St. Petersburg - case studySt. Petersburg - case study

Riga, 23-24, April 2008

The City of GrowthThe City of Growth

Nina OdingNina OdingEWW WG1EWW WG1

22

Gross regional product of St. Petersburg Gross regional product of St. Petersburg

666,4

1097

811,7

542,4

409,6367,2275

109,7104,5

117,7 108,3108,3107,1108,5

200

300400

500600

700

800900

10001100

1200

2001 2002 2003 2004 2005 2006 2007(forecast)

50

60

70

80

90

100

110

120

130

GRP output, bln. Rbls.Change in GRP output (in comparable prices; in % to the previous year)

9,2

9,6

10,0

Share of population with incomes below living level, %

Specific weight of St. Petersburg economy in Specific weight of St. Petersburg economy in the RFthe RF

3,7

4

4,1

3,9

3,5

3,6

3,7

3,8

3,9

4

4,1

4,2

GNP Shipped product Retail turnover Investments intocapital asset

33

Exports from St.Petersburg to the Baltic Sea Regionin January - September 2007

Lithunia5%

Latvia3%

Estonia4%

Norway1%

Sweden6%

Denmark1%

Germany36%

Finland17%

Poland27%

Foreign Trade of St.Petersburg in 2000-2007 (millions of US dollars)

2,531,91 1,75

2,75

3,99

6,9

9,17

12,9

14,3

12,3

4,88

6,925,79

4,92

3,96

2,49

0

2

4

6

8

10

12

14

16

Exports Imports

Imports to St.Petersburg from the Baltic Sea Regionin J anuary - September 2007

Lithuania1%

Latvia1%

Estonia1%

Norw ay4%

Sw eden6%

Denmark3%

Germany47%

Finland30%

Poland7%

44

Russian Investments in the Baltic Sea Russian Investments in the Baltic Sea Region Region

• Russian investments into the Baltic countries are growing. Russian investments into the Baltic countries are growing. Significant portion of them is going through third countriesSignificant portion of them is going through third countries

• The biggest and at the same time the most controversial The biggest and at the same time the most controversial investments project Nord Stream pipeline across the Baltic Seainvestments project Nord Stream pipeline across the Baltic Sea

• Estonia :Estonia : Sillamae port, railways operator Westgate Transport. Sillamae port, railways operator Westgate Transport. Terminals in Tallinn and Muuga portsTerminals in Tallinn and Muuga ports

• LatviaLatvia:1100 firms with Russian capital registered::1100 firms with Russian capital registered: Latvijas Gaze, Latvijas Gaze, Ferrus, Electric Machine-making Plant, Jsc Latvijas Balzams, Ferrus, Electric Machine-making Plant, Jsc Latvijas Balzams, Latvijas Biznesa banka,Latvijas Biznesa banka, Latvijas Tirdzniecibas banka, Latvijas Latvijas Tirdzniecibas banka, Latvijas Krajbanka Krajbanka

• LithuaniaLithuania :Lifosa. Kaunas Heat and Electricity Center, “Lukoil — :Lifosa. Kaunas Heat and Electricity Center, “Lukoil — Baltija”,Baltija”, metalware-making plant “Nemunasmetalware-making plant “Nemunas “ “

55

CCulturulturee and and EEducationducation • 249 festivals, including 98 music festivals, 18 dance festivals, 249 festivals, including 98 music festivals, 18 dance festivals,

22 ethnic culture festivals, 24 theater festivals, 20 movie festivals, 27 22 ethnic culture festivals, 24 theater festivals, 20 movie festivals, 27 arts festivals, as well as numerous others. arts festivals, as well as numerous others.

• 1127 cultural institutions and over 31000 people were employed in 1127 cultural institutions and over 31000 people were employed in the sector the sector

• 7783 historical and cultural monuments under the protection of the 7783 historical and cultural monuments under the protection of the state state

• 61 61 ethnic cultural centersethnic cultural centers, 20 f, 20 foreign cultural centers, oreign cultural centers, 19 19 creative creative unions , unions , 52 52 theaters, theaters, 182 182 museumsmuseums,, 133 133 art galleries and exhibition art galleries and exhibition venues, venues, 37 37 concert halls , concert halls , 190 190 libraries libraries

• 93 institutions of higher education, including 48 state universities and 93 institutions of higher education, including 48 state universities and

45 private universities45 private universities. .

