Stepping into the XXI century

2000

        This New East issue is dedicated to St. Petersburg's foreign economic activities on the cusp of two centuries, as well as our city's position in the world market and its rapidly developing relations with foreign countries.

        Petersburg's rich market and diversified industries have always been of great interest to foreign investors. Their interest has significantly increased due to the financial stability and industrial recovery that was reached by the end of 1999. Our analysis of this situation in some of the articles and interviews reveals the reasons for those changes. We explain the measures the city has taken to increase St. Petersburg's long-term Eurobond currency rating which has overtaken the rating of Moscow and Russian Federation as a whole.

        Our issue describes the foreign trade turnover's dynamics and structure and presents the opinions of Petersburg and foreign businesspeople on the ongoing processes. We must bear in mind that the August 1998 crisis resulted in a serious reduction of imports but in 1999 foreign trade began to grow again and made up 1.7 billion dollars in the first 9 months of that year. Exports for the same period made up 1.2 billion, while machine construction comprised almost a half.

        This issue also presents materials about foreign investments. We give numerous examples of successful investing in and crediting of Russian enterprises in the Petersburg economy. We show that despite negative forecasts this economic sphere has witnessed much success. The figures speak for themselves: in 1996 currency investments made up 140 million dollars, but in the first 9 months of 1999 they made up 338 million. As to ruble investments, they are growing even faster.

        We highlight the attractiveness of St. Petersburg for foreign businesses. Our city has entered the new millenium ranked first in Russia in terms of minimum investment risks and occupies second place for investment potential and number of working joint ventures and foreign companies.

Stepping into the XXI century

TO FIND THE BEST WAY

        "Of course, St. Petersburg is meeting the difficulties common for our country in general but at the same time it is exerting a positive influence on the whole situation by supporting the search for the best ways to further Russia's development.
        One of these ways corresponds to the idea of Peter the Great: make St. Petersburg Russia's exit to the outer world and to strengthen our country's economic and cultural links with the world community.
        Today St. Petersburg's seaport handles 25 percent of Russia's exports and 32 percent of its imports. Our city's high scientific and industrial potential and Leningrad region's natural resources attract both foreign and Russian investors. The beauty of our city's architecture, its rivers and canals, attract a great number of foreign tourists. The city is visited by nearly 1,5 million guests every year… Today's main task is to use this great potential by inserting it into the city's and its region's economic turnover and gaining profits from it, without at the same time harming the environment. All this requires great funds, new laws, and strict control upon their execution. We also need clever economic management…
        All these considerations are taken into account by St. Petersburg's administration that is now, together with specialists, finishing work upon developing its own external economic concept. We are sure that this concept must be coordinated with Leningrad region's strategy, because the city's and its region's economies are mutually integrated.
        This concept is based on such objective realities as our region's unique geographical position, scientific-and-technological potential, high level of culture, possession of skilled manpower and raw materials, and other advantages.
        It is necessary to understand that besides our own potential we shall need foreign resources, western experience, and new environmentally friendly technologies. We must not be afraid to widely involve foreign investments… Foreign investments may positively influence the expansion of Russia's economy if we implement strict laws and rules of conduct. The whole modern world strives for the attraction of investments, so it would be unwise of us to avoid them. Investments mean the creation of new jobs, confidence in the future, and material well being. Investments are new sources for the replenishment of the state treasury and deployment of the new programs for social development.
        Sociologic surveys among foreign and Russian businessmen, publications, and interviews help us to see that foreign investors are taking interest in Russia. But they are afraid of our country's political instability, disorder in the field of legislation, arbitrariness by local authorities, high level of crime, weakness of infrastructure, bad environmental situation, and unfamiliarity of the administrative rank and file with working in a market. Time may change the importance of one or another factor but in general they have remained constant for a number of years now, so we must take this into consideration as we work out the concept of external economic activities. The main purposes of the regional strategy for external economic activities are the following:
- attraction of foreign investments, advanced technologies and experience for the structural reorganization of the city's and the region's economy, creation of new jobs and modern infrastructure;
- working out and testing of new methods of external economic cooperation and their diffusion in the country's other regions;
- realization of the most important projects through the usage of local and federal programs;
- support for external economic relations in the priority fields of the city's and its region's economic and public life;
- repatriation of foreign funds belonging to Russia for their profitable usage in Russia in general and St. Petersburg in particular
        St. Petersburg's external economic strategy must definitely take roots in our country's economic strategy. At the same time, the city's strategy is significant by itself if we take into account the city's role in Russia's external economic relations.
        Like a good master who cleans his house up before receiving guests, we first of all must take care of having good roads, clean air and water, and services for people having different tastes and incomes, as well as of having favorable psychological climate and personal safety. Only then Petersburg will gain the reputation of a city convenient for living in and having a rest in it. And, after all, we need order, comfort, and safety ourselves…
        Realization of external economic strategy needs proper legislative ground. To attain this we must submit the projects of the documents to the City Assembly. That would be effective as well to establish a Foundation for the Support of External Economic Activities of our city and its region. Its creation would be a significant political step and it would help to support the companies possessing interesting technologies or investment projects. The Foundation must be sponsored by the state as well as by Russian and foreign companies. It must be controlled by the collective leadership representing the executive and legislative branches of power, economic structures, and bank associations.
        In our opinion, the decrease or abolition of local taxes, charges, and rent payments may contribute to the increase of foreign investments. The same reliefs may be given to Russian companies using advanced technologies. It would be effective to introduce a special order of registration and of getting the right of residence in Petersburg for certain foreign companies, for example, to introduce a "permanent guest right of residence" requiring minimum formalities. We can mortgage the city's real estate with the purpose of its insurance as well as use a special simplified order of registration of the joint ventures that aim at industrial investing or industrial cooperation.
        We think that it is quite necessary for the city's medium and small business to participate in the external economic relations. This work may be fulfilled by the Center for the Development of External Economic Relations. We think that this Center must not belong to an executive power. The Center's activities must be realized under control to prevent it from exceeding the limits of its tasks.
        We think it is high time to establish the City's and the Region's Association of Exporters and Importers to give it the role of information, analytical, and consultative organization protecting the companies' interests before the St. Petersburg administration and protecting the Center's interests in the foreign markets.
        Elaboration of the concept of external economic activities was carried on in strict conformity with federal legislation. We were fully conscious that the realization of this concept may be a success only in case we keep Russia's territorial integrity and political and social stability.

