Moscow Investment Digest

January 2017

Dear Colleagues,

The Department of Economic Policy and Development of Moscow and the Moscow City Investment Agency present the new issue of the Digest of Moscow’s principal investment events.

2016: Economic results

Moscow attracts investors

Over the first nine months of 2016, investment in Moscow’s fixed capital grew by 3%, reaching RUB 913.6 bn.

In 2013–2016, Moscow concluded RUB 575 bn worth of public-private partnership contracts (PPP). That led to Moscow ranking first among Russia’s regions in PPP development. Investments are attracted into large, resource-intensive investment projects in transport and the infrastructure (life cycle contracts, road construction) and projects for developing the social sphere (the “1 RUB per 1 sq. m.” preferential rent programme).

The Moscow City Government provides for huge budgetary investments in infrastructure development

In 2016, the Moscow budget was fulfilled with an operating net surplus of RUB 116.1 bn, which was allocated primarily to pay off the public debt and reduce the debt burden on the city's budget. Since 2011, the Moscow City Government has been pursuing a consistent policy in this direction. Our of a total of RUB 300 bn, so far most has been paid off, almost RUB 240 bn. At the same time, servicing the debt cost over RUB 30 bn a year.

At 112%, budget revenue growth outstripped the inflation rate. Expenses grew by 114.8% owing to, among other factors, increased budgetary investment in developing the city. In 2016, expenditures on development measures grew by 46.5% and spending on social support measures went up by 14.4%. Current expenditure growth was 6.7%, which is below the inflation rate. 96% of budgetary expenditures were channelled into implementing Moscow’s 14 government programmes.

On the whole, the budget remained socially focused and geared toward Moscow’s development. Budgetary investment in developing the infrastructure amounted to RUB 587 bn, including RUB 381 bn in the Targeted Investment Programme (TIP) and RUB 206 bn in development events. At year-end, Moscow’s sovereign debt had fallen by 56% compared to 1 January 2016 and totalled RUB 61.9 bn. Moscow has fully paid off its external debt. 

Taxation reforms resulted in higher tax revenues

In 2016, Moscow’s tax revenues were RUB 1.5 trillion, having grown 112.1% compared to 2015. Revenues of RUB 50 bn were received from new taxation projects, such as patents, sales tax, calculation of property tax for organisations on the basis of cadastral value, immigration reform and personal income tax on leased real estate. Introduction of sales tax and cadastral value-based taxation created an effective mechanism for levelling out taxation terms. Taxation administration has become more effective, thereby ensuring a fair distribution of the tax burden; under the conditions established in Moscow, it has become unprofitable not to pay taxes. Development of the patent system contributed to business legalisation: preliminary data show that over 50,000 entrepreneurs purchased patents in 2016, a rise of 45%.

The Moscow City Government curbs utility rate growth

In 2016, the Moscow City Government adopted a decision to adjust utility rates: utility rates for consumers will remain unchanged in the first half of 2017 but will be adjusted starting 1 July 2017.

Utility rates will be increased by 6.7%, which is below the 2016 average annual inflation rate; the adjustment is also in compliance with the 2017 utility rate increase cap set by the federal government for the city of Moscow (7%).

Water supply and wastewater disposal rates will go up by 7.2%; gas rates by 3.9%; the increase of electricity rates will vary between 0 % and 7.2%; heating rates will rise by 4.7%; hot water rates will grow by 10.6%. Utility payments will not exceed 3% of Moscow residents’ income.

The utility rate campaigns of 2016 will result in the average, weighted heat energy rate growing by approximately only 5.8% in the second half of 2017; water supply and wastewater disposal rates will grow by 4.9%. The utility rate policy will produce an overall economic effect of RUB 46.2 bn for Moscow consumers. In addition, last year, the rates for power grid connection were cut by nearly 50%.  

Moscow’s social and economic situation is stable

As the city’s economy adapted to the new economic circumstances, the residents’ real income stabilised. Over the first nine months of 2016, real wages grew by 100.2%. The labour market is also stable. Moscow has the lowest official unemployment rate (0.51% as of 1 November 2016). In 2016, sole traders numbered 56.9% more than in 2010. Moscow ranks first in the Russian Federation in the number of sole traders. In addition, the inflation rate fell by more than half in 2016. The data provided by the Federal State Statistics Service (Rosstat) demonstrate that, at year-end 2016, average annual inflation in Moscow was 7.8%. The data provided by the Department of Economic Policy and Development of Moscow allow further decreases in the inflation rate to be forecast, this boosting confidence of all economic actors and the population.

