100 investment projects implemented in the Arctic zone of the Russian Federation
27.03.2023 // The world's largest economic zone with special business conditions—the Arctic Zone of the Russian Federation—is celebrating its first major anniversary: by March 2023, residents of the preferential regime had implemented 100 investment projects. The total amount of private investment was RUB 10 bn, and 2,300 people were employed.
State support measures for entrepreneurship in the Russian Arctic were approved in July 2020. And they were adopted and tested in very difficult times, with pandemic restrictions and sanctions due to the COVID-19.
However, as Vladimir Gudkov, Deputy Director of the Department for Arctic Zone Investment Projects Support in Far East Development Corporation (FEDC), stressed at the recent Krasnoyarsk Economic Forum, the AZRF regime has fully proven its effectiveness. And very precisely—in numbers and facts: the Arctic investors have already implemented 100 projects in 2.5 years. A total of 580 residents are currently registered in the AZRF, with projects worth RUB 802 bn, which will create new jobs and employ 23,000 people.
'One of the key metrics for us is a measure of the demand for the established mechanisms among entrepreneurs. On average, up to 20 new projects join the AZRF every month, in all regions of the Russian Arctic and in a wide variety of sectors. In our view, this is very good dynamics. By investing in the macro-region's economy, they receive tax breaks and administrative support at all stages of project implementation in return. The line of preferences created is quite unique. They cover both small and large businesses. The tax incentives have been established for income, property, land and mineral extraction taxes. For the development of new fields, there is the possibility of applying a MET tax deduction of up to 50% until 2032. For residents who create new jobs, 75% of the calculated insurance contributions are subsidised (paid) by the subsidy. Thus, the final burden for insurance contributions is 7.5% for large businesses and 3.25% for SMEs. This mechanism is administered by the FEDC. This way, 160 residents already receive support for 4,000 workers. On average, residents save RUB 12,000 a month for each new employee,' said Vladimir Gudkov.
»In addition, investors implementing infrastructure projects can receive state support under the Arctic Concession programme: an AZRF resident builds roads and energy facilities, and the state repays its investment within a maximum of 15 years. The regions also contribute by offering tax preferences to entrepreneurs at the expense of the local budget.
The leader in terms of the number of investment projects that have taken place is the Arkhangelsk Region: AZRF residents in the region have implemented 57 projects (with an actual investment of RUB 6.3 bn and the creation of around 1,380 jobs). In second place is the Murmansk Region: 16 implemented projects, which actually invested RUB 1.5 bn and created 283 jobs.
According to FEDC, the largest number of projects—28—has been implemented in the social sphere and in the service sector. It also leads in the number of jobs created (522). Tourism and recreation come second (14 projects, 396 jobs).
But when it comes to investment volumes, the 'industry leadership' is changing. The most capital-intensive sector in which Arctic residents operate is logistics and transport. It has only nine projects underway, but it has invested RUB 4.5 bn, which is almost half of all investments in projects that have already been implemented.
One of the largest—to increase freight traffic along the North Sea Route—is being handled by the Severny Proekt transport and logistics company. It specialises in Arctic shipping and related services such as stevedoring, unpacking and more. As an AZRF resident, the company has acquired six vessels berthed in the seaport of Arkhangelsk. This will allow Severny Proekt transport company to increase the volume of cargo transported by 700,000 tons per year. Total investment in the project has already totalled RUB 2.2 bn. In the next phase, the company plans to establish a shipbuilding and repair facility.
Another major transport project was carried out by Eco Shipping, also based in the port of Arkhangelsk. Its main focus is integrated maritime logistics. The investor has its own multi-purpose fleet, which allows the transport of different types of cargo. The shipping geography includes all the key ports of the North Sea Route and the Far North from the Kara Strait to the Chukchi Sea, as well as the basins of the Baltic, Northern and Mediterranean Seas.
The Eco Shipping investment project aims to expand the fleet. To date, the company has invested RUB 1.4 bn in the purchase and modernisation of three high ice-class cargo vessels. One of them was purchased with a preferential loan. As a result, its fleet grew to 11 units (not counting auxiliary vessels with tug and barge personnel).
'Eco Shipping has been registered in the Arctic Zone of the Russian Federation since 2021 and is now actively taking advantage of support measures for investment projects.
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