Moscow Investment digest September 2017
MOSCOW INVESTMENT DIGEST
The Moscow Department for Economic Policy and Development and the Moscow City Investment Agency are pleased to present you the monthly issue of the Moscow Investment Digest.
Investors have been guaranteed stable demand for their products in exchange for investment obligations to localize pharmaceutical manufacturing in Moscow
On September 22nd the tender results were announced. In terms of the new contract the investor would supply medicaments and would be obligated to invest in localizing pharmaceutical manufacturing in the city. This project will be the first of its kind for Russia to be implemented under the new legislation on public procurements with the supplier’s reciprocal investment obligations.
Biocad CJSC won the right to conclude a unique government contract for a period of 10 years. Under the contract, the city will procure 22 medication brands, mostly oncological agents and immunomodulators. For its part, the investor is obligated during the first three years to create facilities for the manufacturing, packaging, and quality control; for no less than two medicaments, the investor is obligated to launch end-to-end production, including the manufacturing of biomaterials. The procurement of products manufactured at the new plant will be carried out for seven years after the plant is put into operation. The contract’s final price is 14 billion RUB.
“A contract with investment obligations will enable the Moscow Government to implement a new drug provision mechanism benefiting Moscow residents, business and the treasury. For Moscow residents, it means new jobs and medicaments for beneficial prices. For business, it means guaranteed stable demand for their products. For the treasury, besides the additional taxes, it means the possibility of optimizing budgetary spending on procurement”, said Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
“Moscow is one of the largest governmental procurers; its purchase volume is approximately 550 billion RUB annually. In the future, we are planning to dynamically develop the mechanism of governmental procurement in exchange for investments in localizing the manufacturing of the procured goods; it will apply to various sectors, including drug provision”, said Vladimir Efimov, a Minister of the Moscow Government and Head of the Moscow Department for Economic Policy and Development.
Moscow is ready to develop cooperation with medical equipment manufacturers
Technopolis Moscow held a meeting with manufacturers of medical equipment products. The meeting participants discussed the key trends and areas for supporting the sector, as well as expanding existing enterprises and localizing new ones. Medical equipment products manufacturing is a priority for Moscow.
“The city is very much interested in enterprises developing and entering new markets. Our treasury’s revenue depends on the enterprises’ economic indicators”, said Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations.
Governmental procurements for the city’s healthcare were given a special consideration at the meeting.
“Governmental procurements ensure that manufacturers of medicinal products have stable demand for their goods, and as such, it is an essential instrument for enterprise development”, said Leonid Kostroma, Director of the Moscow City Investment Agency.
Moscow launches new supporting measures for investors and the real sector
On September 26th members of the economic policy and land and property relations complex of the Moscow Government met with the heads of over 50 industrial enterprises of Moscow. The discussion was held as part of activities carried out by the Working Group for Improving the Investment Climate under the Business Protection Headquarters. The meeting participants discussed results of implementing Moscow’s Investment Strategy until the year 2025 and supporting measures for the city’s real sector.
Moscow’s investment strategy is being dynamically implemented: the city is working on improving its investment climate, increasing the volume and share of competitive investments and the volume of private investments, said Dmitry Presnov, First Deputy head of the Moscow Department for Economic Policy and Development. He added that, when developing the strategy, the Moscow Government considered a great number of projects and conditions taking into account the specifics of the capital, the labour market as well as practices implemented in other regions and in cities worldwide.
Dmitry Presnov pointed out that the city would not rest on its laurels. The Moscow Government is proposing new initiatives such as developing legal regulations to support regional investment projects, introducing new forms of subsidizing industry, and offering target loans at reduced interest rates to real sector enterprises.
Leonid Kostroma, Director of the Moscow City Investment Agency, also said that Moscow provides one-stop shop investment project assistance. Together with investors, the Moscow City Investment Agency develops economic and legal conditions for projects, including projects implemented as public-private partnerships, and introduces systemic measures to improve the investment climate.