Moscow’s industrial production index grew by 3%

In 2016, industrial production in Moscow continued to develop steadily. Year-on-year, over the twelve months of 2016, the industrial production index grew by 3%.

Processing industry enterprises demonstrated the highest growth figures. The greatest increase in volumes was recorded in electronic equipment production (+202%), engineering (+16.9%), footwear and leather goods manufacturing (+9.9%) and production of various means of transport (+7.7%).

The data provided by the Department of Economic Policy and Development of Moscow demonstrate that the growth in industrial production recorded since May 2016 was a result of the comprehensive programme for supporting industry in Moscow, which was launched in late 2015.

Moscow actively implements industry support mechanisms

In December 2016, the Moscow City Government took stock of the support programme for the economy’s real sector; the programme is aimed at stimulating industry, supporting establishment of manufacturing facilities in Moscow and ensuring import substitution. Companies will use the money saved through tax benefits and other preferences to modernise and expand manufacturing in Moscow.

«The city offers existing enterprises tax benefits and reduced ground rent rates; new investment projects, in addition to these benefits, also receive free land plots, assistance in utility and power grid connection and guarantees against non-commercial risks», emphasised Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.

In 2016, 30 enterprises gained benefits under this programme. 22 were granted industrial complex status, 7 were granted technopark status and 1 company became a technopark anchor resident. These enterprises have 43,000 employees. Over the last 5 years, the companies have invested over RUB 26 bn in their development in Moscow. Currently, 28 applications submitted by industrial and innovative companies are under consideration.

Applications for the status of an industrial complex, technopark, and technopark anchor resident may be submitted online via the Moscow Investment Portalat: www.investmoscow.ru.

Moscow rates high in various rankings

Moscow is continuing systemic work to improve its investment climate; the city is relieving administrative pressure on businesses and improving its tax policies. At year-end 2016, the World Bank’s Doing Business-2017 ranked Russia 40th in the “Ease of Doing Business” category for the number of reforms implemented. Marked improvements were made in enterprise registration (the overall time spent on enterprise registration decreased; bank accounts can be opened remotely while registering an enterprise). The rating for obtaining construction permits, registering property and connecting to the power grid also improved. In addition, Moscow was ranked 10th in the National Investment Climate Rating and became one of the easy-to-do-business regions.

Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations, says that the city’s improved position in the National Rating came as a result of five years of efforts by the Moscow City Government to simplify administrative procedures and shorten their implementation time, to introduce e-technologies and to develop a system of benefits and other business support measures. 

The city retained its edge in competitive pricing

In 2016, export-oriented companies retained their competitive edge in the costs of doing business. Calculated in dollars and euros, the expenditures of doing business in Moscow dropped by 30–60% for some types of expense. The principal long-term factors cutting the costs of doing business in Moscow (calculated in dollar/euro) are falling payroll expenses, costs of raw materials and taxes. The latest real sector monitoring of tax data has shown that 45% of enterprises receive export revenues. Over the first nine months of 2016, Moscow enterprise exports grew by 25%; these are companies working in the processing industry, IT, science, etc.

Moscow continues to implement its programme offering reduced rental rates for city property

The programme of reduced rental rates for city property is being implemented in such socially significant fields as healthcare, education and cultural property restoration. It entails holding open auctions, the winners gaining the right to reduced rental rates on unused and often dilapidated city property sites on condition winners invest in the restoration. Under the programme, investors received 107 buildings and premises, including 55 that are already functioning and are rented out at the reduced rate.

Leonid Kostroma, Director of the Moscow City Investment Agency , says that the programme offering reduced rental rates in exchange for investment obligations is one of the most popular mechanisms for attracting private investments into social property. This programme gives city property a new lease of life owing to efficient use. Contracts concluded under the programme will bring about RUB 4 bn in investments into the city economy.

For detailed information on the lots, please visit the “Auctions” section of the Moscow Investment Portal at https://en.investmoscow.ru/.

Moscow begins construction of transfer hubs. Their number will grow in 2017

Approximately 10 transfer hub construction projects are slated to be listed for auctions in the first quarter of 2017. Investors for 12 projects were selected in 2016.

