Our Policy is Clear to Our Investors

May 2012 | Rating

Out of all the Russian regions, Kaluga is the leader when it comes to attracting investments. Its stunning success in this area is proof that, although it may be difficult, creating an attractive investment climate in Russia is possible. The governor of the Kaluga region, Anatoly Artamonov, explained how to our WEJ reporters.

Robert Gubernatorov (R.G., Editor-in-Chief): Anatoly, when defining the investment policy of Kaluga, what was your main goal?
Our first step was to take a closer look at different countries that were attracting a lot of investments. We included the countries that were in the world’s largest economic blocs in this study as well. It was an enormous amount of work, but after we finished analyzing what we saw abroad, we compared it to our own region and tried to understand why investors weren’t as interested in Russia. Our conclusion was that bureaucracy was the main problem – all the bureaucratic interference scared investors off. So we decided to get rid of all that.

Anastasia Yakovleva (A.Y., Editor, Columnist): What did you do first?
Back in the late 90s, we adopted a series of legislation, including a law that was designed to support investment activity. Using what we learned from Montpellier (a city in France), with which we have close ties, we created an autonomous public institution, the “Agency for Regional Development of the Kaluga Region”, which provided consulting services for potential investors. Continuing with that idea, we also created the OAO “Kaluga Region Development Corporation”, which was designed specifically to develop investment platforms – this is something that Montpellier does not have. With the establishment of these two organizations, we made the process of entering the Russian market very simple for foreign investors. It became as easy to enter the Kaluga region, as a matter of fact, as it is to enter the European market, and in many cases, it’s even simpler.

A.Y.: How did you manage to solve corruption problems?
Well, I believe that setting a good example works the best – if a director does not take bribes, there will be no corruption in his or her company. This principle also applies to cities and regions. Otherwise, if you try control the damage instead of correcting the actual problem, you will not get any results. But in the Kaluga region, we are proud to say that not a single investor has had occasion to complain about corruption for over ten years.

A.Y.: The recently established industrial parks in Kaluga make life significantly easier for foreign investors because they don’t require them to visit different permit-issuing agencies – would you say that this helped?
Poor infrastructure is a very large problem throughout the regions of Russia. And when investors start taking a closer look at all the improvements that need to be made in many power, gas, and water supply organizations, they can get discouraged very easily. This is where our industrial parks come in, which provide ready construction areas with already-developed infrastructure. An investor has everything he or she needs to start a business, and there is no room for corruption.

R.G.: Can you tell us about the tax breaks that big investors receive in the Kaluga region?
We adopted a separate law that protects the tax breaks our investors receive, depending on the amount of money they invest in the development of the Kaluga region and its surrounding territory. For several major companies (mostly members of the automobile industry), however, we have taken an unprecedented step and made them completely exempt from paying an income tax. Some of the companies that are included in this initiative are “Volkswagen”, “Peugeot Citroen”, “Mitsubishi”, “Volvo”, and “Samsung”. Naturally, for the companies on the receiving end, this is a very beneficial plan. “Samsung”, for example, was able to recoup its costs. And we are currently negotiating with “Volkswagen” – our aim is for the company to reinvest the money it saved in taxes into expanding the production and construction being done on its Kaluga plant. Similar negotiations are underway with “Samsung”. We also offer special deals for those investing in the pharmaceutical field – for investments over 500 million rubles, investors are tax-exempt for five consecutive tax periods.

R.G.: Would you say that the success Kaluga has seen refutes the prevailing stereotypes most foreigners have, that doing business in Russia is difficult, and even dangerous?
Our policy on investment is very clear and simple to investors – we believe in the principle that “your project is our project”, and as such, we support investors at every stage of their projects’ implementation. We even have a term that we started using recently, “a single project team”. Our system of state support also allows for the freedom to choose contractors and partners, as well the cutting out the middlemen, which we believe is important. Each investor also has the option of contacting me personally, a practice that cannot be found anywhere else abroad. Instead, the “head” of a region, or the “landowner”, in other countries is as unreachable as a god for investors and entrepreneurs.

R.G.: How many other Russian governors are asking you to share your secrets, now that they realize the modernized Kaluga region is a success?
The leaders of other Russian regions are interested in our success, to be sure – in fact, the President of Bashkortostan recently visited the Kaluga region, and the President of Tatarstan as well as governors from all over Russia, are planning to come. I am sure that if the head of another Russian region, or the president of another country, takes the time to come visit us, that area will be as well-developed as ours before long. If a leader sends representatives instead, however, it shows that he or she is not too concerned with this matter, and it is unlikely to see any results. I believe that the leader of a region must understand how something works before he or she starts looking for a team to implement it. And it’s important to create a productive atmosphere within that team, where people are interested in seeing the results of their work.

