A key story is industrial cooperation

Vladislav Ovchinsky, Head of the Moscow Investment and Industrial Policy Department, said in an interview with Kommersant about the current state of Moscow industry and measures to support new and existing industries

— How do you assess the situation in the Moscow industry? What do the statistics say?

— Like any other area of life of the real sector of the economy, Moscow industry has faced a fairly large pool of problems due to the current economic situation, such as a violation of supply chains, and cash gaps due to a rather strong one-time increase in the key rate, which, fortunately, has now returned to normal. Our economy has a full human capital base, which has been forming for a long time in the capital, as well as scientific research and scientific capital, which was also formed in the type of research institutes, educational institutions. Therefore, for the Moscow industry, the current stage of development has become a kind of growth driver despite of all the difficulties that we have been having this year.

The manufacturing industry grew by almost 12% a year in the first five months, the industry in general – by 9%. This means that the share of industry in the economy has not decreased, but it’ll only grow. We can replace those products that have left our market and also invest in R&D research, develop product samples that will be even better than foreign analogues.

— How did the withdrawal of foreign companies affect the industrial sector and supply chains? Is there any understanding of what parts are missing from industrial companies and what kind of production facilities the city needs?

— There are two components. The first one is probably more political. Indeed, many companies have announced the suspension of activities, but the share of those companies, which left the market, is not as high as the share of firms operates in the market. Especially, of course, it concerns underprivileged companies – they are used to work, produce products, sell it to partners. The second component concerns those niches that have been vacated due to the withdrawal of companies: the city actively supports those organizations that fill these niches. One of the key tasks for us is to maintain employment, the preservation of labor collectives. A good example is the former Renault plant, which is the Moskvich plant now: the staff there has been fully retained, the mayor has already announced plans to release products at this plant. Such enterprises are certainly under a special control and they are preserved both in terms of technology and human resources.

— How active are other industrial companies in hiring the freed specialists?

— The labor market in Moscow has always been quite active, as well as the real estate market. Despite the crisis phenomena in the economy that took place both in the 1990s and in the 2000s, the labor market has always been very lively. There is always a certain number of people looking for work, but at the same time, a very large number of vacancies are open in Moscow. Of course, the market absorbs high-tech specialists and high-quality specialists very quickly, and companies are happy to hire those who are released due to the withdrawal of foreign organizations for political reasons. The unemployment rate is not rising, and we do not see the prerequisites for its growing.

— How popular are services on the selection of suppliers?

— Over the past decade, Moscow has taken on a methodological function for the regions, business entities. The platform for commodity cooperation is also a free tool for all subjects of the Russian Federation, for the entire real sector of the economy. We receive quite a lot of requests from the business community, from production workers to include products on the site. Only in the first two weeks after the launch, more than 120 manufacturers from 26 regions of the country contacted us. The bottom line is to show what products organizations are able to supply to the market, and thereby remove the information vacuum, which, unfortunately, has been present on the market for many years, because there was no such marketplace for domestic manufacturers. However, in the real sector of the economy, the key point is industrial cooperation, because without the cooperation of enterprises it is impossible to produce products “to nowhere”. Therefore, we are now actively involving the subjects in the process of informing organizations about this service and, of course, we are working with Moscow companies so that they also actively bring their products to the site.

Another service is the selection of alternative suppliers. If a commodity cooperation platform is a kind of front office, a marketplace where we can place information, then the service for selecting alternative suppliers involves individual work with the manufacturer. We manually work out requests for the search for a particular product either abroad or in our country. Organizations are interested, for example, in the possibility of supplying similar components that were previously supplied from unfriendly countries. Very often, we find components in Russia. There are even comical situations when we find products needed by another resident in the same building of the technopark. It's an amazing story, but it happens. The service is very popular – we will definitely develop it, and together with the platform for commodity cooperation, this will allow us to build new supply chains and fill the gaps that have arisen.

— What kind of products are missing the most? Is it equipment, or maybe spare parts?

— If you rank by place, then most requests are for components, because several large factories and enterprises have stopped deliveries of machine tool products from abroad or have stopped production in the Russian Federation. The services of engineering centers that are ready to produce specific components for a specific order are in great demand. From time to time, we encounter questions about the supply of raw materials and ingredients that are not critical for production, but enterprises want to see them in stock. In third place, there are finished products like large-nozzle machines, devices. This is less relevant for Moscow, because the capital's industry has undergone a major modernization in recent decades – production sites in the city mostly have modern, good equipment that does not need to be replaced.

— How has the volume of capital investments of companies changed? What investment incentives are available now?

— Our investments have been growing very actively over the past ten years. If you remember, there was a time, probably 8 or 10 years ago, when there was a lot of criticism against Moscow, as if we collect financial resources from all over the country and live off organizations that are registered with us, but in fact, work throughout the territory of Russia, but we receive taxes from them. Over the past decade, the situation has changed dramatically, because most of those organizations that had been working in other regions re-registered there, while Moscow began to attract "live" investments, manufacturers, investors who are ready to invest in the development of infrastructure, urban projects. If you look at the dynamics of investment growth, we grow very seriously every year, and despite the current economic situation, in the first quarter, investments grew by 5%. This is a very good indicator for such a time - almost all major metropolitan areas of the world stagnated during COVID, while Moscow is growing even in a crisis.

