Seeing the new opportunities is important
Alexander Khloponin, Vice Premier of the Russian Government and President’s Plenipotentiary Envoy to the NCFD (North Caucasian Federal District), believes that the District’s economic development will be given renewed momentum when the regional government authorities and the investing community see the opportunities opening large projects of the NCFD tourist cluster for small and medium-sized businesses
According to Alexander Khloponin, the District’s development strategy is implemented at outstripping paces: the number of projects in the tourist cluster is growing while foreign investors’ feedback has unexpectedly proved to be impressive. At present, the most important problems here include the initiative of local businesses and the management level of municipalities. A conversation with the Expert South correspondent took place immediately after a three-hour meeting of the local self-government council at the plenipotentiary envoy office in the NCFD.
Problems are better seen from below
— If we look at the meeting that you have just held, it seems that you try to land the strategic management at the level of municipalities, don’t you?
— The answer is positive and negative at the same time. The answer is negative because it is impossible to inscribe the number of such diverse municipalities in the District’s economic development strategy. The document quality will be unacceptable. The answer is positive because, unfortunately, the main logic of municipalities currently consists in implementing poor budgets. They lack funds even to exercise their current powers. For this reason, the ideology should be changed: a municipality is to be aware of its place and role in the development strategy of a district, an economic area, and a constituent territory of the Russian Federation. This becomes viable when a local head can see the entire picture. Conditionally, we are planning to develop the tourist cluster. A local government official should be aware of how he/she can develop processing plants and factories on the territory he/she is in charge of, and supply products to shops and restaurants around this cluster. On the whole, municipalities ought to be able to see where their territory goes.
— You emphasized that many problems municipalities talk about are issues attributed to the competence of governors. So what is the objective of your council?
— By the way, today not all the constituent territories have strategies that would correlate with the NCFD strategy and the country’s development strategy in general. There are strategies in Dagestan, Ingushetia, the Stavropol Territory, and the Chechen Republic. Others have strategies as well, but they have little in common with the documents I have mentioned. The conversation we have just held was necessary only to make things start; after that, we are planning to visit the sites. Another aspect is information about problems received directly from municipalities, which is useful at the federal level anyway. This means a possibility to raise problems before the Government. We can also track the consequences of adopting any laws at the municipal level.
— Here is a question for you as a Vice Premier that is in charge of redistributing powers between the center and regions. What should we expect in this area? Several municipalities are emphasizing that the current system of inter-budget relations fails to encourage their development.
— There is no single attitude as to the development direction. Experts estimate that today constituent territories and municipalities lack about trillion rubles or so to exercise their powers resulting from power redistribution. In other words, when addressing the problem of powers, we should realize that we already have a deficit at hand. So where can we get this trillion? As an option, we could offer benefits enjoyed by federal companies to municipalities. There are proposals to depart from the VAT on the sales tax, which would go to the regional or municipal level.
I believe that it is necessary to concentrate everything at the federal level where there is a deficit and delegate powers when there is a surplus. This is my personal opinion.
We did not expect foreigners to be so active
— Today you have mentioned development of a coastal cluster on the Caspian Sea: has it already have any outlines?
— We are based on the fact that the Caspian Sea coast represents a unique resource from Russia’s perspective. However, nothing has been done for the last few decades so that the country’s residents could profit from this resource. Apart from the Black Sea coast, we know no other sea resorts and do not consider the Caspian Sea as an alternative; we just go to resort places abroad. Have you ever been to Azerbaijan? Entire cities have already grown there: modern hotels and large flows of tourists. The stories that the Caspian Sea is shallow and windy are wrong: it has a tremendous potential for resort development and huge resources of therapeutic muds. However, in terms of investments, only the Government can achieve this objective. This project has been outlined in the form of territories so far: 26 thousand hectares of free land in five districts of Dagestan along the coastline from Kaspiysk and almost to the border with Azerbaijan. This land was proposed to the North Caucasus Resorts (NCR) so that they could transform them into the so called Caspian Cluster as a special economic tourist area (SEA). This objective to be achieved by the end of this year consists in taking land, developing a project in which the Government could participate from the infrastructure perspective and investors could invest funds in development.
— To what extent has the Veduchi ski resort joined the North Caucasus tourist cluster?
