Economics of «well-defined rules» yields fruits

In the September issues of our magazine, while summarizing the first two quarters of 2007 of the Rostov region external economic activity, we noted that the volume of foreign trade transactions of the Don region has been constantly and steadily rising, meanwhile there is a tangible negative balance (in favour of exports) of a temporary nature in the export-import structure of Don economy.

After examining the results of the whole of 2007, one can stress, that at the present moment this tendency remains, however it does not disturb the quality growth of the Don economy on the whole and particularly its foreign trade segment. Furthermore, this ‘minus' is turning into an indisputable ‘plus'.

It is sufficient to note that foreign trade turnover of Rostov region in 2007 constituted 7.655 billion USA dollars, including export amounting to 3.032 billion USA dollars, import - 4.623 billion USA dollars. It rose by 57% or by 2.775 billion USA dollars compared to the 2006 figure. Rostov region surpassed its main ‘neighbours' (and major ‘rivals') in Southern Federal Region (SFR) - Krasnodar and Volgograd regions in the last year both in absolute volume of foreign trade transactions and its growth rate.

There are a few reasons for this and each deserves special attention.

To plough, not to brandish the saber (Advancement is the recipe for success)

However both of these grand Kuban projects have a considerable flaw: the Olympic Games will bring its dividends and will move on, whilst any well prepared participant is able to "earn" at the investment forum. This event does not have a leading role in the sphere of economic development of Kugan for the decades ahead. In other words, during the last years all of Kuban "worked for" Sochi, in order to receive dividends (however there is no guarantee of uniform distribution throughout the whole region).

The Rostov region made a fundamentally different stake in the struggle for economic independence, self-sufficiency and success. Don is striving legislatively and practically to give an opportunity to earn as much "as you are able to" for any entity of economic activity in any spot of the region. It follows the path of systematic and sustained long-term development.

For example, Don Legislation in the sphere of stimulation and favouring development of the small business has been recognized as the most optimal in Russia for more than a year. The logical result: in 2007 the Rostov region for the first time took first place in Russia for investment into the fixed capital of small business companies with the investment sum of 6.2822 billion Roubles. The growth rate increased two fold. Never before did Don surpass either Moscow or Saint Petersburg on these measures.

Moreover small businesses are entering international markets more actively, in practice successfully preparing for Russia's entrance into WTO. It already appeared on a Russian and international level in the sphere of innovation. The "Southern Venture Fairs" as a phase of the "Russian Venture Fair" is going to be held in Don. To the credit of the Don administration, the requirements of the regional authorities in terms of improvement of the "climate" for investment and small businesses does not decrease, but rises year by year.

Both ways "have the right to exist", however the effectiveness of Don's choice has already been confirmed at the start of February 2008. The social and economic development of the Rostov region supersedes the country on a whole. This was announced by the governor of Don Vladimir Chube at the working meeting with Vladimir Putin, which took place during the session of the RF President Council on development of local self-governance. He also confirmed his word with the facts: the economy of the region grew by 12 percent. Average monthly wage in the region is approaching 10 thousand Roubles. "10 thousand Roubles is not the largest wage for the country, however is a large step forward for the region in the South of Russia", - he emphasized.

Today the new head of the Ministry for Regional Development (and former plenipotentiary representative of the RF President in SFR) Dmitry Kozak is virtually ready to propose a draft on strategy for SFR of Russia development till 2025 to the government of the RF. The investment demands of SFR during this period will comprise 520 billion US dollars. The head of the Ministry for Regional Development himself and many independent experts note that the South of Russia is the first formed composite macro region in the country. Exactly this new economic division of Russia on macro regions based on the cluster principle, not the federal regions - is the long standing and a more feasible dream of Dmitry Kozak.

In the new system the federal authority will use all the available instruments (direct budget investment into regions, removal of infrastructure restrictions for business development; interbudget relations and delimitation of authority powers), in order for all of the levels of authority to "turn round to face business".

It is necessary to note that in Don the way is paved for this. The region, as well as the whole country, is striving to develop in the way of cluster economic zones, to lead effective investment policy, which is based on "three pillars" with the local "colour".

Firstly, the laws of the game are well-defined and are commonly known. There is a transparent and normative base on external economic, investment activity, on small and medium business, on interbudget relations and budget planning  - from 2008 the regions live according to a three year budget; regarding long term prospects - the regions accepted "Strategy of the social and economic development till 2020" etc.