Investors are also investing well in the industrial sector. In 2021, the volume of investments by manufacturing enterprises amounted to almost RUB 152 bn, exceeding the results of 2020 by almost a third. For the first quarter of 2022, the dynamics are also good – plus 30% compared to the first quarter of last year.

This suggests that the city has a fairly well developed set of tools that allow attracting investment. The instruments are completely different, including those related to the state order. For many years, since the adoption of the 94-FZ, and later the 44-th law on the state contract system, the city and the whole country purchased products with certain criteria. Moreover, the more we moved towards the development of the contract system, the more price criteria prevailed over non-price criteria. That is, the key tool in procurement in the current version of the legislation is an auction, where only the price plays a role in the final result of the winner. This allows us to save budgetary funds, but, unfortunately, very often in the framework of such activities we encounter unscrupulous participants, organizations that, in principle, have nothing to do with the production of products. Therefore, in 2017, Moscow began to develop actively the tool of offset contracts. The essence of this instrument lies in the fact that, in addition to obligations for the purchase of goods, investment obligations were also been established for investments in infrastructure, in the creation of production sites in the city in exchange for a guaranteed volume of supplies. Moscow has already signed five major contracts, this year, given the current situation, we considered that this tool should be strengthened, so now such contracts are being worked out in all sectors of the city economy. On July 1, changes in the procedure of concluding offset contracts came into force. It will allow, on the one hand, to attract, among other things, medium-sized businesses, since the required investment volume is reduced to RUB 100 m, and on the other hand, to use contracts not only for the purchase of goods, but also in the provision of services as a lot of urban complexes live on the service model.

— Are there any applications for the conclusion of such contracts from new investors?

— In order to conclude an offset contract, we lay out the city's needs for the presence of an imported component in the purchased products and then form the conditions based on the needs that city customers have. After the announcing of competitive procedures, we are waiting for applications from potential participants. Now we are preparing such contracts in the field of healthcare, housing and communal services and transport. It will be possible to talk about the results of this activity at the end of the year, but the experience of already concluded contracts shows that we kill two birds with one stone with this tool. On the one hand, we create a good inflow of investments and jobs, on the other hand, we give our customers the opportunity to buy products from the single supplier.

For example, when we talk about medicines, it is very important that there is no counterfeiting, that there is the necessary permit documentation. At the same time, even secondary packaging was considered import substitution: companies brought finished tablets from abroad, packed them and considered that this was import substitution.

A good example here is the opening of a new plant for the production of endocrine drugs, which has a well-equipped building for laboratory research in the field of biotechnology of innovative drugs, including Russian equipment. Nobody created such cases before, since it was easier and cheaper to buy abroad than to create something of your own. However, the current realities show us that our foreign partners can cut off supply channels at any time, so such R&D centers, which are created under offset contracts, are really the way to technological security. Similar research centers are being created in other industries, and we will definitely support such projects.

— Large-scale investment projects also provide significant benefits.

— The mayor decided to provide land plots to industrialists this year for RUB 1 for the construction period until the commissioning of the facility. In the conditions of contemporary Moscow, taking into account the building density, this is a very important support measure for us, because we undertake to find and provide a land plot almost free of charge. This measure is very popular and we have already signed five such agreements.

Concessions within the framework of public-private partnerships also remain an important tool. Despite the sufficiency of the budget for the construction of certain infrastructure facilities on its own, the city is developing this tool quite actively – less than a month ago we announced a competition for another concession. This will be the first concession in Russia for the creation of a budget hotel within Moscow with the reconstruction of city property. By implementing this project, we not only attract investments, but also put the city in order. There is no secret that during the years of Soviet power, as well as during the 1990s and even the beginning of the 2000s, many infrastructures have come to a poor state. We are now putting up for auction under the concession these objects. I think that we will continue to move in this direction, we will develop it together with the tourism committee.

— How do demand and supply for land plots and production sites compare now? Will all interested investors be able to get them?

— For those who are engaged in real production, it will definitely be enough. Firstly, within the framework of the same offset contracts, we do not have the task of localizing everything on the territory of the city. We can do such localization in any subject of the Russian Federation according to the needs of our customer – our legislation allows us to implement such formats of interaction. For those who want to increase their production capacity in the city, we offer a wide range of tools. We have technology parks, a special economic zone, just land plots owned by the city. It is possible to obtain these plots after confirming the possibility of building production facilities. Therefore, we do not have a shortage of tools, on the contrary, we are conducting a fairly serious information campaign to attract investors.

— How relevant can the industrial mortgage mechanism be for Moscow manufacturers?

