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Business climate in Russia today

Department of Investment Policy and Development of Public-Private Partnerships

Ministry of Economic Development of the Russian Federation Slide 1

Russia 2000 - 2010: Results

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Achieved macroeconomic stability

- Average GDP growth 2000-2010 has been 5.3% per year (Rosstat data); - Inflation has decreased from 20.2% in 2000 to 8.8% in 2010 (Rosstat data); - Government Debt / GDP decreased from 61,4% in 2000 to 9,3% in 2010 (Rosstat, Minfin).

Formed solid legislation basis

-

For doing business

(173-FZ On Currency Regulation and Currency Control of 10 December 2003, 127-FZ On Insolvency (Bankruptcy) of 26 October 2002, 128-FZ Concerning the Licensing of Certain Types of Activities of 8 August 2001, Tax Code Part 1 of 31 July 1998, Part 2 of 5 August 2000, Labor Code of 31 December 2001, etc.); -

For making investments

(160-FZ On Foreign Investments of 9 July 1999; 135-FZ On Protection of Competition of 26 July 2006, 57-FZ On the Procedure for Making Foreign Investments in Economic Companies Which Are of Strategic Importance of 29 April 2008, 116-FZ On Special Economic Zones of 22 July 2005, Order 73/81/58n On Defining the Notion Industrial Assembly of Motor Transport Vehicles of 15 April 2005, etc.).

-

Introduced development institutes and vehicles

Bank for Development ($6.8 bln), Rusnano ($3.5 bln), Russian Venture Company ($141 mln); PPP instruments (Investment Fund ($9.4 bln), Concessions, Government Guarantees, etc.); - Special Economic Zones ($9.7 bln), Regional Industrial Sites & Technoparks

Launched megaprojects to stimulate growth in macro-areas

APEC – 2012 (Vladivostok, state - $7.7 bln, private -$13.7 bln); Universiade – 2013 (Kazan); Winter Olympics – 2014 (Sochi, $6.2 bln); FIFA World Cup – 2018 (Moscow, Saint-Petersburg, Kazan, Kaliningrad, Samara, Volgograd, Rostov, Krasnodar, Sochi, Yekaterinburg, Yaroslavl, est. state - $7.7 bln, private - $12.3); North Caucasus Tourist Cluster (est. state - $1.9 bln, private – $12.6 bln).

Ministry of Economic Development of the Russian Federation Slide 2

Russia in 2010-2011 and Onwards: Creating the New Economy

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Improving Quality of Life, Attracting Human Capital

New migration policy (HQS); -Infrastructure Improvement; Financial focal point: Moscow Financial Center.

Stimulating Innovation & Modernization

-Innovations focal point: Skolkovo; - Russian FDI Fund.

Private Sector: Fostering Competitiveness, Promoting Corporate Governance

- Independent directors instead of officials at Boards of Directors of State-controlled firms; - State-controlled firms procurement transparency; - Minority shareholder rights & access to info; - Customs Union & Unified Economic Space.

Boosting Business Climate

- Customs regulation & administration; - Tax administration; - Construction procedures; - Utilities/infrastructure access; - Quality of all public services; - Assessment of regulatory effect & veto rights on anti-biz legal initiatives; - Regions as investor’s partner; - Investment Ombudsman.

Public Sector: More Effective – Less Involved

- Large-scale privatization; - Transparency of public procurement; - Budget spending efficiency; - Anti-corruption initiatives; - Liberalization of Federal Law 57-FZ (“On Investing in Strategic Sectors”).

Ministry of Economic Development of the Russian Federation Slide 3

Russia’s FDI Dynamics

Ad eundum quo nemo ante iit 25000 20000 15000 10000 5000 0 IQ08

Russia’s FDI Flow Origin of FDI Inflows in 2010 for Russia

Republic of Korea 4% United Kingdom 4% France 7% India 4% Finland 3% Virgin Isles, UK 2% Austria 3% Others 19% IIIQ08 IQ09 IIIQ09

Russia’s FDI Stock Source: Central Bank

IQ10 IIIQ10 IQ11

Source: Rosstat

‘03 2004 2005 2006 2007 2008 2009 2010 ‘11 Netherlands 11% Germany 19% Cyprus 24%

Source: Rosstat Destination of FDI Inflows in 2010 for Russia

6% Generation and distribution of electric Other Services energy 3% Information and Communications 7% Real-Estate 7% Extraction of raw materials 8% Research and Development 9% Construction 1% Others 5% Bulk and retail trade 12% Industrial production 23% Financial services, insurance 19%

Source: Central Bank of RF

Ministry of Economic Development of the Russian Federation Slide 4

Examples of Success Stories (2010-2011)

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Company Project description

On 16 th of July 2011 the first stone for a foundation of a new pharmaceutical factory was set in the Special Economic Zone of “Novoorlovskaya” of Primorski district of St. Petersburg. Novartis (Switzerland) Plastic Logic (UK) Kinross-Gold (Canada) Hyundai Motors Manufacturing, (Korea) United Technology Corp. (USA) The production capacity of the factory will be 1.5 million units (drugs for diabetes, cardiovascular and oncological diseases). On 10 th of November 2010 the agreement was signed between Rusnano and Plastic Logic, LLC for construction of facilities for production of new flexible displays utilizing the latest technologies. On 29 th of August 2010 Kinross Gold purchased 100% of shares of companies owning licenses for geological research and mining for deposits of “Dvoinoe” and area of “Vodorazdelnaya” in Chukotka Autonomous Okrug (04.08.2010 the first foreign company received the Government approval for acquisition of 100% of gold deposit). On 21 st of September 2010 the company opened a full-cycle manufacturing facility for production of cars (production capacity 150 thousand cars).

