Ministry of Economic Development of the Russian Federation Slide 1

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Business climate in Russia todayBusiness climate in Russia today

Department of Investment Policy and Development of Public-Private Partnerships

Ministry of Economic Development of the Russian Federation Slide 2

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Russia 2000 - 201Russia 2000 - 20100: Results: Results

Achieved macroeconomic stabilityAchieved macroeconomic stabilityAchieved macroeconomic stabilityAchieved macroeconomic stability

Formed solid legislation basisFormed solid legislation basisFormed solid legislation basisFormed solid legislation basis

APEC – 2012 (Vladivostok, state - $7.7 bln, private -$13.7 bln); Universiade – 2013 (Kazan); Winter Olympics – 2014 (Sochi, $6.2 bln); FIFA World Cup – 2018 (Moscow, Saint-Petersburg, Kazan,

Kaliningrad, Samara, Volgograd, Rostov, Krasnodar, Sochi, Yekaterinburg, Yaroslavl, est. state - $7.7 bln, private - $12.3); North Caucasus Tourist Cluster (est. state - $1.9 bln, private – $12.6 bln).

Introduced development institutes and vehiclesIntroduced development institutes and vehiclesIntroduced development institutes and vehiclesIntroduced development institutes and vehicles

Launched megaprojects to stimulate growth in macro-areasLaunched megaprojects to stimulate growth in macro-areasLaunched megaprojects to stimulate growth in macro-areasLaunched megaprojects to stimulate growth in macro-areas

- Average GDP growth 2000-2010 has been 5.3% per year (Rosstat data);- Inflation has decreased from 20.2% in 2000 to 8.8% in 2010 (Rosstat data);

- Government Debt / GDP decreased from 61,4% in 2000 to 9,3% in 2010 (Rosstat, Minfin).

- For doing business (173-FZ On Currency Regulation and Currency Control of 10 December 2003, 127-FZ On Insolvency (Bankruptcy) of 26 October 2002, 128-FZ Concerning the Licensing of Certain Types of Activities of 8 August 2001, Tax Code Part 1 of 31 July 1998, Part 2 of 5 August 2000, Labor Code of 31 December 2001, etc.);

- For making investments (160-FZ On Foreign Investments of 9 July 1999; 135-FZ On Protection of Competition of 26 July 2006, 57-FZ On the Procedure for Making Foreign Investments in Economic Companies Which Are of Strategic Importance of 29 April 2008, 116-FZ On Special Economic Zones of 22 July 2005, Order 73/81/58n On Defining the Notion Industrial Assembly of Motor Transport Vehicles of 15 April 2005, etc.).

- Bank for Development ($6.8 bln), Rusnano ($3.5 bln), Russian Venture Company ($141 mln);- PPP instruments (Investment Fund ($9.4 bln), Concessions, Government Guarantees, etc.);

- Special Economic Zones ($9.7 bln), Regional Industrial Sites & Technoparks

Ministry of Economic Development of the Russian Federation Slide 3

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Russia in 201Russia in 20100-2011-2011 and Onwards: Cand Onwards: Creating the New Economyreating the New Economy

- New migration policy (HQS);-Infrastructure Improvement;

- Financial focal point: Moscow Financial Center.

- Customs regulation & administration;- Tax administration;

- Construction procedures;- Utilities/infrastructure access;- Quality of all public services;

- Assessment of regulatory effect &veto rights on anti-biz legal initiatives;

- Regions as investor’s partner;- Investment Ombudsman.

-Innovations focal point: Skolkovo;- Russian FDI Fund.

Boosting Business ClimateBoosting Business ClimateBoosting Business ClimateBoosting Business ClimateImproving Quality of Life, Improving Quality of Life, Attracting Human CapitalAttracting Human Capital

Improving Quality of Life, Improving Quality of Life, Attracting Human CapitalAttracting Human Capital

Stimulating InnovationStimulating Innovation& Modernization& Modernization

Stimulating InnovationStimulating Innovation& Modernization& Modernization

Private Sector: Private Sector: Fostering Competitiveness, Fostering Competitiveness,

Promoting Corporate GovernancePromoting Corporate Governance

Private Sector: Private Sector: Fostering Competitiveness, Fostering Competitiveness,

Promoting Corporate GovernancePromoting Corporate Governance

Public Sector:Public Sector:More Effective – Less InvolvedMore Effective – Less Involved

Public Sector:Public Sector:More Effective – Less InvolvedMore Effective – Less Involved

- Large-scale privatization;- Transparency of public procurement;

- Budget spending efficiency;- Anti-corruption initiatives;

- Liberalization of Federal Law 57-FZ (“On Investing in Strategic Sectors”).

- Independent directors instead of officials at Boards of Directors of State-controlled firms;

- State-controlled firms procurement transparency;

- Minority shareholder rights & access to info;

- Customs Union & Unified Economic Space.

