Russia is the largest country in the world by territory. Huge distances entail certain difficulties in development – regions across the country develop unevenly. Politicians and economists are arguing for years over which way should the development of territories, regions and republics go - whether to select regional specialization or the need to develop all sectors of the economy immediately. And in fact, both ways have pros and cons.
Kirill Orlov
Dmitry Porochkin, president of the Moscow club of young entrepreneurs, says: "It is hardly possible to invent a universal formula, applicable to all regions, due to objective factors. These are the uneven distribution of population density (0.07 persons per square kilometer in Chukotka to 4910 people in Moscow), different climate zones - from subtropical to arctic desert and various concentrations of minerals. Doubtful are the attempts to develop tourism, for example, in remote northern regions of Russia, or to rely on heavy industry in the Krasnodar region, favorable for agriculture and tourism. To successfully develop the regions highly specialized clusters, attracting to breakthrough companies, must be focused on, not replicating "the undistinguished". Moscow region with Zelenograd and Dubna may specialize in electronics and high technology enterprises, Urals Federal District enterprises - in heavy industry, Novosibirsk region - in metal, and for the Amur region and Khabarovsk territory it is advisable to develop the aerospace industry", the expert says.
Rocket Group General Director Boris Latkin agrees with the colleague, he believes that Russia's regions should develop on the basis of the capacity, they have. "Every region has its own competitive advantages. Some have resources, some have sanatorium-resort potential, some transit. Specialty should be based on this", the expert said. At the same time he believes that it is impractical and inefficient to create fully autonomous territories. "But full development must be ensured due to the specialization. Singapore's example is very illustrative. This state, with no natural resources, has consistently realized the potential of transport, financial, and then the technology center, successfully interned in the global economy. So our regions need to be integrated into the Russian economy instead of creating territories, independent from each other", Mr. Latkin said.
However, not every expert believes that the specialization of the region is a good thing. Alexander Pahalov, expert of methodical department of the National Rating Agency said that regional statistics for the years 2014-2015 shows clearly that the narrow sectorial specialization of regions significantly reduces the resistance to the crisis. "Low global energy prices led to freezing of investment projects in oil and gas companies, which is reflected in the indicators of "raw material" regions that are highly dependent on the state of the mining industry (in particular, in 2015 the volume of investments decreased markedly in the Tyumen and Tomsk regions). Kaluga region experienced problems due to the narrow specialization: in this region there was a significant investment activity decrease on the background of recession in the region's backbone automotive industry", - he says.
However, the expert acknowledges that it is impossible to develop, all the industries in the region at once due to the objectively existing natural, historical, infrastructural and institutional constraints. "It is hardly possible to name at least one region, equally suitable for the development of oil and gas, food processing and heavy industry", - Mr. Pahalov believes. Optimal solution is to select a limited set of strategic directions of region development. These may be not only the related clustered productions, but completely independent branches. "In this case, the result may be optimal: if one leading sector slows down, the situation in the regional economy can be balanced by growth in other sectors. In the same Kaluga region, in addition to the automotive industry pharmaceutical productions are actively developing, which in the current economic realities feel much more confident and may become a new growth point for the region's economy", Mr. Pahalov shares his opinion.
Daniel Egorov, head of Dukascopy Bank SA trading strategies department, says: "Regions are still developing and will develop either those areas that are traditional for them (e.g., Lipetsk region - assembly production and the agricultural sector, Nizhny Novgorod - logistics) or the ones interesting to foreign investors. An important point in the development of regions is the municipal debt market. There were no foreign investors in this market from the start, and the activity of Russian players leaves much to be desired. Meanwhile, without coherent alternative to bank lending, the development of potential regions seems hazy and full of vague expectations".
Vladimir Kilinkarov, partner at law firm Maxima Legal, believes that the issue of the way the region's development isstrategic, and it should be decided independently by the constituent territory of the federation, taking into account a variety of factors. The strengths of the region, its competitive advantages, surplus resources, infrastructure problems and gaps should be taken into account. Not every subject has the opportunity to rely on any sector of the economy, potentially, taking into account the instability of the economy and demand it can be a very expensive solution. "Ultimately, our legislation provides reflection of trends in the region's development in strategic planning documents, including the socio-economic development program", - Mr. Kilinkarov says.
Elena Ulyanova, Chairman of Saint Petersburg Economic Policy and Strategic Planning Committee, reminds that the path of development of each region, as well as its specialization, is determined based on its geographical location, historical economic functions, competitive advantages. Thus, the economy of St. Petersburg was always distinguished by multidisciplinary character. The industry represented virtually by all types of manufacturing industries plays main role in the city economy - 24% of the GRP. Slightly smaller a contribution (21.4%) is given by the wholesale and retail trade; 19.3% - real estate transactions; 11.8% - transport and communications.
