Business programme 2020

The Russian Federation is very diverse in terms of its regional composition. On the one hand, this diversity is a source of development, given that different regions have their own unique resources. On the other, asymmetrical regional development threatens to ‘fracture’ the unified socio-economic space. Analysis of regional budgets shows that the level of expenditure on the national economy is starting to diminish, which therefore limits the opportunities for future economic growth in constituent entities of the Russian Federation. Regional budgets must have real sources of financing to create new mechanisms for modernising production and building infrastructure with a view to increasing investment attractiveness. That’s why one of the key tasks for the year ahead is to ensure the solid growth of regional investment activity. What mechanisms will encourage regional authorities to use their budgets to invest in infrastructure? What measures can be implemented to increase the share of expenditure on investment in the budgets of constituent entities of the Russian Federation?

Investment activity in a region grows thanks to both new industrial models that improve the quality of offerings for potential investors and to goal-oriented approach to projects that takes into account technological priorities and cooperative connections in that region. Russian industry is to become more competitive on both internal and external markets through improving localization of technology, equipment and components. In order to achieve the latter, entire ecosystems consisting of industrial enterprises, research and development facilities, education institutions, finance and credit organizations, and industrial infrastructure elements (e.g. technoparks) are created to support an industry or its particular branch. Extraterritorial approach is growing more and more relevant: it is based on interregional cooperative connections as well as on using digital services and platforms during both design and implementation stages. Which local industrial policies are required to improve regional industrial attractivity? Which state support mechanisms are most efficient when it comes to component localization? How relevant is the extraterritorial approach in joint localization projects? Do regional industrial support programmes need a reload? Which support mechanisms are in demand by both management companies and technopark residents?

The main goal of instituting comprehensive and sustainable development in the territories is to involve ‘depressed’ municipalities in urban planning by way of implementing targeted measures, to be carried out in designated areas, in particular involving renovation, modernization, and repair works. These areas often include unused or underutilized territories, a significant number of which have been subject to unauthorized construction, among other things. These areas are, in most cases, located in the central districts of municipalities, and are attractive to investors looking to develop commercial and residential real estate. In fact, municipalities have been given opportunities to increase land use efficiency and promote comprehensive development, as well as balancing infrastructure and creating new jobs. What are the new approaches to developing Russia’s territories at the municipal level? How can instances of chaotic construction with a lack of infrastructure be avoided? How can unused and underutilized industrial areas be developed? How can the conditions for investor activity be created in order to promote the comprehensive sustainable development of the territories?

Improving national jurisdiction is essential for attracting investment in the Russian economy. In a world where legal systems are competing with one another, it is vital to raise the quality of Russian jurisdiction, which should provide the best guarantee of the rights of businesspeople. What has already been accomplished as a result of the measures put in place to improve the business climate in the Russian Federation? What shortcomings in Russian jurisdiction are contributing to a flow of capital out of the country, and what measures for protecting the rights of investors have proven to be effective? What legal tools could be employed to help return capital which has left the country, and to entice back entrepreneurs who have changed their tax residency?

A number of initiatives have been set out in order to promote the accelerated growth of industrial SMEs at the federal level. They include the provision of preferential access for SMEs to manafacturing clusters and facilities, as well as comprehensive service, information and export support. How effective are these initiatives? What problems do SMEs in the manufacturing sector face in terms of the provision of vital infrastructure? What additional measures are available to support them at the federal level? What are the best regional practices for the creation and development of industrial and technology parks? How can we spur the development of manafacturing clusters and their residents?

In a closed-cycle economy (circular economy), manufactured goods do not become waste after use. After processing, they are reused, which allows resources to be provided to the growing population of the Earth. But the circular economy requires the restructuring of industrial processes with the introduction of new technologies, including artificial intelligence and big data. Is it possible to sustain economic growth without depleting the planet's resources? Is it possible to provide for human needs without harming the environment? Are circular economy business models in demand from Russian companies? Will Russia take a leading position in a closed-cycle economy?

