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The Right For Global Recognition

attention Gennady Tkachev
Vice Governor,
Chairman of the Commettee of External Relations

Although external relations are one of the most successful and dynamic areas of St. Petersburg's activities, they are sometimes seen as being separate from the city's internal problems. How would you define the role and place of external relations in the city's life?

Since the beginning of 1999, external and trade relations have been a very productive area in the city's economy There are a number of indicators that prove to us that external and interna-tional trade relations have become an integral part of the city's economy For example:

  • Budget and non-budget sources of financing the sector's activities have been identified, with the sector occupying a separate line in the city budget for 3 years.
  • The vertical and horizontal rela-tions in the structure of the sector have emerged. The vertical coop-eration includes that with Russia's ministries and agencies, mainly with the Ministry of Foreign Affairs, the Ministry of the Federation and Nations, the Trade-Ministry and the departments of the Office of the Government of the Russian Federation. On the horizontal level we cooperate with 34 Consulates General, with the representative offices of the Federal structures in St. Peters-burg, NGOs and with specialisi organizations such as the Center for International Cooperation. the «St. Petersburg - London 2003» non-profit partnership. and the latter's office in London.
  • We finally have a proper legal base. At the Federal level it com-prises the Constitution of the Russian Federation, the Agree-ment on the Division of Powers, the Law on Coordinating the International and External Trade Connections of Russian Fede-ration Subjects. We have started drafting a package of St. Peters-burg laws relating to interna-tional and external trade con-nections, which includes such laws as «On Agreements Regulating International and External Trade Connections of St. Petersburg», «On St. Peters-burg Representations Abroad», «On St. Petersburg's Participa-tion in International Organiza-tions» and others.

Promoting the city in the world is a process that takes place on many levels. It includes establish-ing direct links with countries and regions, opening St. Peters-burg representations abroad, organizing meetings and exhibi-tions. All this work has recently been subordinated to a single concept. What are its main princi-ples and priorities?

The main principles for the develop-ment of St. Petersburg's international and external trade relations in 1996-1999 have been as follows: collec-tivism, a systematic approach, a global take on the problem and a compre-hensive work.

Collectivism. We have witnessed a transition from an individual approach to collective work by the city administration with groups of employers, journalists, artists and national unions. That is the principle that now underlies our work, includ-ing that done during high-level visits to St. Petersburg and trips abroad by St. Petersburg delegations.

The meetings with UN General Secretary Kofi Annan and with Presidents and Prime Ministers of a number of states have notably improved the development of inter-national and external trade relations in the North-West of Russia and in the Russian Federation. Thanks to the personal input of the Swedish Prime Minister, a Swedish House was set up in St. Petersburg. The develop-ment of the St. Petersburg transport system has become a personal prior-ity for the Prime Minister of the Netherlands. The UN General Secretary supported the creation of «Environmental Troops».

Meetings and consultations with Finnish heads of state became regular, resulting in our Business Contact Center being set up in Finland.

Systematic Approach.Vivid examples of the systematic approach to international and external trade cooperation can be found in the «Baltic Initiative» and «Eurasian Dimension of the Baltic Initiatives» programs. These programs are part of a strategic plan that clearly identifies our goals and methods, the interna-tional organizations and events to be focussed on. The plan has already achieved an intermediate result by defining the partners and preparing applications to the Committee of European Communities. The system-atic approach can be clearly seen in the sphere of attracting investments:

  • A package of St. Petersburg laws that support investments has been adopted;
  • Budget funds have been allotted to provide city guarantees for credits;
  • A line has been reserved in the budget for a program promoting the investment image of St. Pe-tersburg abroad;
  • The Committee for Entrepre-neurial Safety Information Sup-port is working actively;
  • The Business Practices Code of St. Petersburg is being introduced, and so on.

