Moscow economics relations minister turns focus to innovation and infrastructure
Sergey Cheremin, minister in charge of international economic relations for the city of Moscow, is upbeat despite Western sanctions. The Russian capital is focusing on high-tech industries as part of a massive long-term redevelopment scheme, he tells Courtney Fingar.
Q: What impact are sanctions against Russia having on economic development plans and inward investment in Moscow?
A: Of course, the sanctions initiated by the US and supported by the EU, Japan, Australia and Canada, have had a significant adverse impact on Russia’s economy. According to the Federal Customs Service, our trade with EU countries fell by 15% in 2016 compared to 2015. Most Russian economists are also saying the sanctions hamper our country’s ability to overcome the crisis, and our growth rates keep going down at a rate of about 1% per year.
But the Russian economy is gradually adapting to the sanctions and fluctuating energy prices. In other words, the shock is gone. The central bank experts’ forecast has it that the annual inflation will amount to about 4%, and gross domestic product (GDP) growth is expected to be 1-1.5% by late 2017.
The Russian economy is gradually emerging from the crisis and is looking to develop a streamlined structure that will be less dependent on oil and gas exports. As of late 2016, the non-oil and gas goods accounted for almost 40% of our country’s GDP, and the share of these goods in Russian exports reached 56%. However, this does not mean that our dependence on hydrocarbon exports has been completely overcome.
With all their adverse impact on the economy, the Western sanctions and the Russian government’s retaliatory restrictions have their upside. The Russian producers now operate in a more favourable environment, and foreign companies that have built their enterprises in Russia now enjoy a competitive edge.
Agriculture is in better shape as well and shows high growth rates. A number of industrial niches, which were previously taken by imported products, have opened up. High-tech industries got a boost and benefitted from the import substitution programme. With the door to Western markets slammed in its face, Russia started looking for new export-import solutions and establishing new connections.
All of the above applies in full to Moscow as the largest economy among the Russian regions. In 2016, the businesses incorporated in Moscow engaged in trade with 215 countries, and the city’s foreign trade turnover amounted to $194.4bn. Moscow is home to about 7000 foreign companies, whose accumulated investments exceeded $189bn as of mid-2016. Notably, the accumulated investment amounted to $173.5bn in 2015.
Moscow is deeply integrated into the global economy and looks forward to becoming one of its most attractive areas. The government focuses heavily on improving the environment for investing and doing business in Moscow. Some foreign businessmen who operate production facilities in the Moscow region have already taken advantage of the current favourable situation and are actively expanding their exports of the Russian-made products.
Despite the existing sanctions on Russia, Moscow continues to maintain close ties with all its partners, both in the West and the East. We can see genuine interest in our projects.
Q: What urban development schemes does Moscow have at the moment that foreign investors could play a role in?
A: The most profitable way to invest today is in major long-term targeted projects in Moscow. The innovation-driven and high-tech industries, which the Moscow government focuses on, are at the top of that list.
Moscow’s industrial output grew by 3% in 2016, thanks to the current policy for supporting the real sector of the economy. Investments in fixed assets are up by 0.7% to a total of over $30bn after several years of decline.
The focus on accelerated development of high-tech and innovation-driven industries is due to Moscow’s undisputed competitive advantage in this area, since it boasts more than a third of Russia’s scientific potential. More than 1500 scientific research organisations, over 600 technology and industrial parks, including the leading Skolkovo Innovation Centre, as well as the Zelenograd special economic area, private and public business incubators, technology transfer centres and engineering centres, to name a few.
In addition, several more technology parks will be built in Moscow within the next several years with a total area of almost 2 million square metres. They will be located on the vast territory of New Moscow. About $1.8bn in investment will be attracted to implement this project. The potential investors will be able to carry out their major projects.
The New Moscow project is striking in terms of its scale. There are no projects like this one anywhere in the world. In 2012, the territory of Moscow increased by 2600 square kilometres. Twelve centres are being formed here, which will be home to a significant portion of business, and social activities that will move here from older Moscow districts.
The construction of New Moscow will radically change the capital of Russia and help overcome its current acute problems resulting from being a monocentric metropolitan area, where most of the jobs, as well as business and sociocultural activities, are concentrated in its central part.
A new status and a new lease of life are coming to former industrial areas of Moscow, which have become attractive points of economic growth. As we know from our practical experience, renovating rundown industrial areas and redeveloping them into modern business parks, cultural and educational centres, as well as developing picturesque embankments of the Moskva River, is a lucrative sphere of investment.
I will give you another example of the many possible investment opportunities in Moscow. A renovation boom is underway in our city. In 2010, there were only 10 architecture monuments under renovation. In 2015, this number exceeded 300, meaning that renovation volumes are up by more than 30 times. The funding for the renovation work amounted to €400m, with 40% provided by private investors.
In other words, Moscow is an investment megaproject, where everyone can find a niche to apply their knowledge, expertise, and capital. The projects that are implemented and planned in Moscow, as well as the proper investment environment, have created unique opportunities. Missing them would be an unforgivable sin.
The fDi Report 2016
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