To recap, the city is undertaking construction of transfer hub transport infrastructure and the additional facilities are built with investor finance. Some of the transfer hubs will be flatwork park-and-ride facilities; other structures will be permanent, such as multi-purpose building complexes, hotels, etc.

For instance, Technopark Transfer Hub will connect the ZiL Industrial zone and The Dream Island children’s entertainment park. It will include a residential complex, a kindergarten and a parking lot. The project will be financed by the investor.

The Moscow City Government has also approved the Sviblovo Transfer Hub development project: it will include a mall and public transport stops. Projects for transfer hubs on the Kozhukhovskaya Metro line will be put up for auction in 2017.

Moscow auctions: taking stock of the results of the land and property auctions held in 2016

At year-end 2016 (as of 31 December), 3,385 land and property auctions had been held in 2016 to a total worth of RUB 27 bn. On average, the starting price on city property lots was exceeded by 43.7 %; on mobile retail outlets, it was exceeded by 216.4 %. Currently, 2,106 lots for a total of RUB 20,421,568,000 are at the application submission stage. The “renting of non-residential space,” “sale of non-residential space,” “sale of apartments,” “sale of parking garage places,” “land auctions” and “mobile retail outlets” sections have the largest numbers of lots on offer.

Premises with a total area under 150 sq. m. enjoy the greatest demand among small businesses.

“Today, the city can offer small businesses many moderate-sized premises for rent. Subsequently, they can use the rented space at their discretion for their business activities. In addition, renting from the city ensures transaction security and acceptable costs”, says Vladimir Efimov, Minister of Moscow City Government, Head of the Department of Economic Policy and Development of Moscow.

Moreover, in 2016, the Moscow City Government rented out all the cultural property put up for auction: nearly 30 investors bid to rent five cultural property sites owned by the city. “Last year’s auctions demonstrated businesses’ increased interest in historical monuments. All lots attracted competitive bidding. A mansion on Prechistenka St. formerly owned by a princely family spurred the greatest competition and fetched the highest price; seven investors competed for the lot and the final price was RUB 87 m, almost 900% more than the starting price”, says Gennady Dyogtev, Head of the Department for Competition Policy under the Moscow City Government.

In 2016, Moscow traders gained the right to trade in nearly 1,000 kiosks

At auctions conducted via Moscow’s Single Trading Site in 2016, Moscow traders gained the right to trade in 950 kiosks.

Gennady Dyogtev, Head of the Department for Competition Policy under the Moscow City Government, noted that this is a high activity indicator, demonstrating the confidence in the sales model selected by the Moscow City Government for selling the rights to trade from mobile retail outlets. On average, there were 5-6 bidders per lot and the average final price exceeded the starting price by 210%.

«We did not simply replace old kiosks with new ones. The city invested its own money in modern, fully equipped and work-ready retail pavilions. This trade format is in the highest demand among entrepreneurs. Finally, small businesses gained real access to trading in Moscow’s kiosks without intermediaries; an open and transparent auction system has been set up. The decision has now been made to put up kiosks of the new type throughout the city», says Alexei Nemeryuk, Head of the Department of Trade and Services under the Moscow City Government.

Currently, applications are being accepted for over 70 various-purpose kiosks. The complete list of lots, the paperwork and bidder requirements are available in the “Mobile retail outlet” section on the Moscow Investment Portal.

Moscow offers investors a building complex in Pechatniki

The starting price for the four-building complex with a total area of over 3,000 sq. m. is RUB 232 m. The buildings are located in the south-east of Moscow at 1st Kuryahnovsky Pr. 15, blds. 6, 9, 12 and 198.

The complex consists of four non-residential flexible-purpose buildings. They are located directly along the street and have a separate entrance. The nearest Metro station is Maryino.

The land plots accommodating the property are owned by JSC Mosvodokanal. Previously, the buildings were used as a facility for vehicles.

Applications are accepted until 28 February and the auction will be held on 3 March 2017. The Moscow City Department for Competition Policy is organising the auction.

Moscow puts two cultural legacy sites up for auction

Moscow is selling residential space in two mansions on Prechistenka St. Residential space in the wing of Samsonov’s mansion and Golokhovostov’s house has been listed for auction as two separate lots. Their prices vary from RUB 35 to 38 m. Applications are accepted until 14 February and the auctions will be held on 22 February 2017. The Moscow City Department for Competition Policy is organising the auction.

The complete list may be found in the “Auctions” section of the Moscow Investment Portal www.investmoscow.ru.