— Industrial mortgage is, in my opinion, a very good story, because the real sector of the economy really needs cheap money. We are already developing such instruments — we have the Industry Support Fund, which was capitalized by RUB 20 bn this year. We also use these funds to subsidize our industrialists with a bank rate below the key rate on loans for the implementation of investment programs. Even in the last three or four months, organizations have turned to us for support not for operational activities, but for development. Therefore, it is impossible to implement the initiative that the president announced at SPIEF, in my opinion, is very relevant now for all regions, especially where such financial support at the regional level. From industrialists, the demand for cheap money is now extremely high.

— On January 1, 2023, a new regime of industrial clusters should be launched, under which companies will also be able to receive additional benefits. The Ministry of Industry and Trade also put forward proposals for the development of private technology parks. Are there any new initiatives planned in this area in Moscow?

— The industrial cluster is the most important story in terms of the development of territories, since over the past 50 years there has been a very serious modernization of the concept of a production site. 50 years ago, the production site was supposed to be some kind of large factory, a large factory that employs many people. In the morning, they come to work, and in the evening, they leave, but settlements and towns formed live around where these people. Now industrial production is usually compact, especially when we talk about megacities where there is a high population density. This forces the city and regional authorities to fit manufacturing enterprises compactly into the already formed urban territorial grid.

The clustering of the economy also leads to another very important effect: when we create a production cluster, we get the opportunity to create the accompanying infrastructure much cheaper, and the key parameter of the investment attractiveness of a particular area for industrialists is just a developed industrial infrastructure. It can be different - these are networks, and social facilities, and places of collective use, co-working. It all depends on what kind of production it is. The cluster allows you to reduce the cost of this infrastructure and enable everyone who works in a particular cluster to use it. Therefore, we have been quite actively engaged in such clustering over the past decade, creating clusters of industrial enterprises, as well as construction and medical clusters, which are now actively developing, many enterprises have already been put into operation and are functioning. Many are under construction, and, of course, we will maintain this approach to clustering. The development of industrial clusters will also make it possible to seriously change the approach to creating industrial production in other regions: move from providing land plots in an open field and forcing industrialists to build networks there and create infrastructure to uniting enterprises into certain communities.

— Microelectronics is considered one of the main areas of import substitution. Have companies managed to cope with external restriction. How do you assess the growth prospects?

— Microelectronics is an important component of the development of the high-tech sector of the economy, it is also important because many related areas are tied to microelectronics, not only manufacturing, but also from the service sector. In Moscow, there are domestic leaders in the field of microelectronics: we have a large Zelenograd cluster, there are clusters that deal specifically with microelectronics on the territory of old Moscow. As this area is specific, it is consist of three main forms: the so-called fables production, silicon factories and full-cycle factories. In Moscow, the third component is mostly represented - this means that we are creating a full production cycle in the city. For example, some Asian factories are silicon based in nature. These are not design centers, they cannot design themselves, and they only produce and give to the end user on order what was provided to them in the form of a technical assignment. At the same time, Moscow has industries that can do everything: from design and design to implementation in real production. Of course, we pay special attention to microelectronics and direct a large support pool in this direction. Independent microelectronics in Europe and Asia is rather a rarity. Unfortunately, the industry in the global economy has developed in such a way that almost all of it is tied to several large foreign players from countries that are unfriendly to us. At the same time, our enterprises have recently made a number of very serious, I would say, breakthrough successes. We have all seen the news about the Troika card, which our enterprise issued with the chips. In fact, to manufacture a chip for the Troika card, we need very serious technological backlogs that our enterprises have. Therefore, we certainly will actively support this industry.

— What other industries do you consider the most promising in terms of growth?

— Pharmaceutics is developing quite actively in Moscow, and we assume that this development will continue. Since 2014, we have been witnessing dramatic changes in the agro-industrial complex: we have become a self-sufficient country with food sovereignty, which can live on condition that our external borders are completely closed; pharmaceuticals have come a long way during this time. Not evolutionary, but, I would say, revolutionary: we are creating new factories, R&D centers, now we are building two of Europe's largest drug manufacturing plants in our city - these are super-modern enterprises with a crazy infrastructure, with the most modern technologies. Of course, the building materials production industry is developing very actively - it is no secret that the city annually approves a program for the investment development of the city and urban spaces. Incidentally, this program has not decreased by a single ruble under the current conditions: we continue to invest in infrastructure, which is a major investment for development of the city's economy. Literally not so long ago, the mayor visited a plant for the construction of large-block structures, which allows you to actually build apartments in factory conditions - this is an ultra-modern technology, the world is just getting used to it. We already have the first stage of the plant put into operation, this makes it possible to build quickly, efficiently, this is an opportunity to use the resources of the territories where such facilities are built in a completely different way, and finally, this is an opportunity to reduce losses during construction to almost zero. Another direction is hi-tech, high technologies. For the development of this industry, we are constantly expanding our SEZ. We build new production buildings in order to create an infrastructure for high-tech enterprises, which we have quite enough, and many high-tech enterprises launched from a very low start, but literally in a year or two they will receive a significant amount of revenue, develop technologies, invest in production and provide a surplus product for the economy as a whole. Therefore, we will also actively develop this industry.

Source: Kommersant