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PECULIARITIES OF REGULATION OF STATES` INVESTMENT POLICY: THROUGH HISTORY TO PRESENT DAY

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Статья опубликована в журнале, рекомендованном ВАК «Экономика и предпринимательство», июнь 2014 http://www.intereconom.com/archive/216.html

ВНИМАНИЕ!!! При копировании данной статьи полностью, либо частично, необходима активная ссылка на её автора:

Рыбалко А.Н. Особенности регулирования инвестиционной политики государств: через верхи истории до наших дней // Journal «Economy and Entreprenuership».— №5. — vol.2.- Москва, 2014

Отсутствие ссылки является нарушением закона об авторском праве. На сайте установлен счётчик, отслеживающий несанкционированное копирование статей, составляющих интеллектуальную собственность автора.

Annotation:

This article presents the features of investment policy of the countries, the main indicator of which is the prevalence of selected state strategy: protectionism or free trade. The advantages and disadvantages of these strategies in certain conditions of State`s development are considered.

The principle of free trade and the principle of fair trade are demarcated and defined. The modern trends in the field of investment policy are considered and presented.

 

Key words:

investment policy, protectionism, free trade, fair trade, investment appeal, investment climate.

 

The relevancy of the research is confirmed by modern trends of economic policy on the world stage, expressed in the creation of a single economic space, and Russia’s WTO accession. As the category of «investment appeal» may be interpreted in a causal relationship with the investment policy, as areas of further studies are possible: the identification of new factors influencing the attractiveness of a particular region, account environmental component and socialization of local residents in the new conditions.

The process of developing the national investment policy is increasingly focused on new development strategy. Most States rush to attract and encourage foreign investment in the interests of strengthening productive capacity and sustainable development. At the same time, many countries are strengthening regulation of foreign investments, using an industrial policy in the strategic sectors, in terms of the selection and monitoring and scrutinizing of international mergers and acquisitions. The risk remains that some of these measures are taken protectionist purposes.

The process of development of international investment policy is in transition. By the end of 2012 the regime of international investment agreements (IIA) consisted of 3 196 agreements [1]. Now countries are increasingly prefer not bilateral, but regional approach to elaborating norms and rules in the field of IIA and include elements of sustainable development.

There are rules of regulation of the national financial markets, which can be divided into two types. The first type involves the regulation mainly realizing by public authorities, and a small part of the responsibilities for supervision, control and establish the rules of conducting transactions is transferred to the associations of professional participants of the market, which are self-regulating organizations (for example, in Russia, France).

The second type involves the transfer of the maximum possible volume of powers of self-regulating organizations, but the government retains the basic control functions and the possibility at any moment to intervene in the process of self-regulation (for instance, The UK).

In the vast majority of countries the degree of centralization and rigidity of regulation varies between these two extreme concepts. The structure of state bodies, regulating the market, depends on market model adopted in the country (Bank, non-Bank), the degree of centralization in the country (in Federal countries some of the powers transferred to the territories, for example in the US – to States, in Germany — to lands).

The investment policy of a particular state is implemented in the framework of the national foreign economic policy. Its specificity depends on the content and objectives of the prevailing direction of foreign trade policy – of import or export policy, and on the ratio between the trends of the foreign trade policy — between protectionism and liberalization.

Between protectionists and defenders of free trade there is a long-standing controversy. Mercantilista first applied to the analysis of foreign trade and saw in it the source of wealth of the state, were supporters of protectionism — a system of measures aimed at stimulating the national economy and its protection from foreign competition. The first economists who advocated free trade, became the French physiocrats, who denied the productive role of trade in increasing the wealth of the nation. The most consistent defenders of economic liberalism in General and international trade in particular are English classics, not only developed a coherent theory of foreign trade, but also offer a specific policy in this area. In the XX century as a result of wars and economic crises have been significant protectionist ideology and practice, and currently it is one of the important elements of international economic relations.

