The President of the Republic of Bashkortostan Rustem Khamitov talked about what sectors of the economy in the republic have made a major breakthrough, and about the next steps to improve the investment climate.
— The vector and efficacy of the development of the Republic of Bashkortostan as one of the strongholds among all the regions of the Russian Federation constitutes an important factor in the successful development of not only the Volga Federal District, but also of Russia as a whole. In this perspective, what future challenges are facing the republic? What are the priorities for the development of the Republic of Bashkortostan up to 2020?
— Today, we’ve reached a milestone where a major point has become clear — financial investments alone will not solve our current problems. Moreover, it’s possible to spend much more money, but the problems will remain the same or may even worsen. There’s a need to make qualitative reforms and seek competent structural solutions. At the same time, we mustn’t forget our people. Jobs, housing, wages, education, healthcare — these are all sets of top priority, objectives to improve the people’s standard of living. We plan to address these priorities by using new tools of our economic policy.
First, we must build “growth points” in the republic’s economy; these will be based on the potential of leading industries and key specializations of each region. The most important fields in our cluster policy include: agriculture, light and ultra-light aviation, pharmaceutics, information technologies, oil services, nanomaterials, petrochemistry, biochemistry, and tourism. Second, we’ll continue to improve regional development institutions. Third, we’ll continue working on complex provisions to attract and support investments. Fourth, we’ll try to make the market for our own goods and services grow through exports of products with high added value.
We’re currently working very actively to improve the investment attractiveness of our republic by developing and improving the established investment support system — “Investment Factory”, a program providing infrastructural support to different companies, in particular, technoparks, industrial parks, etc.
Yet another key point is to increase the efficiency of public administration. True, the Ministry of Regional Development of Russia has always noted the relatively high level of governance in the republic. According to all the ratings of the Ministry, budget management in our republic is one of the best in Russia. However, we understand that we can’t rest on our laurels. We should intensify our efforts to increase the budget revenue base, primarily by promoting business development. The republic’s economy needs significant resources in order to make a strong leap forward. The regional budget should grow so that we can refer to it as a development budget.
— Rustem Zakievich, in addressing such important problems, what do you expect to draw on? What are the actual points of economic growth in Bashkortostan?
— We see at least five fundamental points of growth. Bashkortostan has a strong machine-building complex. We have a great number — I’m not afraid to use this word — of unique plants. Such as Sterlitamak’s “Stankomash”, which has no other analogues in Russia. If we fail to support these plants, the entire machine-tool construction industry will disappear. In fact, the company has a major prospect in this field — the development of robotics and electronics.
Second — the petrochemical complex in the republic. It is an undisputed major pool, the essential competitive advantage of our economy.
The third pool is our agricultural complex. Forty percent of our population lives in rural areas. The average rate in Russia is 30%, and only five in America. And yet, those five percent feed a huge country. Our villages have the most underutilized potential. Thousands of hectares of idle fields and pastures in the Volga Region can be compared to thousands of hectares of vacant workshops. I think that major breakthroughs should be made in agriculture.
Two other fields, where development is very promising and has great potential in our republic, are pharmacology and information technologies.
— The 20th session of the Russian-Italian Working Group on industrial districts and cooperation in the sphere of small— and medium-sized businesses was held in Ufa at the end of May. What kind of projects are the republic’s authorities prepared to offer foreign businessmen? What is the region’s investment policy? What kind of image do you want to build? It’s known that amendments were recently approved in the regional law concerning foreign investment activities.
— Our republic makes no distinction between local, Russian, or foreign investors. I, as President of Bashkortostan, guarantee fair relations and the most convenient conditions for all honest investors and entrepreneurs, who want to work in our republic. The decisive condition is that the project must comply with the strategic directions of regional socio-economic development.
Of course, we understand that it’s very difficult to attract investors. The main thing is what we’re doing today – creating an atmosphere of openness and honesty, and a legitimate system to protect business development. Twenty investment laws and normative legal acts are in effect in our republic in the interests of investors.
In October last year, we reduced the profit tax rate for investors (a rate of 13.5% for a one-to-five year term), and exempted them from paying corporate property taxes for the same period. The laws came into effect on January 1. We’re also taking measures to remove administrative barriers for small— and medium-sized businesses.
Allow me to repeat that we don’t intend to rest on our laurels. We continue to work on improving the investment attractiveness of our region in terms of consolidating legislation in order to give investors even more advantages. We plan to initiate new amendments to our tax laws. Thus, projects valued from 100 million rubles will be able to claim certain advantages. In addition, I think that investors, arriving in our region with projects worth over 5 billion rubles, will soon be able to count on exemption from corporate property taxes for up to ten years.