The state has set the task of significant growth in the country’s main spheres of life and economy through the implementation of large national capital-intensive projects. The share of fixed capital investment in Russia's GDP is expected to grow to 25%. A significant proportion of projects require the attraction of bank project financing and the application of a variety of financial and non-financial support measures through public-private partnership mechanisms. Are the current regulations and proposed changes in line with the objectives and conditions under which banks can finance national projects? Will the banking sector be able to provide these volumes? Are the state-supported measures that have been initiated (subsidies, Project Finance Factory, Special Investment Contracts (SPIK), North-Western Industrial Company (SZPK), among others) sufficient?

What makes a city a comfortable place to live, and what factors make for a healthy and happy urban environment? A well-organized waste collection and processing system helps to maintain the cleanliness of residential courtyards and city streets. Utilities services provide homes with clean water, heating, and energy. An integrated urban transport infrastructure running like clockwork allows residents to get from one place to another quickly and conveniently. Digital services make it possible to order fresh produce and other products in a single click, study and learn new things, undergo medical examinations, and access a whole range of different services. Sporting facilities allow people to spend their leisure time on activities that promote physical health, while cultural institutes and centres stimulate the mind. Ultimately, the comfort and well-being of a city’s residents is secured by the efficient and coordinated operation of urban systems. At its core, this means streamlined business processes: rational planning, economically sound decision-making, the competent use of resources, and management control. A city is a business that works in the interests of its beneficiaries – that is to say, its residents. How can the efficiency of urban systems be improved? Which business solutions can have the greatest socio-economic impact? How can expenditure on the funding of urban services be turned into investments in their development? How can business help to make Russian cities more dynamic, environmentally friendly, comfortable, sustainable and, ultimately, turn them into the kinds of places their residents would want to live in?

The government has made it a priority to improve access to housing as part of the development of the construction industry. It has also laid out plans to improve housing conditions for a minimum of 5 million Russian families per year. However, access to housing is still a cause of concern. Prices continue to grow, particularly in large cities, leaving people unable to save for their own home. What’s more, mortgage interest rates have long been on the increase, and despite their recent fall, the forecast rate of 8.9% for 2019 did not come to pass. Indeed, interest rates continue to remain at substantially higher levels. This is compounded by the fact that there will clearly be insufficient construction over the coming years, due in part to a transition to a new funding model. This will lead to prices continuing to grow. And these are just a few of the problems currently being experienced. What can be done today to improve access to housing? Can the rental sector, individual housing construction projects, and the cooperative movement play a role in improving the situation?

In order to improve the environment and spur the development of the gas engine fuel market, the Russian government has adopted a set of measures. These encompass state support and a strategy for the accelerated development of methane-based infrastructure. In 2019, the filling station network for gas engine vehicles grew by 20%, with the same number of new stations also expected to open in 2020. At the same time, the price of methane as an engine fuel remains unchanged, at a maximum of 40% of the price of diesel fuel. In addition, public funds have been allotted to make it cheaper to reconfigure vehicles to run on methane. Support is also provided to customers purchasing new gas engine vehicles under programmes developed by the Ministry of Energy, the Ministry of Industry and Trade, and the Ministry of Transport of the Russian Federation. As it continues to grow with government support, what potential and opportunities are opening up on the gas engine fuel market? When will the methane-powered vehicle sector not only start growing at the same rate, but faster than the filling station infrastructure in the regions? At what rate will the filling station network need to grow at that point? What measures could be implemented at the regional level to help promote methane-powered vehicles?

Domestic and inbound tourism helps secure sustainable socioeconomic development. It also plays an important role in helping small businesses to grow, as well as in job creation. Russia is able to leverage enormous potential in this sector. The country boasts unique natural resources and a plethora of world class cultural and historical sites. Nevertheless, a range of issues on the agenda remain, and require additional discussion. What stereotypes exist when investing in tourism projects, and how can they be overcome? Is a strategy for the interregional development of amalgamated tourist regions (global destinations) required? What are the main factors hindering the growth of domestic and inbound tourism in Russia? What can be done to raise investors’ interest in the tourism industry? Do small and medium sized enterprises have a stake in tourism? What forms of government support will be put in place to help develop tourist zones?