Secondly, every project, realized in Don, becomes a peculiar "magnet" for future investment. So, after the company "Coca-Cola", that is constructing the largest factory in Europe for production of soft drinks and juices, "Pepsico" appeared with the largest factory on the European continent for productions of crisps. The most famous commercial companies "IKEA", "Auchan", "Castorama" realize their projects in the Rostov region. Their very presence on the Don land is the best indicator of its attractiveness.

Thirdly, the investor does not arrive to the "open country", but to a fully prepared investment platform, provided with the necessary infrastructure. Moreover the period of the initial "pursuit of investors" in Don has successfully finished: the investor does not anymore merely dictates to the regional authorities where and what they want to construct, but rather presents a project, and the authorities offer them a choice a few platforms appropriate for this very project.

The result of such thought-out investment policy is indisputable and it is hard to overestimate: 1 billion US dollars - such is the volume of investment, attracted by the Agency for investment development of the Rostov region in 2007. To be precise during the last year projects to the sum of 1.052 billion US dollars took off with the assistance of the agency. This figure is more than 2.6 times higher than the contract assignment for the year (410 million US dollars).

In three years the Agency has practically accomplished the five year objective laid out in the contract, concluded with the Administration of the region, according to which the volume of the investment attracted by the Agency during the five years should comprise 2.030 billion US dollars. After just three years of the Agency's work it attracted investment of 2.110 billion US dollars into the Don economy.

At the same time almost 65% of the projects that took off with the participation of the Agency are industrial. The most investment capacious project turned out to be the one of "Lafarge" company, the preparation for its realization took more than two years. But at the same time it will bring into the Rostov region more than 400 billion US dollars in investment and a new industry for Don.

All of the aforesaid is related to the external economic segment of the Don economy. "The regional target program of export support in the Rostov region for 2007-2008" was ratified by the regional law of 28.11.2006 № 594-3C, which is directed to the expansion of the export sector of the regional economy, the assistance to the effective and sustainable functioning of the business entities on the foreign markets. In 2007 there were 10 million Roubles allocated from the regional budget for its realization, in 2008 - 24.95 million Roubles. Among all SFR regions such a Program is accepted and operates only at Don.

This Program was smoothly integrated into "The strategy of Rostov region development until 2020". The principal events on realization of the Program are divided into two stages.

2007 is the first stage of the Program realization, in the course of which the organizational and information-analytical basis of implementation of the program events is created, the mechanism of feedback with the organizations-exporters, the public organizations and associations, assisting export growth, with the territorial bodies of federal executive authorities of the Russian Federation is set up.

During 2007 on a competitive basis the state financial support of final product export is provided in the form of a subsidy of 2/3 of interest payments on attracted credit in order to promote the effective and sustainable functioning of the economic agents of the Rostov region on the foreign markets, and also simplification of the access to the credit resources for the exporters of final products. For those purposes there were 8 million Roubles provided from the regional budget. The full volume of funds was assimilated.

The recipients of the regional subsidies in 2007 were the following 13 organisations: JSC "NZSP" (Novocherkassk), "Bataysk production enterprise "Electrosvet" VOS" ltd (Bataysk), "Uniplast" ltd (Azov), "Escort" ltd (Rostov-on-Don), JSC "Donetsky excavator" (Donetsk), JSC "10-GPZ" (Rostov-on-Don), "NEVZ" ltd (Novocherkassk), CJSC "Molodec" (Kagalnitskiy district), "Marketing-Technologies-Management" ltd (Volgodonsk), JSC "TKZ "Krasniy kotelschik" (Taganrog), "Zhemchuzhina dona" ltd (Myasnikovskiy district), JSC "Donskoy tabak" (Rostov-on-Don), CJSC "Rosmasloprom" (Myasnikovskiy district).

According to the results of 2007 the social and economic effect from state financial support for the above mentioned exporting organisations showed in the following figures: 196 additional jobs were created, the average wage in 2007 has exceeded the average wage of the regional organisations by 524 Roubles and comprised 9 511 Roubles; the planned export volume of the finished product was increased by 170.9 million Roubles; the increase of tax payments into the consolidated regional budget comprised 19.9 million Roubles.

