Investment in Special Zones Hits $4.7Bln

Russia's 16 special economic zones have attracted 207 residents and 144.9 billion rubles ($4.7 billion) investment in the more than four years since they were created, the company tasked with developing them said Friday.

The zones, created in 2005 to encourage investment and innovation, have fallen far short of the government's expectations. President Dmitry Medvedev eliminated the dedicated state agency overseeing them in October, handing its functions to the Economic Development Ministry.

Critics have cited the zones' lackluster performance as evidence that the state will face an uphill battle in creating an innovation hub in the Moscow region town of Skolkovo. The State Duma has given preliminary approval to two laws creating a special legal status for the project.

But the state-run company Special Economic Zones, known in Russian as OAO OEZ, said it was reorganizing to work more effectively since the reshuffle, assuming new duties like working with investors in addition to overseeing construction.

"The current model is much more conducive to development of the zones," said Dmitry Sulima, a spokesman for the company.

The zones are divided into four types, specializing in technical innovation, industrial production, port logistics and tourism. A total of 8.84 billion rubles ($286 million) was invested in the zones' infrastructure last year, the company said Friday in its 2009 annual report.

The zones had 207 residents at the end of 2009, employing 3,900 people, the report said. A counter on the company's web site listed 223 residents as of Sunday.

Yury Zhdanov, the first director of the zones agency, said in 2005 that one zone in the Lipetsk region would need 1.8 billion rubles of infrastructure investment to create 5,800 jobs by 2010.

According to Friday's report, the project is already nearly three times more expensive — costing the regional and federal budgets 5.15 billion rubles. Lipetsk Governor Oleg Korolyov told reporters in January that the zone had created 1,500 jobs, or roughly one-quarter of the target.

Slow growth has led economists to push for changes in the law to facilitate the creation of new zones and increase the amount of funding from regional and municipal governments.

The technical innovation zones, such as those in Dubna and Tomsk, have been called by government officials Silicon Valleys in the making, but experts have said they don't encourage innovation.

Vladislav Surkov, the Kremlin's first deputy chief of staff, has cited their poor performance to argue for the creation of Skolkovo.

"The general economic climate is so unfavorable to innovation that creating closed zones would not be able to change the conditions for innovative activities,” the Institute for the Economy in Transition said in a report last year.

“Residents of the zones don’t have substantial economic incentives to engage in technical innovation,” the report said.

The Economic Development Ministry's latest project is a special economic zone to develop resorts and tourism in the North Caucasus.

Alexander Khloponin, the presidential envoy to the North Caucasus Federal District, told Medvedev in March that the law on special economic zones should be changed because they are “ineffective” and do not generate tax revenue.

See also:

Medvedev Eliminates Agency For Special Economic Zones

Presenting the Long-Term Case For Investing in Russia

Bargain Basement Prices for Russian State Assets (Op-Ed)