Magnet for Investments: How Moscow Attracts Foreign Business

Half of the foreign direct investments in Russia falls on Moscow. Entrepreneurs localize production in the Russian capital, finance the development of urban environment, are included in projects in health care, R&D and high-tech. Moscow regularly meets with foreign businesses to talk about its investment potential and business climate and to discuss with entrepreneurs the possibility of localizing foreign production in the city.
Concessions, life cycle contracts and offset contracts remain the most common forms of cooperation between the Russian capital and private investors. Moreover, the city gives support in financing investment projects, provides tax benefits and subsidies as well as sites for business activities. It should be noted that when attracting investments Moscow does not make a difference between Russian and foreign businesses: foreign investors can count on various preferences on a par with domestic ones.

Business Platforms

Moscow authorities encourage the localization of private industrial production in the city. To locate plants in the Technopolis Moscow Special Economic Zone, foreign business can rent both free land plots with production purpose (greenfield) and finished premises (brownfield), what is especially attractive for small companies not planning to launch a large-scale production. Entrepreneurs who localize their activities at such sites are exempt from profit tax (on the regional level), land and transport tax, can buy out land plots on preferential terms after the facilities have been commissioned.

To support new projects and efficient existing companies, the Moscow Government provides business with special statuses: industrial complex, technopark, investment priority project, which give the right to profit, property and land tax benefits, land rent relief. This reduces the regional tax burden and allows companies to develop at an accelerated pace.

At present, many foreign enterprises have already localized their production in Moscow including the plants of Renault Group (France), KSB Corporation (Germany), Orpea Group (France), Bartholet Maschinenbau AG (Switzerland) and others.

Foreign business successfully implements a number of health care projects in the International Medical Cluster (IMC) located in the Skolkovo Innovation Center. Foreign clinics can operate here in accordance with their national medical legislation, use their own medicines and treatment methods without certification. The first clinic that opened in IMC was a branch of the Israeli Hadassah medical center. The Seoul National University Bundang Hospital, the Center of French Medicine, the Clinea multi-disciplinary rehabilitation center of the ORPEA Group and the research laboratory being set up jointly with AFK Sistema will open on the territory in the next years.

Effective Partnership

Moscow actively attracts private funds through concessions to develop the urban environment. This mechanism allows for equal consideration of the interests of business and the city as well as attracting private competencies and high technologies. As a result, the city receives a functioning facility and the investor receives income from its operation throughout the concession agreement.

One of such projects will be a ropeway, which will connect the Skhodnenskaya and Rechnoy Vokzal metro stations over the Khimki reservoir in the coming years. The project does not assume budget financing and is fully implemented by the Moscow ropeways company and Bartholet, - a Swiss manufacturer of ropeway systems - which jointly invest in the construction RUR 3+ bn. The new facilities will improve the transport connection of areas with a population of 1.6+ m people, and the investors will receive income from ticket sales and the use of commercial space within 20 years. The 25-year concession agreement was signed in December 2019.

The city enters into Life Cycle Contracts (LCCs) to purchase complex and high-tech equipment that requires a long-term maintenance, The essence is that the equipment is purchased directly from the manufacturer, who then maintains and repairs it throughout its service life. Thus, the company receives not only a direct order for the supply of goods, but also secures for itself a long-term capacity utilization and an income for the whole contract time, provided that the equipment performance is maintained throughout the life cycle.

Through such deals the city buys primarily public transport vehicles (metro cars, trams, buses and electric buses). However,at the end of last year the Moscow Government launched LCCs for complex medical equipment, which involved the world's leading manufacturers in the supply and maintenance of medical equipment: Philips, Siemens, Canon, GE. The LCCs will provide Moscow with modern medical equipment with a ten-years service from suppliers who have not only production facilities, but also relevant experience in maintaining the devices. The LCC volume is about RUR 24 bn.

Prospects

Experts note that the interest of foreign companies in the Russian market is only growing despite the difficult economic conditions in the first half of the year caused by the coronavirus pandemic. Most of the investments come from European countries: Germany, France, Austria, Sweden. Significant volumes of investment injections are also observed from the USA and Asia (Japan, Kazakhstan, China, Turkey, Korea). The accumulated foreign direct investments from Italy, Israel, Finland and Singapore has increased noticeably.
Emil Petrosyan
Deputy Head of the Moscow Department of Investment and Industrial Policy
"In recent years, Moscow has made a great leap forward in easing the terms for doing business, the city has become more open to investment including the foreign ones. The number of foreign productions localized in Moscow is constantly growing, the inflow of funds is increasing. Today the accumulated foreign direct investments in the Moscow economy exceed USD 260 bn.

The city has gathered the best world experience and now offers a variety of tools to attract investment creating a comfortable tax environment and a public space for doing business. It allows us to develop the taxable base, to solve important infrastructural tasks of the huge agglomeration, to ensure import substitution and to optimize the purchasing and maintenance costs for technical facilities and high-tech equipment so that it would be nice and comfortable to live, work and rest in Moscow".
E-mail: pressprom@mos.ru
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