Moscow Investment Digest May 2017
Moscow Investment Digest
May – June 2017
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.
Moscow Made the TOP-3 Regions with the Best Investment Climate
A study carried out by the Agency for Strategic Initiatives (ASI) showed that at year-end 2016, Moscow held the 3rd place in the Investment Ranking of Russia, having gone up 7 points. This growth is the result of systemic and goal-oriented work of the Moscow Сity Government.
Speaking at the presentation of the National Investment Climate Ranking of Russia’s Constituent Entities held at the St. Petersburg International Economic Forum, Moscow Mayor Sergei Sobyanin said that during all the crisis years, the investments into the fixed capital in Moscow had never dropped.
“If we talk about last year’s breakthroughs, it is definitely the doubled volume of government contracts distributed among medium businesses. Technoparks that serve as a focus for innovative small and medium businesses have mushroomed: instead of only four government-owned ones we had not so long ago, we now have 30 full-fledged technoparks with tens of thousands of jobs in the area of innovations,” the Mayor of Moscow added.
The National Investment Climate Ranking is compiled using 45 indicators, most of which were calculated by surveying entrepreneurs. Moscow’s high place in the ranking bears witness to the fact that the business community assesses in a positive key the work done by the regional authorities.
Moscow makes the top ten of A.T. Kearney’s Global Cities Outlook
The Russian capital placed 10th in the Outlook index of 25 cities, rising 25 notches in one go.
Moscow saw improvements in economics as a result of growing foreign direct investment and registered comparative gains in the quality of its bureaucracy, A.T. Kearney said.
The company studied 128 global cities to rank them according to personal well-being, economics, innovation and governance. San Francisco led the Global Cities Outlook, followed by New York City, Paris, London and Boston.
Moscow has expanded the range of enterprises eligible for state support
On 13 June, the Presidium of the Moscow Government approved amendments to the city legislation that expand the range of industrial and hi-tech enterprises eligible for benefits.
In particular, the status of technopark and the associated benefits package may be granted not only to an entire building, as was the case previously, but to individual spaces in a building, provided their total area is at least 5,000 sq.m.
“The decision was made pursuant to analysis of the economic situation and in consideration of the opinion of the business community. This procedure will contribute to expanding the range of efficient enterprises receiving support from the city, and to increasing the number of technoparks”, said Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
In addition, investment volume requirements have also been lowered for projects implemented under concession agreements and public-private partnership agreements (PPP) from RUB 2 billion to RUB 500 m. Investors still retain the full benefits package: reduced rates on profit, property and land tax, and reduced ground rent rates. According to Vladimir Efimov, Minister of Moscow Government, Head of the Department of Economic Policy and Development of Moscow, this will allow the city to extend the support measures to a wide range of entities implementing investment projects in areas of social significance to the city.
58 enterprises total have received support measures so far; of these, 25 gained industrial complex status, 30 – technopark status, and two – technopark anchor resident status.
Reform of corporate property tax has a beneficial effect on Moscow economy
Reform of corporate property tax has created the conditions for fair competition in Moscow and promoted a more efficient city development, said Vladimir Efimov, a Minister of the Moscow City Government, Head of the Department of Economic Policy and Development of Moscow, in his speech at the Moscow Chamber of Commerce and Industry.
Vladimir Efimov reminded his audience that the reform was intended to ensure both stable budget revenues and a tax burden that would be fair, that is, equal for all. The reform was implemented gradually, consistently, in constant dialogue with businesses and taking into account their needs and possibilities.
Moscow has created a balanced system of tax benefits. The principal benefits were introduced in 2014 and 2015. Since 2016, additional benefits have been in effect for industrial complexes, technoparks and industrial parks.
The Minister said that the reform ultimately resulted in a fair redistribution of taxes: the tax burden for bona fide taxpayers and for so-called dodgers was evened out, depending on the property’s real value; a stable source of income was formed. The reform has had an anti-crisis effect as well: lease rates on commercial real estate have started to go down, because empty facilities have become unprofitable for their owners.
Investments in Moscow continue to increase
Moscow Mayor Sergei Sobyanin said in an interview that investments in core assets in Moscow totaled to RUB 1.7 trn.
