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Exporters go to TOP
Special economic regimes in the Far East proved to be favorable for the development of export-oriented projects
Priority development of the regions of the Russian Far East is ensured by the creation of a number of tools that open the way for entrepreneurs and investors. The Russian Exporter magazine tells how the regimes of the Advanced Development Areas (TOP) and the Free Port of Vladivostok (FPV) were in demand among exporters.
What does the TOP or Free Port regime give to exporters? In fact, these economic regimes do not provide any special measures that would exclusively and specifically address the export of manufactured products. There are a number of private measures that undoubtedly optimize the processes of foreign economic activity. These include the possibility of creating a free customs zone (FCZ) at a resident's enterprise, which allows duty-free import of equipment and goods for processing, and then - export products. The norms of the Free Port of Vladivostok, which obliged the border crossings of the Primorsky Territory to switch to round-the-clock operation, also became significant for export-import operations. However, in general, these economic regimes are aimed at optimizing investment and doing business in the Far East, while export is rather an objective motivator for investors to come to the Far East.
According to the Minister of the Russian Federation for the Development of the Far East, Alexander Galushka, the formed system of development mechanisms and institutions is aimed "at expanding the freedom of economic and entrepreneurial activity, increasing profitability and reducing the risks of investing in the macroregion."
Both TOPs and the Free Port of Vladivostok allow business to significantly optimize the economic model when working in the Far East. In addition to the widely used incentives to optimize income tax and property tax, these regimes have, for example, such benefits as the optimization of social payments to the payroll fund. Residents pay insurance premiums for up to 10 years in the amount of 7,6% instead of 30%, which provides tangible savings, especially for projects that employ highly qualified and highly paid personnel.
According to the Deputy Minister of the Ministry for the Development of the Russian Far East, Alexander Krutikov, “the attractiveness of priority development areas is due to three main elements. The first is tax breaks. The second is the availability of infrastructure. The third component is a special management system for such territories. This system is based on a simple principle: the investor is always right. "
Interestingly, companies from small to large can apply for such support, having received the status of a resident of the Free Port or TOP. The minimum investment threshold is RUB 500. for TOPs and 5 million rubles. for the Free Port. At the same time, both new companies starting a business from scratch and existing enterprises investing in technological modernization or expansion of production can apply for preferential treatment. Practice shows that small and medium-sized businesses are really starting to enjoy benefits: among the existing residents there are companies that employ only 10-15 people.
Business case for export
In October last year it became known that the Canadian manufacturer of construction sandwich panels, choosing a supplier of thermal insulation, purchased a batch of products from the Khabarovsk plant of the TechnoNICOL company. The insulation was promptly delivered to Vancouver by sea, and company representatives reported on a successful export deal. The uniqueness of this story lies in the fact that by the time of delivery, the plant had not even reached its design capacity: it began operations just a month before the transaction.
The domestic company "TechnoNIKOL" is one of the largest international manufacturers of building materials. Today the company has 51 production sites in seven countries around the world. Products are supplied to more than 80 countries.
The plant in Khabarovsk was built on the terms of the preferential economic regime of the territory of advanced development and initially assumed the development of an export strategy. According to the company, the annual output of the Khabarovsk plant is 750 thousand cubic meters. m.
At the same time, as Vladimir Markov, General Director of TechnoNIKOL - Construction Systems LLC, noted at the session "New Business Conditions in the Far East: First Success Stories" of the Russian Investment Forum in Sochi, "We understand that 60-70% of the materials we will have to export outside the region - to China and Japan ”. According to Vladimir Markov, one of the reasons that prompted the company to build a plant in the TOP "Khabarovsk" was that "in the immediate vicinity is a country with 1,3 billion people - China."
“In our profile - in building materials - the Chinese markets are about 6-7 times larger than all the Russian markets combined. China's technologies are largely old, focused on human labor, not automated, not technologically advanced, and quality issues are highly relevant. Literally 3 months ago, we won a large contract in Shanghai, although our price was one and a half times higher than the cost of similar Chinese materials, ”said Vladimir Markov.
In general, according to the investor, the use of the preferential TOR regime gives the enterprise significant advantages: “In a short period of 2016, we received benefits for about 13 million rubles, despite the fact that over 10 years the planned amount of benefits will be 700 million rubles. And if you compare the investment of 2,1 billion and 700 million, this is a very significant support for business. "
The first success prompts the development of an export strategy - according to Vladimir Markov, now the company is considering further investments: “... we want to invest another billion in the same TOP and build a plant for roll materials. It will be 50-60% targeted at the needs of China. "
In addition to the representative of the company "TekhnoNIKOL", at the mentioned session of the Sochi forum there was a whole series of businessmen who invested in the TOR of the Far East. Interestingly, each of them, talking about business strategy, mentioned the development of exports.
