Alabuga going to north-west: Novgorod site to open in 2021

Alabuga is preaparing Novgorodskaya SEZ for opening in the next year

Russian regions have become “infected” with the idea of creating special economic zones with preferential tax treatment on their territories, but they are approaching their opening more carefully and thoughtfully. The authorities of Novgorod Oblast have recently invited the managing company of Alabuga SEZ as a strategic partner to establish such a growth territory, concluding a cooperation agreement. What is more, Novgorod Oblast has become the first region with which Alabuga formalised partnership relations. The signing itself took place at the residence of the governor of Novgorod Oblast, and the document was signed by the head of the region, Andrey Nikitin, who previously headed the Agency for Strategic Initiatives, and the head of the managing company of Alabuga SEZ, Timur Shagivaleev.

The special economic zone of industrial-production type in Novgorod Oblast is going to be created on the territory of Savinsky rural settlement of the Novgorod region, the signatories reported. Its area is more than 10 hectares (compared to Alabuga SEZ, it is 4 times less — editor's note). The volume of investment in infrastructure is estimated at 5,6 billion rubles. As the press-service of Novgorod Oblast informed, the partners expect to create Novgorodskaya SEZ in the first quarter of 2021, and the area will be under control of Novgorodskaya managing company, but with the participation of the top-management of Alabuga managing company. The application is already under consideration by the ministry of economic development of the Russian Federation.

“Novgorodskaya SEZ may be formed as early as in the first quarter of 2021," the press service of the regional government reported.

Novgorodskaya is formed as a zone of industrial-production type modelled on Alabuga SEZ. Its main areas will be microelectronics, pharmaceuticals and the glass industry. There are no such residents in Alabuga SEZ, with the exception of the Turkish holding Shishedzham, which produces sheet automobile glass.

“The Novgorod Oblast Development Agency and Novgorodskaya managing company will search for residents together with Alabuga managing company," the press service of the region noted in response to the request from Realnoe Vremya.

The signed cooperation agreement will give the opportunity to:

• establish partnerships in the development of foreign economic and interregional activities;
• increase the level of investment attractiveness of the region in domestic and foreign business circles;
• stimulate the region's exports;
• attract new technologies;
• increase the number of potential residents of Novgorodskaya SEZ planning area project being created.

Nikitin's second attempt

Novgorod Oblast is making the second attempt to create the special zone on its territory. The first application was sent to the ministry of economic development at the end of 2019. The governor of the oblast, Andrey Nikitin, explained that the SEZ can be created in Novgorod Oblast by the summer of 2021. He included Veliky Novgorod, Novgorod and Chudovsky districts within its borders. “At least three major external investors are waiting for it to appear and are conducting preparatory work," he said.

His press service has recently reported that “the application, corrected in accordance with the requirements, was re-sent for consideration to the ministry of economic development of Russia in June this year”. In turn, Alabuga SEZ reported that it responded to “the appeal of the governor of Novgorod Oblast to Rustam Nurgalievich Minnikhanov, the president of the Republic of Tatarstan, with the question of support in the creation of the SEZ”. For all residents of the special economic zone, the income tax rate in the first 5 years will be only 2%, the next 5 years — 5%, and then-14,5%. The rate for property, land and transport taxes will be zero.

Thus, the new economic zone will appear next to Leningrad Oblast, where there is an exit for export operations through the Baltic Sea ports, said Rafael Khusyainshin, the executive director of the National Association of Investment and Development Agencies:

“Localization” of the SEZ on the north-western borders

Earlier, Alabuga was considering to open a branch in Bryansk Oblast, which will provide future residents with direct access to Belarus and Poland. At the end of August, Artur Ayupov, the deputy director general of the SEZ for state programmes, paid a study visit to Bryansk. The territory around the bankrupt Novozybkovsky machine-building plant (part of the bankrupt Railtransholding), which produced tank cars for bulk cargo, was allocated under the SEZ.

“Bryansk Oblast could create such a zone on its own. Moreover, the issue was discussed with the ministry of finance and the ministry of economic development, but in this case, the procedure would have stretched for one and a half to two years. The branch of Alabuga can be created very quickly. This is what Bogomaz and Minnikhanov agreed to," the media of Bryansk Oblast reported.

It remains unclear where and when the heads of the two regions agreed, as the press service of the president of Tatarstan did not publish releases about these meetings. Sources claim that Russian Deputy Prime Minister Marat Khusnullin has recently asked for help with this project during his stay in Kazan. According to rumours, the application has not yet been submitted, and the territory of the branch is 5-10 hectares.

Bryansk Oblast and Novgorod Oblast are relatively close: the first is on the “first” border line closer to Belarus, and the second is deeper, but with direction to Leningrad Oblast. Based on this, market participants concluded that Alabuga SEZ has moved to the north-western borders, which are logically convenient for exporting products. Market participants believe that Alabuga managing company can be selected as a commercial agent for finding and attracting residents to Novgorodskaya SEZ.

“A huge number of foreign investors pass through their filter, with whom they have held a lot of negotiations. Residents were not always satisfied with the remoteness from international markets. Now it will be easy to make them an alternative offer, offering to place production facilities right at the borders," says one of the market players.

In his opinion, the territories of future sites are incomparably smaller, which means that it does not always make sense to keep the directorate and it is better to give these zones to the management of Alabuga for support.

The pandemic may delay the process of attracting residents

The expansion of Alabuga is associated with the fullness of the existing territory and the ban on the creation of the second zone in Tatarstan. “Yes, the Tatarstan zone is full. And it is clear that the second special economic zone in Tatarstan can no longer be built. In this sense, this is a very good management move," said Rafael Husyainshin, the executive director of the National Association of Investment and Development Agencies. It would be logical for the site to be managed by top management, which has already brought its Alabuga SEZ site to success.

“I believe that there is an effective tool for attracting investors in the form of Alabuga SEZ, not all special economic zones show such efficiency and not all have such a positive history with investors. We see that many special economic zones are not effective and are not filled. Apparently, in order not to create inefficient economic zones, we decided to take the best practice and implement it on the territory of other regions. In my opinion, this is the right story. Especially when the SEZ management and team have achieved such success and are now engaged in scaling and consulting other regions. If there is such a successful practice, why not use it? In this regard, Tatarstan — well done! This will benefit not only the territory where the new SEZ will be created, but also Tatarstan itself, which, in addition to products, will allow selling intellectual property to other regions and attracting new investors through cooperation with residents of the SEZ site in Novgorod Oblast," the source said.

But the second wave of coronacrisis is coming, and the head of Tatarstan Investment Development Agency, Talia Minullina, told that she expects a decline of inflow of investments into the regional economy. Therefore, Rafael Husyainshin warned: “It is not difficult to formalise legally. There are no restrictions on the choice of territory. The question is: how quickly will the site be filled with residents? But here we need to see if there is a request for this territory from investors from Tatarstan, so that they hold a road show and present the future zone for new investments. As practice shows, this will take 2-3 years. But now filling in by investors may be delayed due to restrictions on the entry of foreign specialists. Now there is no possibility to come to set up equipment and start production, and everything will depend on how long the restrictions will last. Here we will have to look at the development of the pandemic," he concluded.