“The city is opening itself up for investment, it is developing its’ infrastructure and helping develop new manufacturing sites. Investors respond to such actions and come to the city with their investments”, Sergei Sobyanin added.
European business is prepared to invest in Moscow’s industry
At the conference of the European Business Association, the Moscow City Investment Agency discussed economic cooperation with heads of foreign companies.
The “Strategies and Prospects of the European Companies in Russia” study indicates that Russia’s investment potential is growing. Those prepared to increase their investments have almost doubled in number. There are significantly more European companies expecting Russia’s economy, i.e., all those processes particular interest to businesses, to demonstrate short-term and medium-term growth has gone up significantly.
“Moscow is working consistently to improve the investment climate and, despite the crisis, all the indicators of the city’s economy are demonstrating growth”, says Leonid Kostroma, CEO of the Moscow City Investment Agency. He also said that cutting the cost of doing business in Moscow would allow industrial manufacturing to be developed, including export-orientated and import-substituting production. Companies registered in Moscow account for nearly half the total foreign direct investments coming into Russia.
French companies invest more in Moscow, exceeding a cumulative total of USD 3.3 billion
The French-Russian Chamber of Industry and Commerce hosted a meeting between representatives of the Moscow City Investment Agency and French entrepreneurs doing or planning to do business in Russia.
The parties discussed both current and prospective economic cooperation between Moscow and France. As of 1 October 2016, Moscow accounted for more than a quarter of all French investment in the Russian economy. The volume of French investments grew by 20% compared to 2015 to top the USD 2 billion mark, according to Deputy Mayor of Moscow for Economic Policy and Property and Land Relations Natalya Sergunina.
Moscow City Investment Agency Director Leonid Kostroma spoke about investment opportunities offered by Moscow, including tax breaks for efficient enterprises and greenfield investment projects.
The Moscow City Government and the JSC «RSMB Corporation» sign an Agreement on Information Collaboration
Moscow Mayor Sergei Sobyanin and Alexander Braverman, CEO of the Joint-stock company «Russian Small and Medium Business Corporation» (JSC «RSMB Corporation») signed an Agreement on Information Collaboration. The parties will provide integration of the Internet resources to support small and medium business. The JSC «RSMB Corporation» will inform users of the RSMB Navigator (smbn.ru) about the Moscow portals. The Moscow City Government, in return, will provide publicity to promote opportunities offered by the Business Navigator to business community. The integration of specialized professional tools for small and medium business support will basically provide entrepreneurs with a one-stop-shop service wide range of information and services required for starting and developing their business.
The Mayor of Moscow noted that the capital’s small and medium business gives employment to over 2 million people. “We actively promote the development of small and medium business in Moscow by providing all kinds of services, starting from subsidies and reduced lease rates, keeping entrepreneurs informed, placing Moscow government orders; the value of government orders to small and medium business increased by 77% over the last year”, he added.
Macroeconomy: price increase in Moscow has nearly stopped
In March, prices in Moscow increased by only 0.2%, which is a quarter of the January 2017 figure. Calculated annually, the inflation rate in Moscow has dropped to 5.3% (8.2% in March 2016).
This was mostly a matter of two-times in prices for services. Public transport, insurance and spa and health services had experienced the greatest month to month decrease. For instance, the average price of vouchers for vacation retreats and spa purchased in Moscow dropped by 2.2%; for full comprehensive insurance dropped by 1.8%, for long-distance trains tickets by a whopping 9.7%. A noteworthy detail is that the all-Russia level of service prices in March did not change compared to February.
Patents become more and more popular with businesses providing consumer services
The patent taxation system is simple and convenient, which has contributed to the growing business activity in Moscow in providing consumer services.
In 2016, 5,300 patents in that field were purchased (60% more than in 2015) for a total of RUB 172 mln (a growth of more than 50%).
The sharpest spike is appeared in such areas as hairstyling and cosmetic services (an increase of 72% compared to 2015), car maintenance and repairs (nearly a 60% increase compared to last year), sewing and mending clothing and fur garments (an increase of 53% compared to last year).