66

SOCIO-ECONOMIC PLANNINGSOCIO-ECONOMIC PLANNING URBAN PLANNING AND CONTROLURBAN PLANNING AND CONTROL

STRATEGIC ANALYSIS

FORECAST OF DEVELOPMENT OF SAINT PETERSBURG TILL 2025.

CONCEPT OF GENERAL WORK PLAN OF SAINT PETERSBURG DEVELOPMENT TILL 2025.

CONCEPT OF SOCIO-ECONOMIC DEVELOPMENT OF SAINT PETERSBURG TILL 2025.

Description of desirable position of the city including different scripts of environment development.

Defining strategic directions of operations

GENERAL WORK PLAN OF SAINT PETERSBURG TILL 2025.

Plan of developing the territory and main objects of infrastructure

PROGRAM OF SOCIO-ECONOMIC DEVELOPMENT OF SAINT PETERSBURG FOR THREE YEARS=PLAN OF ADMINISTRATION ACTIVITIES ON REALIZING THE CONCEPT

IT IS RENEWED SIMULTANEOUSLY WITH THREE-YEAR BUDGET

RULES OF BUILDING(Urban-building regulations of territorial

working areas)SCHEMES OF ENVIRONMENTAL

PROTECTION, OF CITY INFRASTRUCTURES DEVELOPMENT

DEVELOPMENT PLANS,PROJECTS OF BUILDING LINES

FINANCIAL PLANNING

FINANCIAL PLAN-FORECAST– THREE-YEAR BUDGET

77

The Concept of socio-economic The Concept of socio-economic

developmentdevelopment

• ""St. Petersburg is the world city" St. Petersburg is the world city"

• St. Petersburg is the commercial and St. Petersburg is the commercial and traffic center" traffic center"

• "St. Petersburg is the center of "St. Petersburg is the center of innovations and administrationinnovations and administration

2007 - 2007 - Concept of innovative development, Concept of innovative development,

Program for administration’s activityProgram for administration’s activity

88

Foreign investments in Foreign investments in St.PetersburgSt.Petersburg

• Over the last 3 years the volume of investments in SPb Over the last 3 years the volume of investments in SPb economy has been increasing by about 40% p.a.economy has been increasing by about 40% p.a.

• The investment amounts are allocated primarily to processing The investment amounts are allocated primarily to processing industries and infrastructure developmentindustries and infrastructure development

Priorities to secure attractiveness for investorsPriorities to secure attractiveness for investors::

• To create the investment concessions systemTo create the investment concessions system• To ensure political stability, financial and tender transparencyTo ensure political stability, financial and tender transparency• To be prepare to provide clearly defined city development To be prepare to provide clearly defined city development

strategystrategy• To continue dialogue with businessTo continue dialogue with business

99

Legislative frameworkLegislative framework• Guarantees for investorsGuarantees for investors

• Investment agreement as the basis fixing the rights Investment agreement as the basis fixing the rights and liabilities of the state, subjects of RF and and liabilities of the state, subjects of RF and investorsinvestors

• Introduction of the new categories of investors e.g. Introduction of the new categories of investors e.g. strategic investorsstrategic investors

• Provision of real estate objects for designated Provision of real estate objects for designated purposes as an exception from general auction purposes as an exception from general auction principleprinciple

• Flexibility of application-based and approval –based Flexibility of application-based and approval –based methods (in tax incentive sphere)methods (in tax incentive sphere)

• Special Economic ZonesSpecial Economic Zones

1010

Interview of foreign companies: Interview of foreign companies: conditionsconditions for Businessfor Business

Broad market – that is the main reason of our appearance in the Russian Broad market – that is the main reason of our appearance in the Russian Federation. In St. Petersburg we organized our production due to favorable Federation. In St. Petersburg we organized our production due to favorable geographical position and progressive minded management of the city at geographical position and progressive minded management of the city at

the beginning – middle of nineties. We also considered other optionsthe beginning – middle of nineties. We also considered other options..