In other words, after spending 8 million Roubles, the region received a lump-sum income into the budget in the amount of almost 20 millions (a return of 250%!), almost 200 new jobs, the increase of the wage in the businesses and a massive increase in the finished product export volume. It should be emphasized it is not raw materials (which anyone who has it is able to export), but the finished product!

Additionally in 2007 about 142.555 million Roubles have been allocated from the federal budget into the economy of the exporting businesses of the regional manufacturing products ("Rostvertol" plc, JSC "Tagmet", "Rostselmash" ltd, OJSC "Novocherkassk electrode plant", JSC "Gloria Jeans" Corporation", "Rostovskie kraski" ltd) in the form of subsidies for compensating a part of the interest rates on export credits, which exceeds the subsidies sum of the last year by 44.8 million Roubles. Notably this form of support of export-oriented businesses from the federal budget quite blends in the long-term development conception of the Russian economy, in the strategy of creating macro-regions.

In 2008 funds are planned for the support of the finished product export in the regional budget to the amount of 12 million Roubles for subsidizing a part of the expenses on the export credits, 5.2 million Roubles for certification of export products and 4.8 million Roubles for the rent of the exhibition platforms.

Stimulation of export growth

The competition "The best exporter of Don 2007" took place in the Rostov region for the first time in order to increase the competitive advantage of the regional producers' produce on the foreign markets and to form an attractive image of the exporting organizations of the region.

19 exporters of the regions that export finished products took part in the competition. These are "Rostvertol" plc (Rostov-on-Don), CJSC "Gloria Jeans" Corporation" (Rostov-on-Don), CJSC "Alunext" (Belaya Kalitva), "Agricultural machinery manufacturer "Rostselmash" ltd (Rostov-on-Don), JSC "Donetsky excavator" (Donetsk), JSC "Aksaykardandetal" (Aksay), "TAGMET" (Taganrog), JSC "BERIEV Aircraft Company" (Taganrog), "NEVZ" ltd (Novocherkassk), JSC "Rostov plant for civil aviation № 412" (Rostov-on-Don), JSC "Star-Centrum" (Aksay), JSC "Masloprom" (Myasnikovskiy district), JSC "Kamensk machine-building plant" (Kamensk-Shahtinskiy), "Marketing-Technologies-Management" ltd (Volgodonsk), CJSC "Kuzlit" (Azov), CJSC "Santarm" (Rostov-on-Don), JSC "Faza" (Rostov-on-Don), CJSC "Molodec" (Kagalnitskiy district), CJSC "Ritm" (Taganrog).

The total export turnover of the participating businesses of the competition for the first two quarters of 2007 comprised 23.33% of the Rostov region export turnover during the same period. The volume of the realized export produce growth rate and the share of the export produce in the total volume of the production for 2005, 2006 and 2007 considering the forecast till the end of the year were the main competition participants' valuation criteria. The winners of the competition were the businesses, which collected the largest number of points in its category - its "Agricultural machinery manufacturer "Rostselmash" ltd, Rostov-on-Don (I category), JSC "Aksaykardandetal", Aksay (II category), CJSC "Molodec", Kagalnitskiy district (III category).

In 2008 the work will continue and almost 25 million Roubles is allocated for its realization in the regional budget.

Information field

With regard to the information and advice support of the produce export (goods, services) the regional Administration international cooperation department organized a specialized website www.donexport.ru in May 2007, where the export opportunities of the Rostov region businesses and organizations are presented. In particular the website presents the unified information system on participants of the foreign economic activity of the Rostov region in both Russian and English languages. The Don exporters can place information about themselves free of charge.

In an effort to provide the cooperation of the state authority bodies with the representatives of the business community in the realization of foreign economic policy of the Rostov region a seminar on the issues of export state support was held with the representatives of the Ministry of Trade and Economic Development of the Russian Federation taking part. During the seminar the presentation of the specialized website www.donexport.ru  and the information search system "Russian export" www.exportsupport.ru for exporting organizations took place.

In May a seminar with the participation of the icp group expert Mr. Gunter Muller (Germany) "Foreign investment in Russia. Chances and risks of Russia entering WTO" was held.

A seminar "The rise of the Russian companies' produce competitiveness in the foreign markets. The methods of attracting foreign direct investment by the Russian companies" was held in October. During this event Mr. Dieter Wagener - auditor and tax consultant and partner at the audit and tax consultancy company DHPG Dr. Harzem & Partner KG (Germany).

