Special Report

Russia’s Special Economic Zones, with Singapore assistance

One of the main topics at the Russia-Singapore business forum concerned the establishment of Special Economic Zones (SEZs) in Russia, assisted by Singapore’s expertise. This was one of the interesting outcomes of last year’s forum. Singapore’s skilled management teams, an emphasis on efficiency and virtuous hard work, together with Russia’s vast natural and human resources are expected to create an inviting and friendly environment for businesses to flourish.

Singapore’s Minister Mentor Lee Kuan Yew

SEZs have been toyed with to some extent in Russia which has adopted some elements of Asiatic economies typical of China, Korea and Japan, in which one of the key tools was the use of SEZs to attract foreign investment. The decree regarding Special Economic Zones in the Russian Federation was signed two years ago in July by President Putin. Through cost reduction, tax breaks and faster investment returns for businesses, reduced administrative barriers and improved infrastructure within these zones, they are poised to attract businesses and investors to Russia.

The Federal Agency for Management of Special Economic Zones of Russia (RusSEZ) signed a Memorandum of Understanding with the Ministry of Trade and Industry of Singapore in August of last year. In the same spirit of economic cooperation, RusSEZ, together with the Foundation for Assistance to Small Innovative Enterprises, have also signed a Protocol of Intentions earlier this year, to establish a Russian business incubator in Singapore. It is the first to be established outside of Russia. Mikhail V. Mishustin, Chief of RusSEZ, spoke at the forum, highlighting the potentially lucrative SEZs for Singapore businesses to invest in.

Altogether, six SEZs scattered throughout Russia were created and Singapore will help set up two of them: in Tomsk and Elabuga, Tatarstan. There are four types of zones: Technical and Innovative Zones, Tourist and Recreational Zones, Industrial Production Zones and Port-type Zones.

Technical and Innovative Zones were created in St. Petersburg, Tomsk and the Moscow regions of Zelenograd and Dubna where high-tech industries specializing in ITC tech, nanotechnology, laser technology, electronics, medical biotechnology, bio-information and biosensor technologies will set up shop . In the Singaporeassisted SEZ in Elabuga, car parts, vehicle manufacturing and petro-chemical industries will thrive.

Tourist-Recreational SEZs such as those in Krasnodar, Kaliningrad, Stavropol, Irktusk, the Republics of Altai, Buryatia and Tartarstan were created to stimulate and develop the effective use of recreational resources such as resorts, hotels, medical and health services facilities, business conferencing facilities and more. Businesses operating in a Tourist-Recreational SEZ will benefit from a decreased profit tax rate, exemption from property and ground taxes for five years, and the use of mineral resources located in the SEZ for use in medical purposes.

Impressive turnout at Russia Singapore Business Forum attracted movers and shakers from Russia and Asian countries in unique and frank exchange of views

The Prime Minister of Tartarstan, Roustam Minnikhanov, gave a colorful presentation of the republic as a tourist and recreational zone. While in Singapore, the Tatar delegation also toured a housing estate developed by Singapore’s Housing Development Board (HDB). Together, they are exploring possible solutions to apply the HDB’s mortgage plans to the region. Minister Mentor Lee Kuan Yew also commended Tartarstan’s su ccess in developing the Alabuga SEZ—the result of cooperation between Russia and Singapore.

Port-type SEZs will probably find very positive results in working with Singapore— once a tiny fishing-village that flourished with the help of its free port. Primorye, for example will benefit from its close proximity to the Asia Pacific and tax breaks from customs and integrated port and transpot facilities. The idea is still in its infancy, but it is gathering support. Herman Gref toured the PSA port, one of Singapore’s maritime giants, during his visit.

The prospects are extremely encouraging, but setting up and running the SEZs will not be without difficulties—as shown by the Singapore experience in the 90’s with Suzhou Industrial Park, a brainchild of MM Lee, that has been thought of as a white elephant that incurred huge losses. Hopefully, Singapore has gained some valuable (albeit very expensive) lessons about planning and managing SEZs overseas. Many challenges that will face the SEZ prospects in Russia are similar to those that others who are already attempting to start up business in Russia—corruption, red tape, the reliance on traditional sectors and as MM Lee pointed out, the very simple problems of distance and language barriers will very well be the largest obstacles. However, as Ambassador Michael Tay said to a gathering of businessmen some months ago, Singapore businesses have thrived in many countries where they faced similar problems of corruption and cultural differences, and dealing with Russia should be no different.