Global Approach. St. Petersburg's cooperation with separate foreign municipalities and regions has now become part of our cooperation with whole foreign states. For example, our relations with France include collabo-ration with ministries and agencies, contacts with the President, and part-nerships with the cities of Paris, Bordeaux, Nice, Lyons and Le Havre. Business and cultural contacts with Poland include collaboration with Gdansk and Warsaw. St. Petersburg now has over 55 partner cities across the world and 17 partnership agree-ments have been signed in 1996-1999. Among the most actively developing are relations with Turku, Helsinki, Stockholm, Hamburg, Nice, Istanbul, Isphagan, Shanghai, Archus, Prague, Warsaw and Gdansk.

The years 1996-1999 have seen the implementation of major bilateral programs such as the «300 Years of the Peter's Great Embassy to Britain», «A Gateway to the Netherlands», the «Vivat (Long Live) St. Petersburg» festi-val in New York, the «Cutty Sark» Regatta, the Sister City Congress «Young People for European Cooperation and Development».

Partner countries are subdivided into priority groups. These are the Baltic and Nordic countries, a group of CIS coun-tries in Central Asia, a group of Central European counties, a group of Latin America countries and a group of South-East Asian countries.

Recently we have set up a Center for Cooperation with Asia Pacific Region and a Center for Cooperation with Middle East Countries in collaboration with the city's companies. St. Petersburg is an important center of international shipping, because interests of a number of countries are concentrated in the Baltic.

We consider seven main transport routs as being linked to the development of Eurasian integration:

  • «The Baltic Bridge»: the sea rout from Germany to St. Petersburg;
  • «The Hanseatic Way»: the St. Petersburg - Berlin motorway;
  • «The Northern Ray»: the St. Petersburg - Helsinki -Stockholm motorway;
  • «The Far East Ray»: along the Trans-Siberian Railway;
  • «The Asian Ray»: St. Petersburg -Central Asia Republics - China;
  • «The South-Eastern Ray»: St. Petersburg - Novorossiysk -Astrakhan;
  • «The Southern Ray»: St. Petersburg - the Ukraine - Moldova -Rumania - Bulgaria - Greece.

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Comprehensive Approach. Together with the Committee on Culture and other Administration divisions, we have made a transfer to comprehen-sive international cooperation pro-grams that use the historical and cul-tural potential of the city as well as its business development potential. Such programs have been developed and are currently under way in collabora-tion with Great Britain, the Nether-lands, Switzerland, the Ukraine, Belarus; programs with China, Japan and France are being developed.

The crisis of August, 1998, had a serious influence on St. Peters-burg's foreign trade and led to a sharp decrease in the volumes of imports and exports. How has the structure of foreign trade changed in comparison with the pre-crisis period? Can any positivie tenden-cies in the development of foreign economic and trade links be observed?

The structure of external trade has, essentially, not changed in comparison with the pre-crisis period.

As before, about 50% of exports are for machinebuilding products (shipbuilding and energy machine building), fol-lowed by metallurgy (metals, alloys and finished goods made of these materials) wood-processing products and the products of the fuel and energy sectors.

The largest growths have taken place in machine building (30%) and wood processing (60%).

The main countries importing St. Pe-tersburg produce are China (17.3%), Belgium (13.4%) and the USA (12.9%).

The bulk of imports consist of food products (44%) and machine-building products (23%). Germany (16.6%), Finland (8.6%) and the USA (7.1%) are amongst the leading exporters to St. Petersburg.

In the sphere of foreign trade, the fol-lowing main tendencies can be observed: a stable growth in the vol-ume of foreign trade (for the most part due to the growth in exports), a stabilization of the volume of imports at around 60-70% of the level for the same period last year, with a certain tendency towards growth.

Among the main tasks set for the Committee on External Relations is encouraging the investment process in St. Petersburg and establishing deep relations between the Administration and foreign companies, or, as it is known in the West, Public-Private Partnership. How successfully do you carry out these tasks in this city? What is the current pic-ture of the investment process in St. Petersburg?

