The Novgorod region has never been and is not among large industrial centers of the country. Instead, it is one of Russia’s cozy nooks with excellent facilities for recreation and tourism. Nevertheless, precisely this region turns out to attract foreign investors thanks to the favorable business climate created by the Novgorod regional administration. In an interview with Eurasian Metals governor Mikhail Prusak shares his views on conditions of doing business in the region and the general economic situation there.

Monument of Russia’s Millennium. Unveiled on September 8, 1862, the monument to the first Millennium of Russian History was the work of a team of sculptors, headed by Mikhail Osipovich Mikeshin. This grandiose and complex sculpture displays129 figures, whose selection was personally approved by Emperor Alexander II

EM: Five years ago the Novgorod region became of the country’s leaders by rates of its economic growth. But during that time the situation in Russia was recognized as the crisis one. How successful are you in maintaining the leading positions today, when the Russian economy is on the upturn?

MP: We are quite positive in assessing the region’s economic state, although initially the conditions to implement reforms were rather unfavorable. It is hard to compare the Novgorod region with, say, Saint Petersburg, the major industrial and transportation center of Russia’s northwest, which, besides, is bordering Finland, the EU member country. The investment potential of the Novgorod region is not high: overall it is placed 65th in Russia; the region is in the 78th place by its natural resources’ potential, the 57th place by the production potential and the 60th place by the consumer one (the narrow local market). There are no enterprises of the industry’s high-liquidity sectors, such as oil and gas production, aluminum processing, etc.
Nevertheless, the Novgorod region managed to start market changes and find its own ways of improving the economy as well as attracting capital. To this end we had to work out the system of attracting investments from other Russian regions and from abroad.
The economic structure of the Novgorod region began to transform. Diversification processes are taking place both at enterprises and in individual sectors. The share of the chemical industry went down from 35% to 28 % while those of the engineering, food, timber, woodworking and pulp and paper industries went up. There is an ever growing number of products that are much innovative by their characteristics.
In 2002 the Novgorod region’s industry raised its production volume by 7.6 % or by almost $1B. The positive dynamics has been maintained for six years in a row and our region is still among Russia’s leading regions by rates of its economic development. We hope to get new production enterprises in the foreseeable future (between 2003 and 2007), including those with a 100 % foreign participation. This will let us further increase production volumes.

EM: As compared with opportunities provided by Russian laws what are the advantages that investors as well as entrepreneurs have by financing projects and doing business in the Novgorod region?

MP: The local investment laws can be divided into three categories: the first one includes those that provide tax privileges; laws of the second category are aimed at securing the region’s investment attractiveness and the third one consists of laws that ensure guarantees to investors.
The system of tax privileges as well as laws, which fix them, was formed stage by stage. Since December 1994 there has been a local law "On tax privileges of enterprises and organizations based in the Novgorod region".
In their turn, many districts and cities in the region provide additional tax breaks on the local scale to enterprises with foreign investments. In 1998 the "Law on investment activity of the Novgorod region" has been adopted. This law brings together all "rules of the game" for investors implementing investment projects in the region’s territory. The pay-off period of investment project is calculated on the basis of the existing rules.
Since 1997 economically favorable zones with special tax regulations have been set up in four districts of the region by the decree of its Duma (legislative body). In this respect the Novgord region has become the first in Russia.
And the most important thing is that unlike federal laws ours do not divide investment projects into the priority and non-priority ones.

P  R  O  F  I  L  E
Mikhail Prusak Governor of the Novgorod region. Born in 1960 in Ukraine. A pedagogue by profession, worked as a teacher at rural school. Started early his career as politician and leader by becoming an active member of the USSR Young Communist League. Held a number of important posts in the Novgorod region, including the director’s post at an agrarian enterprise. With the start of political reforms won the first free elections to the country’s parliament, was a member of the Interregional group of deputies that consisted of the "first wave" democrats. In June 1991 was empowered to act for Boris Yeltsin in the elections of Russia’s president. In October 1991 was appointed head of the Novgorod region. Led the region’s experiment to replace all taxes (except the federal ones) with a single land tax. In December 1995 was elected the region’s governor and later was reelected twice to this post by winning in the first round of elections every time. And this fact was certainly a solid proof of his popularity as well as the testimony to the people’s support of his policy. Member of the Academy of pedagogical and social sciences, has doctor’s degree in economics. Likes pop music, books about famous persons, historical novels as well as hunting. Married, has two children.

EM: Some time ago, when inviting foreign partners, the Novgorod region’s administration and legislators provided them with the then-unprecedented privileges as well as guaranteed that there would no "hardening" of legal terms for businesses. To what extent these promises have been kept? To what extent the existence of the preferential treatment system agrees with the general trend toward rejecting the very practice of ensuring privileges?