We’re building up a coherent investment infrastructure in our republic. One of its elements has already been activated — the Development Corporation. The Investment Fund constitutes another tool to help investors. 400 million rubles were injected into the republic’s budget for this fund during the current year. The fund is aimed at implementing projects under a state-private partnership format of regional and interregional importance.
We have quite a highly skilled workforce, a significant proportion of young people, which also offers a competitive advantage. Therefore, our investment positions are strong. For the second consecutive year, as announced by the Expert RA agency, our republic ranks first in the category of “Minimum Economic Risks” in terms of the investment attractiveness of Russian regions, and is among the top ten regions with the highest investment potential. Last year, investments in the fixed assets increased by 5.5%, and reached almost 185 billion rubles.
— What investment projects are being planned in the near future? How will they benefit the region??
— Today, the largest project involves the RusHydro Holding Company and the French company, Alstom, which are to implement a plant producing hydraulic turbines. This single project will allow the republic to receive an additional amount of roughly half a billion rubles in taxes, create more than four thousand new jobs in innovative “middle class” companies, which will be developed around the project.
Major projects for processing forest products, producing construction materials, particularly cement, are currently at the preparation stage. In the field of agriculture -”Razgulay”, a pig-breeding complex, the “Maksimovskiy” agrocomplex, and many others.
Currently, the list of investment priorities includes 52 projects with aggregate investment volumes totaling over 312 billion rubles. Their implementation will create more than 37,000 new jobs.
The total consolidated list of investment projects includes information on 80 major projects with an investment portfolio totaling over 527 billion rubles, and the creation of about 45,000 new jobs. I think that’s not too bad for a start.
— Your republic ranks first in Russia with regard to the number of companies that operate with a profit. What kind of tools do you use to provide such indicators? Which processes in the economy are behind these figures?
— The achievements of our fuel and energy complex and our machine-building industry are widely known, not only in Russia but also abroad. We take first place in the country for the production of gasoline, diesel fuel, and engines for combat aircraft. The largest modern Russian aircraft engine plant is located in Ufa.
Last year, we managed to fully overcome the effects of the crisis decline in all types of economic activities. After two years of stagnation in investment and construction sectors, we were able to activate positive dynamics of development in the agricultural sector, which had suffered considerable losses during the 2010 drought.
As a result, the main indicator of economic development — gross regional product increased by 9.2% over the year. In absolute terms, this amounts to about one trillion rubles, or almost 2% of the country’s gross domestic product.
We achieved strong growth of business activities in industrial production. The annual index reached 109.4%, and for the second consecutive year it’s almost two times higher than the national index. One of the leading factors of industrial production and overall economic growth has been the increase in export volumes thanks to a maximum value of average oil prices. Last year, the volume of exports totaled $12.7 billion US, and increased by 28% compared to the previous year. These figures indicate our republic’s good state of economic health and its dynamic development. Almost all the indicators in this field are above the average Russian ones.
— The republic has committed itself to organizing large-scale economic, political, and sporting events. What role do you attach to “Great Chemistry” here? How does it differ from last year’s event?
— We’re very pleased that “Great Chemistry” is receiving such a wide positive response from specialists working in the chemical industry, not only in Russia but also in other countries. The forum is an important platform for discussing the most acute problems related to the chemical industry, such as shortage of raw materials, the technological gap with the West, dependence on cheap imports, etc.
In general, I believe that our stakes on petrochemistry and chemistry constitute the fastest and most effective way to develop our republic in terms of regional product growth. According to our estimates, by 2020, Bashkortostan could increase its GRP to 250 billion rubles thanks to the chemical industry only. In addition, this means thousands of new jobs, new taxes, and a new standard of living.
In fact, we currently have one of the largest petrochemical complexes in the country. We occupy several first places in the country for the production of a wide range of products. However, it’s most important for our chemical industry to maintain high investment and innovative potential. We have qualified personnel. We have enterprises, whose technological base enables them to launch the production of first — second processing. Our companies are prepared to provide engineering design and manufacturing of gas and petrochemical equipment. We also have various academic institutions and research centers.
In addition, as I said before, our region is one of the most attractive for investments in the whole country. If we can resolve the problem related to shortage of raw materials, we can make our chemical and petrochemical complex modern and highly efficient, capable of competing successfully in domestic and international markets.
— Would you tell me how the Salavat — Ishimbay — Sterlitamak conglomeration fits into the development of the petrochemical cluster? Are there any other examples of such territorial associations?
— Today, the territorial development process in relation to the emergence of major new industries, developing mineral raw materials and other natural resources while performing a city-forming function, has accelerated quite significantly. Territorial agglomerations, which are interesting in all respects, began to grow and develop. In particular, the Salavat — Ishimbay — Sterlitamak agglomeration appeared as part of the creation of a petrochemical cluster. It is assumed that large manufacturing companies will be concentrated around Gazprom Salavat Petrochemicals. When business companies merge and are consolidated, the cities also collaborate with each other.