In 2010 the construction of experimental manufacturing facility for production of temperature management equipment for planes, which will be used in construction of Boeing 787 and Airbus A380.

Millions USD invested

140 700 401 664 20

Jobs created

350 300 5300 Ministry of Economic Development of the Russian Federation Slide 5

Russia: Investment Climate Regional Development

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Model program for regional development

The personal program for each region is not meant to embody an individual KPI, but rather a set of steps and measures to be undertaken, in order to achieve an improvement in the investment climate; The program is aimed to promote and facilitate competition among the regions to attract investments.

1. Creating a welcoming administrative environment 2. Creating infrastructure for investments 3. Forming financial mechanisms for IFAP 4. Boosting demand 5. Tax benefits 6. Forming an investor friendly tariff policy 7. Supplier network 8. Meeting the demand for labor force

Institute of regional investment ombudsman

Resolving and minimizing problems, investors encounter with regional and municipal authorities; Independent identification and resolution of the problems by the officials; The problem is resolved in partnership by the business and the government; Creating one-stop-shop for problem resolution; This allows to display and resolve the issues in both the regional and federal legislation.

Program for regional investment climate development

Regional Special Economic Zones; Construction of techno-parks and industrial parks and territories with utilities prepared; Creation of industrial clusters, to simplify and resolve logistical and other needs; Regional investment funds.

Ministry of Economic Development of the Russian Federation Slide 6

Russia: Regional Investment Climate Overview

Ad eundum quo nemo ante iit 1200 1000 800 Kaluga Oblast Chuvash Republic Nizhegorod Oblast Vladimir Oblast Amur Oblast Archangel Oblast

FDI per person by Region

5 Best Regions for FDI per person in 2010

(of those that provided data)

- Nenets Autonomous Okrug - Sahalin Oblast - Kaluga Oblast

*

- Chukotka Autonomout Okrug - Republic of Komi 600 400 200 0 2003 2004 2005 2006 2007 2008 2009 2010

5 Worst Regions for FDI per person 2010

(of those that provided data)

- Volgograd Oblast - Republic of Buryatiya - Republic of Dagestan - Republic of Mordovia - Magadan Oblast Source: Rosstat Ministry of Economic Development of the Russian Federation

* Kaluga Oblast is not a resource-based economy

Slide 7

Russia: Future on a Regional Level

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Negotiations involved in construction of commercial buildings (Moscow)

Number of procedures involved in obtaining permission reduced from 54 to 18, time spent from 1092 to 277 days The time to get approved construction plan reduced from 180 to 30 days Single window procedure for submitting documentation for construction The time to receive expert opinion regarding engineer and geological has been reduced from 45 to 5 days.

Amount of FDI/person (Kaluga Oblast)

Through prudent policy and aggressive promotion Kaluga Oblast achieved a large industrial cluster producing some of the international car brands (Volkswagen, Magna) and such renowned household names as Samsung and LG.

Its FDI/person is currently on par with several resource rich regions: Yamalo-nenets AO: $ 1 967;

Kaluga Oblast: $ 1 646

; Tumen Oblast: $ 704; Chelyabinsk Oblast: $ 561.

Ministry of Economic Development of the Russian Federation Slide 8

Russia: Investment Ombudsman

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Investment Ombudsman as the Investor’s Partner, Guarantor & Referee (Pre-Court Mediation Facilitation)

Federal Level:

- 1st Deputy Prime-Minister w/ secretariat at the Ministry of Economic Development of the RF 76 requests received since 08/2010, 54 – resolved, 22 – active.

Regional Level:

- Bureau of the President Representative in each of 7 Federal Districts in coordination w/ Governors; - Regional Investment Agencies.

Ministry of Economic Development of the Russian Federation 24%

Goal: Fewer cases related to admin barriers, poor public service, corruption, etc.

Problems breakdown

3% 11% 3% 1% 7% 15% 28% 8% Customs regulation Immigration regulation Administative barriers Exceeding of authority by public officials Shortcomings of the Russian legislation Taxation Trade activities regulation Propety rights protection Dicrimination of companies

Source: Ministry of Economic Development of the RF

Slide 9

Russia: Mechanism for Resolving Issues

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1. Filing a complaint

-An investor sends the complaint convenient; by any means -The complaint is registered and filed ; -Investor is given access to the status of complain in an online personal cabinet; -An official responsible for problem resolution is determined.

2. Initial evaluation

Official determines the type of the problem from a list : customs regulation, immigration regulation, administrative barriers, exceeding of authority by public officials, shortcoming of the Russian legislation, taxation, trade activities regulation, property rights protection, discrimination of companies; -The official requests additional information from all pertaining government agencies ; -The results are presented to the regional ombudsman within one day.

3. Resolving the problem

-The official formulates a plan of action, with stages and deadlines , if necessary a Work Group is created; -If the problem exceeds regional level, the official is entitled to engage the federal level, such as department of investment policy and development of public-private partnerships.

4. Report the results

- The results are sent to the investor ; -The investor submits a statement as to the effect of being satisfied with the decision; -Ministry of Economic Development of the RF assesses the measures undertaken ; -Regional ombudsman present their reports on the work accomplished at regular periods.

Ministry of Economic Development of the Russian Federation Slide 10