A brief glance at Russia’s attempt

Concept

 

Special economic zones are thought to be a powerful tool to combat All-Russian misery and illusionary competition. Encyclopedias refer to the phenomenon as a geographical region that has economic laws different from a country's typical economic laws. Usually, the goal is boosting foreign investment.

 

Special Economic Zones have been established in several countries, including People's Republic of China, India, Jordan, Poland, Kazakhstan, the Philippines, and Russia. North Korea has also attempted to exploit the venture to a degree.

 

The word "special" mainly implies special economic systems and policies. In People's Republic of China, the central government gives SEZs special policies and flexible measures, allowing SEZs to utilize a special economic management system, which consists of the following:

1. Special tax incentives for foreign investments in the SEZs.
2. Greater independence on international trade activities.
3. Economic characteristics are represented as "4 principles":
#Constructions primarily relies on attracting and utilizing foreign capitals
#Primary economic forms are joint ventures and partnerships as well as wholly foreign-owned enterprises
#Products are primarily export-oriented
#Economic activities are primarily driven by market

History

 

In fact, the concept of special economic zones is not quite unique to Russia. Previous futile attempts were registered in St. Petersburg as far back as in the Perestroika times, the turbulent 80s, when the Soviet Communist Party clung to every straw to survive.

 

Later on, offshore zones were deployed in some of the administrative units – Kalmykiya, Ingushetiya, Evenkiya, Dagestan, etc. Tax breaks were attractive for the freshly set up businesses. Such nice times were over in 2002 when too many companies were found to have registered within these zones.

New lords, new laws

 

Now the state makes another go inspired by the example of the Kaliningrad Region, Russia’s European façade, as Prime Minister Fradkov dubbed it, granted incubator-like conditions to foster its industries and crafts. The new innovation is expected to bring a $6bn profit, with 14,000 new jobs and a $330m investment injection and 1bn rouble of taxes.

 

This special policy has created a phenomenon proudly termed in official papers as "the development of import-replacing production”. Import-replacement manufacturing is mostly concentrated in the engineering, furniture, and food industries of the region, accounting for at least 45% of the gross regional product.

 

Since the enforcement of the law, draft proposals started coming in batches. Some 30 applications have been registered. The government has drawn up a clear-cut policy to assess the bids arriving from Moscow, St. Petersburg, Novosibirsk, Tomsk, Obninsk, from the Samara, Leningrad, Chita and Irkutsk Regions. Siberian areas are especially active in the process.

 

The idea to turn Chechnya into a specimen has so far met faint support. But other regions may benefit from the chance. Tourism may soon fall into the categories covered by the law, pledged Economic Development Minister German Gref, with bright future for the Krasnodar Region, Sakhalin Islands, and the region around Lake Baikal, the first candidates for the winsome funding expected from Moscow.

Economic outlook

 

Diving into economic specifics, the law provides for three types of zones split into industrial innovation, technical implementation, tourist and recreation zones, situated in an area 20 and 2 sq km respectively. The right to live in such beneficial environment is granted for twenty years only, with no extension possible.

 

Both residents and non-residents could run their businesses there. Tax incentives are laid down in the Tax Code. Industrial zones promise a higher than 30% shift of losses to the next fiscal year while technical zones secure a lower – 14% – social tax. Residents of special economic zones would be exempt from land and property taxes during the starting five years. Goods could be imported by foreign producers without imports fees, and domestic products could be exported without exports fees.

 

There are prerequisites set, of course, to ensure effective development – within the first year, investments shall not be lower than 1 million, contributions within 10 years shall cover a 10m package, at least.

 

The point of taking China as an illustration for the new undertaking is that it recently offered Russia a joint economic zone, in fact, even two, but Russia still thinks it is not mature enough for such kind of interstate cooperation, said Mr Zhdanov, head of the Federal Agency for Special Economic Zones, an organization set up specifically to monitor all issues related to such zones and operating within the RF Ministry of Economic Development.

 

The government has recently announced the 6 regions that have won the right to set up a special economic zone on their territory. Below find the list of winners in technology and implementation projects: Zelenograd, Moscow Region – microelectronics; Dubna, Moscow Region – atomic energy projects; St. Petersburg – IT and instrument-building; Tomsk, Siberia – new materials; And among industrial and innovational projects: Lipetsk Region – consumer electronics; Yelabuga, Tatarstan Republic – aircraft parts and chemicals. In 2006, the federal budget has appropriated 8bn roubles, or $281m to support special economic zones. The same amount of money is expected to come from local budgets.

Sasha Shein