— By next September, all the preparatory works aimed at including the project in the cluster should be completed. There are many technical issues there. In order to create a special economic area near Veduchi, it is necessary to make sure that no meter of land is classified as a protected conservation area. But the project is quite interesting. And a decision to create a SEA there has been adopted.
— When projects included in the tourist cluster started to be developed, you said that a single managing company would manage them. At present, the Arkhyz resort place is scheduled to be launched soon: you set a task that it be opened by the 2012-2013 winter season. So which company is going to attract visitors there?
— Look: there is a SEA transferred to the North Caucasus Resorts. The NCR determines what and where on this territory is to be developed. The company will be in charge of chairlifts and the entire engineering infrastructure. The NCR holds a road show and attracts investors. The managing company will be in charge of all those assets that are on the NCR books.
— Is it hired or founded?
— A joint venture with the French has already been created: Caisse des Depots et Consignations. The managing company will be founded in cooperation with them as well. It will be responsible for promoting resorts.
— Hotels are being built and the traffic possibility has already become reality; however, it is unclear whether tourists will go there.
— And why should they not go there? This is a wonderful place. Of course, the brand is to be promoted, but this project has not been developed from scratch as many people go to Arkhyz even now. In 2012, only one investor, namely Arkhyz-Sinara, is launching its part of the route and hotels.
— Several agreements with foreigners have been signed recently: the latest agreement concluded with Rizzani de Eccher stipulates investments worth EUR 1 billion. Foreigners were expected to be contractors while Russian giants such as Gazprom were thought to be investors. Was it planned to attract foreigners or was any feedback received from them in the process of development?
— Of course, we did not expect that foreign companies would be so active. On the other hand, it is logic. The global economic crisis made capital seek places where it could be protected enough and yield the maximum effect. And conditions offered by the North Caucasus Resorts looked attractive in terms of payback and profitability on invested capital. And as the Government is ready to offer guarantees at up to 70% of attracted investments, the conditions prove to be quite comfortable. At the same time, I know many European investors that develop resorts, for example, in Kenya; are we less civilized than Africa? No, we aren’t, and all of this is viable.
— An Italian investor told us that it has a much better attitude to the North Caucasus than the Russian investor: Ingushetia or, for example, Smolensk Region is the same country for it.
But the situation in Italy is the same. They have Sardinians, residents of Sardinia, who are associated with evil mountaineers and thieves. However, this is an elite tourist resort for us. The Corsica residents in France have a similar story. But unlike Europe, our media fail to promote our resort places: there is only negative information about the Caucasus. It was important to find open-minded investors. If we look for them only in Russia, everyone will tell you about their risks and fears.
— And why did the CMW need an individual scenario? A special economic area could have been reorganized here as well, but you developed an agglomeration project.
— Because there is no green field here. All other NCR projects are in the green field, while the Caucasian Mineral Waters represent a territory having its own history and long-lasting problems. It is impossible to simply draw a line here and impose equal terms on everyone. The CMW needs a special scenario: its uniqueness is to be preserved; its property and property complex has to be identified; and the Government participation forms should be determined. But as a result, this territory will be a component of the tourist project developed by the NCR.
— Of course, the management scheme is the most interesting issue relating to the CMW. McKinsey, which is developing the agglomeration business complex, must have already presented its ideas to this effect. What option of the agglomeration management scheme do you prefer?
— McKinsey is expected to present its ideas by the end of next September. I can tell you my own vision at the moment. But in this case, we would like to know the opinion of professional experts. For example, I would develop a single management system in the CMW and, accordingly, the single municipal entity called Caucasian Mineral Waters with districts that are not included in it and Pyatigorsk as its center. But we should not follow this way as every town here has its own history. An agglomeration could be founded here as an interim variant: this is a model of legal agreements between municipal entities where the single rules of the game are developed. In particular, issues such as infrastructure development, land relations, tariff policies, and transport can be resolved by the managing company vested with appropriate powers and founded by municipalities. But this is just an initial proposal. We will present our final vision to the Russian Federation Government by the end of this year.
— And whose experience are you oriented toward? Several experts told us that Russia has no convincing case that would show that an agglomeration is advantageous for territories encompassed by it.
— Let me disagree with this statement. We have the Bolshaya Sochi agglomeration consisting of Adler, Khost, etc. These territories are brought together through strategic objectives and priorities, but management can be different in this agglomeration. For example, the management center may appear at the level of the constituent territory or at the federal level. This was the case of the CMW. What is different about it is that competences and functions were gradually washed away, but management models are known.