The principle of freedom of trade appeared and developed as a response to protectionist measures of the state in different periods of national economic development, starting from the epoch of the initial accumulation of capital and ending time of creation of national industry in the backward countries. Naturally, in this principle, along with the criticism of protectionism provides evidence of the benefits of free trade.

Recommendations of supporters of “free trade” contributed to the economic growth and prosperity of many countries embarked on the path to an open economy.

The movement of Paradero originated in England in the last third of the XVIIIth C. and was connected with the events there the industrial revolution. The struggle of the English Paradero was directed against agricultural duties, supported by high prices for agricultural products, which has hampered the development of factory production, and also to the reduction of customs duties in mutual trade with other countries, which would increase the export of British goods abroad. Under the pressure of Paradero in 20’s XIX century in England was realized the reform of the customs system, which have been abolished or significantly reduced customs duties for many goods. In the middle of the XIX century freetraders swept to victory in England, which greatly helped to make it to this time in the most developed country of the world. In the second half of the XIX century trends freetraders began to appear in the trade policy of France (1852 — 1870), Russia (1850 — 1860) and other countries [2].

In the XX century after the second world war, the removal of obstacles to free exchange contributed to an unprecedented economic and social development of most countries, and particularly those, which went towards the liberalization of foreign trade (creation of free trade areas, customs unions, regional markets). Conversely, countries that embarked on the path of autarky, protect its economy from the influence of foreign competition, had time to change course and spend more or less profound reform of the foreign economic relations aimed at the release of external trade from excessive state interference [3].

One should distinguish between the principle of “free trade” and the principle of “fair trade”. According to the principle of free trade, public policy is the opposite of protectionism policy, i.e. market is opened to foreign goods, as well as foreign capital in the country. However, this policy and the uncontrolled influx of foreign goods, especially at a lower price, i.e. goods which compete with national products, retreating either quality or price, or, according to these two criteria simultaneously, which can certainly cause undermining of national production and the national economy as a whole. The policy of fair trade means that the state, through the measures of the customs regulation, establishing quotas, tariffs, and the introduction of legislative restrictions supports necessary for the country “balance” between the quantity of imported and produced production in the country. Through these measures, so-called “Golden mean” is achieved, and the market of the country does not suffer from import and overabundance of foreign goods. But this position is considered by the manufacturer, how a complex of these measures influences the market of goods and services of a particular country.

From the position of the buyer the opposite trend is observed: the limitation of the import of foreign goods, stimulating firms-manufacturers of a country to create products of appropriate quality at the best price, leads to strengthening of the monopolies and the lack of competition, and, as a result, the buyer has to buy the goods of a certain quality (sometimes second to foreign analogues) at higher prices. Protectionism in the long run undermines the foundations of the national production, because it weakens the pressure of the global market, necessary for the development of entrepreneurial initiative. As a result, routine prevails than innovation and progress, reluctance to part with the acquired privileges and revenues. Also protectionism raises the risk of a “chain reaction”, because after protection of certain industries from the adverse effects of the competitive environment of the market, soon there might be a necessity to protect others.

The benefits of free trade is quite versatile and are proved both theory and practice [2].

First, free trade can improve the welfare of trading Nations, as it opens up the possibility of international specialization of production and exchange on the basis of the principle of comparative advantage.

Second, free trade facilitates the development of competition and supports the spirit of innovation, not only among domestic producers, but also in relations with other countries. This ultimately contributes to the quality of manufactured products.

Thirdly, free trade opens opportunities for market expansion and, consequently, the international concentration of production and mass production of goods that benefit consumers.

Fourthly, free trade is the basis for the optimization of distribution of production resources between countries and such international combinations, which significantly increases the efficiency of their use.

Criticism of protectionism has been conducted to identify the negative aspects of the policy of protection of the national economy from foreign competition. The principle of protectionism along with the said shortcomings has a number of advantages that make the policy of government control over foreign trade attractive for many countries. The most common cause of restrictions on foreign trade is the fact that governments think in terms of national interests and not the interests of humanity as a whole. For protectionism usually promoted as socio-political and economic arguments.

