Novgorod - Regional Profile from the Russian American Chamber of Commerce® Novgorod is an administrative center of Novgorod region, the most ancient Russian city first mentioned in the chronicle entries in regard to 859 A.D. In the Middle Ages Novgorod played an outstanding role in Russian history and governed the vast lands from the Volga to the shores of the Arctic Ocean. The city was widely acclaimed as a center of culture, business and for its democratic form of self-government most commonly referred to as "the Veche". Today, Novgorod is famous all over the world for its unique architectural monuments, icon painting, frescoes and archeological discoveries. In 1992, Novgorod was classified by UNESCO as a World Heritage Site. Location The Novgorod Region located in the North-West of Russia has a unique geographic position and a highly developed transport network. Important motorways, railroads, waterways pass through its territory connecting St. Petersburg and Moscow. A highly developed transport network is of great practical value for traveling and transportation of goods, making it more convenient to do business in the markets of Moscow and St. Petersburg as well as in the western part of Russia, Belarus, the Baltic countries and providing an access to the seaports of St. Petersburg and Finland. The Novgorod region is located far from the areas in Russia where military conflicts take place and has a homogeneous population (96% are Russians), which prevents national and ethnic problems. Urban residents amount to 71% of the population. The entire able-bodied population is about 390,000 people. The average age of working residents is 39 years old. Practically half of them have higher or specialized secondary education. Experts' Appraisal For the first time in Russia, the journal Expert and the Pioneer I financial group carried out an appraisal of Russian regions' investment attractiveness. The appraisal was done with participation of some leading international companies - members of the Advisory Council on Foreign Investment. Those companies were: Mitsui, British & American Tobacco, Ernst & Young and others. According to their appraisal, Novgorod Region is one of the ten regions having low investment risks and takes the first place among regions having the most favorable legislative terms for foreign investors (Expert, No. 47, 09.12.96) from FIAS (Foreign Investment Advisory Service under International Financial Corp. and Word Bank). They consider the Novgorod Region to be among the six regions in Russia with the most favorable investment climate. Government The state legislative branch in the region is represented by the regional Duma with the Chairman A. A. Boitzev at the head. The executive one is constituted by the Regional Administration, Governor M. M. Prussak. Both of those leaders are members of the Council of Federation of the Russian Federal Assembly. The political situation the characterized by absence of any conflicts between two branches of power (legislative and executive) and between regional and local governments. The Novgorod region was one of the first few regions where election of a Governor were attended by enough citizens to make it a success. The former Head of the Administration Mikhail M. Prussak was reelected as Governor for the second term. He is also the Chairman of International Relations Committee of the Council of Federation (upper chamber) of the Russian Federal Assembly. Election of local government authorities, heads of districts and towns were also successful. The system of regional authorities and local government was formed as a team of like-minded individuals. There is a close collaboration and understanding among all the bodies and at all levels of government, which allows to work out common regional economic policy, to define the priorities and the main directions of the regional development and provide continuity of economic reforms and stability of the regional legislative system. Transport The main type of transport is road haulage (traffic), carrying out considerable volume of motor freight and interurban transport. International transportation of cargo is carried out by 6 motor transportation companies. The prevailing directions are Finland, Germany, Sweden. The Novgorod region takes the 8th place as for the whole length of hard-covering roadways (in km per 1000 inhabitants). Main lines (railroads) located on the territory of the Novgorod region link it up along 4 main meridian and 5 transverse (parallel) directions with other Russian regions, CIS countries, the Baltic states, countries of Europe and Scandinavia. The railroad station Novgorod renders customs clearance services for temporary storage of cargo. The procedure of goods dispatch takes a few minutes. A high-speed main line Moscow-St. Petersburg is going to be constructed. The latter project could raise the role and significance of railroad transport in gaining access to recreational resources and providing better transportation to recreational and tourist areas. Waterways are open for navigation at the length of 316 km. (200 miles) and vessels and boats can put out to Lake Ilmen, the Baltic and While Seas and further through White Sea Channel and down the Volga to the Caspian Sea. The joint-stock company Novgorod River Port carries out cargo transportation by vessels river-sea from Novgorod Region to Finland, Sweden, Poland, Norway, Germany, the Baltic countries. It is possible to take cargoes to the southern parts of the country, Azerbaijan, Turkmenia and Turkey. Novgorod air transport company has planes and helicopters at its disposal, as well as the whole necessary set of stationary navigation and land equipment, technical services and highly qualified specialists having a permission and experience of working at international airlines. At present, the company provides charter services. Air carriage of heavy cargoes and cargoes within loading gauge are possible on commercial basis by IL-76 planes of military-transport aviation upon agreement with the Russian Federation Defense Ministry. Air transport company together with the Novgorod Region Administration proposed to re-arrange the joint basing of military and civil aviation for the purpose of launch international flights and set up an international airport.