Seven new companies joined the programme for supporting the economy’s real sector
“We offer significant benefits to these enterprises in taxes, land, and property exemptions. The main condition for granting benefits is well-payed jobs that are offered to Moscow residents in a first place. In addition, the enterprises must invest in their own development”, said Sergei Sobyanin, Mayor of Moscow.
The status of an industrial complex has been granted to Binnopharm JSC, a Russian biopharmaceutical complex; Vympel NPO, a design bureau for developing defines products; Aeroelectromach JSC, an enterprise developing, manufacturing, and repairing aircraft electronics; VG Konturs JSC, a manufacturer of cardboard packaging; Svyazstroydetal CJSC, a manufacturer of plastic pipes, sections, couplings, and concrete construction products; and the All-Russia Research Institute of Automatics FSUE. The status of a technopark has been granted to the territory of Vodny Stadion Sport Invest JSC, which, in its’ turn, was granted the status of Vodny Stadion Technopark Management Company.
Currently, Moscow has 30 industrial complexes, 31 technoparks, and 3 technopark anchor residents. The technopark or industrial complex status reduces the tax burden on enterprises and investors by 17–25%.
The Integrated Special Economic Zone was given the brand name of Technopolis Moscow
The relevant decision was adopted at the meeting of the Moscow Government Presidium. The Technopolis Moscow Integrated Special Economic Zone combines five sites with high-tech resident companies. They invest in microelectronics, instrument engineering, information and telecommunication technologies, and medical equipment manufacturing; these companies have created over 5,000 well-payed jobs.
The special economic zone was established in 2005; in 2016, its’ management was transferred to the Moscow Government. Its territory was expanded from 160 hectares to 207 hectares at the initiative of the Moscow Government and the Government of the Russian Federation.
German precision instrument manufacturing plant Wika Mera launched in Moscow
The high precision production facility was launched due to foreign investments and tax benefits. Wika, a German company, is localizing a major manufacturing enterprise in Moscow: four buildings with total area of 5,000 sq.m. and 100 jobs for Moscow residents.
Moscow Mayor Sergei Sobyanin attended the opening ceremony. “The supporting measures offered by the Moscow Government are being effective. New manufacturing facilities are launched, and the main requirement is well-payed jobs created first and foremost for Moscow residents”, Sergei Sobyanin said and added that industrial enterprises would soon receive additional financial aid from Moscow, in particular, subsidies for utilities connections.
Wika Mera JSC invested 15 million EUR in the project. By next year, its’ expected profit is 1.7 billion RUB.
Moscow manufacturers now have their own professional day
The Moscow City Duma has approved a new professional holiday, making the October 7th the Moscow Industry Day. This date is significant for on this day in 2015 the law “On Moscow’s Industrial Policy” was passed.
Macroeconomy: approximately 57,000 permits to use the simplified tax system were purchased in Moscow in the first half of the year
In January–June 2017, 57,000 permits to use the simplified tax system worth 4,6 billion RUB were purchased in Moscow. The number of permits issued is 44% higher than in the same period of last year, and the permit fees brought in 57% more income.
Permits to use the simplified tax system are gaining popularity mainly because they are simple and convenient to obtain. “Entrepreneurs compare various taxation regimes and tend to decide that a permit is profitable: it costs 6% of their potential income. Today, this is the lowest tax rate for entrepreneurs”, said Vladimir Efimov, a Minister of the Moscow Government and Head of the Moscow Department for Economic Policy and Development.
Traditionally, the most popular permits were obtained for retail, cargo shipping, and leasing out non-residential spaces.
Moscow will reimburse investors’ interest rate payments
Moscow will reimburse interest rate payments on loans to companies that invest in developing industry in Moscow. On August 30th, the Moscow Government passed Order No. 598-PP to provide subsidies for interest rate payments on loans to management companies of technoparks and organizations operating Investment Priority Projects (IPP).
This initiative is designed to attract funds for the development of Moscow’s industrial potential. The annual amount of subsidies for offsetting interest payments on loans taken out to develop a property complex is 300 million RUB. The agreement granting the subsidy is concluded for three years. The overall amount of financing is set at 900 million RUB.
