Rush for regions at St. Pete Economic Forum

Map of Russia

(Moscow News – – Nathan Gray – ST. PETERSBURG, June 21, 2013) Russia’s government was rushing in where investors feared to tread ­ and used the St. Petersburg Economic Forum as a rallying call for aggressive spending in the country’s regions.

Eastern Siberia and the Russian Far East have especially attracted attention in recent years in terms of the need for investment, with Vladivostok emerging as the recipient of federal largesse ­ to the tune of $21 billion ­ prior to last September’s Asia-Pacific Economic Cooperation summit.

The objects for which these funds were put to use, however, are bound to have an enduring legacy, said Vladimir Miklushevsky, governor of the Primorsky region.

“While most of the investment for the APEC summit was federal investment, it was mainly directed at infrastructure,” he told The Moscow News. “This gives us a strong base to attract further investment from other sources in the future.”

Participants gathered at the Lenexpo Exposition Center on Thursday for the first day of the St. Petersburg International Economic Forum, to start discussing a wide range of themes in the Russian and global economy, and sign agreements on business, economic and technological cooperation.

A road to diverse investment

At a roundtable on development of Siberia and the Far East, Hu Bing, the president and co-CEO of the Russia-China Investment Fund, echoed Miklushevsky’s view and added education as a key area for government spending ­ and for building connections to the rest of Asia.

“Lots of Chinese students come to Moscow and St. Petersburg to study, and if you build up very good, high-quality colleges in places like Vladivostok, then people from China, people from Korea, from different countries ­ from Southeast Asia ­ can come to study,” he said.

Several participants expanded on Hu’s comments, indicating that where private investors may fear or at least hesitate to tread, they may be waiting for the government to lead in developing necessary confidence, either in funding or policies.

“While large-scale investments have not come through, maybe private investors are waiting for a progressive signal from state investments,” said Yermolai Solzhenitsyn, director at McKinsey consulting and moderator of the session.

Due south

Investors may see some regions ­ like the North Caucasus in southern Russia ­ both tempting in terms of investment opportunities and volatile in terms of security at the same time.

The idea that a state or state-backed partner could provide confidence to pave the way for private investment was supported by Anton Pak, the general director of the North Caucasus Development Corporation (NCDC), a subsidiary of state investment bank Vneshekonombank.

“It takes effort and time to persuade [foreign investors], to show them that [the North Caucasus] is no different from any [other] region in the south of Russia, that it is absolutely possible to invest,” he told The Moscow News.

Security concerns do exist, but they are not universal throughout the region, Pak said.

“Obviously security issues exist in some parts, but it’s a small minority of the territory,” he said. “If something happens in Dagestan, it doesn’t mean that Karachayevo-Cherkessia or the Stavropol region has the same problems, so we need to explain to people that there are ways to place the projects in areas where these issues will never arise.”

“It’s possible to have certain support measures from the government,” Pak said. “It’s possible to have us as a partner in the project ­ a development institution that could help solve administrative issues if they ever arise ­ so people get more comfortable. The investment world is a world where a good experience for people who went before you is extremely important.”

Attention from the federal government has come to the North Caucasus for a variety of reasons, some more positive (the 2014 Sochi Olympics) than others (security concerns).

Projects are focused in four main areas that the corporation has determined as having particular benefit for the North Caucasus: agriculture, industry, tourism and infrastructure. Overall investment in its seven current projects amounts to 27.7 billion rubles ($846.4 million), with the corporation stepping up 5.26 billion rubles ($160.7 million).

Pak’s NCDC has attracted foreign investors to three of its seven current projects ­ two funds and a Greek aluminum company, Aluman. In Aluman’s case, its Russian source of aluminum and its large Russian customer base made sense for the company to open a plant in the North Caucasus, while maintaining a Greek plant for its European customers.

“There were different costs associated with transportation, with taxes, with customs, so we persuaded this Greek partner, who has a good market for these units in Russia, that it was the right time,” Pak said. “We are opening this plant to manufacture these units locally in July.”