Russia Establishes Three New Special Economic Zones

Economy

Russia Establishes Three New Special Economic Zones

Industrial SEZ's to be set up in Chuvash, Volgograd and Kemerovo to incentivise manufacturing investment. Russia’s Ministry of Economics has announced that three new Special Economic Zones (SEZs) will be established in three Russian Federal Districts – the Southern Federal District, Central Federal District and Siberian Federal District. Ministry stated that this will attract about Rubles 197 billion (US$ 3.18 billion) of investment in the economy, and help launch new industries in chemistry, gas processing, agriculture and other areas. SEZ offer tax incentives that motivate employment, and new product and services creation. Russia has been increasingly turning to SEZs as a means to motivate domestic companies to become more active, a pressing requirement now as many Western businesses have left the Russian market and created gaps that Russian businesses can now move into. Fifteen of Russia’s 45 SEZs were created in the last two years, while in the first half of 2022, 77 new resident companies were registered in Russia’s SEZ. Russian businesses are slowly getting used to the concept, which took off in China in the late 2000’s, and allowed Chinese businesses motivations to manufacture, cement a domestic market share and then expand into export markets. In the two decades since, Chinese businesses are now among the world’s largest overseas investors. The Russian government will be hoping to motivate a similar response amongst Russia’s domestic companies, which tend to be conservatively run and concentrating on easier to reach local, rather than national and export markets. Many simply sell raw materials and leave the added value process to foreign buyers to carry out across the border. SEZ typically offer reduced profits tax rates for a period of years, exemptions for VAT, the ability to waive import duties on imported goods in duty-free zones, and discounts on local taxes and operating overheads such as mandatory employee payments and utility costs. Chuvashia SEZ Chuvashia is an ethnic Turkic Republic in European Russia north-east of the Caspian Sea. It has close trade connections with Azerbaijan and Turkiye. Chuvashia is planning to receive five industrial projects for its SEZ with a total investment of Rubles 12.9 billion, with over 1,000 new jobs to be created. The specialization of the SEZ in Chuvash will be associated with the chemical industry, timber processing, food industry and other related types of industrial and production activities. The pilot resident of the SEZ, Orgsintez Group LLC, plans to produce calcium hypochlorite, which is a high demand in Russia, a reagent in gold mining and chemical water treatment with a capacity of 15 thousand tons. Another anchor project is the first and unique for Russia production of polylactide, a biobasic, recyclable and biodegradable plastic production of the latest generation of packaging designed to contribute to building a circular economy and reducing the ecological footprint. Global demand for these products exceeds supply. Volgograd SEZ Volgogradis situated in European Russia just north of both the Black and Caspian Seas. The Volgograd SEZ is looking at attracting five industrial projects with a total investment of Rubles 91.17 billion with plans to create 837 new jobs. Sited at Khimprom in Volgograd, it is planned to host investors for the construction of a methanol plant, as well as the production of bioproteins, plant protection chemicals and acetic acid. Kemorovo SEZ Kemorovo is situated in southern Siberia, relatively near to the border with Kazakhstan and with access to the Russian heartlands. The Kemerovo SEZ has hopes in signing up six industrial clients with a total investment of Rubles 92.8 billion and to create over 1,200 new jobs. The Kuzbass SEZ has a total area of 628.8 hectares and will be hosted in two locations – the city of Kemerovo and in the local Topkinsky district. It is planned to expand the production of mineral fertilizers. Two investment projects will be implemented, the largest of which is for the production of ammonia and granulated urea worth more than 76 billion rubles.