Ben Aris in Kazan -

On October 1, the president of Tatarstan, Rustam Minnikhanov, broke ground on Kazan Smart City, the first high-tech city to be built in Russia.

"Our region is strong in petrochemical, automotive, oil and gas, and agriculture, but the idea of the Smart City is to promote new sectors - medical, education, high tech and tourism - to make Kazan a hub for innovation in Russia," Bulat Gayanov, CEO of Tatarstan Development Corporation (TDC), said at the "Kazansummit 2013".

The site of the 650-hectare plot is to the southwest of the beautiful Kremlin and only a few kilometres from the international airport. The territory contains homes for 40,000 workers and their families, and has a high-speed rail link to Moscow that is being built for the 2018 World Cup.

About $1bn of investment was committed by four foreign investors during a signing ceremony at the end of the fifth "Kazansummit" on October 2-3. The first stage of building out the infrastructure and accommodation should be completed by 2015, and a total of $10bn will be invested by 2020 to complete the city, if everything goes according to plan.

There are three main areas: an education complex, a business complex at the heart of the city, and the high-tech park in the southern part of the city. And 16 plots have already been taken.

The biggest investor is Tatarstan Gulf Investment Company, which is investing $760m in commercial real estate development. Singapore's Radiance Hospitality Group have already committed to building a university specialising in the hospitality industry in the education section, which will try to bolster Kazan's efforts to promote local tourism. Radiance signed an agreement with the TDC in March making it the first investor in the Smart City. Initially, the Hospitality and Management University will have 500 students, rising to 5,000, mostly drawn from the region, who will graduate with a degree issued by the London School of Economics. Malaysia's Advanced Tertiary College has also committed to build a University of Management and Tourism.

In the north is a business park that is also home to three hotels - a transit hotel that will also be built by Radiance, and a four- and a five-star hotel - where construction is due to start soon. "The idea of the city is to make use of advantages of high technology. It will have its own power station that is controlled by an intelligent system. Heat, telecoms, internet, parking, traffic - everything is integrated by the most up-to-date systems to create a city of the future," says Gayanov.

Also 102 hectares of the city is a special economic zone (SEZ) that provides potential residents with significant benefits. Businesses registered on the remaining territory of Kazan Smart City enjoy a lower corporate tax rate of 15.5%, but this is not a special economic zone.

The corporate headline rate of tax of 24% is cut to 15.5% for companies in the SEZ, but for those in the high portion of the city they have been slashed to 2% for the first five years of operation, rising to 7% for the next five years before reaching 15.5% after a decade. There are also significant reductions in the social benefit taxes. Together these two incentives will significantly improve the profitability of setting up in the city.

"At first, Kazan Smart City might seem a risky project, of the vein 'if you build it they will come'," explained Gayanov. "However, the fact is that the master plan we have developed is based on sound information. Both the master plan, and the clusters it targets, were developed based on a detailed feasibility study conducted by Jones Lang LaSalle."