Looking at the investment climate of Russian regions through the eyes of foreign businesses

Methodology

Investment stories Independent assessment Identification of common themes

© 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Key Concepts

Form

Protracted work on establishing an attractive business climate based on the institutions (regulatory and legal acts, regulations, etc.) and infrastructure

Substance

Solving daily challenges, providing investors with an opportunity to successfully run their businesses in a region (quality of collaboration with investors, client focus, ability to overcome barriers, etc.)

LONG TERM TODAY

© 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Opinion of foreign investors

The investment climate in Russian regions is improving constantly, but not fast enough In our opinion, the investment climate in Russian regions...

B A

■ Significant cluster of responses in А and insignificant cluster in B: foreign investors can perceive an improvement in the regional investment climate, but this is not happening fast enough © 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Government support is critical, but the decisive factor is played by the extensive market opportunities What was the decisive factor when you selected a region for investments?

■ Key factors: − the ability to generate a profit from realising market potential and − due support of the regional authorities.

■ The extent of government support varies widely from region to region: from true partnership to a total lack of attention or interest ■ The support of the authorities is to a large extent too general and does not factor in individual/industry specifics © 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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The authorities should improve the quality of the information received by investors You received critical information for implementing the investment project from ...

...

от органов власти

■ 70% of businesses turn to government for information that is critical to the project.

■ Government needs to speak the same language as investors ■ Different stakeholders need to be engaged in information-awareness and image-building work.

...

от консультантов ...

от других компаний и организаций Условные обозначения:

каждая точка представляет одну историю инвесторов.

Разные цвета обозначают страновую принадлежность инвесторов.

© 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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The level of business confidence needs to be increased at all stages of the investment cycle, in particular at the early stages You only have one opportunity to create a first impression

Level of investor confidence % of projects stopped at this stage © 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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The authorities should do all they can to minimise corruption as soon as possible Whose interests were being served most during the implementation of your project in the selected region?

B …regions interests served …investors interests served C A …certain individuals interests served

■ Cluster А: Corruption − Is the key reason for the failure of 1 in 7 investment projects − The majority of the discontinued projects had encountered corruption at the initial stages − Corruption will become a bigger problem as the region grows ■ Cluster B: Work in the investor’s interests ■ Segment C: Impact of the “money pot” © 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Setting the right priorities

The regions should add substance to form if they want to establish an attractive investment climate

Attractive investment climate

FORM

= REGULATORY AND LEGAL ENVIRONMENT x + INSTITUTIONS x INFRASTRUCTURE SUBSTANCE HUMAN FACTOR x OVERCOMING BUREAUCRACTIC BARRIERS x CONTINUOUS IMPROVEMENTS TO INTERACTION

© 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Recommendations Regional authorities:

1. Determine objectively with the investment community the type of archetype applicable to the region.

2. Organize corresponding priorities.

3. Develop and support client focus.

4. Cooperate with the other regions (infrastructure development, exchange of experience, co-branding).

Federal authorities:

1. Coordinate efforts at different levels and government authorities aimed at attracting FDI.

2. Monitor practical implementation of the Regional Investment Standard (both in terms of form and also substance).

3. Invest in the development of a favourable image of Russia as a market for investments.

© 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Contact information

Julia Stefanishina

Partner Head of Major Projects Advisory, KPMG Russia and the CIS

Tel.: +7 (495) 9374429 Mob: +7 (968) 6911157 E-mail: [email protected]

© 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2013 ZAO KPMG, a company incorporated under the Laws of the Russian Federation, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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