• №№1: 1: “In general- normal, we don’t see particular difficulties for our “In general- normal, we don’t see particular difficulties for our business”business”..

• №№2: 2: Company No 2: “Business climate in St. Petersburg becomes better, Company No 2: “Business climate in St. Petersburg becomes better, demand is growing. The Company is planning to invest into new production demand is growing. The Company is planning to invest into new production facilities, including construction of new shops from the very beginning”.facilities, including construction of new shops from the very beginning”.

• № № 3: 3: “Before we got serious problems, now situation is changed in better “Before we got serious problems, now situation is changed in better direction”direction”. .

• № № 4: 4: “Too many inspections of different bodies with rent extraction”“Too many inspections of different bodies with rent extraction”. . “Very “Very slow and greedy bureaucracy”slow and greedy bureaucracy”

• № № 5: 5: “High administrative barriers, a lot of inspections, non – coordination's “High administrative barriers, a lot of inspections, non – coordination's in its requirements (sanitary body, militia, guarding, technical supervision”in its requirements (sanitary body, militia, guarding, technical supervision”. .

“ “Juridical nihilism, low production , professional culture”Juridical nihilism, low production , professional culture”..• №№3.”There are barriers but situation is changing to the better. 3.”There are barriers but situation is changing to the better.

One can feel the grows of competence of bureaucrats”One can feel the grows of competence of bureaucrats”. . • ““No real signs of the state protectionism”No real signs of the state protectionism”

1111

Interview of foreign companies: Interview of foreign companies: Access to information and Labor Force Access to information and Labor Force

• CompanyCompany№ 1: «№ 1: «in some cases we receive information through personal in some cases we receive information through personal contacts, private links etc. However we cant say that there is no access contacts, private links etc. However we cant say that there is no access to the official information. Some to the official information. Some committees organize seminars, committees organize seminars, exhibitions about investment policyexhibitions about investment policy , also Internet-portal, also Internet-portal».».

• № № 3: «3: «Information is availableInformation is available. . Luck of Luck of explanatory materials from the explanatory materials from the control bodies, monopolies about the procedures and rules of control bodies, monopolies about the procedures and rules of agreements with examples of solving the problems. agreements with examples of solving the problems.

• № № 4: «4: «Information about administration activity is rather fragmenting. It Information about administration activity is rather fragmenting. It would be a great problem with it if it would be no contacts inside would be a great problem with it if it would be no contacts inside administrationadministration».».

• ““There is a problem with blue collar workers, low skills workers. We There is a problem with blue collar workers, low skills workers. We attract attract workers from CIS countries through recruiting firms. There is no workers from CIS countries through recruiting firms. There is no luck of white-collar workers”luck of white-collar workers”..

• ““Luck of skilled labor force, low labor motivation and low production Luck of skilled labor force, low labor motivation and low production culture, exaggerated expectations of salaries “culture, exaggerated expectations of salaries “..

• ““It is very serious for us. We start to feel of deficit of labor force even in It is very serious for us. We start to feel of deficit of labor force even in 9090thth. Now we can say the deficit is growing 5-10% in a year. We have . Now we can say the deficit is growing 5-10% in a year. We have training centre in SPb, we send our staff abroad, cooperate with some training centre in SPb, we send our staff abroad, cooperate with some Russian high educational institutes, manage internships for students.”Russian high educational institutes, manage internships for students.”

1212

New investors 2005-2009New investors 2005-2009• ElcoteqElectronicElcoteqElectronic manufacturing manufacturing, $ 120 mln., $ 120 mln.

• Alcan packagingTobaccoAlcan packagingTobacco packaging packaging, $ 35 mln., $ 35 mln.

• Bosch und SiemensHomeBosch und SiemensHome appliances factory appliances factory, $ 55 mln., $ 55 mln.