P.S. This article first appeared in St. Petersburgskie Vedomosti, ¹ 19, January 31, 1996. Vladimir Putin used to be St. Petersburg Deputy Mayor, Chairman of the Committee for Foreign Economic Relations.Published in brief

Stepping into the XXI century

Finland Supports St. Petersburg's Strivings to be a Gateway between the EU and Russia

Stepping into the XXI Century…A View from Helsinki
Mr. Paavo Lipponen,
Prime Minister of Finland

        - The Northern Dimension (ND) program offered by Finland is highly appreciated in Russia. It is considered to be an important factor for the consolidation of Russia and the European Union. But the promotion of high-tech industries, East-West motorways, and tourism received less attention in the elaboration of the Northern Dimension concept. This question was raised in St. Petersburg. What is your opinion?
         - Finland emphasises the need to integrate Northern European transport systems into Pan-European transport corridors. The development of Pan-European transport corridors by preparing development programmes and project-level cooperation for the corridors is included in the Presidency's Work Plan on the Implementation of the Common Strategy on Russia. Finland is interested in supporting, among others, the development of the Helsinki-Petersburg-Moscow corridor. East-West roads between Russia and the Baltic states should also be seen as priority projects within the Northern Dimension.
        The promotion of high-tech industries is connected with overall preconditions for investment in Russia, that are emphasized in the Northern Dimension. The role of the public sector in promoting technology transfer is mainly confined to creating a favorable investment climate as well as modern communications infrastructure networks. It is the private sector that holds an ultimate key to success. Research and development are among the priorities of the Northern Dimension. In the first place, however, high-tech cooperation should be developed within the PCA *
framework.
        Tourism has so far received less attention in elaboration of the ND concept, but Finland has noted the initiatives of certain Russian regions to raise the issue.
        - What do you think of the possibility of wider use of St. Petersburg as a gateway between the EU and Russia?
         - The geographical location of St. Petersburg creates natural preconditions for the city to act as the EU's window to Russia. St. Petersburg is the only major economic hub in Russia that is situated near the EU border. Finland encourages St. Petersburg's eventual ambitions to shape its profile as a gateway between the EU and Russia.
        - How do you evaluate the role of St. Petersburg as a link between the Russian regions, the suppliers of raw materials, and Nordic countries ready to build joint enterprises in our city?
        - The future economic and industrial potential of St. Petersburg is great thanks to the high intellectual potential in the area. St. Petersburg has always been known for it high level of education and culture and I believe that human resources will be a decisive factor in its future economic growth and welfare.
        The geographic location of St. Petersburg is also a highly beneficial factor for economic progress. Preconditions exist for the city to become a real international transport and trade center in the Baltic region. There is solid interest in the Nordic countries for trade with and investment in the region, even if the present economic situation is not very favorable and Russian legislation concerning trade and economic cooperation still needs development.
        - What do you think of Finnish-Russian cooperation within the framework of a bilateral agreement between the adjacent border areas? Is it important for the development of these relations?
        - Finnish-Russian cooperation in the adjacent border areas is well established - it is being carried out within the framework of a bilateral agreement concluded as early as 1992. During these years we have created active cooperative relations and achieved good results in many fields. At this moment there are 180 projects being implemented in Russia that are financed by the Finnish government.
        St. Petersburg has grown in importance as a recipient of Finnish technical aid. Through effective action that is based on mutual commitment this cooperation promotes the market economy, improvements in the social sector, and the reduction of environmental risks. As such, it is an important and prominent part of relations between Finland and Russia and serves the interest of the Russian and Finnish regions.
        In St. Petersburg we can also see good examples of international cooperation through international financing institutions. Finland has been active in the development of St. Petersburg's water supply and wastewater disposal systems together with Vodokanal and the European Bank for Reconstruction and Development. Altogether Finland has allocated more than 60 million Finnish marks on environmental projects in St. Petersburg during this decade.