"Any city manager will select a diversified economy as the foundation of a city’s financial stability in the long run. But it's not always a matter of choice. Today in Russia there are both regions with narrow specialization, company towns and megacities, developing in an integrated manner. Every city has chances for development, it needs only to choose the right strategy that takes into account the plans of agglomeration, which formally or informally is entered by the city. The development forms may also be different - there is no universal model, as long as targets are achievable and provide the resources"- Ms. Ulyanova says.
Dmitry Teplov, director of Krasnokamsky repair-mechanical plant (Perm Territory), draws attention to the fact that there are regions with a dominant industry in Russia. For some, it may be agriculture, for the others - metallurgy and machine building. "In the Perm region chemical industry, mining, machinery manufacturing, wood processing, light industry, IT-sphere and others are actively developing at the same time. Thereat, the labor force is fairly evenly distributed across the sectors and segments of the economy. This diversity of the economy distinguishes our region among others, contributes to the formation of a significant number of industrial clusters. Today in the Kama region twelve major and five actively developing high-tech clusters can be identified. Two of them received state support - this is innovation cluster "Technopolis" New Star", specializing in rocket engines construction, and a cluster of optical fiber technology "Photonics". Therefore, speaking of the Perm region, one should not make a strict choice between comprehensive development and specialization. The example of the region shows that each cluster separately demonstrates a narrow specialization in a particular area. At the same time, considering them as a whole, we talk about the comprehensive development of the region", - the industrialist noted.
An important area of strategic planning in the region is planning of strategic gaps. It is known that investments in infrastructure provide a strong economic multiplier effect and contribute to overall economic growth. Lack of such investment in the same way may cause the economy to stagnate and decrease. In modern Russian realities of the budget deficit, a solution for public infrastructure development should be to attract private investment by the model of public-private partnership.
"At the moment, we have though imperfect, but quite a developed legal framework for concessions and PPP (MPP) at all levels - federal, interregional, regional, local. It is necessary to use every opportunity for structuring and implementation of such projects if they can be cost-effective in the particular circumstances. PPP and concessions are currently among the most effective mechanisms for comprehensive development of the region", Mr. Kilinkarov says.
Alexander Ivlev, Managing Partner at EY for Russia, notes that, as shown by the analysis conducted by the investment projects carried out over the past ten years, the largest number were implemented in the area of mining, the second place is occupied by the agricultural sector. Most investments in the sector of oil, gas and mineral resources were attracted by the regions where are located the main deposits (Siberia, Far East and the Southern Federal District) are located. production of building materials also gravitates towards places of extraction of natural materials(most of the investment are made in the Central and Ural Federal District). Specialization of Murmansk Region is determined by geographical features, as well as the Kamchatka region, who are leaders in attracting investments in the fisheries sector projects. In the Republic of Khakassia, the Tomsk Region and Krasnodar Territory investors are attracted by the industry of wood processing and manufacture of wood products.
As for the infrastructure, it is the most developed in the European part of Russia. Almost 40% of the total number of industrial parks are located in the regions of the Central Federal District, about a quarter - in the regions of North-Western and Volga Federal District. At the same time due to institutional support, PPP arrangements, the creation of TOSER and SEZ, the authorities to stimulate creation of the innovation infrastructure in other regions too, which will help the development of non-commodity-oriented production, including export. In particular, such objects of innovative infrastructure like parks and business incubators can play a significant role in the ecosystem of the region", Mr. Ivlev enumerates.
Alexander Arsky, associate professor of Financial University under the Government of the Russian Federation, said that the regional specificity of industrial production in the Russian Federation takes into account at the present time not only the raw material basis for their industries (oil, gas, timber, ore, marine fauna), but also new directions of development "serviced" by various federal target programs (FTP). For example, the program "Economic and social development of the Far East and the Baikal region for the period till 2018". The main objective of the federal program is to stimulate business activity in the region, creating favorable conditions for business (zero tax rates, energy and transport infrastructure).
"In these circumstances, the business community can implement their business projects not only on the basis of the federal program, but also due to the opportunities offered by the implemented policy of import substitution. Thus, the totality of these factors allows the regions to build an industrial business system which is based on the full cycle materials processing and, consequently, high added value, which is the object of taxation. That is, after the tax breaks the state will receive stable sources of tax payments", associate professor says.
Blazej Bernard Reiss, CEO of TPV, sums up: "As for the development of the regions of Russia, I will state quite a factious idea. Russia on the whole needs to leave the WTO, to transfer its engagement with the world economy from “free trade” to “smart trade” principle. That is, not to develop the conditions that it is dictated, but develop the conditions of its own benefit. Based on this principle the regions should be developed in the same way: considering and adjusting each one in an individual approach. Less politics and more business approach to the economy!”
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