Moscow investment digest

November 2017

Dear Colleagues,

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

News

Another six enterprises in Moscow have been granted industrial complex status

The status will reduce the tax burden on the enterprises by 17–25% compared to the standard tax rate.

Industrial complex status was granted to Nauka Research and Production Company PAO (Nauka RPC) manufacturing aeronautical units and life support systems for aerial vehicles; BRPI OJSC (Baskin Robbins’ Moscow plant), ice-cream manufacturer; Biotics Research and Production Company LLC manufacturing medications; Partner F SJSC (member of Tsaritsyno Company Group), sausage manufacturer; Hydraulic Equipment Research and Production Company OJSC manufacturing pumps; “Long-Range Radio Communication Research Institute” Research and Production Company OJSC manufacturing radio complexes and systems.

In addition, N.A. Dollezhal Research and Development Institute of Power Engineering (NIKIET) has been granted the status of a technopark management company

The Presidium of the Moscow Government has confirmed the status of six current industrial complexes: Wimm Bill Dann OJSC, Cherkizovo Meat Processing Plant OJSC, Dymov Sausage Manufacturing LLC, Tsaristyno OJSC; Bakery No. 28 CJSC; MTZ Transmash OJSC.

“The companies have demonstrated a consistently high growth rate of their key performance indicators. They have demonstrated a 10% increase in revenues over last year, a 14% increase in accumulated investment over five years, and a 15% increase in average wages”, said Alexei Fursin, Head of the Department of Science, Industrial Policy and Entrepreneurship of Moscow.

In total, Moscow today has 36 industrial complexes and 32 technoparks with 83,500 employees. All companies enjoy tax benefits.

Moscow City Duma approves Moscow’s budget in the final reading

The Moscow City Duma has approved the final reading of the Moscow City Law on “The Moscow City budget for 2018 and for the planning period of 2019 and 2020.” The budget envisages funding for an unprecedented expansion of public spending and large-scale urban development projects.

Elena Zyabbarova, Moscow Government Minister, Head of the Moscow Department of Finance, a sponsor of the law, tabled it: “The budget has been passed in an environment of economic growth and is fueled by a steady rise in revenues. The expenditures portion is programme-based, as it secures funding for 14 government programmes in the City of Moscow. It gives absolute priority to the social area; the city’s social commitments to its residents have been significantly increased; these increases pertain primarily to social benefits; many have been increased several times. Benefit increases have been determined pursuant to discussions and consultations with public organizations. Thus, the budget under consideration is both socially orientated and, in a way, socially shaped. A quarter of the expenditures are earmarked for the Targeted Investment Programme and relocation programme.”

Moscow bonds were assigned the highest Russian credit rating

Analysts of the Analytical Credit Rating Agency (ACRA) stress that the Moscow’s highest national rating is due to the high level of economic development, self-sustainability, structural balance of the budget, and the city’s low debt burden.

“The rating assigned to the city’s bonds reflects Moscow’s recent economic policy, which combines optimization, supporting efficient manufacturers and creating new revenue sources”, said Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.

In his turn, Vladimir Efimov, Minister of the Moscow Government, Head of the Moscow Department for Economic Policy and Development, has noted that Moscow’s recent economic growth has allowed the city to implement large-scale infrastructure programmes and improve the investment climate and the quality of the urban environment, which has had a positive impact on Moscow’s credit ratings.

Bond series 32048 was floated on 17 March 2010, with 31 six-month coupons. The bonds are to be redeemed on 11 June 2022. Bond series 27066 was floated in November 2009. The total bond value is RUB 30 billion. The bonds have 36 quarter-long service periods. The series is to be redeemed on 23 November 2018.

Moscow becomes more and more appealing for investment

Annual investment in Moscow has reached nearly RUB 2 trillion, Sergei Sobyanin said at the plenary session of the All-Russia Economic Assembly.

“We have more than doubled annual investment in the city infrastructure and economy. These investments, on the other hand, have driven private investment”, the Mayor of Moscow said, stressing that every rouble the city of Moscow invests in the city’s infrastructure yields three roubles in private investment.

Moscow is attracting more and more foreign investments. At a business dinner with representatives of China’s big businesses held as part of the Days of Moscow in Beijing, Sergei Cheryomin, Head of the Moscow Department of Foreign Economic Activity and International Relations, presented Moscow’s investment potential.

Today, approximately 200 Chinese-invested enterprises are registered in Moscow.

Moscow has a large number of rapidly developing economic sectors that have enormous investment appeal. According to Sergei Cheryomin, these include hi-tech, transport, engineering, and tourism. Moscow offers an advantageous tax regime, supports investors and entrepreneurs, as well as investment funds and companies that finance transport and social infrastructure development; among other formats, these projects may be run as PPPs.

Events

Moscow celebrates Economist Day

For the second year, Russia celebrates Economist Day on 11 November. Moscow held a celebration of the economists’ professional day, with Moscow Mayor Sergei Sobyanin presenting awards to outstanding economics professionals.