The catalogue "Export of Don 2007", published in Russian and English, received positive evaluation both in Russia and abroad. 101 Don businesses, exporting finished products in more than 50 countries are presented in the catalogue. Among them 36 businesses of the machine-building industry and metalworking production, 8 businesses of the electro technical industry, 6 chemical industry businesses, 4 construction industry businesses, 12 business of light industry, 20 food industry businesses, 6 science intensive production businesses, 9 companies exporting services. The updated catalogue of 2008 will be available in both paper and electronic formats.

A pleasant  result

As it was mentioned, the foreign trade turnover of the Rostov region in 2007 has reached 7.655 billion US dollars, including export of the sum of 3.032 billion US dollars, import of 4.623 billion US dollars. The foreign trade turnover has increased by 57% or by 2.775 billion dollars in comparison with the figures of 2006.

The quarterly dynamics of the export-import transactions of the participants of foreign economic activity of Rostov region in 2004-2007 is represented on the diagram (million dollars):

The participants of foreign economic activity of the region carried out transactions with the partners from more than 130 countries (110 in 2006). The non-CIS countries dominated the foreign trade with a share of 59.8 %.

The Rostov region has the leading position in foreign trade turnover among the entities of SFR, surpassing Krasnodar region by 1.5 billion US dollars (7.3%) and the Volgograd region by 3.8 billion US dollars (2 folds). The foreign trade turnover of the regions compiled 37% of the Southern federal region foreign trade turnover. The leaders in the growth rate of the foreign trade turnover in SFR are Rostov region – 57%, Krasnodar region – 27% and Volgograd region – 24%.

In 2007 the export from the Rostov region territory compiled 3.032 billion US dollars or 40% of foreign trade turnover of the region. The growth rate of export compared to 2006 figures is 946 million US dollars (45.%).

The main export groups in 2007 were: food commodities and agricultural commodities (including grain-crops; sunflower, rapeseed, mustard-seed oil); metal and metal ware; machine-building products; mineral commodities; chemical industry produce; timber and woodwork.

The export structure from the territory of the Rostov region in 2005-2007 (millions of US dollars):

In 2007 import to the territory of the Rostov region reached 4.623 billion US dollars or 60% of regional foreign trade turnover. The imports have increased compared to the figures of 2006 by almost 1.8 billion US dollars (1.7 folds)

The value of import volumes of all types of equipment has increased almost two fold compared with 2006, and cars, equipments and vehicles make up 44% of its composition. The highest value of import volumes fall on the Republic of Korea, Ukraine, Germany, Turkey, Italy, the places of supply of car assembling equipment, agricultural machinery, equipment for light, food and electronic industries.  The increase of imports in this particular product group is explained not only by the functioning of car assembling factories, but also by the revival of the investment processes in manufacturing, stage-by-stage decrease of the custom duties for the high-tech types of machinery and equipment.

The structure of Rostov region imports in 2005-2007 (million US dollars):

The finishing stroke

As the data quoted above shows Don treats calmly the continuing tendency of import predominance over exports on condition of observance of the ‘parity’ of export and import volumes of food commodities, predominance of highly technological machinery in the structure of import, which will provide a leap of the regional industry in the sphere of advanced processing and predominance of the finished products, not the raw materials, in the export structure. This is a purposeful policy, and it already allowed the region to become the leader of its federal region in the volume of foreign trade transactions.

And the last, the annual international exhibition-fair “Green week” took place in Germany on the 17-20 January. The display of Rostov region was represented by the collective stand, where 30 companies - leading Don producers took part in the formation. Among them there are “Rostov sausage factory – Tavr” ltd, JSC “Baltika-Rostov”, JSC “Rostov liquor factory”, “Trading house Yug Rusi” ltd, ltd “Trading house “Volshebny kray”, JSC “Tsymlyanskie vina”, JSC “Miller wine factory”, ltd “Don tinned food factory”, “Aksay tinned food factory” ltd, “Polar bear” ltd, “Mayak” ltd, JSC “Volgodon fish factory” etc.

The delegation of Rostov region brought back from the exhibition signed contracts for supply of finished products to the “pan-European table”. But all of this is rather the results of 2008, which the region is prepared to spend even more successfully on the foreign trade level!   

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