A notable speech was made by Vadim Moshkovich, Chairman of the Board of Directors of the Rusagro Group of Companies, which is currently building the largest pig-breeding complex in the Mikhailovsky ASEZ in Primorye with an orientation to the PRC market.
“We have half of the world living along the border: China, Japan, Korea, India. The potential of the Far East is dozens of times higher than domestic needs, ”said Mr. Moshkovich. According to him, in addition to investments in the pig-breeding complex, the Rusagro group is considering two more markets for itself: milk processing, where up to a billion dollars can be invested, and drinking water (private investments can amount to 500 billion rubles).
The Far Eastern ASEZs and the Free Port acquire particular significance for business in the context of how these regimes are spread across the territory. If initially special economic zones appeared in separate points with an attractive location for investors, now there is an obvious trend to “cover” with preferential regimes almost the entire territory with potential for economic development.
The geography of the TOPs began with seven points scattered throughout the federal district: two in Primorye, two in the Khabarovsk Territory, two in the Amur Region, one each in Chukotka, Kamchatka and Yakutia. Today the TORs are already 17 (two of them are in the process of being created), and the regime of the Free Port of Vladivostok applies to two dozen municipalities in five regions of the Far Eastern Federal District - Primorye, Khabarovsk and Kamchatka Territories, Sakhalin and Chukotka. In fact, today only a few large Far Eastern cities do not have territory with a preferential economic regime within their borders or in their immediate vicinity. Magadan (in which, meanwhile, the regime of a special economic zone - SEZ) and Mirny are still deprived.
Considering that from the point of view of tax benefits and administrative preferences, the regimes of the TOP and the Free Port are almost identical (the fundamental difference is that in the TOP the infrastructure can be created at the expense of the state, but not in the Free Port), today a system has been created in the Far East almost universal business privilege. And, as evidenced by the official data of the Ministry for the Development of the Russian Far East (as of March 1, 2017), there is a demand for such a supply: the total number of applications for residency in the TOPs and the Free Port has already exceeded 500, and the total investments for them are rapidly approaching 1 trillion rub.
Obviously, with further development, these indicators will increase significantly, according to some estimates, by the end of this year, after the inclusion of a number of large projects for the processing of hydrocarbons (VNHK, Amur GPP, etc.) into preferential regimes, the amount of investment will approach 3 trillion rub.
From export of raw materials to processing for export
“New investments will diversify the structure of the macroregion,” comments Alexander Galushka, Minister of the Russian Federation for the Development of the Far East. - 73% of new enterprises are not associated with the extraction of natural resources. These are manufacturing, logistics, agriculture, tourism. "
Structural changes are largely motivated by the general concept of the macroregion's development. The state approach to the development of the Far East is based on openness and integration into the economic space of the Asia-Pacific region. It is from there that the main investments are awaited today, there are also sales markets for products. It is no secret that it was joint projects in the Far East that made up at least half of the Russian-Japanese business agenda during the visit of Russian President Vladimir Putin to the Land of the Rising Sun in December 2016. Interaction with neighboring China, which is already participating in a number of projects with their investments. In addition, work is underway to "open" the Chinese market for the products of Russian enterprises (for example, in the field of agriculture).
Against this background, with the continued demand of the Asia-Pacific countries for Russian raw materials (oil, gas, coal, timber, etc.), projects involving processing in Russia are becoming especially noticeable and significant. On the one hand, this is facilitated by the policy of the Government of the Russian Federation (Far Eastern benefits are not provided for raw materials projects for the production and export of hydrocarbons). On the other hand, the economic factors that have formed as a result of the devaluation of the ruble are no less significant.
An interesting detail, but today the labor force in Russia is sometimes cheaper for the investor than the labor force in neighboring China. Favorable prices are offered for other resources as well. According to the official bulletin of the Far East Investment Promotion Agency, electricity is offered to investors in TORs at 0,06 cents per kWh (which is 1,5 times cheaper than in China, and more than 2 times cheaper than in Japan). The offer for natural gas is even more profitable - it costs 9 cents per cubic meter. m (in China - 2,5 times more expensive, in Japan - 6,5 times more).
It is in this logic - processing in Russia for the subsequent supply of redistribution products for export - that a number of large projects are being implemented today. For two of them - the VNHK project and the Amur gas processing plant (GPP) project - separate ASEZs are even created: "Neftekhimichesky" and "Svobodny", respectively.
Thus, the petrochemical cluster in Nakhodka (TOP "Neftekhimichesky" for the VNHK project) will allow the Primorsky Territory "to meet its growing needs for high-quality fuel, as well as help its neighbors in the Far East in this," says Vladimir Miklushevsky, Governor of Primorsky Territory. - In addition, the implementation of this project, in my opinion, is an important step for the transition from the export of raw materials to the supply of goods with high added value to the markets of the Asia-Pacific region. According to experts, in 10 years the regional product from the implementation of these projects will grow 2,5 times. "
As for the Amur GPP, this is an enterprise with a design capacity of 49 billion cubic meters. m per year, built on the basis of the Power of Siberia export gas pipeline, will become the largest in Russia and one of the largest in the world. The purified methane will be supplied for gas supply and gasification of the regions of Eastern Siberia and the Far East and for export to China. The valuable chemical components extracted at the plant will become raw materials for another large industrial facility - the Amur Gas Chemical Complex, which SIBUR plans to build. The GPP will also include the world's largest helium production facility.