The number of entrepreneurs in Moscow is growing by 10,000–15,000 per month. The Moscow City Government is developing support measures for startups in their formative period – the first three years. Aleksey Fursin, Head of the Department of Science, Industrial Policy and Entrepreneurship of Moscow, said that Moscow supported small business with tax benefits and subsidies. The Moscow’s Guarantee Fund with a capital of RUB 9 bln is the largest one in Russia. Moscow has a programme for establishing government service centres that provide consulting and training support for business.
Price assessment allowed Moscow to save over RUB 7.5 bln in the first quarter of the year
Assessment of starting (maximum) prices on contracts concluded for city needs saved over RUB 5.2 bln of budget funds between January and March 2017, which is 40% more than in the first quarter of 2016. The assessment was performed by the Moscow City Investment Agency and Moscow City Expertise Agency. 500 mln RUB more were saved by assessment of starting (maximum) prices performed by the Inter-Agency Working Group and independent expert agencies.
The assessment of starting prices for public procurement carried out by Moscow’s unitary enterprises, business entities, state autonomous and budget institutions ensured an additional drop of RUB 1.8 bln of budget spendings, which is three times more than in January-March 2016.
Vladimir Efimov, a Moscow City Government Minister, Head of the Department of Economic Policy and Development of Moscow, said that “today, Moscow has created one of Russia’s the most efficient public procurement system, spanning all stages of the procurement cycle, including substantiating procurement expediency, standardizing documentation, holding of open tenders and controlling contracts execution. One of the key elements of the system is comprehensive assessment of the starting prices for government orders, which allows for the maximum possible reduction of prices in the interests of the city.” The Minister also added that the assessment of the starting (maximum) prices on contracts and agreements saved over RUB 44 bln in 2016.
Moscow’s Special Economic Zone is to be expanded
Moscow’s Special Economic Zone is to be expanded. Dmitry Medvedev, Prime Minister of Russia, signed an appropriate relevant Decision of the Government of the Russian Federation. On 12 May 2017, an agreement was signed on expanding the Special Economic Zone and including the premises of Angstrem JSC, Angstrem-T JSC, and additional land plots in Alabushevo and Technopolis Moscow. Currently, the SEZ is about 175 hectares.
New territories included in the SEZ are slated for developing priority industrial sectors, primarily for enterprises working in microelectronics, pharmaceuticals, biotechnologies, machine-tool manufacture, automotive parts and spares, robotics and medical equipment manufacturing.
Ultimately, SEZ potential residents gain an opportunity to site their enterprise in the centre of Moscow on the premises formerly occupied by the Moskvich plant. The Moscow City Government has already invested over RUB 15.5 bln in SEZ, primarily in developing the transport network and utility connections. In November 2016, a law on extending 12.5% tax profit benefits to SEZ residents was signed. By 2025, the volume of investments in the expanded Moscow SEZ is to reach RUB 38.7 bln and the number of jobs is to increase to 9,600. The Moscow City Government has allocated RUB 2.5 bln to be invested in development of this territory in 2017–2018.
Niles-Simmons-Hegenscheidt is to launch a machine-tool manufacturing plant at the Zelenograd SEZ
Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations, John O. Naumann, CEO of Niles-Simmons-Hegenscheidt and NSH RUSS LLC Chairman of the Board of directors, and Ildar Kadyrov, NSHRUSS CEO, have signed the agreement of understanding on localizing, in Moscow, the German enterprise Niles-Simmons-Hegenscheidt, a leader of the machine-tool manufacturing industry. This enterprise is planning localization in Moscow’s Special Economic Zone. Construction and other works on the site should start in late 2017. The German company is to invest upward of RUB 750 mln.
“The Moscow City Government creates the most convenient conditions for localizing manufacturing for both Russian and foreign business. Moreover, it offers additional guarantees against non-commercial risks so that manufacturers can operate in Moscow with the greatest convenience and comfort”, Natalya Sergunina noted.