Socio-political advantages of protectionism are to maintain state security of the country, which in the case of rejection of protectionist measures will be jeopardized narrow specialization of the economy. The latter puts the country at high risk not only in case of war, but in the periods of aggravation of international relations. Therefore, the country should develop strategic industries, primarily agriculture and food industry, as well as the sectors, that are necessary for national defense (metallurgy, some kinds of chemical industry and so on) [2].

Secondly, protectionism is a chance to save with it some social classes and activities (e.g., the peasantry, the traditional national crafts), to prevent depression and recession (for example, in the coal industry and so on).

Economic arguments in defense of protectionist measures, which would make sense, are mainly for reasons of maximization of real income, owing to their use [2].

The first argument is — with the help of import duties country could improve the terms of trade and increase economic benefits. However, this is possible only in the situation when the demand is more elastic than the supply, and then the growth rates will have largely on the manufacturer, and the income from duties will replenish the state budget.

The second argument is that protectionist measures protect the industry at the stage of its origin and growth. For the first time this argument was put forward by A. Hamilton (USA) at the end of the XVIII century and developed by F. Liszt in XIXc. In his work «The national system of political economy” (1841) F. Liszt outlined the evolution of society from the state of savagery to agroindustrial-trading company, when the nation is becoming «integrated» and «normal.» Protectionism serves as a tool for achievement of this stage, protecting infant industry of the national economy. However, according to F. Liszt, protectionism should extend only to industry, to be temporary (up until a growing business will gain strength and will be able to effectively compete with foreign producers) and moderate (countervailing duties). Experience shows, however, that the protection of such productions in practice, is difficult. Nobody knows when it should stop protectionism, and this means that there is a risk of preservation of protectionist measures for many decades and even centuries. It is known, for example, that the Americans back in the XVIII century have imposed on imports of industrial goods a number of fees that have been preserved to our days.

The third economic argument in defense of protectionism becomes its role in increasing employment of national resources. This idea was first formulated by J. Keynes’s in his work “Treatise on money” (1930), and later developed his work “General theory of employment, interest and money” (1936). J. Keynes believed that the economic system is not able automatically to achieve full employment. In this regard, he proposed to reckon with the fact that the promotion of exports and limiting imports by protectionist measures will be beneficial impact on employment, as it will increase aggregate demand for products of national producers. However, the success of such a policy is unlikely, if it will be used not by one country but several. Stimulation of its export earnings by reducing import from other countries sooner or later would have created a deadlock, because that would mean the cessation of all trade. So the proposed scheme is possible only in one case — when the exports of the country, conducting such a policy is in high demand in other countries. But in the long term, such a policy would provide benefits for one country at the expense of others and, ultimately, would lead to their economic weakening, and hence to reduction of their import opportunities.

The fourth argument in defense of protectionism associated with the attempt to mitigate the crisis in industries, which encounter economic difficulties. Significant changes of supply and demand both on internal, and on external markets can cause a huge damage in some sectors. Such an attack has experienced, for example, cotton industries of England in the 1970s. Limitation of import in this period has helped to mitigate the crisis, giving the industry more time to rebuild and lead painless production cuts.

Today, the main trends in investment policies are: liberalization and promotion of investments. They remain the dominant element of the recent investment policy. However, with the rise in recent years restrictive investment measures and administrative procedures have increased the risk of investment protectionism.

As countries are increasingly leading active industrial policy, tightening procedures for the selection and monitoring, study of international mergers and acquisitions and further limiting the share of foreign direct investment (hereinafter – FDI) in strategic sectors, increases the risk that some of these measures may be protectionist in nature (see Illustration 1). With the appearance and rapid expansion of global and regional value chains protectionist policy can affect all actosubjects, both national and foreign.