Stepping into the XXI century

"TO AVERT THE CREATION OF NEW BARRIERS"

Vladimir Yakovlev,
St. Petersburg Governor responds.

        - What significance for the economic development of St. Petersburg and the entire North-West of Russia does the signing by the city's Administration of the EURORUSSIA program, which is based on the EU's Northern Dimension program, have?         - The Northern Dimension political program is quite an important document approved by all members of the European Union and containing a number of significant provisions aimed at defining the role of the northern European region in unified Europe as well as at broadening cooperation with the Russian Federation. Its political significance lies in the fact that it is yet another attempt to avert the setting up of new barriers in future Europe, in this case, between European Union countries and Non-European Union countries.         However, the significance of any political program lies, first of all, in its plan of action, that is, concrete projects and programs of economic, cultural and social cooperation, that are worked out as political intentions. At one time we had seriously analyzed the European Union's Northern Dimension program and phrased a number of proposals, first of all, those which were related to concrete fields of cooperation.         The Baltic Sea Region development program, like the program of the "Hanseatic movement" revival as part of the European Union's Northern Dimension program, may become top priority for the development of the northern region of Europe under the following conditions:

1. The concept of integration shall be interpreted as equal partnership.
2. Barriers will be removed and the principles of free trade in the northern region of Europe will be supported irrespective of a country's participation in economic unions.
3. The program will not consider Russia a mere source of raw materials for Europe or for one of its regions.
4. Prospects for the development of processing and high-tech regions in the North-West of Russia in favour of the economics of the entire northern region of Europe will be taken into consideration.
5. Important projects for the environmental protection of the region will be financed (so called "hot spots," as defined by the Helsinki Commission, that is, YuZOS, Krasny Bor, the Sillama¸ waste reserve and others).
6. Nature and energy saving technologies, comprehensively provided by the project, will be applied, taking into consideration the fact that Russian organizations and institutions do not always have experience in the market promotion of their technologies. It is in this sphere that EU countries and organizations will render most support.
7. Sources of financing concrete projects will be defined, and attention will also be on financial schemes that contribute to eliminating the considerable increase of Russia's debts, as failure to settle debts is detrimental to all parties of the program.

Stepping into the XXI century

LET THE TIME OF UNIVERSAL JOY, CONCORD AND HAPPINESS COME!

A word
From metropolitan Vladimir,
Of St. Petersburg and Ladoga

        Our civilization is entering a new year, a new century and a new millenium since the Birth of Christ. The Christian world is going to celebrate the anniversary, first of all, with a prayer. This time, people of other denominations will join us in our celebrations. For instance, news arrived that Yasir Arafat visited Bethlehem, thus calling the attention of the community, first of all, of the Arabic community, Christians as well as Moslems, to the forthcoming jubilee celebrations.
        We, Christians, had long ago started preparations for the Holy Feast. The general public and the diocese of St. Petersburg and its region took an active part in these preparations. A jubilee commission was set up, which worked out the program. Unfortunately, most events will merely be of secular character: historical, cultural, artistic, theatrical, musical, and athletic. Therefore, we, the believers and the representative of our church's community, enriched the program spiritually, by incorporating in it prayers, reverence to holy places connected with the birth and life of the Saviour, our Lord Jesus Christ.
        We were very pleased to witness a great reviving in our diocese, when the governor of St. Petersburg, Vladimir Yakovlev last year headed a pilgrimage to the Holy Land. For that purpose an entire airliner seating 300-350 passengers was chartered. A large group of pilgrims included clergymen, believers of different denominations, atheists, city administration officials, simple people, members of the scientific and artistic communities, in short people from all walks of life. All of them obtained great spiritual satisfaction, they were both amazed at and happy about what they had seen and learned during their journey. When they returned, I talked to many of them and nobody remained indifferent to visiting Holy places on the eve of the 2000th anniversary of the epoch-making event. It served a remarkable beginning for the celebrations of the jubilee.
        We continue to maintain international relationship between Christians. Since early ages, pilgrimages from Russia to the Holy Land have been considered honorary, respectful and popular. The Russian government rendered significant assistance to pilgrims and Orthodox Arabs, helping them to consolidate in their faith. On the means of the Russian Orthodox Church and Russia, hotels, schools and even Sunday schools for Arab children were built in Palestine. In 1965 and 1966, when I was the Patriarch's representative in Damascus, I met grandchildren and their grandmothers who had long time ago studied in those Russian schools. They still remember the words of prayers and teach their grandchildren to read "Our Father" in Old Church Slavonic.
        We have maintained good ties and deep roots in the Middle East. Naturally, pilgrimages from our country to Holy places will be carried out during the entire year, because jubilee celebrations will last to the end of the year 2000.
        We, too, hope to visit many Holy places to worship sanctuaries of the Cradle of Christianity, connected with the Birth of Christ, his life and his redeeming mission on Earth. We also hope that our Orthodox brothers in faith from abroad will visit us to share the joy of the feast and to pray together on Russian soil.
        In view of the jubilee celebrations a special committee was formed at the Patriarchy consisting of many subcommittees, such as a church committee, historical, economic, missionary and other committees. In early 2000 the first volume of a multi-volume Theological Encyclopaedia will be ready for publication. We will hold conferences, set up exhibitions, including exhibitions of Russian church art and of children's art devoted to the historic anniversary. We plan to host anniversary meetings and musical performances. We do hope that all Petersburgers and all Russians will take part in the celebrations.
        We have lived through the twentieth century and we are bidding farewell to it. For many peoples of other countries and, especially, for us, the peoples of Russia, it was a century of awful suffering, wars, revolutions, hardship, vain searches for new ways, reformations, unrealized dreams and projects. This very hard century carried away into non-existence numerous historical monuments, sacred places and cultural values. It led to the loss of a great number of people, who were the pick of Russian society, the pick of the Russian intelligentsia. We are saying farewell to the 20th century with feelings of pain and sadness, because it was a century of so many terribly difficult experiences, sorrows, tears and bereavements.
        All of this is especially well known to Petersburgers because right after the October revolution began a Bolshevik "perestroika"-the process of "re-educating the working people." In those days about 500 clergymen were executed in Petrograd. God knows how many hundreds of thousands of defenders and citizens perished in the days of the fascist siege of Leningrad! It is impossible to enumerate the victims of Stalin's terror and of the "Leningrad case" frame-up.
        The sad list of innocent victims is endless, and we mourn as we look back. On the other hand, we have full right to rejoice that at the end of the 20th century we are entering a peaceful and calm flow of normal human life. At the moment, we do have considerable economic difficulties. This is apparently inevitable. Today we are experiencing what the English people experienced 400 years ago, the Germans, say, 300 years ago and the Americans - 200 years ago.
        The main thing for us is that peace reigns on Earth and that our economy gets back up on its own two feet. We hope and pray that clever, competent, experienced and honest people come to power. Today, there are more and more such people.         We are saying good-bye to the old year and entering the new millenium with joy because we have taken the course of democratization and freedom. Believers have acquired such freedom they could barely have dared to dream of centuries ago. This freedom of conscience we Orthodox believers regard as God's blessing and a reward for our penitence, our prayers, our endurance and our humility.
        I wish to believe and I do believe that, beginning with the first century of the third millenium, our country and our people will take the course of peaceful creation, improvement of financial well-being and prosperity, consolidation of peace, democracy and freedom, observance of human rights. All of this will come true if people realize the need for revising certain values, for changing their attitudes to each other, if they comprehend the impossibility of perpetual enmity and fighting. We need to look for and find ways to cooperation and fraternal unity in communication, in daily rounds, in life and in existence.
        Let tolerance, mercy, fraternity, love and mutual support triumph! If these ideas and feelings inculcate into human hearts, an era of universal joy, concord and happiness will reign over the 21st century and over the third millenium of Christianity.