Ministry of Economic Development of the Russian Federation Slide 4

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Industrial production23%

Bulk and retail trade12%

Construction1%

Others5%

Financial services, insurance

19%Research and Development

9%

Extraction of raw materials

8%

Real-Estate7%

Information and Communications

7%

Other Services6%

Generation and distribution of electric

energy3%

Russia’s FDI DynamicsRussia’s FDI Dynamics

India4%

France7%

Netherlands11%

Germany19%

Others19%

Austria3%

Cyprus24%

Republic of Korea4%

United Kingdom4%

Finland3%

Virgin Isles, UK2%

Origin of FDI Inflows in 2010 for Russia

Source: Rosstat

Russia’s FDI Stock

Source: Rosstat

bln

USD

Source: Central Bank of RF

Destination of FDI Inflows in 2010 for Russia

Source: Central Bank

Russia’s FDI Flow

‘03 2004 2005 2006 2007 2008 2009 2010 ‘11

Ministry of Economic Development of the Russian Federation Slide 5

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Examples of Success StoriesExamples of Success Stories (2010-2011) (2010-2011)

Company Project descriptionMillions

USD invested

Jobs created

Novartis (Switzerland)

On 16th of July 2011 the first stone for a foundation of a new pharmaceutical factory was set in the Special Economic Zone of “Novoorlovskaya” of Primorski district of St. Petersburg.

The production capacity of the factory will be 1.5 million units (drugs for diabetes, cardiovascular and oncological diseases).

140 350

Plastic Logic (UK)On 10th of November 2010 the agreement was signed between Rusnano and Plastic Logic, LLC for construction of facilities for production of new flexible displays utilizing the latest technologies.

700 300

Kinross-Gold (Canada)

On 29th of August 2010 Kinross Gold purchased 100% of shares of companies owning licenses for geological research and mining for deposits of “Dvoinoe” and area of “Vodorazdelnaya” in Chukotka Autonomous Okrug (04.08.2010 the first foreign company received the Government approval for acquisition of 100% of gold deposit).

401 -

Hyundai Motors Manufacturing, (Korea)

On 21st of September 2010 the company opened a full-cycle manufacturing facility for production of cars (production capacity 150 thousand cars).

664 5300

United Technology Corp. (USA)

In 2010 the construction of experimental manufacturing facility for production of temperature management equipment for planes, which will be used in construction of Boeing 787 and Airbus A380.

20 -

Ministry of Economic Development of the Russian Federation Slide 6

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Russia: Investment Climate Regional DevelopmentRussia: Investment Climate Regional Development

Institute of regional investment ombudsmanInstitute of regional investment ombudsmanInstitute of regional investment ombudsmanInstitute of regional investment ombudsman

Resolving and minimizing problems, investors encounter with regional and municipal authorities;

Independent identification and resolution of the problems by the officials;

The problem is resolved in partnership by the business and the government;

Creating one-stop-shop for problem resolution;

This allows to display and resolve the issues in both the regional and federal legislation.

Program for regional investment climate developmentProgram for regional investment climate developmentProgram for regional investment climate developmentProgram for regional investment climate development

Regional Special Economic Zones;

Construction of techno-parks and industrial parks and territories with utilities prepared;

Creation of industrial clusters, to simplify and resolve logistical and other needs;

Regional investment funds.

Model program for regional developmentModel program for regional developmentModel program for regional developmentModel program for regional development

The personal program for each region is not meant to embody an individual KPI, but rather a set of steps and measures to be undertaken, in order to achieve an improvement in the investment climate;

The program is aimed to promote and facilitate competition among the regions to attract investments.

1. Creating a 1. Creating a welcoming welcoming

administrative administrative environmentenvironment

1. Creating a 1. Creating a welcoming welcoming

administrative administrative environmentenvironment

2. Creating 2. Creating infrastructure infrastructure

for investmentsfor investments

2. Creating 2. Creating infrastructure infrastructure

for investmentsfor investments

3. Forming 3. Forming financial financial

mechanismmechanisms for IFAPs for IFAP

3. Forming 3. Forming financial financial

mechanismmechanisms for IFAPs for IFAP

4. 4. Boosting Boosting demanddemand

4. 4. Boosting Boosting demanddemand

5. Tax 5. Tax benefitsbenefits5. Tax 5. Tax

benefitsbenefits

6. Forming an 6. Forming an investor-investor-

friendly tariff friendly tariff policypolicy

6. Forming an 6. Forming an investor-investor-

friendly tariff friendly tariff policypolicy

7. Supplier 7. Supplier networknetwork

7. Supplier 7. Supplier networknetwork

8. Meeting 8. Meeting the the

demand for demand for labor forcelabor force

8. Meeting 8. Meeting the the

demand for demand for labor forcelabor force

Ministry of Economic Development of the Russian Federation Slide 7

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Russia: Regional Investment Climate OverviewRussia: Regional Investment Climate Overview

