Main Results of the Rating

For the first time there turned out to be no region with minimal investment risk in Russia. Nevertheless, the leading subjects of the federation do have a mechanism of low investment risks reproduction

The main peculiarity of the new rating is the absence of regions with minimal risk (categories 1A, 2A and 3A I table 2; on charts 6 and 7; on the map. Even the four survived leaders – Novgorod, Yaroslavl, Belgorod provinces and Saint Petersburg (see table 3) – have their risk index increased and transferred to the category with moderate risk. This is the first case in nine years.

Serious changes in the political and economic and social situation in the country, that occurred last year, and appearance of new risk factors (see "Information and methods") resulted in significant changes in regions’ ranks of integral investment risk.

Group 2C - "Medium potential – grave risk" has reduced and changed the composition. Krasnoyarsk territory, Sakha (Yakut) Republic, Chelyabinsk province and Yamalo-Nentsky autonomous okrug have left it for a better category 2B, and Novosibirsk and Irkutsk provinces entered it with their increased risk index. Among the positive results one should note the spurt of Taymyr autonomous okrug from the zone of extreme risk, the transition of Amur province and Chukot autonomous okrug from the group of grave risk to that of moderate risk. Khanty-Mansyisky autonomous okrug has reduced the risk to moderate and thus "cleared out" category 1C. The three regions brining up the rear of the integral risk – Chechen, Ingush Republics and Koryaksky autonomous okrug – have left without changes.

For the first time Moscow has left top ten regions. Though economic, financial and social risks are minimal, but some circumstances such as complex legislation, worsening ecological and criminal situation in the city, didn’t allow the capital to keep its place in the group of leaders. If last year it left category A of the regions with the minimal risk and shifted from the second place to the sixth, this year it is only 15th in the rating. Though the capital is still very attractive, investing here gets more and more complicated. Nevertheless, due to its high – and constantly growing – investment potential and various possibilities, as well as closeness to federal authorities Moscow remains the most attractive place for investors.

In all the nine ratings among the top ten regions with the minimal risks there invariably were only Tatarstan and Belgorod province (see table 4).

Secrets of leaders and reasons of failures

Well-thought-out social and economic policy and effective work with investors coming to the region allowed the leaders – Novgorod, Yaroslavl, Belgorod, Orel provinces and Saint Petersburg – to create a stable favorable investment climate in their regions. The leadership of these regions wasn’t affected seriously even by such factors as changes in inter-budget relations, suspension of free economic zones, complications in inner political situation and in most cases limited investment potential. Longstanding efforts of regional authorities resulted in creation in these regions self-supporting mechanism of low investment risks reproduction.

Thus, the second (year 2003) wave of investments in Novgorod province is to a great degree the result of a long-set system of interaction of the authorities with businessmen and investors. All the draft laws concerning the business climate are being agreed upon with the business community and are not adopted without their consent.

In Yaroslavl province back in 2001 there was passed a law on stimulation of economic development, according to which there was adopted a procedure of granting subventions to provide financial assistance to investors. As a result of such stimulation of investments in 2002-2003 and first half of 2004 the tax base of three municipalities of the province grew by two thirds, and total budget income of the province grew by more than 3 billion rubles un this time.

This year the ranks of regions according to the integral investment risk have changed much more than they did last year. If in 2002 the average rate of region’s progress along the investment risk scale was 5,9 positions, in 2003 it was already 10,8 positions. For the potential scale these figures were 1,8 and 1,2 positions accordingly. The greatest progress in potential rank (see table 5) was 4 positions up - Tomsk, Sakhalin provinces and Chukot autonomous okrug, and six positions down – Bryansk province. On the integral investment risk scale Yamalo-Nenetsky autonomous okrug has gone up by 44 positions this year, and a number of provinces, on the contrary, have dropped sufficiently – Vladimir province by 43 positions, Astrakhan province by 37 positions, Ivanovo province by 33 positions. Such significant increase of the investment risk in the latter three regions is accounted for by negative changes in legislative, economic, financial and especially social risks. Thus, all the tree of them are the leaders in accidents at steam and heating grids (see table 6). In 2003 Ivanovo in province there were 60% of people with the income below living wages (see table 7), and in Vladimir province - 46%, as compared to 22,5% on the average in Russia. As a result, Ivanovo province dropped from the 3st position to 87th, Vladimir province - from 23rd to 83rd and Astrakhan province – from 42nd to 79th.

Officials, risks and investments

Favorable investment climate is not an end in itself. It should be converted in volumes of attracted investments. The achievements of regional authorities here are quite different. Most investment active and inert regions are presented in table 8.

In the last five years most of all investment per one state or municipal official naturally came in natural resources regions: Yamalo-Nenetsky, Nenetsky and Khanty-Mansiysky autonomous okrugs, Sakhalin province and Komi Republic. Besides two capitals, having significant investment temptations, the top ten includes two neighboring to capitals regions (Moscow and Leningrad provinces) and Krasnodar territory.

Only ten regions have a higher level of investments volume per one official than the Russian average. And since foreigners are not admitted to the Russian natural resources (but for Sakhalin), these top ten mostly present the regions whose government is better in cooperating with foreign investors. Besides mentioned above capital provinces and Krasnodar territory, foreigners start moving to the periphery. Foreigners-friendly Novgorod and Kaluga provinces enjoy their special attention.