Stepping into the XXI century

THE ROAD WE HAVE CHOSEN

Gennady Tkachev,
St. Petersburg Vice-Governor,
Chair of the Committee for Foreign Relations

        When we made new approaches with a view of forming the city budget we managed to create the image of the city as a reliable business partner. Before that the budget of our city had been misinterpreted by foreign investors and they thought it risky enough to make investments in our economics.
        From 1997 our city has started to make up the budget in accordance with common European standards. The budget that had been published then for the first time and English copies of which had been distributed among the consulates within the city became clear and accessible for one to see through. Due to the measures taken in 1997 St. Petersburg received a credit rating which was not high, as it was then estimated, for in accordance with fair play the city credit rating had to be limited by the country's rating, that is, Russia's. Such was the conclusion by economic experts. With the international credit rating the city has been able to enter the Eurobonds market. What has attracted us there? Of course, we have been seriously thinking of our city's business image. At that particular time such "financial pyramids" as MMM and their sudden collapse were at the center of a major scandal over the banking activities in the country. Our duty was to prevent the appearance of such organizations in the future and we took preventive measures for securing the short-term issuance of Petersburg bonds and thus safeguarding our city's reputation.
        The suggested scheme was very simple. Having the international credit rating we decided to float Petersburg Eurobonds on the world market. The currency income from such activities we immediately use for the purchasing of "unsafe" municipal bonds which had been issued for 3, 6, 7 and 12 months and our Eurobonds were to be placed with the public for a term of five years. Thus the city, which borrowed the money at lower interest, may pay off its debt and shares within five years. During this period our situation may change for the best. We had been preoccupied with one thought: would our Eurobonds be accepted at the financial market and would there be much demand for them?
         The emission was 300 million US dollars. This figure was put forward for consideration in accordance with European standards and our experts could estimate the amount that our city was able to borrow for five years with the Eurobonds issued as a pledge. We hoped our plan would be a success but the demand for our Eurobonds has exceeded our expectations: it was four times more than the amount estimated. Such is the real "confidence rating" the city has won! Petersburg has a reputation as a trustworthy borrower that pays off debts in time, has low expenses for dealing with internal and external debts (less than 10 percent of the budget), and has the budget formed for 1999 without the primary deficit.
        - Would not it be natural now to relax and let the investment situation evolve by itself?
        - By no means! The business image of our city is worth all efforts! Many important measures are taken for the city's prosperity and much work is still to be done. We are preoccupied with the strengthening of confidence in our investors as well as the creation of mutual business interests between the investors and the city.
        Our another important task is the establishment of infrastructures necessary for an active process of investing. In order to protect their business against possible dangers our investors must have the opportunity to obtain the necessary information concerning the market and Petersburg dealers with whom the investors should or should not have contacts: what suppliers are not honest? Which banks are reliable? How to technically safeguard a company's computer network? Today these questions can be answered in any of ten expert commissions, the reliability and competence of which are guaranteed by the city's administration and by the Investment Promotion Council under the auspices of the Governor. The commissions mentioned were allowed to work in the information service market for they had won at the serious qualifying trial.
        One of the present urgent problems is the creation of a quality checking system for all goods delivered, that is, the system being at the level of modern world standards. Penetration of the international markets is impossible without the introduction of certification of goods and services. This process has already begun. Another Petersburg problem is that we need to introduce modern customs technologies for safeguarding the investors' time and money and enhancing the investment attractiveness of our region. In order to attain this we direct our efforts towards the establishment of a "duty-free warehouse" where there would not be any export taxing and a suitable site for which might be our seaport. We are waiting for the central government's decision on this issue.

