Zone Kingdom

Many experts consider this project risky. Yet, Russia seems to have no alternative. This is the way followed by most countries that achieved high-tech economic breakthrough. Russia needs to work out strict rules for SEZ and ensure their rapid development soon.

First Steps to the Zones

Less than a year has passed since Vladimir Putin signed the federal law "About special economic zones in the Russian Federation" in July 2005. The officials had time to choose 6 sites where 2 industrial zones and 4 technical/innovation zones are to be built. They also had time to distribute 8 billion rubles from the federal budget that is to be spent on SEZ development. They even had time to devise how to finance construction works inside the zones leaving out the Federal Treasury of Russia. Special Economic Zones state-owned company, created in April 2006, will manage the budget money. Yuri Zhdanov, head of the Federal Agency for SEZ Management, hopes from 40 to 50% of SEZ infrastructure will be built before the end of 2007. Moreover, 2 more types of SEZ will appear before late 2006—that is port zones and tourism/recreation zones, according to Zhdanov. Alongside the first tourism/recreation SEZ tender, an additional industrial SEZ tender will be held in June. Yet, the outcome of the second industrial zone tender is already predetermined. "President Putin asked to pay special attention to the applications of West Siberia and the Far East. So they shall be our principal concern," admitted Zhdanov. Thus, at least 2 more industrial SEZ are to appear by the end of 2006.

It is not only the federal officials who are interested in creating SEZ soon. The 6 regions who won the first SEZ tender have already begun infrastructure building using local budgets’ money. Besides, local authorities themselves offered to exempt future SEZ residents from local taxes not just during the first 5 years (as predetermined by the federal law), but for 10 years actually.

So, Russia is boosting the SEZ formation. The government has great expectations of SEZ. Russia’s Deputy Prime Minister Alexander Zhukov spoke at the First International Forum "SEZ in the Russian Federation. Investment fund of Russia." on May 16. He repeated that "SEZ are a means of implementing the central objective of Russia’s economic policy—to develop high-tech sectors of economy." According to the estimations of the Ministry for Economic Development and Trade, Russia shall gain 50 billion rubles of investments and some 20,000 new jobs after 20 years of existence of SEZ just in Elabuga and in Lipetsk region. Moreover, the Ministry expects technical/innovation zones to bring over 180 milliard rubles into the budget, and 52,000 additional jobs. Yuri Zhdanov said the projects of first SEZ residents shall start to pay off in 2 or 3 years. The government will not lose much either. In 2006 and 2007, federal and regional budgets are to spend around 46 billion rubles on SEZ, including port zones and tourism/recreation zones.

However, neither the government nor experts can guarantee the success of SEZ project in Russia.

Economy within Economy

Experts warn that the successful creation of SEZ in Russia directly depends on creating an almost perfect economic system in the zones. There should be strict rules for SEZ, minimized red tape, and a highly competitive environment, which would improve the investment climate in the zones. "SEZ played a major role in the development of China’s economy. They were especially important when investors were uncertain about China," said Duncan Innes-Ker, expert of the Economist Intelligence Unit. "Companies felt their investments were most secure in SEZ."

Russian Ministry for Economic Development and Trade has been trying to estimate the difference in expenditures of SEZ residents and companies outside of SEZs. Preliminary estimates state that residents’ expenditures will be 30% less than those of other companies, and that such difference is mainly due to the government’s investments in SEZ that make up some 10%. Tax concessions, howeve