For an investment project to be granted the subsidy, it needs to receive priority status. For instance, the IPP status may be granted to projects to establish a technopark or an industrial park. The IPP status allows investors to obtain tax benefits and reduced land plot lease rates. The reduction in the tax burden may be up to 25%.
Currently, Moscow has 31 technoparks with a total area of over 2 million sq.m.; more than 42,500 jobs have been created.
The city will protect good taxpayers
One of the main objectives of the Moscow Government is to adjust the tax burden for good and bad taxpayers, Natalya Sergunina, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations, said during a session on taxation at the Moscow Financial Forum.
Sergunina reminded her audience that Moscow has been working on developing and improving a tax revenue structure for several years. This work resulted in PwC assigning Moscow the top place in its 2016 ranking of tax policy efficiency among the Russian regions. Experts assessed the extent to which the local authorities make use of their power in matter of taxation. As their assessment criteria, they chose six administrative tools that could increase regional revenues.
According to Vladimir Efimov, a Minister of the Moscow Government and Head of the Moscow Department for Economic Policy and Development, the introduction of the Patent Taxation System (PTS) bolstered Moscow’s standing in the ranking; currently, the PTS is the most convenient taxation regime for individual entrepreneurs. Moscow is investing in developing entrepreneurial initiatives and creating barrier-free environment for business development via many instruments, including the PTS.
In addition, Natalya Sergunina said at the Moscow Financial Forum that investment measures account for over one-third of Moscow’s budget, or 36%; she described Moscow’s budget as a stable and balanced one.
Moscow has been assigned the highest investment ranking in Russia
Per capita income in Moscow is about twice as high as in other Russian regions, and unemployment is consistently low at around one-third of Russia’s average indicator.
The Analytical Credit Rating Agency (ACRA) assigned Moscow its’ highest credit rating, ААА (RU), with a ‘stable’ outlook. This rating is a result of high level of economic development, self-sufficiency level, a structurally balanced budget, a significant operating budget surplus as well as significant budget liquidity and low debt.
Over three years, Moscow’s debt decreased by over 65%. The Agency estimates Moscow will not need debt capital in the years 2017–2018.
Moscow City Investment Agency celebrates its six-year birthday
The Moscow City Investment Agency has been successfully promoting Moscow’s investment opportunities and investment appeal. To attract private investors, the Moscow Government has formed a portfolio of large and small investment projects and programmes that are beneficial for both the city and business. In six years, the Moscow City Investment Agency has carried out a lot of work that has resulted, for instance, in the National investment climate rating in the Russian Federation compiled by the Agency for Strategic Initiatives. In 2017, Moscow ranked third, up seven places from last year. For two years running, Moscow has held the top place in the Russian ranking of PPP development.
In January–June 2017, investments in core assets totalled to 658.2 billion RUB, a 20.1% increase over the same period of 2016. Over six years, investments in core assets increased by 55.6% in comparable prices versus the 2010 level. In nominal terms, investments in Moscow over six years amounted to approximately 8.3 trillion RUB.
Chinese investors are interested in cooperation with Moscow
The Russian-Asian Union of Industrialists and Entrepreneurs together with the Moscow School of Management Skolkovo held a conference for a delegation from China at which Leonid Kostroma, Director of the Moscow City Investment Agency, described Moscow’s new investment opportunities.
The Chinese delegation involved members of approximately 100 investment funds, top-managers of Chinese companies working in finance, investments, real estate, and manufacturing. The participants discussed the practice of investing in high-potential areas of Moscow and the most successful cases. Chinese investors are active involved in Russian projects. China is interested in high-tech, real estate, the pharmaceutical industry, tourism, and transportation. As of early April 2017, the China’s accumulated foreign direct investment in Moscow stood at 798 million USD.