Stepping into the XXI century

MAIN EXPORT ITEM

Anatoly Aleksashin,
Deputy Chairman,
St. Petersburg Committee
for Economy and Industrial Policy

        For a long time the main scope of our home exports were raw materials - this is characteristic of weak and developing countries. Nevertheless in the last few years the Petersburg industry, notwithstanding a deep recession, has extended its activities on the world market, offering the products of advanced technologies. The current list of Petersburg export items is headed by machine construction products. It made up 60 percent of our city's output in 1998.
         Our city exports various vessels for the merchant marine as well as military craft and various electronic equipment: turbines, generators, electric motors of different types and capacity, tractors, cranes, machine-tools, and the like. Moreover, a significant share of exports is made up of ferrous and non-ferrous metals as well as of fuel, oil products, and timber.
        St. Petersburg's industrial products are purchased by the most technologically developed countries. We sell our equipment to German automobile plants, and the US and Japan purchase our freezer generators.
        Today the world market is being penetrated even by those branches of industry that were previously regarded as non-competitive. For example, the city's textile industry exports exceed its imports. The city furniture industry has also increased its exports. The same applies to the food-processing industry. The West purchases our world-class chocolate, sausages produced by the Samson and Parnas enterprises, as well as our beer.          St. Petersburg's trading links extend from Southeast Asia to Latin America. The city exports 11 thousand items and this figure is rising.
        Export items make up about 25 percent of the city and its region's gross product. This figure is impressive, given Russia's current economic situation. In the US and Germany this ratio makes up 32 and 40 percent, respectively.
        The importance of exports for Russia can not be overestimated. Apart from direct profits brought in by foreign trade to the manufacturers and the state, this creates other significant stimuli for native industry. These include increased participation in the international division of labor, adherence to the stringent requirements of the world market, which compels us to use high tech and modern materials, increase the quality of production, reduce waste and unnecessary expenses, as well as actively increase demand for the products of our enterprises.
        The other question is that the increase of our exports as well as foreign customers' interest in St. Petersburg goods have shown that our legal, financial, and tax conditions slow down the further development of export. In March 1998 the city took measures for the support of industrial exports, something which definitely helped the situation. The Association of Exporters of high tech products includes 11 enterprises as well as the Bureau of International Certification, and important steps were taken in the training of specialists, the city's participation in exhibitions, and widening of the information base.
         Nevertheless it was clear that all this was not enough and we needed the systematic work of the St. Petersburg administration in the field of exports development, wider use of scientific and technical resources, and growth of our enterprises' innovative activities. By the end of 1999 several drafts were developed which formed the basis of St. Petersburg's export policy up until 2003.
        So what problems will be solved with the help of this complex program of activities directed towards the creation of proper regional conditions for raising exports?
         Firstly, the plan is to improve legislation in this field. We need to establish standardized procedures when it comes to concluding international contracts; we also must exercise greater control over the external trade activities in St. Petersburg.
        Secondly, the state must support measures for stimulating exports, that is introduce export credit guarantees for working money, export credit insurance, and other traditional kinds of special purpose funding. Moreover, financial backing must make up at least 0,1 - 0,3 percent of our region's gross product.
        Thirdly, our system of taxation needs improving. This is constantly mentioned by exporters. In particular, we need to change the value-added tax for advance payments and lift the customs and value-added tax for imported equipment that is directly involved in producing export supplies. We must actively participate in the improvement of federal legislation in its different foreign trade aspects because there are many problems that cannot be solved at the regional level.
        The concept includes many other questions that reflect the need for wider information backing in world market conditions, highlighting the specific features of our region, the creation of Petersburg representative offices abroad, and, last but not least, the establishment of consultative and marketing organizations coordinating relations between the city's enterprises and their foreign partners.
        External trade activities are inseparable from the St. Petersburg administration's industrial policy. The documents adopted by the administration designate a large scope of activities for the next four years up to 2003. We expect that they will positively influence the regional economy.

