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Zashev, Peter:
Current state and development potential of Russian Special Economic Zones - Case study on the example of Saint Petersburg SEZ
Electronic Publications of Pan-European Institute 8/2008

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The recent attempt that started in 2005 to re-launch the introduction of the Special Economic Zones in Russia was welcomed with great hopes and expectations. The legislative measures carefully considered the past mistakes and the legislators defined several different types of zones with clear distinction in their aims and objectives. More importantly the new zones were not equivalents of whole regions or vast territories as before. Instead after some competition several regions won the right to build special economic zones in well defined places with adequate but limited area.

Nevertheless based on the example of SEZ Saint Petersburg it is possible to see some weaknesses in the current strategy mode in general and in its implementation in particular. These may result in serious decrease in the performance of SEZ and possibly even lead to the conclusion of yet another unsuccessful try in using them as an economic tool for modernization of the economy. Therefore such weaknesses should be addressed by policy makers as to refine the strategy and put it into more concrete dimensions.

A. Macro level: concrete performance indicators

The zones have been given certain quantitative and qualitative performance criteria. The technological-innovative zones should reach certain number of residents, scientific publications, patent applications, created and implemented advanced technologies, innovation products, researchers (including number of PhD), innovation activity etc. (Alpatov, 2008). Then there are economic indicators such as volume of investments (including foreign), volume of produced products and services (including export production), productivity, and share of SEZ in the regional domestic product, volume of tax contributions to the budget of the Russian federation, return on investments (Ibid.). Finally social indicators are also to be measured such as ability to create working places, average wages, number of trained personnel and number of built residential housing.

But the mentioned above are rather performance criteria and not performance indicators. The only concrete figure that may be found discovered is that technological-innovative zones are expected to break even in 11 years after their establishment (Ibid.), which is also not very precise. There are also some indicators for all the zones until 2025 (Ibid.) – not very concrete and somewhat missing any intermediate targets.

B. Plans versus reality at micro level

The Saint Petersburg SEZ authorities aim to create 12 000 new working places by 2010, which is in 16 months from now. Given the present absence of a single company already operating in SEZ this is quite unlikely. Another figure is to have 50 residents by 2018 with a total turnover of 25 billion roubles (approx. 667 million euro) - this is in 10 years from now. Based on the available data some there is apparent lack of coherent business plan with scheduled activities and concrete milestones / deliverables. Thus at present there is on one hand quite ambitious, short-term and unrealistic objective. On the other hand equally grand long-term target that misses concrete substance in the form of an action plan developed in detail.

The devil is in the detail and the issue of land surveying and land titles should be resolved in a way that is clearly understood by investors both domestic and foreign. This perhaps somewhat small bureaucratic detail may seriously distract companies from registering and thus have tremendously negative impact on the end success and ability of zones to develop innovation capacity and commercial viability.-

C. Attractiveness of Saint Petersburg SEZ

This is the issue where this research spotted the biggest differences between the perception of the SEZ authority and the companies registered in SEZ. According to the SEZ authorities among the main competitive advantages of the SEZ the lower prices for energy and the lower taxation. Still it is questionable to what extent technology-innovative companies might be energy intensive consumers. Significant taxation incentives are given in the form of reducing the unified social tax on salaries. Other incentives among which the reduction of corporate tax from 24 to 20% hardly can be qualified as ground breaking. That can be confirmed by the companies according to which the benefits brought by the participation in the SEZ are of little help considering the level of inflation in Russia. The other opinion was that tax incentives mattered in the decision to register in SEZ but the main reason was that participation in a project of such scale can be useful to attract attention to the company’s activities and thus play a certain role both in advertising and public relations.

Still the SEZ authorities would have been able to offer much wider support for the registered companies in their attempt to develop and commercialize innovation such as business incubator, patenting legal advises, venture capital accumulation, international match making etc. In the absence of structures supporting the commercialisation of innovation in Russia (Dezhina & Zashev, 2007) that really would make the SEZ add value to the companies-residents activities. Instead at present it seems SEZ authorities are delegated the duties to build the infrastructure and maintain it.

D. Domestic orientation

According to the interviewed expert the Saint Petersburg SEZ was created targeting mainly Russian companies. As for the foreign capital, it is more welcomed in the other type of the SEZ – the industrial-productive zones. This, if taken at face value, may be quite counterproductive. In a global economy developing innovation capacity is possible only through intensive networking and clustering that results in building links with various stakeholders in the process – venture capitalists, R&D organizations, subcontractors, end customers and, often, even rivals. The prevailing trend is that all this networking and cluster building is increasingly international. Russian companies (and foreign) will only benefit from having SEZ into real international hubs of innovation – that is highly unlikely in the absence of international companies. In this respect a serious remodelling of the business strategy of SEZ should be considered as there is a real danger for technology-innovative zones to turn into agglomerations of Russian companies with little incentives to seek international competitiveness but rather wait for grand governmental programs and finance schemes.

The current attempt of Russia to stimulate its economy switching its mode from resource based to technology based is again utilizing the idea of Special Economic Zones. Technology-innovative is one of the several types of established SEZ that represents the hope to build an innovation economy. However the example of SEZ Saint Petersburg shows that certain rethinking and fine-tuning of the concept is needed. These deal mainly with the having concrete performance indicators dressed into a scheduled action plan and adjusting it to the present situation, which show some gap between planned and achieved. Furthermore technology innovative zones should be rethought in order to boost their attractiveness through offering not only tax incentives but also wide range of services targeted after the companies-residents. Finally technology-innovative SEZ may only gain from reaching to leading international companies and trying to lure them into establishing in the SEZ. The good new is that what is needed is fine-tuning and not starting all over again. The bad new is that there seem to be certain lack of administrative capacity tot energize the process and turn it into a more target oriented one.

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