Telecommunications Network Automatic telecommunication with all Russian regions and 137 countries of the world is provided. In the city of Novgorod the following telecommunication services are available: ISDN data transmitting network, Internet, ROSNET, ROSPAK, RELKOM and SPRINT. The regional ROSNET standard transmitting network provides interdistrict information exchange within the territory of the region. Since 1996, Novgorod was included in a group of 3 cities connected with IBM Global Network. Cellular networks cover all of the regional territory. The NMT-450 standard mobile radiotelephone system is functioning along the main road Moscow-St. Petersburg on the territory of the region. Since 1997, another radiotelephone Standard GSM-900 will be put to use. Pager communications provided by three companies link Novgorod with 24 regions of Russia (about 87 towns). International satellite communications INMARSAT transmit programs of the central radio and television companies, regional and local companies, as well as satellite television including programs from abroad. The Novgorod region is one of the best computerized areas of Russia (per capital). At present there are 10,000 computers in the region and their number is growing. Financial Sector The regional banking system includes four independent commercial banks and seven banking affiliates of the largest commercial banks of Moscow and St. Petersburg. Besides, Novgorodian banks have a network of their affiliates in other parts of the region, rendering operative banking (and currency) services to their clients. Banks of Novgorod have more than 60 direct correspondent accounts with the leading banks in 23 countries of the world such as Bank of America Int. (U.S.), Kommerzbank AG, Deutsche Bank AG, Dresdner Bank AG (Germany), etc. In the region the main department of Central Bank and about 10 investment funds and companies are functioning. Land and Real Estate Market The Novgorod region became the first among the Russian regions to start the development of land and forest valuation. The work on regional land and forest cadastre was supported by Swedish governmental organizations. It is planned to work out other cadastres, including water resource cadastre (Water Code), etc. The International North-West Training Center of Cadastre and Land Information Systems was established and works successfully to date. Currently, a cadastre of the city of Novgorod is being worked out. In fact the secondary land and real estate market has been created. The process of privatization in the region started in 1992 and is almost completed. 99% of timber industry companies, 98% of light industry companies, 50% of communications, 45% of transport and 76% of industrial construction companies have been privatized. In the agrarian sector 96% of agricultural businesses are functioning on the basis of private land and real estate ownership. According to the legislation of the Russian Federation privatized enterprises have a right of buying out their land sites on favorable terms. Land can be leased with the right of further buyout. Thus, an investor can count on positive decisions regarding land acquisition and use of land and real estate.
Customs Any business depends to a great degree on the customs system of the partner country, and its infrastructure and customs procedures. Apart from the Customs Office in Novgorod, there are four custom-houses on the territory of the Novgorod Region that levy customs duties. There are also 2 free warehouses where goods can be stored without imposing any duties or taxes (VAT and excises), licensing and quoting for the storage period.