ZIL is to become one of Moscow’s best integrated territories
Sergei Sobyanin inspected progress of work on comprehensive development of the industrial zone of the former Likhachev plant. In 2013, the Moscow City Government adopted a decision to implement the project; construction started in the same year. Today, the territory is being actively developed. “Currently, residential blocks are being constructed, the sports cluster is nearly finished, work has started on the road network, on the parks and the embankment”, said the Mayor of Moscow.
The final programme for ZIL development was shaped taking into account adjacent territories. “Essentially, what we are building here is an average Russian town with a population of 77,000 people. But it is not merely a residential neighborhood of Moscow: this is a real town with 66,000 jobs, with technoparks, office buildings, cultural centres, “Park of Legends” sports and entertainment quarter”, the Mayor of Moscow added.
RUB 750 billion invested in New Moscow development over five years
About RUB 600 billion were contributed by investors and about RUB 150 billion invested out of the Moscow City budget into developing New Moscow, says Vladimir Zhidkin, Head of the Department for the Development of the New Territories of Moscow. These are investments in developing both residential and commercial real estate, roads and the utilities infrastructure.
“The pace of investments will be maintained. In our estimates, by 2035, about RUB 7.5 trillionn will have been invested in developing New Moscow and our country will have another city with a million-plus population”, the Department’s Head added.
Business Spring 2017 entrepreneurial forum was held in Moscow
Moscow Mayor Sergei Sobyanin attended the Forum’s opening ceremony. Offering his best wishes to Moscow entrepreneurs on Entrepreneur Day, he noted the colossal role business plays in the city’s economy.
“The Moscow City Government focuses particularly on supporting and developing entrepreneurship. We have already established 30 technoparks and 30 industrial complexes; their residents gain maximum preferences on taxes and non-tax payments. Specialized territories host over 1,500 hi-tech companies that employ more than 80,000 people”, Sergei Sobyanin said.
The city has created an innovative infrastructure for entrepreneurs, including engineering centres, business incubators, prototyping centres, common use centres and other facilities, over 1,000 in total. The Mayor of Moscow said that the city channeled its efforts into both creating the core infrastructure and assisting industry development, and into creating a comfortable city environment for Moscow residents and for businesses.
The Forum participants discussed promising areas for business development in Moscow and the measures Moscow had undertaken to support entrepreneurship. The Forum has a business service centre offering consultations on various business questions. The Moscow City Investment Agency described to entrepreneurs the opportunities offered by the Moscow Investment Portal, such as online services to facilitate registration and doing business, to save investors’ time and increase efficiency in liaising with the Moscow Government.
Moscow Investment Portal: Three million visits during its first three years
Ahead of the Business Moscow 2017 forum, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations Natalya Sergunina said that the Moscow Investment Portal had registered three million visits since it went online in February 2014.
“The Portal aims to foster a favourable business environment, saving time and making doing business easy. It is an effective mechanism for the city to work with investors. Monthly visits rose from 27,000 in 2014 to 150,000 in 2017. Since November 2016, the total audience has increased by a million prospective investors”, Natalya Sergunina said.
The Investment Portal’s functionality is constantly expanding. Its most popular sections include Auctions, the Investor Guide, an interactive city investment map, news and events schedule and Moscow company success stories, in addition to web services, which now number 12.
Nine apartments in a pre-revolutionary house in Zamoskvorechye put up for auction
The apartments are located in a building next to the Novaya Zarya perfume factory. The Moscow Department for Competition Policy will hold the auction on 5 July 2017. The apartments are put being auctioned as a single lot, at a starting price of RUB 85.9 million.
The apartments are located at Lyusinovskaya St., 11/12, bld. 1. The areas of the residential spaces put up for auction vary from 55 to nearly 100 sq.m.; the overall area is 734 sq.m. The building is connected to heating, water supply, water disposal and electricity. It is located close to Navaya Zarya, Moscow’s oldest perfume factory, founded in 1864 by Henri Brocard, a Frenchman from a family of perfume makers. Applications may be submitted until 29 June 2017.
Thank you for your attention!
We remain sincerely yours and hope for further cooperation,
The Department of Economic Policy and Development of Moscow
Moscow City Investment Agency
The Moscow Digest archive is available at the Moscow Investment Portal.