“Thanks to people working in finances, Moscow’s economy is successfully coping with the sanctions, banking crises and other difficult situations. Despite all the hurdles and problems, Moscow is growing and developing, becoming a more comfortable living space, and this is also largely possible owing to your work”, Sergei Sobyanin noted, as he also read an address from President Putin.

A week before, an awards ceremony celebrating National Unity Day was held. Awards were presented to 54 people whose work and talents had earned them commendations, badges of honor, orders and medals. Moscow Mayor Sergei Sobyanin presented government and city awards to Moscow citizents who had made great contributions to Moscow’s development.

Leonid Kostroma, Director of the Moscow City Investment Agency, received a commendation from the Mayor of Moscow for his contribution to improving Moscow's investment climate.

Swedish companies invest EUR 1 billion in Moscow

A business lunch with representatives of Swedish companies operating in Russia was held in Moscow on November 22nd.

Swedish companies are actively investing in Moscow; as of April 1, 2017, the accumulated investments were EUR 1 billion. Today, Ikea, Oriflame, ABB, Volvo, and other famous companies have offices in Moscow.

Moscow is one of the biggest consumer markets not only in Europe but also globally. Leonid Kostroma, Director of the Moscow City Investment Agency, presented the capital city’s investment potential. “A comprehensive support mechanism has been developed for existing efficient enterprises and new investment projects implemented or planned in the city. Enterprises may be granted the status of an industrial complex, a technopark, or an industrial park, which will reduce their regional tax burden by 17–25%”, Leonid Kostroma said. They will pay lower profit, property and land taxes and a reduced ground rate. 64 companies have already availed themselves of the support measures.

Macroeconomics

Today, one out of five companies in Russia is working in Moscow

Over the first nine months of 2017, the number of new sole proprietors registered in Moscow was 21.6 % higher than in January–September 2016. During the same period, the average rate of new sole proprietor registration in Russia was more than 13% below that of Moscow.

The total number of SPs working in Moscow has grown by 11.3 % to reach 279,500. In January–September this year, the number of legal entities registered in Moscow was 16.3 % higher than during the first three quarters of 2016. Moscow has a total of 958,000 companies with various forms of incorporation. As of 1 October, Russia had 4.5 million organizations with various forms of incorporation.

“In recent years, Moscow has created a comfortable business environment for companies of any size. Consequently, today, one out of five legal entities in Russia is working in Moscow”, said Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.

According to Vladimir Efimov, Minister of the Moscow Government and Head of the Moscow Department of Economic Policy and Development, such growth stems from “Moscow’s systemic structural work on improvement the business climate on all levels.”

69,000 patents were purchased in Moscow over nine months

All 80 types of activity covered by the patent system exhibit positive dynamics. The patent taxation system demonstrated the highest growth in the food services industry: the increase in patents purchased and monies received was 142 and 116 per cent, respectively, compared to the same nine months of last year.

“Even those types of activity that did not initially enjoy particular popularity demonstrate high growth dynamics along with those that have always been in high demand”, said Vladimir Efimov, Moscow Government Minister, Head of the Moscow Department for Economic Policy and Development. He said that the list included software and database development, stonecutting and stone carving, waste collection and disposal, and recycling.

Now people may use a virtual operator to enquire about the status of their application for a work patent, Vladimir Efimov said. The robotic operator recognizes speech and may either answer questions on its own or put a call through to the right operator.

To obtain information, a person who is making a phone call needs to say the number of the patent application. In response, the automated system will report on the stage of the document processing. The virtual operator is already taking and processing about 30,000 calls per a month.

Problems experienced by private banks do not ail the financial system

The Moscow Department for Economic Policy and Development has issued a new monthly review of Russia’s financial market as of 1 November 2017.

By the end of October, Brent oil prices reach 60 USD per barrel, the dual-currency basket-ruble exchange rate dropped by 1% (to 62.1 RUB per a basket), and the Bank of Russia once again cut the key interest rate by 0.25% to 8.25%. Despite the difficult situation due to several large banks transitioning to government control in the last few months, the banking system in general is sound, and business and consumer lending is picking up the pace.

In September, problems experienced by Otkritie bank and BIN Bank spurred a local surge in demand for Bank of Russia loans, which, in its’ turn, led to an increase in money supply that had exhausted itself by the end of the month. In October, banks’ ruble and foreign currency debts to the Bank of Russia had fallen by 52 billion RUB and 0.3 billion RUB, respectively.

Despite reduced rates, the population increased its bank deposits and the resulting influx of funds continues to grow: +0.9% compared to the previous month. In September, the retail lending market continued its accelerated growth of 2.2% compared to the previous month and of 9.8% compared to the same period last year. In August, these figures were 1.7% and 7.8%, respectively.

Corporate lending and funds deposited by enterprises in their current and term deposit accounts also increased in September. The September increase in funds in enterprise accounts was 1.1% and 5.4% annualized. Even though the interest rate hike in ruble lending to enterprises was increased to 10.4% annually for long-term interest and to 11.2% for short-term interest, corporate lending in September grew by 0.7%.

