A way with a future

NEITHER DEPENDING ON THE CENTER, NOR IGNORING IT

M. Prusak,,
Governor of Novgorod region

        1998 was the hardest of my seven years in office as governor. The events of that year and its consequences convinced everybody once more that there must not be any experiments in reforming a vast country. During the first half of 1998 we made definite headway, the economy became stronger and the region managed to survive almost without any subsidies. The main point was that we understood what we needed to do, and we were able to envisage our future prospects, we began to be spoken about in Russia and we even received world recognition. Then suddenly we were thrown back on August 17. To be sure, we will get back up on our feet again. Investors have not refused to work in our region. 27 out of 29 major projects have been retained. I would like to remind you that our region is very attractive for a number of reasons. Taking into consideration that the federal subjects have their own rights to allow tax privileges, we have exempted all investment projects of all kinds of regional and local taxes for the period up until they are able to cover expenses, but not longer than the projected term. After that we managed to come to an agreement with customs authorities concerning equipment brought in by foreign investors. Now we can boldly speak about our own system that attracts home and foreign investments, which we presented to the participants of the Novgorod session of the Russian government.
         The logic of our conclusions is extremely simple: we do not demand taxes or other payments from enterprises that are struggling to survive. Taking into account that the optimum policy for taxation is realised when a greater part of taxes is provided by individuals rather than companies, we allow favorable conditions to employers who are interested in creating employment opportunities for Novgorodians. This is nothing new, people everywhere strive to earn money to support their families properly, to have a nice home, to receive a good education, medical service, and public utilities in exchange for the taxes they pay.
         We started from these points 6-7 years ago without any ideal federal tax code or tax policy.
         During the implementation of our reforms we understood that different districts had varying potentials. Four of them (namely agricultural districts) found themselves in the most difficult situation.
         In January 1997 we created certain zones of favorable economic conditions. These districts are subsidized by up to 60 per cent. That is why we decided to exempt all the commercial structures with the exception of trading firms from all taxes, for the regional Duma has the right to determine certain tax privileges.
         The first step was the most difficult. A joint Russian-Finnish company in our region became one of the first in the country. A joint stock company, Novgorod Timber Merchants was its co-founder. The resulting company, Chudovo-RWS, is a plant producing large-size laminated plywood. Then the Marco Polo company built a hotel, the Beresta Palace, in Novgorod. A large chocolate factory was soon thereafter opened by the well-known English firm, Cadbury's. It's example was followed by German, Japanese, Austrian and Danish firms. Foreign investments into the region's economy now total about $100 million annually. Local investments are also worth mentioning. For instance, the largest meat- processing factory in the country was built by a joint stock company, Novgorod Miasnoy Dvor, owned by the Cherkizov agricultural and industrial business concern. Small businesses have also been set up. There are about fifteen hundred in the region at the moment. Dairy factories in Parfinsky and Malovishersky districts have recently begun production. This year we are buying some equipment for other dairy and meat factories and trying to unite the sites of agricultural production and processing. Some enterprises can find resources and continue to work successfully. Among them is the Parfinsky plywood works, where they are soon installing new equipment for producing large-size plywood. Others are the industrial company Quant, producing Sadko TV sets, considered to be the best in Russia, the Starorussky aviation plant, a chemicals machinery factory, and a cheese- making plant. The Novgorod joint stock Company Splav, producing fittings for nuclear power stations, is trying to overcome its difficulties.
         The events of August 17 have affected the total output of the region. Instead of the expected 5 per cent increase in production we only saw a 1 per cent increase last year. I don't want to sound pompous, but this daily tedious work may be a demonstration of love for their motherland through reorganization of their firms, creation of new jobs in an extremely hard economic situation, in a time of political uncertainty.