Many species of new investment policy oriented a certain production. In 2012, at least 53 countries and economies around the world have adopted 86 policies affecting foreign investment. Most of these measures (75%) related to the liberalization and investment promotion and facilitation of investment procedures and focused on a variety of industries, especially in the services sector. An important component of these measures was the policy of privatization. Among other policies notes the establishment of special economic zones [1].

At the same time it was noted the increase of 25% shares of regulations and restrictions on FDI, which confirmed the long-term trend after a temporary change in the situation in 2011 (see Illustration 1). The States became more active in the use of industrial policy, adjusted previous efforts to liberalize investment, tightened the procedures for the selection and monitoring and began to check cross-border mergers and acquisitions more carefully. The policy of restricting the investments were used primarily to such strategic industries as mining. In most countries, the state has become more selective in choosing the specific weight of FDI in various sectors of their economy.

4

Illustration 1 – Changes in the national investment policy, 2000-2012years, %

Source.: [1]

In general, direct foreign investments have a positive effect on the economic development of the host state, helping to increase the efficiency of the constituent factors of the economic development on the basis of economic restructuring, infrastructure development, promotion of employment of local labour, technology transfer, management experience, and the right to use a trademark of the parent company and others. The state, the host of FDI, there is no obvious reason to limit the long-term capital inflows in the form of investments. But any state regulates the inflow of foreign investment on the basis of various measures, having influence on the volume of attracted investments, including as it was described above, on their sectoral distribution.

During policy formulation of regulation of investment flows, the state takes into account their possible impact. According to foreign analysts, it is important to highlight three moments [4].

  1. The investment of foreign capital in the production takes place once, but the export of profit — constantly. This leads to the equalization of the volume of previously imported capital (in the form of investments) and exported capital (in the form of profit and income).
    So, the «ageing» of the investment occurs. However, the investor does not always remove the whole amount of profit. To encourage the reinvestment of profit in the host country, it is needed a stable and favorable investment climate.
  2. Capital (foreign or national) is invested in the industry that provides the fastest and most effective return, which may lead to disproportionate development of the national economy, if the state will not regulate the direction of capital flows. This also applies to the polluting industries, portable from industrialized countries to developing countries, where relatively mild standards of environmental protection take place, which will certainly affect the environmental component of the region/country in the future.
  3. The psychological moment, namely, the negative attitude of the private sector, and individual citizens of the host country to the ownership of foreign capital, profitable industries, companies, and the influence they have on the determination of strategy of development of this or that branch of economy and others.

Note that any state as an Institute of power plays an active role in the development and implementation of a policy of attracting foreign investments in order to assistance the economic growth of the country; ensure economic sovereignty and/or obtaining the maximum possible economic advantages.

Government policies of the host country concerning foreign capital includes:
1) the policy of regulation of investments with the purpose of reception of the maximum profit per unit of invested capital;
2) the policy of stimulating to attract the maximum amount of capital. Here’s more important to ensure potentially the greatest inflow of investments, not their efficiency.

The increase in the inflow of foreign capital occurs, as a rule, in conditions of growth of domestic investment, which characterizes the principle according to foreign and domestic investment. Creation of a favorable investment climate for domestic enterprises is a priority of the state investment policy, with its indirect result of the growth of foreign investment.

State policy of regulation of foreign investments is carried out in respect of foreign property, in the tax and customs spheres, currency and price fields and others. In practice, it is implemented through various measures (trade restrictive measures in respect of foreign investment, restrictive and stimulus measures taken by the home countries of transnational corporations and others).

In General, the national policy of the host state influences, to a greater extent, the sectoral expenditure areas, and to a lesser extent, the amount of attracted capital. The availability of effective legal conditions for the admission and operation of foreign investments — a preliminary evaluation criterion of the investment climate in the host country.