Attracting investments and the devel-opment of investment infrastructure in St. Petersburg remain a major direction in the work of the City Government. The reason why is clear. Increased investments facilitate the solution of many other problems faced by the city, such as rendering support to producers, creating new jobs, extending the taxation base, and, as a result, the revenues of the city budget.

Foreign businessmen working in the city greatly value the measures that have been taken to improve the investment climate by the city author-ities. Of special value seems to be the creation of the Council for Promoting Investments at the Governor's Office. The USA Board of Trade Councilor, Deputy Chairman of the Committee for Economic and Technical Coope-ration of the Gore-Putin Committee, lan Kalitsky has described this as «a great idea, very effective for attracting investors». Surely, many foreign politi-cians, businessmen and experts, as well as the investors who have already come to the Petersburg market, share this opinion.

The Council for Promoting Invest-ments was set up in March of 1997 as a permanent public relations agency. It incorporates staff whose practical work provides for the investment process: officials of the city Admi-nistration, Federal agencies working in St. Petersburg, and associations and unions of employers. The Council's priority objective is to establish an efficient direct link between the busi-ness community and the city Admi-nistration. In the course of the

Council's work it has become clear that the inost important issues are those of creating an efficient legal environment for investment activities, developing the investment infrastruc-ture (i.e. an effective pattern of work with investors) and creating condi-tions for the efficient use of invest-ment money and effective payback.

The Governor of St. Petersburg sees setting up the Council for Promoting Investments as an act of great politi-cal importance. Vladimir Yakovlev believes that it is impossible to dis-cuss the burning issues of the city's economic life or to take decisions about them without the participa-tion of those who work directly in economics and finance. The Council's main achievement is the trust vested in it by foreign investors.

We are proud that the business com-munity directly participated, for the first time in Russia, in working out a set of city laws that support invest-ments. That set of laws will protect and guarantee the rights of investors, it facilitates the creation of a compre-hensive database of investment pro-jects throughout the city, and provides for business safety New amendments have been introduced into the city law «On Tax Benefits». They radically reduce the tax burden borne by legal entities founded with City Govern-ment participation, and by foreign investors wherever international agreements between St. Petersburg and foreign Governments are applica-ble. A package of laws giving addition-al benefits to foreign investors was adopted in July 1998 (including the Law on State Support of Investments, the Law on Amendments in the Law on iax nencnis, me Law on me umcr of Acquiring Property Rights).

Experts consider the new legal frame-work to be the most efficient in Russhi. The city Administration is currently working on two additional draft laws: one details who can become an investor and how to do it, while the other defines the mechanism for get-ting benefits. Local tax benefits will be provided for those who invest at leasi 5 million US dollars in the city econo-my The duration of the benefits will be defined in the agreement between the investor and the Administration. and will be close to the project payback time.

The city also provides investors with financial guaranties. The 1998 bud get was the first to allocate 1.2 billion rubles towards providing guaranties from the Committee for Finance to cover part of the credits granted to the private and state-run industrial enterprises of the city Rent benefits are also granted to investment pro-jects carried out in municipally owned entities and direct invest-ments are made from the city budget into the infrastructure of those com-panies that the city considers priority investment projects, with investors subject to favorable taxation rules since the beginning of the project.During the August 1998 crisis the Administration took steps to alleviate the problems of investors working in the construction market of St. Peters-burg. For the period August 15 -December 31 1998 the share of their payments intended for the develop-ment of the city infrastructure were calculated on the basis of the dollar/ruble rate as set by the Central bank of Russia on August 15 1998, i.e. ?US 1 = 8.67 rubles, meaning that investors paid only half their due to the city budget.

Providing for safe entrepreneurial activities is becoming a major priori-ty This mainly relates to economic and information security. The Com-mittee for Information Support to Commercial Security which includes representatives from St. Petersburg's law enforcement bodies, the tax police and the Department of Admi-nistrative Agencies held tender com-petitions, resulting in selecting 10 companies providing information security in the market. The Council will develop databases that will help to bring to shed light on the activities of unscrupulous businessmen.