• ToyotaAutomobile factoryToyotaAutomobile factory, $ 150 mln., $ 150 mln.

• Izora pipe plantIzora pipe plant , $ 560 mln. , $ 560 mln.

• Shanghai investment industrial companyShanghai investment industrial company, $ 1500 mln., $ 1500 mln.

• General Motors Automobile factoryGeneral Motors Automobile factory, $ 300 mln., $ 300 mln.

• NissanAutomobile factoryNissanAutomobile factory, $ 200 mln., $ 200 mln.

• SuzukiAutomobile factorySuzukiAutomobile factory, $ 115 mln., $ 115 mln.

• HyundaiAutomobile factoryHyundaiAutomobile factory, $ 400 mln, $ 400 mln

• FoksoconElectronic manufacturingFoksoconElectronic manufacturing, $ 50 mln., $ 50 mln.

1313

Key industrialKey industrial

St. PetersburgSt. PetersburgThe Gulf of The Gulf of FinlandFinland

The city covers an area of 1,439 kм2

Bosch-Siemens (BSH)

Sea port

JTI

Elcoteq Toyota

Sea portFord Motor

Severstal

BaltikaPepsi-Cola

Coca-Cola

WrigleyRing Road

1414

St. Petersburg is industrial centreSt. Petersburg is industrial centre

• IndustryIndustry is the leading branch of the city economyis the leading branch of the city economy: : it takes more it takes more than 25%than 25% of Gross Regional Productof Gross Regional Product and a little bit less than 25% and a little bit less than 25% of city workforceof city workforce. . There are more than 640 large and medium There are more than 640 large and medium industrial enterprisesindustrial enterprises..

Food; 34%

Electro energetic; 11%

Construction materials

industry; 3%

Mechanical engineering and metal working

32%

Metallurgy; 11%

Light; 1%

Others; 9%

1515

Attitudes to the WestAttitudes to the West• Respondents believe that West European countries are partners for Respondents believe that West European countries are partners for

Russia, and some view them as a model for our countryRussia, and some view them as a model for our country • EEnterntery to EUy to EU : “They will not accept us;” “Russia’s entry into the EC : “They will not accept us;” “Russia’s entry into the EC

would put this organization out of balance;” “Russia is too large for the would put this organization out of balance;” “Russia is too large for the EC to swallow.” , “Russia does not need the EC with all its bureaucracy.”EC to swallow.” , “Russia does not need the EC with all its bureaucracy.”

• Belong to EuropeBelong to Europe ?:?: “I am living in a different environment with “I am living in a different environment with different values.” “Both the living conditions and the values are different values.” “Both the living conditions and the values are different. We, living in the Northwest, are closer to them [than the rest different. We, living in the Northwest, are closer to them [than the rest of the Russiansof the Russians

• a model for Russiaa model for Russia: Seven respondents voted for the U.S.A, two : Seven respondents voted for the U.S.A, two respondents selected Germany and two Scandinavian countries, one respondents selected Germany and two Scandinavian countries, one respondent voted for the Czech Republicrespondent voted for the Czech Republic

• Entry to the WTOEntry to the WTO: Nine respondents welcome it, with seven of them : Nine respondents welcome it, with seven of them noting positive prospects for their own businesses. But bio-chemical noting positive prospects for their own businesses. But bio-chemical company : “This is very unfortunate. The prices on analog drugs will go company : “This is very unfortunate. The prices on analog drugs will go down, while their drugs are of a better quality than ours.” The transport down, while their drugs are of a better quality than ours.” The transport company : “Things will go worse, because our trucks are worse. “This is company : “Things will go worse, because our trucks are worse. “This is just another scheme of our bureaucrats. The issue is deeply political and just another scheme of our bureaucrats. The issue is deeply political and has nothing to do with our interests.” has nothing to do with our interests.”