A more significant role plays the following macroeconomic factors:
1) the capacity of the market of the host country, defined by the Gross National Product and per capita income. The attractiveness of the country as a base for subsequent export of goods to the foreign market is growing, which is associated with lowering trade barriers and transport costs. However, the practice of a small capacity of the domestic market economies (for example, Hong Kong or Singapore) confirms that the economy should not be a barrier to foreign investment;
2) level of political risk in the country. Political risk of the country depends on the level of political stability and democratic nature of the political system of the country;
3) the dynamics of the exchange rate of the national monetary unit: during a rise in the exchange rate the inflow of foreign investments is stimulated, the export profits on foreign investments increases; in case of the fall, on the contrary, is decreasing because for foreign investors it is unprofitable to export of profits, interest, dividends.

Policy in the field of FDI is increasingly interconnected with the industrial policy at the national and international levels. The goal is to manage this relationship, which will put the two policies for the service of development. The key significance is finding the so-called «Golden mean» between the strengthening of the domestic productive capacities, on the one hand, and preventing investment and trade protectionism on the other, as well as strengthening international coordination and cooperation.

Thus, paradisco proceeds from long-term interests and substantiates the global gains from free trade, while protectionism acts under the pressure of circumstances and guided solely short-term national interests. Russia until recent times pursues a policy of protectionism. With the expansion of economy and WTO accession, the situation changed. At the G20 summit President of Russia Vladimir Putin has appealed to «honestly agree about protectionism» [5]. Currently Russia pursues a policy of free trade, because of Russia`s entering the international market, removed borders and trade restrictions, however, on some sectors and market segments, for example, the automobile market, the tendency is opposite — protection of the domestic producer. That is connected with the establishment of quotas and increasing customs duties on imported cars. This policy is reflected in the fact that many companies have become more profitable to produce their goods directly on the territory of the state, that, certainly, gives a positive and beneficial consequences both for producers and for the country in which it is carried out, as well as for consumers. Namely, this creates a favorable investment climate in the country, creates new jobs due to the opening of new factories, and reduces the cost of production due to lower delivery costs and its separate parts.

Therefore, we cannot say that for a country protectionism is always harmful, but free trade is always best, or vice versa. V.Pareto affirms: «Knowing all economic and social conditions of the country at the moment, you should understand what for this country and at this moment is more suitable — free trade or protectionism» [2].

 

Bibliography:

  1. The UN conference on trade and development (UNCTAD world investment Report 2013 review — [Electronic resource] — access Mode: URL: http://unctad.org/en/PublicationsLibrary/wir2013overview_ru.pdf (date of access — 01.2014)
  2. Free trade or protectionism? Elitarium: Center for distance education — [Electronic resource] — access Mode: URL: http://www.elitarium.ru/2010/04/13/svobodnaja_torgovlja_ili_protekcionizm.html (date of access — 11.2013)
  3. Ivashkovskiij S.N. Macroeconomics. 2-e Izd., Corr. and supplementary): Delo, 2002. — 472 S.
  4. Lasserre P. Global Strategic Management / P. Lasserre // Entry strategies. — New York: Palgrave Macmillan.
  5. VestiRU: Putin urged honestly agree on protectionism in times of crisis 18.06.2012 — [Electronic resource] — access Mode: http://www.vesti.ru/doc.html?id=823867&tid=98234 (date of access 06.2013)

SOCHI-2014: THE FINANCIAL SIDE OF OLYMPIC MEDAL

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Статья опубликована в журнале, рекомендованном ВАК «Экономика и предпринимательство», июнь 2014 http://www.intereconom.com/archive/216.html 

ВНИМАНИЕ!!! При копировании данной статьи полностью, либо частично, необходима активная ссылка на её автора:

Рыбалко А.Н. Сочи-2014: финансовая сторона олимпийской медали // Journal «Economy and Entreprenuership».— №5. — vol.2.- Москва, 2014

Отсутствие ссылки является нарушением закона об авторском праве. На сайте установлен счётчик, отслеживающий несанкционированное копирование статей, составляющих интеллектуальную собственность автора.