— When can documents-related work be completed and the real process started?
— Initially, we planned that it would be completed by 2015: this is a preparatory phase including preparation of regulatory documents and development of priorities. On the whole, we are slightly ahead of the steam locomotive now.
— And how exactly are ahead of the steam locomotive?
— Well, in case of Arkhyz, we did not plan to launch it so promptly, but Arkhyz-Sinara Company had many achievements and was familiar with the topic. The company was ready once the SEA creation project emerged. By the way, we experienced some failures in this case; for example, land continues to be leased by Arkhyz-Sinara and cannot be included in the economic area and the company cannot obtain the status of a SEA resident. Everything is to be redone.
You must remember that in the beginning, the tourist cluster scope was much more modest, but the Caspian Cluster, projects in the Chechen Republic and Ingushetia are added today. However, we do not increase the funds; we can just see that tasks can be accomplished by using the resources that have been planned.
— Two years ago, you stated that each territory of the NCFD should have a large anchor project financed at the federal level. It seems that you have achieved this objective.
— I am based on the understanding of how to develop the NCFD. Firstly, we should not found any uncompetitive plants and factories, which reverse the result. Therefore, on the one hand, we had to find competitive areas, and, on the other hand, we had to look for industries that would make it possible to involve local residents to the maximum extent. First and foremost, those are tourism and processing industries. If we now look at the projects that are being developed in the most dynamic manner, we will find out that such projects are developed in these two sectors.
Successful examples are needed to convince businesses
— Has the new Government-launched program for developing the North Caucasus been already outlined?
— No, it hasn’t; we plan to present it for consideration of the Russian Federation Government by December 01. The Government-launched program will be fully linked to the NCFD socio-economic development strategy though 2025, which includes the basic indicators: unemployment level decrease to 5%, creation of 400 thousand new jobs, etc. The Government-launched program represents a tool for implementing the strategy. The entire budget policy of our state will now develop according to the model of Government-launched programs. There are industry-specific and territorial programs. The territorial programs totaling just three across the country will include a package of industry-specific programs. The aforesaid program will have RUB 60 billion as Government guarantees for investors and RUB 60 billion planned as part of the NCR activities.
— Financial experts tell us that the number of projects in the NCFD is much smaller than their financing potential. How should this problem be solved?
— Yes, their number is small. However, the most important projects have already been determined and those are resorts-related ones. All the other projects will be developing around them. The new industry will be driven by the consumption markets created here. Construction of chairlifts means that someone will be in charge of their maintenance; therefore, it is reasonable to consider organization of component assembly plants. We emphasized that helicopters are necessary; then Italians came and said that they could organize assembly of Agusta or Eurocopter helicopters in cooperation with Germans and the French in the CMW airport. The most important thing is to get started based on opportunities that are opening as a result of implementing large projects.
— I am emphasizing these examples to show that local initiatives are insufficient. When considering specific projects, we can see that there are bad relations between the local government authorities and small businesses in several territories of the NCFD. As a result of these relations, businesses try to wait and see, because the public space is associated with certain threats to them. There may be no new wave of projects if this problem remains unsolved; but how should it be solved?
— Just two and a half years have passed. You are absolutely right, but mentality is not changing so quickly. I always give the example of Dombay and Arkhyz. Dombay has many entrepreneurs, who have built either beautiful houses or barracks. The resort seems to function. But Arkhyz represents a different model: there are special requirements for the SEA residents and quality standards. Businesses should see that they can profit from all of this while the Government guarantees their interests and protects them.
— In other words, have businesses not realized yet that the situation has already changed or have the regional government authorities not matured to work differently?
— Both of them. The amorphous nature of businesses is not a problem of Caucasus, but that of Russia in general. We are good at running large or small businesses, underground ones, but we are just closing to the culture of medium-sized businesses and we lack the required number of qualified specialists. In addition, there are traditional fears of the bureaucracy and the government mechanism, which adds to corruption problems in the Caucasus. The main problem is that people do not believe that they can just come here, invest USD 100 000, for example, in a restaurant, and normally work. They fear of being laid under tribute immediately in the Caucasus. They do not believe that special economic areas work differently. And no one will touch them there. Just come with small projects and develop them. We need successful examples.