The Council revealed the necessity for a radical simplification of the invest-ment attraction procedure. Jointly with business community representa-tives it is now developing proposals on the improvement of the process of getting investment approvals at Federal and municipal levels.

Support of investment in export-ori-ented industries has become another sphere of collaborative work. «Expert» magazine reports that the investment rating of St. Petersburg rose from 12th position among the Subjects of the Russian Federation in 1996 to 4th in 1997 and took 1st place in 1998 in the «minimal investment risk» and «the best minimal risk/maximal invest-ment potential factor» categories.

In 1998 the amount of ruble invest-ment in the city totaled over 100 mil-lion dollars (total investment equaled 400 million dollars), which is compa-rable with other cities that have simi-lar populations (of all the cities of the world the maximum foreign invest-ment was recorded in Shanghai and during the last three years it equaled about 10 billion dollars a year).

The results for 1999 have significant-ly surpassed these record indicators. The total volume of foreign invest-ment grew by 72% (while the growth in foreign currency investment was over 110%).

In total, for the 1998-1999 period, the volume of foreign investment grew three times over in comparison with 1997, proving that a suitable investment climate has been created in St. Petersburg.

A more or less clear pattern of invest-ment distribution among industries could be seen in 1996-1999. This peri-od witnessed a stable and even growth of investment in production, which remains the most attractive industry for investment. Investments in trans-portation and telecommunication grew in 1997, leveling out in 1998 and in 1999. A similar tendency could be seen in trade and catering. In 1999, however, a serious growth has been observed in this sector.

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The investment in construction has tended towards stagnation, constituting 8% of total direct investment. This can be explained by two reasons:

  • Growth of investment in construction can only be based on population income growth and on growth of demand in developing business. For this to happen, investments ate needed in production and services.
  • Despite the rapid growth of investment in construction is impeded by a lack of proper investment project including the reconstruction of the historical center of the city.

The USA and Finland remain the most stable investor countries in St. Petersburg. Finland's share varies between 10% and 22%, that of the US -between 18% and 35%. The statistical data for the first quarter of 1999 confirmed the growing role of the USA (the proportion of the country's investment reaching 53%).

Other counties have demonstrated investment surges during various periods. Their companies have heavily invested for short periods (the Netherlands: Unilever's investment in cosmetic production in 1995; Germany: Knauf investment in construction materials production; Great Britain: Rothmans investment in tobacco production in 1997).

Late 1998 - early 1999 has been marked by a growth of investment from tax-haven countries (investments from Cyprus, Luxemburg, and to some extent from the US cannot be traced to any country). To some extent this tendency is a reflection of the fact that Russian capital, exported from the country for reasons of economic instability has started to come back through St. Petersburg.

What spheres of the city's economy will be, in your opinion, among the most attractive/or investment in the nearest future?

Forecasting the prospects of the investment process's development in 2000 and 2001, one can say the following:

The distribution of foreign investments among industries will probably follow the same pattern. Shortterm projects in telecommunications, trade and catering will remain among the most attractive.

Import-saving production projects will remain the most attractive for investors in production. The light industry and food sectors, electronics and electric appliances, building materials and fittings and timber processing will continue attracting the attention of investors. Investments in automobile construction, resource-saving and machine building (including electric) for the extraction of raw materials and export-oriented production in general will become more attractive.

We cannot exclude a growth of interest in the development of the transport infrastructure of St. Petersburg, mainly in port facilities. Projects will be carried out in developing property

One of the most important tasks set before your Committee is Petersburg's integration with the Baltic countries. That region, now being one of the centers of global economic growth, is of prime importance for us. What is the input of St. Petersburg into the development of this integration process?