Investments

Goods manufactured under the Made in Moscow brand are to be sold on global e-commerce sites

The “Made in Moscow” programme of support measures for city manufacturers run by the city for nearly a year is to be scaled up and expanded on to global e-markets: Amazon, AliExpress, and others, Boris Moshkovich, head of the Moscow Exports Centre (MEC), said at the Developing E-Commerce conference in Moscow’s Chamber of Commerce and Industry.

“We are prepared to extend the ‘Made in Moscow’ programme into e-commerce and partially reimburse the costs incurred by Moscow companies when working on e-markets. I hope that Moscow’s pilot project will generate many successful cases and will be rolled out on a mass scale throughout the country”, the head of the MEC said.

Today, Moscow’s electronics manufacturers are orientated on exporting their goods to Europe. The Moscow Government’s Made in Moscow programme offers Moscow manufacturers financial support for 50–80% of their costs of participating in the biggest Russian and international exhibitions. 12 hi-tech companies represented Moscow at the major Semicon and Produktronika electronics industry exhibitions in Munich. Under the Made in Moscow brand, the capital of Russia exhibited hi-tech electronics, software, test equipment for semiconductor devices and advanced materials.

Sergei Sobyanin: Moscow has created a quality foundation for developing industry

The city is developing by using best practices of the most advanced metropolitan areas.

Moscow should not travel the road of pushing manufacturing and industry out of the city, Sergei Sobyanin said, speaking on the Govorit Moskva (Moscow Speaking) radio station.

He says that manufacturing itself may be sited anywhere, but headquarters and design bureaux should remain in Moscow owing to the high level of education and facilities and resources the city has created.

“We must benefit from that, achieve synergy, and create new things in Moscow, because this is the place for it. Moscow is the venue where new, state-of-the-art products may be developed and manufactured, where people can be engaged in science and innovations, and we have experimental industry here”, Sergei Sobyanin said.

He also added that Moscow keeps developing by using best practices of the world’s most advanced metropolitan areas.

Over the last few years, Moscow has shaped a comprehensive innovative infrastructure that drives the development of its economy. This is confirmed by national and international rankings results of Moscow that constantly improve and the city’s competitive edge. At year-end 2016, Moscow held 43rd place in the Innovative CitiesTM global index compiled by the 2thinknow agency, up from the 192nd place in 2011. Moscow also held 3rd place in the National Regional Investment Climate Ranking.

Investors will build one out of three social facilities in Moscow

Marat Khusnullin, Deputy Mayor of Moscow for Urban Planning Policy and Construction, noted that Moscow plans to construct 205 social facilities over three years; a third of them will be built with investor financing. Most of them are kindergartens and fitness and wellness centers.

“By the end of 2020, contractors will have built 56 kindergartens, 72 schools, 40 sports facilities and 20 culture facilities, and also 62 outpatient clinics, hospitals, and ambulance stations”, Marat Khusnullin said, adding that Moscow had already built 560 social facilities over the last seven years.

Moscow auctions

Moscow authorities selling a stake in the Ostankinsky Beverages Plant

The Moscow Government has listed for e-auction 19.99% of its share in the registered capital of Ostankinsky Beverage Plant OJSC. The auction is held by the Moscow Department for Competition Policy.

The stake being put up for auction includes 75,800 ordinary registered uncertified shares with a par value of RUB 26.37. The plant produces 29 commercial brands and also sells and delivers beverages. The buildings’ total area is nearly 22,000 sq. m. The initial value of the lot is RUB 83 million. Bidding will take place on 7 December 2017.

The new owner of the Nekrasovskiye Bani Wellness Complex has been selected by an auction

The Nekrasovskiye Bani Wellness Complex has found a new owner. Two bidders competed for the facility. The lot’s starting price went up by 20% to RUB 60,180,000. The new owner purchased 100% of the stock in the Nekrasovskiye Bani Wellness Complex OJCS. The winner says the complex will retain its functions.

Small businesses are interested in leasing real estate at special prices

First auctions leasing out commercial real estate to SBE spurred great interest among businesses.

“The first auction to lease out 24 commercial facilities for SBE demonstrated considerable interest on the part of business. 112 bidders applied to take part in the auction, and the average starting price increase was about 110%. After the auctions, the average price per sq. m. was RUB 9,707. Some lots were auctioned off at the starting price, so every bidder could choose a lot at a reasonable price”, said Gennady Dyogtev, Head of the Moscow Department for Competition Policy.

Only small and medium-sized business entities are eligible to bid at these auctions. Winners conclude a lease for ten years at a fixed price determined at the auction. The annual starting price for the lease is RUB 4,500 per sq. m. Currently, applications are being accepted for 14 lots located in various Moscow neighbourhoods. Detailed information on every lot may be found on the Moscow Investment Portal in the Facilities for SBE section.

The Department of Economic Policy and Development of Moscow

www.depr.mos.ru

Moscow City Investment Agency

www.investmoscow.ru/agency

Purchasers’ portal

www.zakupki.mos.ru

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