Stepping into the XXI century

A VISIBLE PERSPECTIVE

Boris Usanov, Professor

        Eighteen months have passed since the International Transport Conference in the Taurida Palace in St. Petersburg. It was initiated not only as the 4-th European, but also as the 1-st Euro-Asian conference, because, for the first time, it is considering problems of communication between the two continents. Its declaration, which became the official UN document, declared the development of transcontinental links between Europe and Asia.
        As time goes by, the decisions of the Euro-Asian Conference adopted that summer are becoming more and more perceptible. Memorandums on the development of the Barents Sea - Euro-Arctic and Black Sea transportation zones have already been signed. A working group studying all aspects of the development of the transportation corridor in the direction of the Asian-Pacific region via China and by the Trans-Siberian Railroad has been formed. They are acquiring a much greater significance for our city and for the entire North-West of Russia. I mean, first and foremost, everything that is related to the 9-th international transport corridor. This involves the Baltic Bridge project, the setting up of the Transrusexpress shipping line and the forthcoming construction of the ring road around St.Petersburg, which is a major link in the conjunction between the E-18 Scandinavian and the M-10 Russian roads.
        A number of international documents already classify the Baltic region, the North-West of Russia and St.Petersburg as a constituent part of a new zone of economic development in Europe and as one of the organizing centres in the Baltic region. In the EC documents one can read about working out mechanisms for financing objectives of transport infrastructure in cooperation with Russia. And in this respect it is the 9-th corridor, which is obviously being defined as the most advantageous. It is the only zone in Russia that borders on the EC. It is also representing the symbiosis of all means of transportation, where sea routes are directly linked with the internal water routes of Russia. Besides, certain traditions have been formed here and considerable experience for the setting up of a multifunctional transport junction has been accumulated.
        This does not mean that the 9-th corridor development process is not disputed. Proceeding from the data stated by the Council of Ministers of Northern countries, there is enough work for everyone on the Baltic. Nowadays, 60 mln tons of Russian transit goods pass through the ports of the Baltic states. 23 mln tons pass through the ports of Ukraine. Altogether this makes for 30% of the sea-borne freight turnover of Russia. But here appears the TRASKEKA international transport corridor project, formerly known as the Great Silk Way.
        It bypasses Russia. Therefore, we can't stay indifferent: we should develop the 9-th corridor with the view of bringing it nearer to the Caspian and Black Seas. The 2-nd International Euro-Asian Transport Conference is supposed to play a decisive role in solving this problem. It is fixed for September 2000. However, considerable steps in this direction are already being taken. To begin with, I mean the setting up of the inter-regional information and analysis centres of transport logistics. In the direction of the Black Sea branch of the 9-th corridor three of them are being planned, and one of them in St. Petersburg. A dynamic data bank of this centre, known as TRIADAP, has already been formed and patented.

Stepping into the XXI century

STRATEGY: NOT JUST SURVIVAL - DEVELOPMENT

Ivan Vasiliev,
General Director,
Electron Research Institute

        The St. Petersburg Electron Research Institute is one of those few enterprises that managed to adapt themselves to the market while maintaining their profile and international contacts, and even continuing to pursue research work. Ivan Vasiliev, Electron's general director, tells Aleksei Schuchkin, our correspondent, about the enterprise itself and its activities:
        - Ours was a large research and production association which consisted of the research institute, its experimental plant, and two serial production plants in Nalchik and Ordzhonikidze (Vladikavkaz). Our experimental plant is still located in St. Petersburg. 4,500 staff used to work here - today the staff numbers fewer than 1,000. We developed and produced a wide variety of photoelectric devices from ultra-violet to infrared spectral bands. We also supplied color pickup tubes for all TV stations in the Soviet Union, precision solid-state analogues of photoelectronic devices for Glavkosmos, and different "electronic eyes" for the military. After the falling-off of production our plants in Nalchik and Vladikavkaz left our research and production amalgamation and became independent, but our institute maintains contacts with them. In the course of restructuring, we have maintained our status as a state enterprise and have organized four branch enterprises that produce our traditional equipment. This was done with the purpose of making our work more effective.
        Unlike other enterprises, the Institute did not change its specialization and has continued to produce high-quality and inexpensive equipment. We were able to do this by keeping our best staff and developing our most promising equipment.
        The state orders from us only 20 -25% of our capacity to produce, but the Institute's stainless reputation has helped us to develop our foreign contacts. Thus, in the last few years we have become the main suppliers of photosensitive devices for the Carl Zeiss Jena company, located in the former GDR. Before the unification of Germany, this enterprise produced optical star sensors based on our devices. Despite structural changes that followed unification, we managed to keep the greater part of our joint work. Today Carl Zeiss Jena produces equipment for the European Space Agency and we supply the necessary elementary base for Carl Zeiss Jena.
        Our partners in Germany are receiving orders from the whole world and our institute participates in their realization. For example, we send to Germany our composite large-size precision image devices, which are used there, for building large land telescopes. These telescopes are in great demand internationally and so we have an opportunity to conclude long-term contracts with our German partners and maintain our stable earnings base.
         We are always looking for new markets. We recently received a very interesting proposal from Vietnam, which is introducing into the country an automatic passport control system. This means that each citizen will have a personal plastic card, containing all the information about him, including his fingerprints. Our Institute's task is to make optical electronic devices for computers that can personally identify people by means of dactylography. We are preparing a technical description of this project, so we are looking for partners. Apart from the optical electronic devices we produce we need plastic cards and computer programs as well. The collaboration must result in the development of a united automatic passport control system meant for that whole country.
         There are also other countries with which we do business. England receives our thermal image devices that are used in different branches of the economy. Thermal imagers allow to measure from a distance and register the overheating of high-tension lines, axle-box units in underground trains, as well as fires. We also sell our equipment to India and Syria.
         I am often asked if our enterprise supplies the market with finished as well as elementary base equipment. As for our finished equipment, we have recently had the opportunity to move it into the market.
         We are experienced in producing precision optical electronic devices for star navigation systems. We have also produced different types of photoelectronic converters that were used for the same purpose as vacuum tubes in TV equipment, though they had greater potential due to their larger size and sensitivity. Today such devices are used in small TV sets. Some time ago we supplied just the spare parts for such TV sets, but today we can supply the finished equipment. Small TV sets are widely used and there is a stable demand for them. Besides, we produced image converters, which were basic elements of night vision devices. Now we produce night vision devices ourselves. The potential of our production base is very high and our night vision devices are definitely high quality.