Doctor Nearby: competition for businesses and quality services for Moscow residents
Moscow held an auction for facilities leased out under the “1 RUB per 1 sq.m.” reduced-rate lease programme. The facility was auctioned at a price that was 75% higher than the starting one. The new owner paid 4.2 million RUB (versus the starting price of 2.4 million RUB) for the facility located at 4 Shchelkovsky Lane. Soon a clinic will be opened there as part of the “Doctor Nearby” programme.
Commenting on the outcome of the successful auction, Vladimir Efimov, a Minister of the Moscow Government and Head of the Moscow Department for Economic Policy and Development, said that the interest demonstrated by business was reasonable and well-grounded. When entrepreneurs participate in the programme, they receive business offers from the most reliable owner, the City of Moscow.
“The approximate volume of investments in facilities that business leased under the ‘Doctor Nearby’ programme is 608 million RUB. For the Moscow Government, the reduced-rate lease is both an effective tool for increasing healthcare accessibility and an additional revenue source”, the Minister pointed out.
Hadassah (Israel) will take part in establishing a medical cluster in Skolkovo
Hadassah Medical Center (Israel) will take part in establishing an international medical cluster at Skolkovo Innovation Centre. Michael Yugay, CEO of the Moscow International Medical Cluster, and Zeev Rotstein, Director General of Hadassah Medical Organization, signed the agreement. Sergei Sobyanin, Mayor of Moscow, attended the signing ceremony.
“Today, we are signing the first agreement on establishment of medical operator at the international medical cluster in Skolkovo. The first foreign clinic is joining the project, and it is Israel’s famous Hadassah clinic; over its hundred-year history, it has developed from a local hospital into a large multipurpose medical centre”, the Mayor of Moscow said.
Under the agreement, Hadassah Medical Center has been granted a project participant status and is obligated to operate a clinical and diagnostics centre and a medical clinic that will become the cluster’s first facilities. Subsequent plans call for involving 15–20 more clinics in the cluster’s work; they will serve about 300,000 patients annually.
Investments in New Moscow may increase to 8 trillion RUB
Over five years, 780 billion RUB have been invested in developing the Troitsk and Novomoskovsk Districts (TND). Out of this amount only 120 billion RUB came from the city’s treasury, said Vladimir Zhidkin, Head of the Moscow Department for the Development of the New Territories. He says that the investment in new territories will exceed the planned volumes.
He noted that the TND is expected to demonstrate rapid growth in the construction of residential buildings as well as social and transportation facilities until 2035. Over 20 stations and about 70 kilometres of metro tracks, 24 transfer hubs, 178 kilometres of tram tracks, 125 healthcare facilities, 110 schools, and about 300 kindergartens are slated for construction.
Moscow auctions: open tender to determine the investor for the complex of buildings on Moskvoretskaya Embankment
The complex of buildings on Moskvoretskaya Embankment offered to investors at an open tender includes 33 buildings, 9 of which are cultural heritage sites. The investor must preserve their historical interior and make the territory (11 hectares) open to visitors. The starting price of the lot is 8.6 billion RUB.
Price will not be the crucial criterion at the open tender held to determine the investor in the complex on Moskvoretskaya Embankment, which includes the Imperial Orphanage built in the second half of the 18th century.
Along with the price, the tender commission will evaluate non-monetary criteria, such as experience in restoring cultural heritage sites, managing civil construction sites, and providing the appropriate personnel. The application campaign continues until 23 October.
Moscow Government offers facilities for lease at special rates
“Fifty-two commercial facilities have been listed for auction for small- and medium-sized business entities. Contracts with entrepreneurs will be concluded for a period of 10 years at a fixed rate that would be determined based on the outcome of the auctions. The starting annual lease rate is 4,500 RUB per 1 sq.m.”, said Gennady Dyogtev, Head of Moscow Department for Competition Policy.
The facilities are located on ground and semi-basement floors and in basements. They are flexible-purpose facilities. Their area varies from 63 to 418 sq.m. The application campaign is underway for all the facilities. A total of 32 lots will be auctioned on the October 19th, 18 lots on the October 26th, and 2 more lots on the November 2nd.