A.Y.: Several key industries have been developing in Kaluga, including the automobile industry, which saw a huge surge last year.
Since the crisis in 2008, last year was the most successful year for both the automakers in the Kaluga region and for the whole Russian automobile industry. In the past 5 years, the automakers in Kaluga produced over 420,000 cars, but in just 2011, the region produced more than 185,000 vehicles, which is more than 10% of all the cars made in Russia that year. And ccording to agreements signed between “Volkwagen” and the Ministry of Economic Development of the Russian Federation”, the amount of plants with an “industrial assembly” system in place should be 60%, a measure taken to increase productivity. “PSMA RUS, LLC” is working under similar terms, but it will switch to full cycle production (CKD) in July of 2012.

R.G.: These figures indicate that the automobile industry is developing rapidly.
Yes – when its fully capacity is reached, “Volkswagen Group Rus” will be able to produce 180,000 cars annually, “PSMA Rus, LLC” will be producing 125,000, and “Volvo Vostok, LLC”, which manufactured over 4,000 trucks in 2001, will be able to produce 15,000 cars a year. I should also mention that almost all Kaluga automobile plants were built by Turkish contractors – the Kaluga region and Turkey work together very closely, and in 2011, our foreign trade turnover with Turkey equaled $12.8 million.

A.Y.: What can you tell us about the region’s plans to build a stockbreeding complex?
Milking cows with robotic equipment, instead of human labor, is become an increasingly popular bit of technology in our region. We already have two examples of this method operating on peasant farms, and we recently signed an agreement with “InvestAgro” (a company in the Republic of Tatarstan) to construct a large robotic complex. The investments for this project will equal over 3.5 billion rubles.

We also have the opportunity to discuss launching a number of new projects in the agro-industrial field of Kaluga nowadays, the most ambitious of which is constructing 1,200 livestock farms to house 3,600 milking cows, a large pig farm, and the creation of an industrial duck-growing complex.

R.G.: Can you please name some of the foreign companies you work with in the biotechnology and pharmaceuticals industry for us?
We have very high expectations for the development of this industry in Kaluga – the world’s largest pharmaceutical companies have become our business partners. Since 2007, Hemofarm/CC Stada, the German company, has been working in Obninsk where they invested 32 million Euros to construct a pharmaceutical plant, from which they have already started exporting medical drugs abroad. The Berlin-Chemie (part of the Italian Menarini Group) company plant is also being built quickly, and is expected to begin producing medicine in 2014. The Danish company, Novo-Nordisk, a world leader in diabetes care, is also building a high-tech plant. Over $100 million is being invested in these last two projects, which bodes well for Kaluga. And we also recently signed an agreement with a domestic pharmaceutical company, Nearmedic-Plus, which has a total budget project of 1.1 billion rubles.

A.Y.: What will the “AstraZeneca” plant, which is currently under construction, specialize in?
The plant is going to be producing innovate medicines to treat cardiological, oncological, psychiatric, gastrointestinal, and respiratory diseases. “AstraZeneca’s” total investment in localized Russian production is about $170 million, and the company plans to begin producing in the second quarter of 2013. By 2019, the plant is scheduled to reach its full capacity, at which point it will be producing 500 million tablets a year.

R.G.: What can you tell us about your region’s cooperation with each of its investors? Is it long-term and mutually beneficial?
Almost every investor who comes to Kaluga received our full support and understanding. And many of the projects that are implemented in our region are the largest in Russia. One example is a plant in the “Grabtsevo” industrial park, which will produce automotive glass and be built according to a cooperative agreement between the Government of the Kaluga region and the “FUYAO Group” company. The project’s investments will exceed 300 million Euros. In addition to this, more than 50 foreign companies are currently realizing various projects throughout the region.

A.Y.: What is the secret behind being a successful leader?
We work as a single project team with our investors, and put in the maximum amount of effort for projects to have a quick start. In our region, investors can be going through paperwork and beginning the construction of their facilities simultaneously. And all of this is done easily, and most importantly, legally. The Russian Prime Minister, Vladimir Putin, called the Kaluga region one of the most bureaucratic-free regions in Russia, and we try to live up to that title. I hope that many can follow in our example, and we are happy to share our experience to make that happen.

Authors: Robert Gubernatorov, Anastasia Yakovleva