Transcript ECONOMIC PERFORMANCE AND COMPETITIVENESS OF THE

KALININGRAD REGION:
Economic Performance and
Business Climate
An overview for potential investors
by
Dmitry Gavrilin, EBRD, London
For Swiss Ambassdor trip to Kaliningrad
1,2,3, March 2005
FOR LIMITED USE
9 December, 2004
Kaliningrad is Part of the Baltic Region
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Kaliningrad Region: Basic Facts
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• The 750th anniversary of Königsberg in 2005
• Exclave of Russia / semi-enclave of the EU
• Part of North West Federal District (total 11 regions)
• Territory - 15,100 sq. km (0,1% of the Russian Federation)
• Population - 946,800 (0,6% of the Russian Federation)
• Nominal GRP in 2002 - appr. USD 1,100 mln.
• Special Economic Zone (SEZ) regime
• 95% of the world’s amber reserves is concentrated here
• The second largest Russian port on the Baltic Sea
• Kaliningrad is home for the Russian Federation Baltic Navy
Rapid Economic Growth After the 1998 Crisis
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• The drop in the ruble’s exchange rate following the August,
17, 1998 crisis had a mostly favorable effect on the growth
of output in the Kaliningrad Region, which outperforms
many other Russian regions.
• Economic developments of the last three or four years are
rather encouraging. Gross regional product grew 6.8% in
1999, 14.4% in 2000, 6.4% in 2001, and 10.1% in 2002. It is
worth mentioning that, whereas until 1998 the Kaliningrad
GRP tended to fall faster, it grew considerably faster than
the country average since 1999
• For the first half of 2004 the figures are even more
impressive: industrial production index is 124 % to the same
period of the last year, fixed capital investments has grown
by 2,6 % and foreign trade turnover increased by 43 % !
Changes in Russian GDP and Kaliningrad’s GRP
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Changes in industrial production, % y-o-y
Sources: Goskomstat (2004), Kaliningrad oblkomstat (2004)
Kaliningrad Foreign Trade in 1996 - 2003 (USD, mln)
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Source: Kaliningrad Oblkomstat (2004)
Major Sectors and Companies
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The strongest sectors of the Two thirds of the industrial output
regional economy are:
of the city is produced by 7- 8
companies:
Fishing industry
OAO "Atlantrybflot", fishing &
transport
Machinery building
OAO "Baltkran", port equipment
Pulp & paper industry
OAO "Cepruss", pulp and paper
Food production
OAO "Zapryba", "SPI-RVVK",
Energy and fuel
"Yantarenergo", energy provider,
"Lukoil", oil company
Source: Kaliningrad City Hall, Economic Department
Business Climate: Where Do we Stand ?
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• Geopolitical situation and relatively cheap labor force have
been promising Kaliningrad the future of the Hong Kong on
the Baltic Sea. However, Kaliningrad’s administrative and
technical infrastructure remains underdeveloped.
• Business environment improved considerably during the
last 5 years due to
– restructuring of the regional economy and effect of
Special Economic Zone regime
– general stabilization of the socioeconomic situation in
the Russian Federation
• Despite obvious problems of regulatory environment, the
region retains an enormous potential for growth in
investments. Some of the large foreign investors have
already been successful!
Corporate Kaliningrad is getting dynamic
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Changes in federal legislation aimed at reduction of tax burden and
streamlining the procedure of business establishment, economic growth
in Russia since 1999 for five consequent years as well as establishing of the
Special Economic Zone in Kaliningrad have led to increase in business
activities including foreign investments in the region:
Ca. 1,400 of the enterprises were registered in the region in 2002. 86% of them
are concentrated in Kaliningrad city.
The industrial production of the Region is still determined to the great extent by
a dozen of large enterprises
The small businesses (About 46,000 entrepreneurs) have been successfully
going on in Kaliningrad, it influences significantly the formation of the city budget
The businessmen from 37 countries took part in organisation of joint ventures.
The leading position on the enterprises with foreign investment held Poland416, Lithuania - 305, Germany, - 260. The share of foreign partners in the
foundation capital of the enterprises was about 37%.
Foreign Direct Investment in Kaliningrad
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Sources: Goskomstat (2004), Kaliningrad oblkomstat (2004)
Foreign investment in Kaliningrad in USD millions
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Foreign investment by
investing countries in
2003
Foreign investment in
2003 by type
Sources: Goskomstat (2004), Kaliningrad oblkomstat (2004)
International companies in Kaliningrad
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The international presence in the Region is represented by small and medium
businesses and covers a wide range of sectors. Most intensively foreign
investments were made into trade (export of food stuffs and import of raw
materials), public catering, and industry. Some examples:
The most significant Kaliningrad
firms with the German participation:
• "Baltkran", a manufacturer of portal
cranes and oil- producing equipment
• "Baltik GmbH", a construction
company
• "Prigge Trans", road hauls
• "Palve", an engineering company,
• "Schnieder Reisen Kaliningrad",
travel.
Production of cars and car parts
becomes a priority area of the
Kaliningrad Region’s industry:
•On 22 Oktober 1999 “BMW AG”
opened a car production line at
“Avtotor” plant.
•KIA Motors assembles various
models in Kaliningrad since 2000
•General Motors’ Joint Venture is
manufacturing "Hummer“ since the
beginning of 2004
Source: Regional Administration (http://www.gov.kaliningrad.ru)
Future of Kaliningrad: challenges for policymakers
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Current policy choices are driven by the following developments:
Internal
Policy making on federal level,
including diversification,
competitiveness debate, security
Principal - agent problem
(example: national security
considerations vs. openness
of the region, etc)
The need of clear strategy for
Kaliningrad due to its special
location
External
Enlargement of the European
Union to the East and consequent
changes in the neighboring
Poland and Lithuania
Kaliningrad
policy
Negotiations can take long
time to complete
Russia’s upcoming accession to
the WTO that will lead to comply
with WTO regulations dealing with
free economic zones