Stepping into the XXI century

A BAROMETER FOR THE GOVERNOR

Valentin Makarov,,
Head of the External
Economic Cooperation Administration
of the Committee for Foreign Relations

        - Valentin Leonidovich, it was quite natural to expect an abrupt slump in investments everywhere, including St. Petersburg, after the terrible crisis of August 1998. But something striking happened. Instead of a slump our city's economy received a sudden increase of new capital investments. During the crisis, investment growth exceeded 80 percent and it broke all records during the first quarter of 1999, reaching 350 percent. How do you explain this phenomenon?
        - In order to precisely estimate the factors that have influenced such a result, we must not forget that negotiations concerning investments usually begin long before an investor makes a final decision and real money resources begin to flow in to the accounts of partners. Consequently, investment growth in 1998 was as a result of efforts made in previous years.
        It is quite another matter, that, as a reaction to the crisis, our partners might have decided to freeze investments, break off the concluding of treaties, decrease their volume, or even leave the St. Petersburg market. But this did not happen. On the contrary, the volume of investments exceeded 400 million dollars, 300 million of which consists of investments that arrived from abroad and over 100 million from foreign companies with subsidiaries. If you think about it, this fact explains all the others. Indeed, if the biggest investors that have been working in our city for a number of years - such as Rothmans, Neste, Wrigley, Gillette, RGR Petro, and so on - investors familiar with the real situation in Russia, do not export their capital from Russia but rather go on investing and reinvesting the money they earn here, what possible conclusion can a potential investor draw? The game is definitely worth the risk. For our part, we are trying to do as much as possible for potential investors. As we all know, capital always seeks the most favourable conditions for growth.
        - And what is attractive in St. Petersburg's investment climate?
         - In brief, this attractiveness lies in international trust for St. Petersburg, in the city's guarantees that have acquired a rock-solid reputation due to the open budget policy of the city's administration, which is something governor Yakovlev set out to do from the very beginning. This policy, based on clear and exact calculations, has earned St. Petersburg the reputation of a reliable partner and a low investment risk area.
        Secondly, constant dialogue between investors, entrepreneurs and the city authorities is a must. Only constant and active mutual connections can ensure the necessary impulse and energy for investments.
        - How do such dialogues occur? There are thousands of large, medium and small enterprises of various types and structure in St. Petersburg!
        - Nevertheless, such a dialogue has become a reality. As far back as March 1997 after a very long discussion with people who represent business in St. Petersburg, the Council for Foreign Investment Assistance was founded under the control of governor Yakovlev. Heads of the municipal authorities and St. Petersburg representatives of certain federal organizations are members of this Council. Our Committee for Foreign Relations is among them, of course. But representatives of the St. Petersburg International Business Association of Joint Ventures, the Association of Commercial Banks, the Commercial and Industrial Chamber of St. Petersburg, the Union of Insurers, as well as other organizations, are also members of this Council. Work in this council makes it possible to eliminate all impediments to the investment process.
        The Council holds its meetings once every quarter. Questions are submitted to these business sessions only after a thorough preliminary discussion and by common consent of all those represented in the Council. The majority of the suggestions submitted to the Council are first discussed in the working groups and soon thereafter come into force in the form of concrete documents and are liable to execution.
        -Nearly two years of Council work are under your belt. Is the influence of the Council felt in the investment climate of St. Petersburg?
        - The Council has become not only a barometer of the investment process but its arbiter as well. Everything it does is important. The St. Petersburg government passed a program, making possible the creation of a system of zones of economic development and it became of paramount importance for enlivening the investment process. The government started to implement the program at once: such a zone is already functioning in Kronshtadt. The Investment Projects Centre was also formed and it supplies practically all the information necessary for projects from the very start.
        And, finally, for rendering investment support to production, the government of St. Petersburg sanctioned, back in March 1998, "The main Directions of St. Petersburg Government Activities for Support of Industrial Export." This list of urgent measures was a result of multilateral coordination between the authorities and exporters at the working commissions of the Investment Assistance Committee. It is impossible to overestimate the timeliness and value of this document.
        - Are there many industrial exporters of this kind in St. Petersburg nowadays?
        - There are more then 2000. Each of them deserves praise for making their way into an alien market, especially because they produce goods which are the result of processing, of work, of intellectual labour.
         - Has the program supporting industrial export already been implemented?
        - Certainly. High Technology Production Association was formed and together with the city it works on solving concrete problems for providing support to exporters, and developing the potential activities of the export infrastructure. The city exports has a steady growth potential.