0

200

400

600

800

1000

1200

2003 2004 2005 2006 2007 2008 2009 2010

FD

I pe

r pe

rson

(U

S D

olla

rs)

Kaluga Oblast

Chuvash Republic

Nizhegorod Oblast

Vladimir Oblast

Amur Oblast

Archangel Oblast

5 Best Regions for FDI per person in 2010(of those that provided data)

- Nenets Autonomous Okrug

- Sahalin Oblast

- Kaluga Oblast*

- Chukotka Autonomout Okrug

- Republic of Komi

5 Worst Regions for FDI per person 2010 (of those that provided data)

- Volgograd Oblast

- Republic of Buryatiya

- Republic of Dagestan

- Republic of Mordovia

- Magadan OblastSource: Rosstat

FDI per person by Region

* Kaluga Oblast is not a resource-based economy

Ministry of Economic Development of the Russian Federation Slide 8

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Russia: Future on a Regional LevelRussia: Future on a Regional Level

Negotiations involved in construction of commercial buildings (Moscow)Negotiations involved in construction of commercial buildings (Moscow)Negotiations involved in construction of commercial buildings (Moscow)Negotiations involved in construction of commercial buildings (Moscow)

Amount of FDI/person (Kaluga Oblast)Amount of FDI/person (Kaluga Oblast)Amount of FDI/person (Kaluga Oblast)Amount of FDI/person (Kaluga Oblast)

Number of procedures involved in obtaining permission reduced from 54 to 18, time spent from 1092 to 277 days

The time to get approved construction plan reduced from 180 to 30 days

Single window procedure for submitting documentation for construction

The time to receive expert opinion regarding engineer and geological has been reduced from 45 to 5 days.

Through prudent policy and aggressive promotion Kaluga Oblast achieved a large industrial cluster producing some of the international car brands (Volkswagen, Magna) and such renowned household names as Samsung and LG.

Its FDI/person is currently on par with several resource rich regions:

Yamalo-nenets AO: $ 1 967;Kaluga Oblast: $ 1 646;

Tumen Oblast: $ 704; Chelyabinsk Oblast: $ 561.

Ministry of Economic Development of the Russian Federation Slide 9

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Russia: Investment OmbudsmanRussia: Investment Ombudsman

Investment Ombudsman

as the Investor’s Partner, Guarantor & Referee

(Pre-Court Mediation Facilitation)

Federal Level:

- 1st Deputy Prime-Minister w/ secretariat at

the Ministry of Economic Development of the RF

76 requests received since 08/2010,54 – resolved, 22 – active.

Regional Level:

- Bureau of the President Representative in each of 7 Federal Districts in coordination w/ Governors;

- Regional Investment Agencies.

Goal:Fewer cases related to

admin barriers, poor public service, corruption, etc.

15%

8%

28%

7%

24%11%

1%

3%3%

Customs regulation TaxationImmigration regulation Trade activities regulationAdministative barriers Propety rights protectionExceeding of authority by public officials Dicrimination of companiesShortcomings of the Russian legislation

Source: Ministry of Economic Development of the RF

Problems breakdown

Ministry of Economic Development of the Russian Federation Slide 10

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Russia: Mechanism for Resolving IssuesRussia: Mechanism for Resolving Issues

-An investor sends the complaint by any means convenient;

-The complaint is registered and filed;-Investor is given access to the status of complain in

an online personal cabinet;-An official responsible for problem resolution is

determined.

1. Filing a complaint1. Filing a complaint1. Filing a complaint1. Filing a complaint

3. Resolving the problem3. Resolving the problem3. Resolving the problem3. Resolving the problem 4. Report the results 4. Report the results 4. Report the results 4. Report the results

- The results are sent to the investor;-The investor submits a statement as to the effect of

being satisfied with the decision;-Ministry of Economic Development of the RF

assesses the measures undertaken;-Regional ombudsman present their reports on the

work accomplished at regular periods.

-The official formulates a plan of action, with stages and deadlines, if necessary a Work Group is created;-If the problem exceeds regional level, the official is

entitled to engage the federal level, such as department of investment policy and development of

public-private partnerships.

- Official determines the type of the problem from a list: customs regulation, immigration regulation, administrative barriers, exceeding of authority by

public officials, shortcoming of the Russian legislation, taxation, trade activities regulation,

property rights protection, discrimination of companies;

-The official requests additional information from all pertaining government agencies;

-The results are presented to the regional ombudsman within one day.

2. Initial evaluation2. Initial evaluation2. Initial evaluation2. Initial evaluation