St. Petersburg - case study

1. The City of Growth NinaOding EWW WG1 St. Petersburg - case study Riga, 23-24, April 2008

2. Share of population with incomes below living level, % Gross regional product of St. Petersburg Specific weight of St. Petersburg economy in the RF

4. Russian Investments in the Baltic Sea Region • Russian investments into the Baltic countries are growing. Significant portion of them is going through third countries • The biggest and at the same time the most controversial investments project Nord Stream pipeline across the Baltic Sea • Estonia : Sillamae port, railways operator Westgate Transport. Terminals in Tallinn and Muuga ports • Latvia:1100 firms with Russian capital registered:Latvijas Gaze, Ferrus, Electric Machine-making Plant, Jsc Latvijas Balzams, Latvijas Biznesa banka,Latvijas Tirdzniecibas banka, Latvijas Krajbanka • Lithuania:Lifosa. Kaunas Heat and Electricity Center, “Lukoil — Baltija”,metalware-making plant “Nemunas“

5. Culture and Education • 249 festivals, including 98 music festivals, 18 dance festivals, 22 ethnic culture festivals, 24 theater festivals, 20 movie festivals, 27 arts festivals, as well as numerous others. • 1127 cultural institutions and over 31000 people were employed in the sector • 7783 historical and cultural monuments under the protection of the state • 61 ethnic cultural centers, 20 foreign cultural centers, 19 creative unions , 52 theaters, 182 museums,133 art galleries and exhibition venues, 37 concert halls , 190 libraries • 93 institutions of higher education, including 48 state universities and 45 private universities.

7. The Concept of socio-economic development • "St. Petersburg is the world city" • St. Petersburg is the commercial and traffic center" • "St. Petersburg is the center of innovations and administration 2007 - Concept of innovative development, Program for administration’s activity

8. Foreign investments in St.Petersburg • Over the last 3 years the volume of investments in SPb economy has been increasing by about 40% p.a. • The investment amounts are allocated primarily to processing industries and infrastructure development Priorities to secure attractiveness for investors: • To create the investment concessions system • To ensure political stability, financial and tender transparency • To be prepare to provide clearly defined city development strategy • To continue dialogue with business

9. Legislative framework • Guarantees for investors • Investment agreement as the basis fixing the rights and liabilities of the state, subjects of RF and investors • Introduction of the new categories of investors e.g. strategic investors • Provision of real estate objects for designated purposes as an exception from general auction principle • Flexibility of application-based and approval –based methods (in tax incentive sphere) • Special Economic Zones

10. Interview of foreign companies: conditionsfor Business Broad market – that is the main reason of our appearance in the Russian Federation. In St. Petersburg we organized our production due to favorable geographical position and progressive minded management of the city at the beginning – middle of nineties. We also considered other options. • №1: “In general- normal, we don’t see particular difficulties for our business”. • №2: Company No 2: “Business climate in St. Petersburg becomes better, demand is growing. The Company is planning to invest into new production facilities, including construction of new shops from the very beginning”. • № 3: “Before we got serious problems, now situation is changed in better direction”. • № 4: “Too many inspections of different bodies with rent extraction”. “Very slow and greedy bureaucracy” • № 5: “High administrative barriers, a lot of inspections, non – coordination's in its requirements (sanitary body, militia, guarding, technical supervision”. “Juridical nihilism, low production , professional culture”. • №3.”There are barriers but situation is changing to the better. One can feel the grows of competence of bureaucrats”. • “No real signs of the state protectionism”

11. Interview of foreign companies: Access to information and Labor Force • Company№ 1: «in some cases we receive information through personal contacts, private links etc. However we cant say that there is no access to the official information. Some committees organize seminars, exhibitions about investment policy, also Internet-portal». • № 3: «Information is available. Luck of explanatory materials from the control bodies, monopolies about the procedures and rules of agreements with examples of solving the problems. • № 4: «Information about administration activity is rather fragmenting. It would be a great problem with it if it would be no contacts inside administration». • “There is a problem with blue collar workers, low skills workers. We attract workers from CIS countries through recruiting firms. There is no luck of white-collar workers”. • “Luck of skilled labor force, low labor motivation and low production culture, exaggerated expectations of salaries “. • “It is very serious for us. We start to feel of deficit of labor force even in 90th. Now we can say the deficit is growing 5-10% in a year. We have training centre in SPb, we send our staff abroad, cooperate with some Russian high educational institutes, manage internships for students.”

12. New investors 2005-2009 • ElcoteqElectronic manufacturing, $ 120 mln. • Alcan packagingTobacco packaging, $ 35 mln. • Bosch und SiemensHome appliances factory, $ 55 mln. • ToyotaAutomobile factory, $ 150 mln. • Izora pipe plant , $ 560 mln. • Shanghai investment industrial company, $ 1500 mln. • General Motors Automobile factory, $ 300 mln. • NissanAutomobile factory, $ 200 mln. • SuzukiAutomobile factory, $ 115 mln. • HyundaiAutomobile factory, $ 400 mln • FoksoconElectronic manufacturing, $ 50 mln.