Annotation:

In this article the financing of the Olympics Sochi-2014, sources of funding and the main investors, the investment objects are considered. Special economic zones of Russia are presented, their financing is concerned.

 Key words:

The city of Sochi, investment in the Sochi Olympic Games, financing Sochi Olympics 2014, free economic zones, special economic zones

The relevancy of the research is confirmed to be held in 2014 by Olympic games in Sochi, the economic effect of which will be for many years to come, and, in General, active development of tourist destinations in the South of Russia. This region of the South of Russia is attractive for both national and foreign investors: on October, 14, 2010 the government of the Russian Federation formed a new Tourist cluster in the North Caucasus Federal district, Krasnodarskij Krai and Adygea Republic. And in accordance with the state program of development till 2025, the budgetary allocations of the Federal budget in 2013-2020 are 234,9 billion [1].

Also the question about the formation of a special economic zone (equal – free economic zone, hereinafter – SEZ) in the territory of Sochi has been relevant for a long time, which hosted the Olympics-2014, or in one of its segments — Krasnaya Polyana [2]. But, creation of SEZ in these areas has not happened. However, we note that the most successful foreign businesses are developing in the SEZ, and especially important – in the field of tourism. Currently in Russia there are 28 special economic zones, which are divided into four types [3] (see Illustration 1):

1

Illustration 1. Special economic zones of Russia

Source: [3]

In Russia there is the greatest number of free economic zones of tourist-recreational type — 14. There was a trend of significant increase in the number of foreign investors in SEZ of Russia [4]. By 2013, there were over 300 (see Illustration 2).

2

Illustration 2. The number of residents of special economic zones of Russia

Source: [3,4]

In the tourist-recreational zone is concentrated 39 investors, and it is on the third place by the number of investors among all types of SEZ. The greatest number of investors is concentrated in technical-promotional zone — 214, on the second place — industrial-production zone (concentrated 71 investors). The smallest number is located in the port area — 5 investors [4].

The increasing number of investors determines an increasing in the volume of investments in the SEZ. Therefore, it is also advisable to consider the dynamics of the investment volume. Considering the key indicators of the functioning of the Russia`s SEZ, we note for 2006-2013, the trend of considerable increase of volume of investments into them as from Federal sources, and investors-residents (Russian and foreign), and the volume of revenues from investors-residents exceeds the volume of revenues from Federal sources, significant growth was recorded in 2010-2013 (see illustration 3), the volume of investments in 2013 (compared to 2010) has increased by 46 635 million rubles, or 40%, indicating the increase of investment attractiveness of investment objects and a growing number of investors, both domestic and foreign, in the SEZ of Russia in 2013 (see figure 3).

3

Illustration 3. Investment in Russia`s Special economic zones

Source: [3, 4]

Let us consider the interest of investors and financial flows conducted due to holding of the Olympic games Sochi-2014.

Olympics-2014 was held in two locations — the mountain and coastal clusters. The coastal cluster is «Olympic Park» and is located at 265 hectares in the Imeretinskaya valley. The author made the Table 1, which provides data on the sports facilities and costs [5, 1].

Table 1 — Sports Olympic objects of Sochi-2014

Name of the object The cost of the object 1.     Responsible Contractor 
The mountain cluster
The Olympic stadium «Fisht» $778 million State Corporation «Olympstroy»
The Large Ice Palace «Big» $300 million State Corporation «Olympstroy»
The Ice Arena «Puck» $35,5 million State Corporation «Olympstroy»
The Curling Center «Ice cube» $55 million LLC «Investment and construction company «Slavoblast»
The Skating center «Adler-arena» $33 million JSC «Center for technology transfer of the construction complex of Krasnodar region «Omega»
The Winter Palace Of Sports «Iceberg» $75 million State Corporation «Olympstroy»
The coastal cluster
The complex of competitions on ski races and biathlon «Laura» $15 million JSC Gazprom
The Extreme Park «Rosa Khutor»  $400 million LLC «Company development ski resort Rosa Khutor
The Centre Luge «sledge» $130 million State Corporation «Olympstroy»
The Complex for jumping «Coaster» $245 million  JSC Krasnaya Polyana
Total: $2066,5 million  

Total spending on the Olympics in Sochi was 1526 billion roubles and in terms of expenditure it is the most expensive Olympics in the history of the games [6].
Table 2 presents comparable costs for the Olympics, starting with 2004 [7].