In order to facilitate faster infrastructure growth and to increase investment attractiveness, the G20 nations put forward an action plan to categorize infrastructure as a separate class of assets. This plan was drawn up with the participation of international financial organizations and multinational development banks. In order to achieve this aim, a specific approach was developed. This was based on a range of factors and criteria which were identified as being able to contribute to the quality of infrastructure projects, and also to ensure their dependability and attractiveness to investors. In June 2019, the principles of quality infrastructure investment (QII) were approved in the G20 Osaka Leaders’ Declaration. It was agreed that these principles were applicable to any infrastructure project and set out to ensure that they were economically viable. Some of the key criteria included security and resilience against natural disasters, social considerations, job creation, the use of innovative approaches and advanced technology, and approaches to infrastructure management. In Russia, the Ministry of Finance tasked VEB.RF with adapting QII principles in cooperation with the PPP Development Center. Input was also provided by participants in the infrastructure investment market. How might compliance with QII principles help attract funding, including from abroad? What does it mean to structure projects according to QII principles? How will compliance be assessed? What transformations need to be enacted in the infrastructure market to ensure that QII-compliant projects become the norm, rather than just one-offs? And how can this be achieved without damaging the current successful practice of implementing infrastructure projects?

Increasing the effectiveness and functional reliability of the electric power sector is the basis for sustainable economic growth in a country, guaranteeing that businesses can continue their activity without interruption. Key areas for the development of this sector include implementing digitalization, refining statutory regulation on tariff setting and industry activity, and using best international practice and technology. How can we match the interests of energy consumers to those of energy producers? How can we respond to the challenges which have emerged due to a rapidly changing energy balance and the growth in the proportion of renewable energy sources? What will digitalization of the sector entail?

Services exports remain a priority export development area, where Russian companies can successfully compete in the markets of both developing and developed countries. The systematic measures and institutional support instruments being implemented should help Russian exporters by increasing the competitiveness of Russian services in global markets and increasing the attractiveness of the Russian jurisdiction. What are services exports target growth rates for Russian regions and government-sponsored companies? How effective are the methodological recommendations and their implementation for regions of the Russian Federation and government-sponsored companies? Do state measures supporting services exports need expansion?

The tax climate is a major element of the investment climate. There is no single approach to investment-stimulating tax benefits that would work in all sectors and all regions, in all countries, and at all points in history. Russia has its own unique set of conditions stemming from its industrial and regional diversity. Not only does there need to be support for investments, but state and business tax policies must also be constantly updated. What changes must be made to tax administration instruments in order to assuage foreign investors’ fears of investing in the Russian economy? What rules of the game are beneficial to governments and societies while also being profitable for Russian businesses? Freezing tax rates, altering approaches to tax oversight, reducing tax burdens, a moratorium on increasing the tax burden on certain business categories, tax preferences for industrial companies and other priority sectors.

The objectives of entering a sustainable growth trajectory and earning a spot among the world’s five leading economies remain relevant social and political goals. However, cutting-edge, innovative solutions and economic development mechanisms must be implemented in order to achieve these goals. How can the trend of stable but modest economic indicators be improved? What barriers are in the way of an accelerated 5% annual growth rate? How can the latest, most successful experiences of developed and developing countries be integrated into current economic policy and national projects? What are the priority sectors for development?

