as well as individual residential houses.  The total construction area of the plots is 270,500 sq. m, with the initial cost ranging from RUR 3.3 to 111.4 m.

Moscow business rented 81,700 sq. m of non-residential premises

In 2018 the city leased to investors through tendering a quarter more facilities than in 2017. Entrepreneurs rented 425 premises with a total area of 81,700 sq. m for the amount of 983 m RUB. For comparison: 289 non-residential facilities for a total amount of RUR 589 m were leased at auctions in 2017.  

The most expensive lot of the last year was the premises in the main building of the city mansion by architect E.D.Tyurin with an area of 1,713.4 sq. m, located in Khokhlovsky lane. The cultural heritage item was leased at an auction for RUR 43.4 m.

The information about all the items that are or will be put up for the city lease auctions is available at the Investment Portal website in the Real Estate Lease section.

In 2018, ca. 29,000 sq. m of commercial real estate were sold at auctions

“Last year, more than 1,300 bidders declared their desire to purchase through auctions 242 non-residential objects from the city property treasury. The average initial value excess for each lot made more than 40%, which is 20 percentage points higher than in 2017. The last year's trading sessions showed the growing interest of entrepreneurs and individuals in purchasing the city real estate and their confidence in the prospects of their business. To prove it, I will say that all the auctioned items with a total area of about 29,000 sq. m were sold in full,” Vice-Mayor of Moscow for Economic Policy and Property-Land Relations, Head of the Department of Economic Policy and Development of Moscow Vladimir Efimov said.

“The most popular lots were those with certain characteristics, such as the first floor and first line location, a separate entrance, an area of up to 100 sq. m. The average total cost reached 153 thous. RUR per 1 sq. m in the Central Administrative District, and RUR 84,300 in the other districts,” Head of the Moscow Department for Competition Policy Gennady Dyogtev added.

Currently, a bidding campaign for 158 flexible purpose facilities is underway. The information about all the items is available at the Investment Portal website in the Real Estate Sale section.

Investors can rent the Fryanovskaya manufactory and a XIX century mansion for RUR 1 per sq. m

Two Moscow cultural heritage items will be put up for auction in March of this year. The winners will be entitled to rent them under the program "1 ruble per 1 sq. m."

The first item is the Fryanovskaya wool-spinning manufactory of G.V. and M.V. Zalogin built in XVIII - XIX centuries. It is located in the Tagansky Area. The lot will include the main building, namely the factory office built in the late XVIII - early XIX century, with an area of 1,007.4 sq. m, as well as the fence built in the second half of the XIX century. The second lot is the main building of the city mansion built in the XIX century (a two-story residential building) of stone and wood. The building area is 353.3 sq. m

The winning investors having concluded a lease agreement, will have to carry out the restoration work. After that, they will be able to switch to a preferential rental rate, which is 1 ruble per 1 sq. m a year.

More detailed information about the real estate of interest and the bidding procedure can be found at the Moscow Investment Portal in the Real Estate Lease section.

Department of Investment and Industrial Policy of Moscow

www.mos.ru/dipp

Moscow City Investment Agency

https://en.investmoscow.ru/agency/

Purchasers’ portal

www.zakupki.mos.ru

The Moscow Digest archive is available at the Moscow Investment Portal.