13. Key industrial The city covers an area of 1,439kм2 Pepsi-Cola Baltika Sea port Ford Motor Sea port St. Petersburg The Gulf of Finland JTI Wrigley Ring Road Severstal Bosch-Siemens (BSH) Coca-Cola Toyota Elcoteq

14. St. Petersburg is industrial centre • Industryis the leading branch of the city economy: it takes more than 25%of Gross Regional Productand a little bit less than 25% of city workforce. There are more than 640 large and medium industrial enterprises.

15. Attitudes to the West • Respondents believe that West European countries are partners for Russia, and some view them as a model for our country • Entery to EU : “They will not accept us;” “Russia’s entry into the EC would put this organization out of balance;” “Russia is too large for the EC to swallow.” , “Russia does not need the EC with all its bureaucracy.” • Belong to Europe?:“I am living in a different environment with different values.” “Both the living conditions and the values are different. We, living in the Northwest, are closer to them [than the rest of the Russians • a model for Russia: Seven respondents voted for the U.S.A, two respondents selected Germany and two Scandinavian countries, one respondent voted for the Czech Republic • Entry to the WTO: Nine respondents welcome it, with seven of them noting positive prospects for their own businesses. But bio-chemical company : “This is very unfortunate. The prices on analog drugs will go down, while their drugs are of a better quality than ours.” The transport company : “Things will go worse, because our trucks are worse. “This is just another scheme of our bureaucrats. The issue is deeply political and has nothing to do with our interests.” One should take into account that an adherence to market liberalism shown by our respondents may be to a significant degree influenced by a megalopolis where the modernization pace is at its highest. On the one hand, entrepreneurs of a large city located on the EC border demonstrate adherence to a market ideology, pragmatism and sober analyses of the situation without nostalgic feelings about the past. On the other hand, they are convinced that Russia should go its own, special way.

16. Advantages and Disadvantages of outsourcing of St. Pete Advantages • Proximity to the EU border and thus low logistics costs • Professional employees • High rate of industrial growth and innovation • Huge local market potential • Low cost levels • High interest in obtaining orders and motivation to work • Free production capacities Disadvantages • Growing salary and other costs • Requirements for high volumes • Lack of experience in international co-operation • Complicated logistics and difficulties with the organization of technical control

17. TelecommunicationSt. Petersburg is a fast-growing IT and telecommunications hub, unrivalled in north-western Russia. The city’s telecommunications services industry is currently valued at US $1,2 billion annually. At this growth rate, a prosperous future and more investment opportunities seem assured for telecommunications market players. • Subscribers of stationary phones – 2 000 000 • Subscribers of Room phones – 1 600 000 • Active Internet users – 846 000 • Cellular communication use – 4 100 000 ( 75 % of the population)

18. Research & Development • 320 research institutions, • 49 of them affiliated with the Russian Academy of Sciences • 172,000 research staff, 5,400 Doctors, 18,300 Pre-Doctors of Science • More than 1,200 small and medium-sized innovative businesses employing approximately 100,000 • 6 Technological Innovation Centers

19. R&D potential: Russia - North-West - SPb Organizations of R&D Personal of R&D Expentitures for R&D (mln.Rbl.)

20. High-tech companies in St.Petersburg

21. Indicators of innovative development Index of innovation development- Russia– № 54 in 2006 (INSEAD,World Business) Share of Russia on the world market of scientific production0,3 % (Source: Ministry of Economic Development and Trade) Source: EuroStat, 2006

22. Infrastructure for Innovations Venture investment support for SE foundation Business incubator for SE IT park (Telecommunication University) Innovative-tech centres SEZ Naukograd –research area

23. Special economic zone (SEZ) • The SEZ – the part of the territory of Saint-Petersburg (by means of Federal Government regulation) with the special entrepreneurship regime. • Saint-Petersburg is the winner of the competition for establishing of the special economic zone (SEZ) in Russia. • Project timing: 2006 – 2026 • Production of software, communications facilities and electronics; automatic pilots for engineering process, military and civil avionics, medical electronics, development and production of analytical instrumentation is planned to develop on the territory of the SEZ.

24. Special economic zoneTotal area of the SEZ: 200 hectaresEngineering preparation of the territory will be made due to the budgets of the RF and Saint-Petersburg within 5 years Novo-orlovsky park Neudorf

25. From interviews • Russian companies are significantly behind in digital and communication technologies; production of equipment for communications; biotechnologies; microelectronics, production of alternative energy sources. • There are some opportunities in space and laser engineering and here Russian companies have leading positions in number of cases. There are certain opportunities in nanotechnologies development. • There are two possible alternatives of successful strategy – to produce cheaper and offer less qualitative analogues of leading foreign companies or to occupy market segments, which are not interesting to leading foreign companies. • Managers of innovative companies stressed that their business is rather dependable on institutional environment – especially on guarantees of ownership and intellectual rights, quality of judicial system. Industrial parks and business incubators are the business for bureaucracy.

26. Challenges for innovative economy • Low demand for innovations and low level of innovative activity of companies • Scientific and research potentials are underused • Innovative circle is broken • Lack of links with international innovations Policy oriented to the supply side, not to demand !

27. Thank you !