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South Ural sunshine for investment growth

South Ural sunshine for investment growth

22.07.2011 — Analysis

The Chelyabinsk Region has made an outstanding bound forward, boosting its economy. The performance indicators for 2010 evidence that the South Urals hit the first top ten among the most creditworthy regions in Russia; the amount of investment in its development increased by twenty-five percent; a number of breakthrough projects garnered support of the prime persons of the country. The RusBusinessNews columnist has found it out what components of success are and what the region should expect in the near term.

Expert ratings attract money

The rapid economic upturn in the South Urals is evidenced by the creditworthiness rating of the Federation’s constituent entities, which was prepared by the AK&M agency. According to the results of 2010, the region moved 14 lines up, having taken the decided 8th place in the list.

The assessment made by foreign experts also turned out to be quite optimistic. Standard & Poor's assigned its BB+ long-term credit rating to the Chelyabinsk Region. The national credit rating put the region at the ruAA+ level with the stable forecast.

Investment security is the prerequisite essential for recruitment of investors. Feeling that the Chelyabinsk Region is gaining stability, they directed new financial flows to the region. As a result, the South Urals ranked third in Russia in terms of capital investment (265 thousand rubles per a resident).

In 2010, 44.2% of the investment was made by foreign residents (the first place in the Ural Federal District and the sixth place in Russia). The representatives of the Regional Ministry for Economic Development has informed RusBusinessNews that the amount of foreign financing increased by 30%, reaching $3.3 billion. Representatives of 54 countries made their contribution to the development of the economy of the South Urals. The largest amounts came from Switzerland, Germany, Czech Rebublic, France, Kazakhstan, and Ukraine.

In 2011, the financial stream became even more full-flowing. During his recent visits to Italy and Germany Mikhail Yurevich, the governor, successfully negotiated the participation of European businessmen in 50 large-scale projects. Seven of them are going to be launched in the next few months. For example, Italian corporations such as Danieli, SIMEM, SKIPASS VALLE ISARCO and German companies, including WESEMANN, Machinery Market Consult, and Bell Equipment are willing to step up cooperation with the region.

The regional government anchors great expectations to strengthening of cooperation with China. For example, the Research and Production Regional Association Ural and Sinoma I.E. have signed an agreement for construction of a new cement factory to be built in the Satkinsky District. The ChelyabTracZapchast, LLC and the YTO Group Corporation intend to set up joint manufacturing of tractors, building and agricultural machinery. The SAIC automobile and industrial corporation based in Shanghai is thinking over an automobile factory located in the South Urals.

In 2011, it is planned to attract at least 167 billion rubles to the economy of the Chelyabinsk Region. With reference to the rating assigned by the Expert RA agency, the region ranks 13th in Russia in its investment capacity and has all opportunities to reach its full potential.

Metallurgists make a start, agrarians stand to gain

The South Ural industry meets expectations of investors in full. Regional enterprises are steadily recovering, coming back to the before-crisis levels. According to the information from the regional government, the regional index of production was equal to 107.1% based on the performance indicators of January-May 2011. The list of the quickest recovering companies included mineral developers (137.1%) and processing enterprises (107.6%).

The region ranks second in Russia in the production output of commodities and services per capita. At the end of 2010, this indicator was 1.759 million rubles per resident.

Metallurgy and manufacturing of finished metal products remain the backbone of the South Ural economy. These sectors account for the lions share of investment. Analysts from AK&M note that the key projects of 2010 were the attainment of the design capacity by the mill-5000 for heavy-gage steel production and the construction of the mill-2000 for cold-rolled mill products at the Magnitogorsk Iron and Steel Works, OJSC launching of the manufacturing of large-diameter pipes at the Chelyabinsk Pipe Plant, OJSC and the reconstruction of the steelmaking workshop at the Ashinskiy Metallurgical Works, OJSC.

Mikhail Yurevich, the governor, states that the South Ural metallurgy was able to build up "steel" muscles, whereas a number of other industries need more substantial financial support. In particular, investors are sought for enterprises of the machine-building sector and agriculture.

One of the examples of the efficient private investment in agricultural business is the construction of hog-raising farm in the Uisk and Chebarkul areas, having the output of 100 thousand tons of meat a year. The representatives of the Regional Ministry of Agriculture have informed RusBusinessNews that the total cost of the project implemented by the Group of Companies Rusagro, OJSC will exceed 20 billion rubles. The farm complex is expected to reach its planned output in 2018. The regional government will provide assistance to the investor in development of the adequate infrastructure around the production sites. In 2011, 250 million rubles are planned to be allocated from the regional budget for this purpose.

Due to the implementation of this project and many other projects, the livestock farming market in the Chelyabinsk Region will grow by one third in the near future. However, the South Ural authorities clearly understand that the region needs an integrated program of actions to be able to compete successfully with other regions on the investment market. Business people are interested in more flexible legislation that will allow their new enterprises to get to their feet as soon as possible.

Until recently, even local manufacturers had to register new production companies in St. Petersburg, the Sverdlovsk, Volgograd, Nizhny Novgorod and other regions with more favorable tax environment. To stop the capital "flight" the Chelyabinsk authorities adopted the law on provision of substantial preferences to investors.

The profit tax rate has been reduced for 8 years for the companies established after January 1, 2011, provided that the minimum amount of investment in production is 8 million rubles. Based on the amount of invested funds, the rate can be reduced to 13.5%.

The similar benefit was given to the companies that implement investment projects included in the government list and having the financing of more than 300 million rubles. The reduced rate will be applied to part of the profit received from operations of new and upgraded production facilities.

Investors have been given significant property tax remissions. Deputies of the regional parliament think that preferences will help to attract new large investors and will stimulate the companies that upgrade their production facilities. Based on the rough estimation, initially, these benefits will result in a half a billion decrease in the revenues coming to the regional budget. However, later on, the losses will be recovered due to new tax-payers. According to Mikhail Yurevich, the governor, the regional budget will be able to perform all its obligations even if the economic growth rates remain unchanged.

The regional authorities also use other arrangements to attract investors. For example, the government provides its guarantees to them; "the startup office" has been put into operation to provide administrative, information and advisory assistance for projects. Business people may gain personal support from the Chelyabinsk Region’s governor who is always accessible to personal contacts with representatives of the business community.

Mikhail Yurevich came to the office from agricultural business. He realizes that the Chelyabinsk Region has proved itself as one of the core industrial areas of Russia. First of all, the region is identified with metallurgy, pipe manufacturing, and the nuclear power industry. However, to advance further the region needs to change its established image and to develop new and promising sectors of economy.

The development of transportation infrastructure is a top-priority issue. The Chelyabinsk airport will be one of the key "growth points". If today it provides annually services to about 700 thousand passengers, their number will increase to 1.1-1.3 million people in 2-3 years.

The unique nature of the region attracts residents from all over the country; the region is known as "Ural Switzerland". At the interregional conference of the United Russia, which took place in Ekaterinburg in June, the representatives of the South Urals told Vladimir Putin, Prime Minister, about the prospects for development of the Sun Valley ski resort, in which Dolomiti Superski, an Italian company is going to invest 4 billion rubles. The South-Ural Railways is finalizing approvals of a project for commuting from Chelyabinsk to the Sun Valley. The construction of the new spur will triple the number of visitors to the ski resort - from 170 thousand to 500 thousand people a year.

"It’s a pity that not all residents of Russia know what an interesting tourist destination is the South Urals. This situation should be rectified. Let’s do it together", pointed out V. Putin. The whole world knows: if the Russian premier promises to do anything, the result will not be long in coming.

Konstantin Dzhultaev


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