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Russia: Ekaterinburg Tries To Attract Foreign Investment

  • Floriana Fossato



Ekaterinburg, 21 October 1997 (RFE/RL) -- Ekaterinburg -- a regional center in the Urals and home town of Russia's President Boris Yeltsin -- is busy trying to attract foreign investment for the troubled economy of its Sverdlovsk region, once a pillar of the Soviet military industry.

However, observers say that, despite the impressive list of visitors arriving and expected in this region located two time zones east of Moscow, investment activity is not yet following the encouraging trends of other Russian regional centers, such as Samara or Nizhny Novgorod.

Regional Governor Eduard Rossel, presenting the 1998 draft regional budget to the local legislative assembly last week, said optimistically that the Sverdlovsk region's economic performance will start improving next year. However, in the same speech, Rossel forecast a regional budget deficit reaching 25 percent of the overall expenditure. Regional legislators, in remarks broadcasted by local television stations, called the figure "surprising" and complained that revenues, expenditures and deficit figures would not mark an improvement from this year. However, commentators in Ekaterinburg noted that, despite the "bad general opinion" expressed by local deputies, Rossel is well in control in the region.

According to Sverdlovsk regional officials, the region is planning an issue of Eurobonds for "as much as $500 million." The first release of $100-$150 million is planned for next month. However, the Eurobonds issue may take place only following the consent of Russia's Central Bank, and a Presidential decree. To date, Yeltsin has authorized only Moscow, St. Petersburg, and Nizhny Novgorod to issue such bonds, but Rossel and regional officials are confident.

Rossel seems sure Yeltsin will support his former power-base. And Ekaterinburg is scheduled to become the unexpected venue of a tri-lateral summit of heads-of-states of Russia, France and Germany, that was announced recently during the Council of Europe in Strasbourg, France, that Yeltsin attended. Some observers have said the announcement was dreamed-up more for domestic consumption, in an attempt to help Yeltsin and Chirac win favorable headlines.

The first such summit is to take place next year in Russia. More precisely, after a meeting between Yeltsin and Rossel, it was announced that the summit will take place in September, 1998, in Ekaterinburg. Sverdlovsk's regional press last week reported extensively on Rossel's comment that the summit will "play a key role for the future development" of the Sverdlovsk region.

American financier and philanthropist, George Soros, has just completed a two-week tour of the Federation, which included Ekaterinburg. Soros yesterday announced plans to pour up to $500 million in philanthropic aid into Russia. He said his focus will be on health and military reform, and other areas the central government is unable to fund adequately. Soros announced plans to fund major programs to improve maternal and child health, to combat Russia's serious tuberculosis problem, and to augment the government's military reform plans by training officers and retraining those who leave a shrinking army.

The Soros Foundation is also providing $100 million to create Internet centers to 33 Russian higher-education institutions. Ekaterinburg University, whose modern Internet center was opened in August this year, is the tenth such establishment to take advantage of the program, while some 300 local scientists and scholars have received grants from the Foundation.

A Western economist based in Ekaterinburg says there is interest in the region among foreign investors, but to date no major projects can be mentioned that could represent a real "success story," following the lines of ventures in Moscow and a few other Russian regions. The economist told our correspondent that investors have flocked to the Sverdlovsk region in the past year, because "they realize there is potential and a big investment need" to convert the factories belonging to the former Soviet military-industrial complex, and to develop the regional rare-metals extraction industry.

But, for a number of reasons, including the lack of a legislative and tax climate that investors could consider favorable, major projects are proceeding with difficulty. According to the economist, one of the exceptions is Coca Cola, which is building a bottling facility in the region. Coca Cola has now 12 bottling plants in Russia and has invested about $600 million in the country's economy.

Governor Rossel last month visited Japan in hopes of stimulating trade, and announced a special tax holiday for large investors. Rossel said that, over the next two years, the tax on profits will be reduced to eleven percent from 22 for investors spending more than ten-million dollars in regional projects - and could further be reduced to five percent for larger projects.

The issue of tax collection is central to the tax-and-budget debate taking place in Moscow at the moment. Yeltsin said last month that companies will pay regional taxes based on where their plants are located, rather then where they are registered. The move is seen as a major concession to regional leaders, aimed at obtaining their support for the approval of a new tax code, considered essential for Russia's economy. Since many companies are registered in Moscow, the capital has so far benefited from the tax revenues generated.

Rossel, who has been a strong critic of Yeltsin and an advocate of regional independence, is apparently opting for a more flexible approach to Moscow. And, this, in turn, is helping the region gain international visibility.

(Moscow correspondent Floriana Fossato has just returned from a week-long assignment in Ekaterinburg.)
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