Only a stable inflow of private investment can fulfil the Russian need to develop infrastructure. However, most private investment companies and foundations focus on short-term profits, while the payback period for infrastructure projects may stretch to several decades. Transition from the policy of savings to that of investment, effective conversion of savings to fixed asset investments, and medium-sized businesses entering the corporate bonds market are the mechanisms that will allow attracting a new round of investors for these projects. In addition, re-financing state development institutions will not only allow directly increasing the volume of investments and the number of projects but, most importantly, creating a cumulative effect for their growth. Thus, one rouble invested by a state development institution brings up to five-six roubles to the GNP by involving the funds of lending institutions in the project and from subsequent revenues from the project for the local, regional and federal budgets in the form of taxes. Is there investment demand on the financial market? What are strategic objectives of the Russian financial market growth? What is wrong with project financing in Russia? What are the expectations of institutional investors? What are the sources of financing for infrastructure projects: PPP mechanisms or collective investment? How can you make the Conversion Mechanism for turning savings into investments work?

Russian federal subjects are the primary players responsible for implementing national projects and achieving national development goals. Regions carry a significant portion of the burden of implementing national projects, as they must search for additional financing, manage a significant number of investment projects, and leverage modern technologies. International business representatives could make a significant contribution to meeting these objectives. What are Russian regions’ prospects on the international level? What are the latest trends and consumer behaviour models in the global market? Are international businesses ready to invest in national projects and share their best practices with regions? What kind of projects might interest investors?

The depreciation of public utilities infrastructure is a significant issue in Russia. The costs of updating utilities networks cannot be passed on to consumers in their entirety, as that would lead to additional tariff increases. The current situation is such that tariffs are sometimes unable to cover operational expenses, let alone provide return on investment. Related ministries and agencies are forming two parallel approaches to calculating tariffs. The existing method averages tariffs by group, without taking into account real spending on operating procedures. Meanwhile, the second model is concerned with technological standards, aiming to provide high quality, reliable utilities, taking into account real depreciation and operating procedures. What do businesses think about the advantages, shortcomings, and investment potential of these two approaches? Can they be united? Can these new approaches be used to launch a real programme for updating utilities networks, strengthening government support, and attracting private capital to the industry?

The National Project for the Development of Small and Medium-Sized Enterprises has been running since 2018. Since then, business loans have become more accessible, but data indicates that entrepreneurs’ perception of business conditions remains pessimistic. What support measures are small and medium-sized enterprises (SMEs) currently lacking? Why are some regions seeing more SME business activity than others? How can the appeal of and demand for civil products from subsidiary small and medium-sized military-industrial enterprises be increased to further their development? How effective are existing financial and nonfinancial support mechanisms and which of them do businesses ask for most?

Russia needs an investment model for its economic development in order to realize its goal of becoming one of the five largest economies in the world. Public-private partnerships (PPP) are the most popular method of attracting private investment and skills in the long-term, increasing the efficacy with which public infrastructure is managed, and improving the quality of services. There are currently approximately 3 thousand PPP agreements (concessionary and otherwise) in effect, representing an investment volume of approximately RUB 1.7 trillion, including RUB 1.1 trillion that stems from nonbudgetary sources. PPP mechanisms are hampered by budgetary limitations and a backlog of court cases related to antimonopoly legislation. What is the role of PPPs in meeting the objectives set by the President of the Russian Federation in his ‘May Orders’? How can existing barriers be overcome? What are the current development prospects for the Russian PPP market? What do regions and private investors need to be able to implement the majority of investment projects using PPP mechanisms?

Managing risk is the essence of an entrepreneur and a standard business practice, however, in an ever-changing environment, the work of entrepreneurs is often assessed in an ‘unorthodox’ manner. On the one hand, business people are protected – the law stipulates that a director cannot be held liable for company losses providing their actions do not fall outside the realm of normal business risk. But on the other hand, this does not exclude the possibility of a director being prosecuted, as law enforcement agencies do not recognize the concept of entrepreneurial risk. The situation is further aggravated by the practice of the Law on Bankruptcy, when a poor business decision increasingly entails consequences for the director. How can we do business in the ‘green zone’? What transactions are ‘essentially unprofitable’? How can we use the ‘business judgment rule’ and what is the likelihood of the regulator taking a softer approach?