Export logic is also present in comparatively smaller projects. For example, a resident of the Free Port, the Vostok-Polikor company, announced its export ambitions. The investor has already built and launched an enterprise for the production of household chemicals and polyurethane products for cleaning surfaces in Vladivostok. At present, the capacity of the production line is about 40 tons of finished products per month. Today, work is underway to increase production volumes up to 200 tons of finished products per month. So far, the products manufactured at the Vostok-Polikor plant are sold in the Primorsky Territory and other Far Eastern regions. However, in the future, the investor plans to send 50% of the production volume for export to China and South Korea.
The company "AKOR Instrument" also intends to export products, having announced its intention to build a plant for the manufacture and restoration of carbide metal-cutting tools and bodies for milling cutters in the Komsomolsk TOP. The investor plans to invest 674 million rubles in production, which will allow the enterprise to produce up to 250 thousand units of tools per year. As the general director of the company Anatoly Korogodsky notes, "the plant's capacities are designed for the entire Far East and for export to neighboring countries." The enterprise may start working as early as this year: the launch is scheduled for December.
Thus, export is becoming a unifying idea for most of the projects that are being launched today in the Far East. A representative of the DNS Group (included in the top 50 largest private companies according to Forbes) Vladimir Bogdanenko spoke eloquently on this topic at a recent forum in Sochi: “At the end of 2013–2014, when the retail expansion in the country was completed (now we have more than 1400 stores in Russia), we thought about how to diversify our business until we found the Klondike under our feet. Primorye is indeed a region of great opportunities: half a billion people live within a radius of 500 km from Vladivostok. There is no such resource in any region of our country. Their provision is a very important and serious project ”.
Ivan Sukhanov, Head of the Center for Export Support and Development of the Khabarovsk Territory:
- In the structure of the region's exports, of course, raw materials still prevail. But the situation is gradually changing. For example, thanks to the development of timber processing on the world markets, not only a “round log” is presented, but also the products of several regional woodworking enterprises. Small and medium-sized enterprises make a significant contribution to this: it is difficult to "dive" into foreign markets with raw materials, scale is needed. Small business is usually a procurement manufacturer. An example is the same “forest products” that are actively supplied abroad.
It cannot be said that deep processing products are massively exported from the region, innovative products. But there are also such examples: the Dalkhimpharm plant, which produces unique medical preparations, and the Dalenergomash plant, which exports equipment. In addition, there are companies that work on contracts and subcontracts with foreign customers to develop various IT technologies. For example, White Soft regularly travels with us to international events and establishes working contacts.
The main obstacles on the way of small exporters to foreign markets are lack of funds and lack of information. I would put them on an equal footing. On the one hand, an enterprise may have the opportunity to finance, but it does not know where to go or where to start. On the other hand, taking products outside is a truly resource-intensive task.
International exhibitions of Expo formats are of great help to small business in this regard. The next exhibition will take place on June 15-19 in Harbin. The status of the Russian-Chinese EXPO is growing all the time - the vice-premiers of the two states are already participating in it. This year we will take companies from the Khabarovsk Territory to it. We will create a block in the region's exposition where local producers can present their products. Participation in the EXPO is absolutely free, the business pays only for the flight and any additional services, if they need them.
Experience shows that such contacts are the most effective, they lead to the conclusion of real export contracts. This is what business lacks: the opportunity to present a product to a person.
Of course, this year we will focus on food products. "Russian food" - high quality, ecologically clean, tasty - is in great demand in China. But we are ready to bring manufacturers from other industries as well.
Our entrepreneurs already understand that it is very important to meet face to face with potential partners. Local businessmen used to be passive. Now they use the opportunity of b2b meetings more actively. Flight and accommodation are relatively small costs compared to the effect. And the costs directly for participation in Russian or foreign exhibitions, which few know so far, can be partially compensated by the regional budget - up to 70% of the registration fee and the cost of six square meters of exhibition space.
Going abroad in terms of establishing export links is always better than taking guests. Those who come with delegations to Russia tend to want to sell something of their own.
Only building an appropriate state policy can induce a business to export not raw materials, but products with high added value. This should be reflected in a reduced lending rate, for example. It is necessary for the entrepreneur to clearly see: the state will support him more if he supplies a "board" to foreign markets, and less if "a log". Russian products will always be in demand abroad due to their quality and cost.
Published in the journal "Russian exporter"