Tatarstan: How to sell a Russian region

By bne IntelliNews March 19, 2014

Ben Aris in Kazan -

"Tatarstan is already one of the three best regions in Russian," says Linar Yakupov, the no-nonsense head of Tatarstan Investment Development Agency (TIDA) in his opening remarks at the "Kazan Winter Investment Summit" at then end of February. "But I don't want to talk about that. I want to talk about the challenges we still face to keep Kazan out in front."

Those remarks seem innocuous enough, but to someone doing business in Russia, especially in the regions, they are revolutionary.

Russian civil servants in general, and regional bureaucrats in particular, are still prone to the Soviet-era habit of bigging up their successes while blithely ignoring their failures, because in the old days to admit your mistakes could get you sacked - or worse...

Having attracted just under half a billion dollars of foreign direct investment (FDI) last year and building an entire automotive hub from scratch, the regional capital of Kazan has a lot to boast about. An hour from Moscow by plane, the region is booming to the point where it is sucking in internal migrant labour from other Russian regions - including Moscow - looking for work and a better quality of life. The wages in Moscow may be higher, but then so are the prices, the stress levels, the commuting time and the level of pollution. Young families come to Kazan as the quality of life is as good if not better than Moscow, while the pay-versus-cost ratio is on a par, or better, than in the capital.

"People come here to work and then decide to stay. We even have our people returning from jobs in Moscow. There the pay is much higher but so are the costs. And if you consider the urban nature of life in Moscow - the lack of green spaces, the length of the commute, the problems associated with bringing up children there - then all of that is easier and more pleasant in Kazan," says Yakupov.

But Yakupov chose to focus more on what was not working well; indeed, the whole summit was dedicated to "meeting the challenges of next century". His speech was a textbook example of how to sell a region to the potential investors from Malaysia, Singapore and the Arab countries that packed the hall.

Regional focus

This pragmatic approach is a result of the changing nature of investment into Russia's regions. In the 1990s, regions were desperate for any cash they could find. Foreign investors were seen simply as a source of funds - officially via investment, or unofficially via bribes. But now the initial survival hurdles have been overcome and a core of foreign-owned factories are up and running, regions are increasingly starting to compete in earnest to build real and vibrant local economies.

"Tatarstan is one of the most dynamically developing regions of Russia and constantly ranked at the top of doing business rankings. But in order to stay competitive we need to be constantly improving. We are not scared to compete," says Yakupov.

After two decades of dominating Russia's economic scene, the capital Moscow was already losing its pride of place before the 2008 crisis, as the regions took over as Russia's engines of growth. The economic collapse in 2008 was a major setback, but as the world begins to emerge on the other side of that catastrophe Russia's best regions are once again outstripping the rest of the country in their recovery.

And understanding the problems is the key. Foreign investors are well aware of Russia's attractions: the store of natural resources, the highly educated work force and large consumer population. What investors want to know is whether they can set up a factory easily, get access to power, workers and markets, and be confident they can repatriate their profits at the end of the day.

Thanks to its Muslim nature (the city's skyline is dominated by a shiny new mosque inside the ancient Kremlin walls), Kazan has specialized in attracting Islamic investors from Southeast Asia and the Middle East, who like the lack of politics and easy access to the administration, unlike wandering through the hall and mirrors that is doing business in Moscow.

The proof is in the investment numbers: Kazan saw FDI rise from $99m in 2011 to $577m in 2012 - though that fell back somewhat to $408m in 2013 due to the general slowdown in the Russian economy. "The FDI figures last year were a disappointment, but that was not a good year for Russia in general," Yakupov tells bne.

Yakupov thinks they can do better. The current FDI volume could be doubled if the entire local government can be made to pull together as one team, he says. But to go beyond that there needs to be deeper reforms at the federal level. Yakupov complains that despite the Kremlin's public commitment to improving the business climate in Russia, progress remains painfully slow.

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