Exports and Imports In the region there is a stable tendency of increasing foreign trade turnover, averaging 40% annually. In 1996, its growth amounted to 33%, in comparison with the whole of Russia - 5%. 350 participants are involved into the sphere of international economic activities. Regional enterprises carry out foreign trade operations with 61 countries. The regional foreign trade balance has been favorable all the time, while foreign trade balance for the whole of Russia became favorable only in 1993. Chemical products make 70% of total regional exports, 16% are products produced in timber industry. Metal-cutting equipment, transformers, metal scrap and refuses, refractory brick, furniture, and the like constitute the rest of the exports. Machines and equipment, food products, plastic materials and products, automobiles, medicaments, medical equipment and other products are imported. The leading role in international economic activities is played by enterprises with foreign capital share. In comparison with the whole of Russia (where their share in 1995 was 3% of production volume of the Russian Federation, 5% of exports and 9% of country's import) Novgorodian enterprises with foreign capital share play more significant role in the regional economy. According to statistical data the number of people employed at such companies is 7420, the volume of their production is 39% of the total regional production output and they make 83% of export and 31% of import in the region. (See Table 1)
Foreign Investors The number of companies with foreign capital share registered in the region amounts to 160. Many of them hold leading positions in their markets, such as Kymene, Schauman Wood and Raute (Finland), Sommer GmbH and K, Pfleiderer (Germany), Holzindustrie Preding (Austria). A world-famous producer of chocolate and light beverages Cadberry Schweppes preferred Chudovo, a small town in the Novgorod Region to 100 other towns in Russia as a construction site of a new chocolates producing factory (with an output of 45 thousand tons of chocolate products annually). The factory was erected in less than a year, quicker than whenever and wherever in Western Europe (the volume of investment amounts to $150 mn). A factory producing chewing gums is planned to be constructed in the city of Novgorod by the company Dansk Tuggegummi Fabrik (Denmark, trademarks Stimorol, Dirol) with the investments of more than $100 mn. Among joint-stock companies registered in the region enterprises from Germany, Finland, U.S., Poland and Norway prevail. The volume of foreign investment into the regional economy is constantly increasing. Along with attracting private foreign capital Novgorod actively and successfully participates in competitions held by international financial institutions in Russia. At present the Program on Individual Housing Construction Development worked out by the World Bank is being carried out. The cost of the project conducted in Novgorod is $21 mn. The preliminary phase on engineering planning of the territory has already been completed. The World Bank credited the project according to the result of international competition where Novgorod was a winner. The City Administration participated in the competitive selection among 15 other Russian cities and won the other EBRD project - City Passenger Transport. That victory gave a possibility to buy 80 Mercedes-Benz buses on a credit of $14 mn and to overhaul repairs for 40 buses and to buy 10 trolley-buses. The EBRD Western-Russian Regional Venture Fund allotted $30 mn to finance investment projects. Additionally $20 mn were allocated by the Italian government. Having a population constituting 0.5% of the total population of Russia the Novgorod Region is one of the leaders in investments per capita. And it is necessary to keep in mind that unlike the rest of Russia a great part of the foreign capital goes into production instead of financial sector or the state. Novgorod's Investment Appeal Experts from Mitsui, Ernst and Young, BASF, British Petroleum, Mars, Mobile Corporation, Renault, Siemens, Fiat, Coca-Cola rated Novgorod Oblast as a leader in having "the maximum favorable legislative terms for foreign investors" as well as the region "with the minimum investment risk" ("Expert" magazine, N47 09.12.96). Major Participants of Foreign Investment Consulting Board are ABB, BASF, British Petroleum, Coca-Cola, Mars, Mobil Corporation, Pioneer Group, Procter & Gamble, Renault, Siemens, FATA, FIAT, Itochu, Campofrio, Mitsui, CitiCorp, Tetra Laval, Thompson, Ernst & Young, United Technologies.
Outcomes of Pro-Investment Policy Rapid growth of foreign investment (from $153 million in 1994 to $489,9 million in 1997) was the immediate result of a favorable environment and new investment legislation. The share of foreign investors in the total amount of investment in Novgorod Oblast in 1997 was 30%. Novgorod Oblast has registered 180 enterprises with foreign invested capital. (See Table 2) The largest investment has come from the EU countries, including Cadbury-Schweppes (UK), Dansk Tyggegummi Fabrik (Denmark), Kymene, Schauman Wood, Raute, Thomesto (Finland), Pfleiderer, Sommer GmBH & Co (Germany), Holzindustrie Preding (Austria), Igienica SA (France), Mo Do Skog (Sweden) and Dresser (U.S.). Novgorod companies with foreign capital participation play a significant role in the region's economy. According to the official statistics, as of 1997, 16,253 people in Novgorod Oblast work for enterprises with foreign capital participation. Those plants produce 55% of the region's GDP and amount for 89% of its exports and more that 5% of imports, significantly higher than Russian average. The leading countries by volume of investment are EU members: The UK, Denmark, Germany, Finland. One of the world's leading producers of confectionery and non-alcoholic drinks, Cadbury Schweppes, chose Chudovo in Novgorod Oblast out of a number of other proposed locations in Russia, to build its plant, which was built faster, than anywhere else in Europe. The factory launched its first chocolate products in November, 1996. Dansk Tyggegummi Fabrik of Denmark started building a chewing gum factory in addition to the existing packaging lines. Each o1 thesf projects is estimated worth over $100 million. Chemical products make 68% and timber and wooden produce -17% of the general volume of exports. Machinery and instruments transportation vehicles and merchandise are also exported. Food, machinery, instruments, transport vehicles and chemicals are imported. Novgorod Oblast has the largest per capita volume of foreign investment, while the number of residents in the region constitutes 1% of the country's population. At the same time, it is worth mentioning, that most of the foreign capital is invested in industrial, rather than in financial sector, or paid to the government, compared to the rest of Russia.