One should take into account that an adherence to market liberalism One should take into account that an adherence to market liberalism shown by our respondents may be to a significant degree influenced by shown by our respondents may be to a significant degree influenced by a megalopolis where the modernization pace is at its highest. On the a megalopolis where the modernization pace is at its highest. On the one hand, entrepreneurs of a large city located on the EC border one hand, entrepreneurs of a large city located on the EC border demonstrate adherence to a market ideology, pragmatism and sober demonstrate adherence to a market ideology, pragmatism and sober analyses of the situation without nostalgic feelings about the past. On analyses of the situation without nostalgic feelings about the past. On the other hand, they are convinced that Russia should go its own, the other hand, they are convinced that Russia should go its own, special way.special way.

1616

AdvantagesAdvantages and and Disadvantages Disadvantages

of outsourcingof outsourcing of of St. PeteSt. PeteAdvantagesAdvantages• Proximity to the EU border and thus low logistics costs Proximity to the EU border and thus low logistics costs • PProfessional employees rofessional employees • High rate of industrial growth and innovation High rate of industrial growth and innovation • Huge local market potential Huge local market potential • Low cost levels Low cost levels • High interest in obtaining orders and motivation to work High interest in obtaining orders and motivation to work • Free production capacitiesFree production capacities

Disadvantages Disadvantages • Growing salary and other costs Growing salary and other costs • Requirements for high volumes Requirements for high volumes • Lack of experience in international co-operation Lack of experience in international co-operation • Complicated logistics and difficulties with the organization of Complicated logistics and difficulties with the organization of

technical controltechnical control

1717

TelecommunicationTelecommunication

St. Petersburg is a fast-growing IT and telecommunications hub, St. Petersburg is a fast-growing IT and telecommunications hub, unrivalled in north-western Russia. The city’s telecommunications unrivalled in north-western Russia. The city’s telecommunications services industry is currently valued at US $1,2 billion annually. At services industry is currently valued at US $1,2 billion annually. At

this growth rate, a prosperous future and more investment this growth rate, a prosperous future and more investment opportunities seem assured for telecommunications market players.opportunities seem assured for telecommunications market players.

• Subscribers of stationary phones – 2 000 000Subscribers of stationary phones – 2 000 000

• Subscribers of Room phones – 1 600 000Subscribers of Room phones – 1 600 000

• Active Internet users – 846 000Active Internet users – 846 000

• Cellular communication use – 4 100 000 ( 75 % of Cellular communication use – 4 100 000 ( 75 % of the population)the population)

1818

Research & Development Research & Development

• 320 research institutions, 320 research institutions, • 49 of them affiliated with the Russian Academy 49 of them affiliated with the Russian Academy

of Sciencesof Sciences

• 172,000 research staff, 5,400 Doctors, 172,000 research staff, 5,400 Doctors, 18,300 Pre-Doctors of Science18,300 Pre-Doctors of Science

• More than 1,200 small and medium-sized innovative More than 1,200 small and medium-sized innovative businesses employing approximately 100,000businesses employing approximately 100,000

• 6 Technological Innovation Centers6 Technological Innovation Centers

R&D potential: R&D potential: Russia Russia - - North-West North-West - - SPbSPb

627

606590

578

552536

469

449432

424

397381

4037

4099

3566

3656

3797

3906

300

350

400

450

500

550

600

650

2000 2001 2002 2003 2004 20053200

3300

3400

3500

3600

3700

3800

3900

4000

4100

4200

Северо-Западный ФО г. Санкт-Петербург Российская Федерация

Organizations of R&D

162271

116812115017

112478110738

107928104752

141399

98371 9673494352 92715

9001187861

813207

887729

1061044

839338858470870878

885568

80000

90000

100000

110000

120000

130000

140000

150000

160000

170000

1995 2000 2001 2002 2003 2004 2005400000

500000

600000

700000

800000

900000

1000000

1100000

Северо-Западный ФО г. Санкт-Петербург Российская Федерация

Personal of R&D

1773

10757

14693

26172

30988

1416

8780

11988

21717

26329

23465

18108 18357

14372

230785

76697

12149

196039

169862

135004

105260

0

5000

10000

15000

20000

25000

30000

35000

1995 2000 2001 2002 2003 2004 20050

50000

100000

150000

200000

250000

Северо-Западный ФО г. Санкт-Петербург Российская Федерация

Expentitures for R&D (mln.Rbl.)