MP: The system of the Novgorod region’s administration guarantees for foreign investments provides:
– assistance by the regional investment insurance fund;
– complete information of potential investors;
– assistance by local power structures to implement promising projects and help solve problems of the federal nature.
This system in no way contradicts federal laws. By creating conditions to attract outside investments we wanted to escape the financial dependence on federal authorities.
When creating the investment climate, we paid due attention to all major factors of the territory’s attractiveness. Our additional advantages were: the advanced structure of modern telecommunications, high concentration of enterprises of the industry’s science-intensive sectors, availability of the skilled labor market and secondary land market.
This system of guarantees and the territorial attractiveness factors have not changed. The same is true for legal terms of doing business as well.
So, if we talk about some special system of "preferences" in the Novgorod region, we mean by that, above all, the general favorable climate for investments and friendly attitude toward investors.

EM: Tell us, please, about the fate of the most significant projects in the region’s economy. To what extent they justified hopes of investors? What benefits did the region get?

MP: The biggest investors are from the European Union and other Western countries. The list includes such companies as Cadburry (UK), Dundee (Denmark), Schauman Wood, Raute, UPM Kymmene, Stora Enso (Finland), Sommer, Pfleiderer, Benteler (Germany), Holzindustrie Preding (Austria), Amkor (Australia), Oldam (France), Joyco (Spain), Dresser Industries (U.S.). The enterprise of Amkor Rench, which started its operations in September 2000, commissioned the second cigarette-package production line in just one year and in February 2003 the third line was added. This enterprise achieved the highest level of productivity among the similar ones that are owned by the concern.
All in all, 283 investment projects have been and are being implemented in the Novgorod region’s industry with foreign capital participating in 53 of them. About 100 projects are being developed.
From 1995 to 2002 the region’s administration provided tax privileges totaling 480 million rubles (at present, the exchange rate of the Russian currency is about 30 rubles for $1), while these organizations transferred 1,239 million rubles to budgets at different levels and to off-budget funds. In other words, after providing at the initial stage tax privileges, which are comparatively small in money terms, we receive a solid source of budget receipts for subsequent years. And that is the most important thing. Today these enterprises account for over 50% of tax proceeds. What can illustrate the situation better?

EM: Previously, investment preferences given to the food industry obviously prevailed: foreign companies preferred to invest in producing chocolate, beverages, chewing gum. What kind of projects do investors choose today?

MP: The sectorial structure of investments in the economy of the Novgorod region has considerably changed and it looks like this: the timber, woodworking and pulp and paper industries account for 61.3 %; the food industry accounts for 33.4 %; the share of other industries amounts to 0.3 %.
Investors prefer to finance projects that will quickly pay off. But nowadays there is also a growing interest in long-term investments, for example, in such industries as non-ferrous metallurgy.
The Novgorodsky metallurgical plant designed by a Finnish company uses the advanced technology of processing scrap copper into high-quality cathode copper. When the plant reaches its design capacity, the industrial production volume in the Novgorod region will increase 8 %.

EM: It is interesting to find out why the Novgorod region has been chosen for implementing such a project. The region has never had a metallurgical industry and, thus, it does not have a skilled personnel potential and a resource base?

MP: Investors have taken into account both the advantageous location of the enterprise, which is close to large sources of raw materials and sales markets, and the availability of positive investment laws as well as a number of other factors that meet the project’s terms.
The assertion that there are no labor and other resources in the region, which are necessary for the plant, is wrong in principle since in the Soviet years there were big radio electronics enterprises here that belonged to the military industrial complex. Yes, there is a need to retrain people but we do have skilled personnel as well. As far as the absence of a raw material base in the region is concerned, it is not needed in this case. The new production facilities use scrap metal and there is enough of it at large enterprises of the electrical industry. Since we are located between two major industrial megalopolises, Moscow and Saint Petersburg, we do not expect having any problem with raw materials.

EM: As a rule, Russian governors rarely make public their personal political preferences favoring instead the image of "strong managers". You are one of the few regional leaders, who have the pronounced political position. What is more, you are supporting principles of liberalism and free market, which are not the most popular ones in Russia. Have not your views changed because of the growing conservative trends in the society and power structures?

MP: Although I do not consider myself being a big politician, I can confirm: yes, I am supporting liberalism and free market. But, above all, I am for the civilized liberalism and civilized market. Our team supports an effective social and economic policy that really improves the life of our region’s population. Having in mind this task you can consider me being "a manager" or "realist-pragmatist" or someone else. As we see it, the way to accomplish it is to ensure a constant growth of the industrial production. Only by doing this we can start deeper social transformations in our region. Even today our budget is socially oriented and it will stay this way in the future. The people know it. As for conservative trends, it is not true, although there are some, of course, who are influenced by conservative ideas. But the majority trust those, who are in power, and believe in a better future.