The Region's Credit Rating In 1997, the U.S. Urban Institute assessed the credit rating of Novgorod Oblast. The rating report was released in the "Securities Market" magazine. According to expert opinion, Novgorod Oblast is one of the most attractive to implement the program of emission of sub-federal bonds in a medium-term perspective. The rating system from 2 to 555 reflects the credit risk and chance of repayment. A rating of 2 reflects a high risk of non-repayment. A rating of 3- to 333+ demonstrates a high chance of delayed payments. A rating of 4- to 444+ refers to a high credit risk. A rating of 5- to 555+ in contrast demonstrates a low risk of non-repayment.
Business Development Potential The Novgorod Region has a great supply of clay, lime-stone, sand and gravel, timber, peat and water resources. More than a half of the territory is covered with leaf-bearing forests, complex use of which is one of the major directions of reorganization of regional economy. The total area covered with forests can provide 12 mn cubic meters of timber annually which exceeds 6 times the present level of purveyance. During the last years active investigations of potential deposits of kimberlite diamonds, gas and oil were carried out. A competition for a license to search, prospect and recover diamond layers and oil and gas deposits was announced; MstaAlmaz became the winner. The Novgorod Region possesses unique medicinal and recreational resources: the Ilmen Lake, mineral and radon springs, medicinal mud (a resort at Staraya Russia). A National Forest Reserve in Valdai Region attracts attention of Russian and foreign tourists. Together with unlimited opportunities for tourism industry development it makes the Novgorod Region one of the best recreational centers in Russia side by side with Mineralnie Vody of the Northern Caucasus and the Black Sea shore. The development potential in this sphere is enormous and a prospective construction of a high speed main line (30 minutes to get to St. Petersburg and 3 hours to Moscow) makes it boundless.
Legislative Environment The Novgorod Regional Duma adopted "The Law on Tax Exemption for Enterprises and Organizations Located on the Territory of the Novgorod Region". Companies with the foreign capital share carrying out production of goods and registered in the region are exempted from all taxes to the regional budget. The estimation of the full offsetting period was carried out by the world known Arthur Andersen consulting firm. Apart from that, these enterprises are exempted from taxes to the Regional Road Construction Fund regardless of the amount of investment. Many towns of the region in their turn provide joint-stock companies with tax allowances. The so-called "areas of preferential treatment" with a special tax system were created in four districts of the region in January, 1997. All business entities (with exception of trading ones) are exempted from taxes on which the Regional Duma can give allowances - income and property taxes, educational needs levy, entrails fee, land and transport taxes, water fee, timber income etc., while the income tax paid to the federal budget is reimbursed by the local taxpayers. Thus the enterprises investing their own or a drawn capital in the Novgorodian industry and exempted from up to 30% of all taxes have an advantage before similar enterprises in the Kaliningrad Region (Amber - the area of preferential treatment). The local government provides investors with every support by means of guaranteeing assistance to investors. A Guarantee Fund was created within the regional budget. A wide choice of vacant production sites including all the necessary infrastructure (such as gas, water supply, electricity, refining systems and so forth) is offered. In case of successful completion of an investment project a scheme of avoiding company's debts and payments for property, which is not currently in use is applied. There is also a practice of monitoring long-term projects by the Regional Administration, which assists in solving problems including those concerning federal authorities. The projects are also presented to the regulation and inspection authorities of the region, project coordinators chosen among the regional and local officials are appointed, informational support of potential investors is carried out free of charge. The Russian-American Chamber of Commerce® is a nonprofit, nonpartisan organization acting to promote American business interests in the Russian marketplace. Last Updated: 12 April 1999. |