The role of St. Petersburg in the Baltic Region grew markedly in 1996-1999. Our international activities developed along the following lines:

  • St. Petersburg's proposed the Baltic Initiative, which includes the promotion of several international projects: «St. Petersburg as Russia's European Gate», «The Baltic Bridge», «A Clean City», «The Ringroad», «South-West Treatment Facilities», etc.;
  • Active participation in discussions of the European Union Northern Dimension political plans and the action plan;
  • Founding a network of permanent Forums, where St. Petersburg plays a leading role:
    • major Baltic cities conferences;
    • traditional meetings of the «Baltic Trio» - the Governor of St. Petersburg and the Mayors of Helsinki and Stockholm;
  • Promotion of the Eurasian (East -the Baltic Sea) direction in collaboration, i.e. using the role of St. Petersburg as a link between the Baltic Sea States, the CIS and Asian countries.

St. Petersburg places a very high priori-ty on collaboration in the Baltic Region and in the North of Europe. Our main objective is stable growth based on regulated competition and reasonable conservatism.

The Baltic collaboration is continually developing, especially in the spheres of culture, social security, environment protection, the economy and trans-portation.

Vivid examples of that in the sphere of culture are the Days of Turku in St. Petersburg, a monument to Pushkin unveiled in Narva, the RFS «Mir» visits to Archus and Portsmouth.

In the sphere of environmental protection, we think it is important to collab-orate in the construction of water treatment facilities in the South-West of St. Petersburg, processing toxic industrial waste the setting up of an International Center for Environmental Safety in the Baltic Region, the elimination of oil spills, providing nuclear power plant safety

In December 1998, the Government of St. Petersburg signed an agreement on cooperation in social sphere with Denmark. The following projects have been or are being realized with the aid of Danish funding:

  • A war veteran center has been opened;
  • A shelter has been opened for the homeless;
  • The Raufhus Hospital is carrying on with the Infant Habilitation project;
  • À $10 million project involving the construction homes for 125 officer families who had come from the Baltic States has been finished.

In the spheres of the economy and transportation, we think that the pro-jects «the St. Petersburg Ringroad», «The Baltic Bridge» transportation cor-ridor, «The Northern Sea Route» trans-portation corridor, «The Arctic Bank of Reconstruction and Development» and other bilateral projects can be carried out within the framework of «EU Northern Dimension» program.

St. Petersburg is the largest beneficiary of non-commercial technical assistance rendered by separate countries and international organizations, and, first and foremost from the European Union.

The amount of technical aid coming from all the countries of Western Europe in 1999 remained at about the same level, though the USA is gradual-ly decreasing its activities in providing technical assistance to Petersburg. In 1999, the USAID office in Petersburg, which controlled such projects, was closed.

Thus, in terms of two-way programs, important events were the opening of an ecological information center, cre-ated jointly with the Netherlands and

Finland, the introduction into service of a gas boiler through the resources of the Danish government, and the opening of the first Russian laminated surfaces production line (the Dutch PSO program).

1999, in St. Petersburg, through the leading donor - the European Union (the TACIS program) - a series of pro-jects with two year timeframes were implemented, their total value from 1998 amounting to fifty million Euros. They included projects in transport (30% of the total volume of financ-ing), education and the training of personnel (24%), ecological protec-tion and atomic energy (21%), struc-tural rebuilding and the development of enterprises (8%), social provision (7%), telecommunications (6%) and healthcare (4%).

Among the major TACIS projects in St. Petersburg in 1999, the following are worthy of special attention:

  • The restructuring of ÎÀÎ Izhorskie Zavody ('Izhorskie Factories')
  • The development of a teleport
  • The development of a North-western transport corridor
  • «A comprehensive regional and municipal policy»
  • Treatment of toxic waste in St. Petersburg and the Leningrad Oblast (the Krasny Bor complex)
  • Requalification of retired officers (500 people)

The importance of cooperation with the Baltic countries can be seen in the fact that 40 % of the city's trade turnover comes from external trade in that region.

Petersburg holds a special position in the Baltic Region due to the fact that it has extensive connections with the states of the Caucasus, India, Central Asia, China and other Asian countries, with India and China being the two biggest importers of industrial prod-ucts from St. Petersburg.

Thus, I would define the role of St. Petersburg as that of the organizer of the great axis - «the Baltic Sea - East».

(c) 2000