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Minister A.R. Belousov spoke at the “Government Hour” in the Federation Council

19.12.12

December 19, 2012, Minister A.R.Belousov spoke at the “Government Hour” in the  Federation Council of the Federal Assembly of the Russian Federation.

Minister’s report was devoted to the role of constituent entities of the Russian Federation in improvement of investment climate.  

The session launched a discussion during which Minister answered the questions of the members of the Federation Council.

In particular, Mr. Belousov mentioned that high credit interest rates create risks for economic development: “this is a system problem, real interest rates running into positive values do hamper investment projects”. According to Minister, there are concrete proposals aimed at “reducing risks” – “this is the task of the coming months”.

In reply to the Senators’ questions, Minister also said that the real estate property tax, due to be introduced from 2014, must be allocated to city budgets. “Our position is that this tax must go to municipalities, which will allow them to form a certain financial basis for engineering development of construction sites”, added Mr. Belousov.

Minister informed the Senators that nearly entire land property was entered in the cadastre and valued up to date, although the quality of the valuation still raises questions; besides, only half of land plots in the cadastre are properly delimited. According to Minister, “completion of the work will cost approximately 70 billion rubles”.  He also stressed that the work had to be completed within the nearest three to five years, which is likely to be subsidized to the RF constituent entities. For this purpose “we are developing federal targeted program “Promotion of Ownership Right Registration”, which, hopefully, will solve all these problems”, said Mr. Belousov.   

Brief outline of the report made by Minister A.R. Belousov at the

“Government Hour” in the Federation Council

Moscow, December 19, 2012 

 

Dear colleagues,

Before speaking on the issue of improvement of the investment climate in our country, I would like to make a preliminary remark. According to the existing investment criteria, Russia is, as a rule, far from the leading positions. Meanwhile, there are some simple objective indicators which give a generalized picture of how investors feel in this country. First of all, it is the amount of foreign direct investments. And according to this criterion, i.e., the amount of FDI raised for the last 5 years ($262.7 billion), Russia ranks the 6th globally and the 2nd among the BRICS countries.  

In 2011, Russia was the 9th among the 20 leading countries in terms of the annual FDI raised ($52.9 billion) lagging behind China ($116 billion) and Brazil ($66.7 billion), but significantly surpassing India ($34 billion) and South Africa ($4.5 billion).

The state of the investment climate is often related to the figures of capital flight. According to the Bank of Russia, the capital outflows amounted to $57.9 billion for the 3 quarters of 2012 (while in 2011 it was $80.5 billion).

At the same time, Russia’s working environment is evaluated not only by the economic indicators but also by surveys of entrepreneurs. According to the survey “Investment Climate in Russia 2012” made by Foreign Investment Advisory Council among the operating and potential investors, 71% of the respondents are satisfied with the outcome of their investments and are planning to go ahead with their activities in this country notwithstanding the problems.

As to the factors that determine the investment climate, significant differentiation can be noticed. The strong factors are traditionally associated with macroeconomics, as supported by ratings, while the weak ones refer to the state and activities of institutions.  

In the Global Competitiveness Index of the World Economic Forum 2012 Russia ranks the 7th (out of 140 countries) in domestic market potential but only 47th in the infrastructure development, 133rd in the state of institutions and 134th in market efficiency.

According to the latest survey of the World Bank on the ease of doing business in 185 countries, the biggest challenges for entrepreneurs in Russia are:

– construction permits;

– connection to power grids,

– customs administration;

– access to loans.

There are some indicators where Russia ranks much higher:

– ownership registration;

– taxation.

Therefore, the main efforts have to be aimed at the improvement of institutional environment.

The key role here is to be played by the RF constituent entities. The subnational research made by the World Bank in 2012 on Doing Business in 30 regions of Russia was indicative of the gaps among the regions. All regions operate within the same legal framework. Nevertheless, it takes 150 days to obtain a construction permit in one region, while another one, though enjoying a more comfortable climate, requires 448 days.

In general, the work is now proceeding in three interrelated directions.

The first aim is to improve the conditions of doing business within the framework of the National Business Initiative. Currently, the main areas include:

– obtaining construction permits;

– connection to power grids;

– customs administration;

– registration of ownership rights.

Our intention is to achieve specific effects, i.e. reducing the timelines and cost of specific procedures. Our benchmark is the Doing Business rating methodology.

A number of roadmaps have been developed for this purpose. They include specific action plans featuring certain measures where we can evaluate the effects resulting in facilitation of entrepreneurial activities.

It is to be noted that these roadmaps are being generated by working groups which include, and are headed by, entrepreneurs.

Great attention is paid to monitoring the implementation of the planned actions. Business community is involved in appraising the effects and their correspondence to the intentions stated in the roadmap. Should it establish that the measures taken by the government bodies fail to solve the problem, the question of some additional work is raised.

The second direction is related to the issues of forming land plots and development of urban planning documentation, public support of comprehensive development of territories, cutting the timelines and the number of approvals for construction.

1. Improvement and facilitation of the existing procedure of establishment of the legal regime of land tenure by proper zoning;  elimination of the category of land status as a method of defining the permitted use of land plots.

2. Simplification of the procedures of forming and allotting the land plots owned by the state and municipalities, in particular for the purpose of comprehensive development.

3. Establishment of uniform rules of interaction among the parties involved in residential construction projects and reduction of the number of procedures required for investment and construction projects; authorizing the RF Government to determine the uniform rules of interaction among the parties involved in residential construction projects.

4. Acceleration of the procedures required for investment and construction projects with the resulting upturn of housing construction and commissioning. Empowering the RF Government to adopt a limiting list of the procedures in the sphere of residential and industrial construction and to determine the uniform rules of interaction among the parties involved in residential construction projects.

5. Introduction of the method of forming and running a uniform register of the RF legal acts, federal and regional guidelines, documents and technical regulations to be binding for expert examination of design documents and engineering surveys, state construction supervision and control in project construction and commissioning.

4. Differentiation of timelines of expert examination depending on level of complexity of projects.

The third direction is the development of the Performance Standard of the RF Regional Executive Authorities in providing favorable investment climate in the respective region.

The Standard includes 15 basic requirements to the region’s business environment, which are the top priority aspects drawing an entrepreneur’s attention when they start their activities in the region. The basic among them include:

- mandatory development of the regional investment strategy and the related infrastructure;

 - plan of investment properties generation;

- implementation of a special procedure for evaluating the regulating effect of legal acts in entrepreneurial activities;

- formation of an advisory coordinating board and specialized agency for attracting investment and other.

The pilot implementation of the Standard has shown that even the regions with successful investment track record can amend their institutional environment and improve investment conditions.

In the regions, the implementation of the Standard involves representatives of local entrepreneurial communities who have formed expert groups (Delovaya Rossia, Opora Rossii, Russian Union of Industrialists and Entrepreneurs, RF Chamber of Commerce and Industry, Open Government, Leaders’ Club, Foreign Investment Advisory Council, Russia’s management community). As of today, the expert groups engaged in independent appraisal of the implementation of the Standard include about 180 business leaders and experts.

A final remark. In order to induce the regions to do their best to create favorable investment environment, the RF Ministry of Economic Development is working out a system of evaluating the performance of the federal executive authorities heads and the highest officials of the RF constituent entities in the sphere of creating favorable conditions for entrepreneurship.

 

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