Interview by Tatiana Zhuravleva

Stepping into the XXI century

A BRIDGE BETWEEN AUTHORITY AND BUSINESS

Natalya Malysheva,
Advisor to the Governor
Director General, Foundation of Federal
and Regional Programs

        Last year, in order to unite the interests of our city and commercial companies ready to make investments in the city's projects, St. Petersburg established the Foundation of Federal and Regional Programs. This Foundation's only promoter is our city administration, so it is not influenced by any company. The Foundation helps all organizations sharing interests with St. Petersburg.
        The Foundation's organizational structure consists of an executive directorate and a board of trustees headed by the acting governor. It also includes vice-governors responsible for the investment process. The executive directorate organizes preliminary selection and provides expert advise for projects. The Foundation includes an advisory council representing commercial and research structures that are most active in cooperation with the city administration.
        Projects realized by the Foundation include the creation of an information system for businesspeople, development of investment laws and special criteria for the selection of investment projects. In fact, the Foundation has developed into the Investment Council's executive structure.
        In course of developing the laws we asked for the help of leading international organizations represented in St. Petersburg and their most authoritative specialists were placed at our disposal. We received a team of thirty economists, financiers, and lawyers who examined the six alternative investment designs that had been developed in our city by that time. Thus the basic project was chosen, developed by the City Property Management Committee. Several round tables involving experts and authors of the draft laws allowed us to examine more than 600 amendments suggested by the experts. Next we sited our projects in the Internet to give everyone the opportunity to comment on them. Then the project suggested as the basic one was ratified at the Investment Council's sitting and submitted to the Legislative Assembly. This was followed by discussions among the deputies, meetings with factions, and a conference committee which examined 208 amendments suggested by the deputies. In summer 1998 the Legislative Assembly adopted the block of investment laws which are now being perfected for practical application. Thus we developed a mechanism allowing everybody to participate in the development of laws.

P. S. New East We asked Mr. Georges Ivanoff, Manager, Regional Component, "Support for Foreign Investment in the Russian Federation" TACIS project (Moscow) to comment upon Natalya Malysheva's article. He wrote to us the following...

Stepping into the XXI century

ST. PETERSBURG AND FOREIGN INVESTMENT

Georges Ivanoff,
Manager
TACIS project

        To an outsider, the St. Petersburg approach to attracting foreign direct investment is indeed original and most probably one of the best suited to periods of expenditure restraint and limited resources in today's Russia. The creation of the Foundation for Federal and Regional Projects and the work undertaken so far deserve both respect and encouragement.
        In a short period of time the Foundation's objectives, design and structure have been set up. Its originality is in the fact that it gathers both private and public interests in a unique institution where both parties can reach a clearer understanding of each other's goals. This should have positive effects on the relationship between existing and potential foreign investors and the city administration and must be a useful tool to make foreign companies and institutions feel a favourable investment climate or, at least, help any effort made in this direction.
        It should be stressed that the Governor's chairmanship of the Foundation should reinforce investors' confidence as major decisions are taken or approved at governor level in Russia. A number of activities have been deployed since the creation of the Foundation: organization of an investment infrastructure, including appropriate legislation and a web site information programme but also more material realizations such as, inter alia, engineering and transport infrastructure of the city. In transition economies, the patterns of inflows of foreign capital can create misleading impressions about the motivation of investors and that foreign investment comes automatically and its attraction requires no effort. But when the initial wave of consumer goods' companies - Coca Cola, Unilever, for instance - and those wishing to gain a strategic position within their sector - BMW, ABB - is decreasing the situation usually returns to a more normal state, where countries, regions and cities need to work hard to attract foreign investment. Much of the current investment in Russia falls into the category of strategic investment where companies have invested with a view to the market potential in Russia.
        Much greater economic benefit can be obtained from second wave foreign investment, particularly where this investment is manufacturing products for export. This type of investment employs more people and brings hard currencies into the country, but for this type of investment the investor has a completely free choice on where to place an investment and needs to be convinced of the advantages of a particular location. In order to attract this type of investment, a great deal of effort is required to gain the economic benefits of foreign investment. The effort needed to attract foreign investment is particularly great when levels of foreign investment are low, and this is the case at present, the competition between various investment destinations being extremely fierce.
        It is certainly an appropriate moment for the Foundation to develop further in order to implement the essential efforts to attract foreign investment, which is one of the ways to secure a stable economic development for the city of St. Petersburg.
        This is why the TACIS project "Support for Foreign Investment in the Russian Federation" supports the Foundation's activities in providing technical assistance in the investment promotion area, as it also does in two other Russian regions, namely Novgorod and Samara, thanks to a European Union grant.