2020

High-tech companies in St.PetersburgHigh-tech companies in St.Petersburg

2121

Indicators of innovative developmentIndicators of innovative development

RussiaRussia ЕЕUU

Investments in R&DInvestments in R&D, % , % of GDPof GDP 1.21.2 2.752.75

InvestmentsInvestments in R&D in total volume of in R&D in total volume of investments,investments, % %

1010 >>5050

Innovative products in total volume of Innovative products in total volume of productionproduction, %, %

33 >10>10

Source: EuroStat, 2006

Index of innovation development- Russia– № 54 in 2006 ( INSEAD, World Business)

Share of Russia on the world market of scientific production 0,3 % (Source: Ministry of Economic Development and Trade)

2222

Innovative-tech centres

SEZ

Naukograd –research area

Infrastructure for Innovations

Venture investment support for SE foundation

Business incubator for SE

IT park (Telecommunication University)

2323

Special economic zone Special economic zone (SEZ(SEZ))• The SEZ The SEZ –– the part of the territory of Saint-Petersburg (by the part of the territory of Saint-Petersburg (by

means of Federal Government regulation) with the special means of Federal Government regulation) with the special entrepreneurship regime.entrepreneurship regime.

• Saint-Petersburg is the winner of the competition for Saint-Petersburg is the winner of the competition for establishing of the special economic zone (SEZ) in Russia.establishing of the special economic zone (SEZ) in Russia.

• Project timing: 2006 Project timing: 2006 –– 2026 2026

• Production of software, communications facilities and Production of software, communications facilities and electronics; automatic pilots for engineering process, electronics; automatic pilots for engineering process, military and civil avionics, medical electronics, military and civil avionics, medical electronics, development and production of analytical instrumentation development and production of analytical instrumentation is planned to develop on the territory of the SEZ.is planned to develop on the territory of the SEZ.

2424

Special economic zoneSpecial economic zoneTotal area of the SEZ: 200 hectares

Engineering preparation of the territory will be made due to the budgets of

the RF and Saint-Petersburg within 5 years

Novo-orlovsky park

Neudorf

2525

From interviewsFrom interviews

• Russian companies are significantly behind in digital and Russian companies are significantly behind in digital and communication technologies; production of equipment for communication technologies; production of equipment for communications; biotechnologies; microelectronics, production of communications; biotechnologies; microelectronics, production of alternative energy sources. alternative energy sources.

• There are some opportunities in space and laser engineering and There are some opportunities in space and laser engineering and here Russian companies have leading positions in number of cases. here Russian companies have leading positions in number of cases. There are certain opportunities in nanotechnologies development. There are certain opportunities in nanotechnologies development.

• There are two possible alternatives of successful strategy – to There are two possible alternatives of successful strategy – to produce cheaper and offer less qualitative analogues of leading produce cheaper and offer less qualitative analogues of leading foreign companies or to occupy market segments, which are not foreign companies or to occupy market segments, which are not interesting to leading foreign companies. interesting to leading foreign companies.

• Managers of innovative companies stressed that their business is Managers of innovative companies stressed that their business is rather dependable on institutional environment – especially on rather dependable on institutional environment – especially on guarantees of ownership and intellectual rights, quality of judicial guarantees of ownership and intellectual rights, quality of judicial system. Industrial parks and business incubators are the business for system. Industrial parks and business incubators are the business for

bureaucracy.bureaucracy.

2626

Challenges for innovative economyChallenges for innovative economy

Low demand for innovations and low level of Low demand for innovations and low level of innovative activity of companiesinnovative activity of companies

Scientific and research potentials are Scientific and research potentials are underusedunderused

Innovative circle is brokenInnovative circle is broken Lack of links with international innovationsLack of links with international innovations

Policy oriented to the supply side, not to Policy oriented to the supply side, not to demanddemand ! !

2727

Thank you !Thank you !