Among the prospects of this cluster is the formation of a Petrochemical Center in the Volga Federal District and one of the petrochemical centers in Russia. We intend to implement large processing systems for oil and gas resources, the production of the final product, and phased import substitutions. Technoparks will be built around these anchor petrochemical enterprises in order to promote the development of small— and medium-sized businesses.
Polyester production will be developed by Polief, Russia’s only producer of terephthalic acid. Within the framework of an industrial park created on its basis, it is planned to develop one of the main directions of the polymer industry — the production of fibers, plastic food wraps, and plastics. An important link in the development of the petrochemical industry in the republic will be the advancement of the polyvinyl chloride cluster. Recycling PVC, widely used in the manufacture of medical products and carried out at the JSC Bashkir Chemistry Company in Sterlitamak will expand the boundaries and possibilities of integrated processing of raw materials and increase its processing levels.
If you want other examples of cluster agglomeration areas, then I can name such cities as Tuymazy, Oktiabrskiy, and the Serafimovskiy settlement. Here there is a unique combination of productive forces, which today occupy leading positions across an extensive segment of the Russian market of oil-field machinery construction.
The light aircraft cluster in the southern region of the republic may also become one of the drivers of regional development. This project involves the Kumertau Aviation Production Enterprise, as well as centers engaged in training pilots and ensuring infrastructural support for the industry. There is also an undeveloped market for small aviation, which makes it so attractive; it’s associated not only with the production of small and mini-helicopters and airplanes, but also, primarily, with the organization of educational and transport infrastructures. This will enable us to build up an educational and training center for small aircraft pilots in the republic. Kumertau will thus have the opportunity to become a center for aviation industry, and not merely a coal-producing town.
We think that at least eight clusters can be developed in the republic, with a prospective increase to fifteen according to in-depth studies concerning cluster agglomerations.
— You’ve repeatedly stated that tourism constitutes one of the most promising industries in the Republic of Bashkortostan. What projects will be implemented in this sector?
— Our region is one of the most beautiful corners of the country, and it’s situated in the European part. This creates many opportunities to organize a truly dynamic inbound tourism industry. In Soviet times Bashkiria was even called “the Russian Switzerland”, and it was namely in our republic that many national hiking and horse trails, as well as rafting routes were organized back then.
Within a radius of 1,300 kilometers from Bashkortostan there are no other regions that have the taiga and steppes, rocky mountain ridges and caves, waterfalls and mountain streams, large lakes and reservoirs. Our republic has great potential for developing sanatorium health resorts, travels, and sports tourism. Here, you can go rafting on the Belaya River, warm up in a field bathhouse, go fishing, and also see the rock engravings in the Kapova cave. You can climb to the top of Mount Iremel, or enjoy a horseback riding excursion through the beautiful taiga and flowering steppes. I’m almost a professional tourist myself; I’ve travelled all across Bashkiria, and skied down many mountain trails. I think that with skilful management and appropriate investments in infrastructure, we have a great chance of becoming a popular destination for both summer and winter recreation.
Today, the volume of domestic investments placed into building sites for the tourist industry has reached about 1.6 billion rubles. Last year, Bashkortostan was included in the Federal Target Program for the development of domestic and inbound tourism. We’ve worked out our own long-term target program for the development of domestic tourism up to 2016.
In addition, Bashkortostan will be the venue for major sporting events. This year, we’re hosting the Summer Biathlon World Championships and the World Junior Ice Hockey Championships. Next year, we’ll host the VI International Children’s Games.
I think we can meet all the challenges that we’ve set for ourselves with the help of the Federal Agency for Tourism.
— How do you assess the development of external relations with foreign countries?
— In general, positive, although there’s great potential for growth in this field. Last year, foreign trade turnover in the light of foreign trade, including trade with Belarus and Kazakhstan, increased by almost a third compared to 2010, and totaled $13.7 billion US. Countries of the far abroad account for the bulk of foreign trade – about 80% of total foreign trade turnover. Our major trading partners include Germany, Belarus, China, the USA, Switzerland, Uzbekistan, Ukraine, and France.
Last year, more than $300 million US of foreign investments entered the republic’s economy. The main investor countries are the Netherlands, Cyprus, Austria, France, Sweden, Turkey, the Republic of Korea, Lithuania, the USA, and Germany. It’s important that most of these foreign investments — more than 65% of total funds — are concentrated in manufacturing industries and in real estate operations, leasing and services (more than 15%), but not in base material sectors. We’re expanding our circle of partners; we’ve held successful talks with representatives of Saudi Arabia, Japan, and Malaysia.
Many countries are very interested in Bashkortostan. I’m happy that investors believe in us. We’ll continue working in this direction. And I’m sure that results won’t be long in coming.