Table 2 — Olympic costs to host the Olympics in 1988 and 2014

Year Number City (Country) Planned expenditures, $ billion Actual expenditures, $ billion
2004 XXVIII summer Athens (Greece) 4,65 13,50
2006 XX winter Turin (Italy) 2,40 4,37
2008 XXIX summer Beijing (China) 16,30 43,19
2010 XXI winter Vancouver (Canada) 2,88 6,08
2012 XXX summer London (England) 3,93 15,39
2014 XXII winter Sochi (Russia) 13,10 50,90

Source: [7]

Announced in early autumn, 2013 by President of Russia Vladimir Putin and confirmed in January, 2014 by Vice-Premier in charge of the preparations for the winter games D.Kozak the total budget allocated for the construction of all Olympic objects and the Olympic and Paralympic games 2014 in Sochi amounted to 214 billion (without cost of infrastructure). This amount is the sum of the budgets for the construction of Olympic facilities and direct holding of the games. According to President Putin: «100 billion rubles of this money is net public funding, and 114 billion will be allocated at the expense of investors». The amount of 214 billion rubles (on erection of objects) constitutes 20% of the total planned volume of investment. The remaining 80% of all the funds — investment into infrastructure of Sochi [8].

The final amount of financing of Olympic objects` construction and Sochi necessary infrastructure is 1,526 trillion rubles (about 51 billion dollars). Including the state Corporation «Olympstroy» invested 174,9 billion rubles, investors — to 1.005 trillion rubles, the administration of Krasnodar region and Sochi — 109 billion roubles, the Federal authorities — 237 billion rubles [9]. Thus, investors make up the largest share in the structure of financing the Olympics. Note that the biggest creditor to the preparation for the Olympic games in Sochi is the state Corporation «Vnesheconombank», issued responsible contractors (see Table 1) the Olympic loans in the amount of 240 billion rubles [9]. Let us consider the main investors and their contribution to the Olympics:

  1. State Corporations [9]:

JSC RZD (260 billion rubles), JSC Gazprom (180 billion rubles), JSC Sberbank of Russia (40 billion rubles), JSC FGC UES (20,8 billion rubles), the Oil Company Rosneft (5 billion rubles);

  1. Private holding companies-investors:

Basic Element (90 billion rubles) [10], Interros (68,6 billion rubles) [9], UMMC holding (3,5 billion rubles — complex «Washer») [9], LUKOIL (not announced);

  1. Partners:
  • World: Coca-Cola, Atos S.A., Dow Chemical, General Electric, McDonald`s, Omega, Panasonic, Procter&Gamble, Samsung, VISA;
  • National: Aeroflot, Bosco, Megafon, Russian Railways, Rosneft, Rostelecom, Sberbank, Volkswagen Group Rus;
  • Partners: Ingosstrakh, PricewaterhouseCoopers, Sportloto.
  1. Official suppliers:

Adamas, Power Technologies, Education First, EXECT Business Training, The publishing house «Kommersant», brewing company «Baltika», Avaya.

According to the global network of agencies Havas Sports-and-Entertainment Group (HSE), taking from analysis of the results of the London Olympics 2012, the image of the companies — Olympic sponsors on average improved by 25-50%. Strengthening positive attitude towards the brand is often transformed into a significantly higher probability of purchase [3].

For Russia the holding of the Games in Sochi and realizing the profit is very important, but even more important is the development of the city and the region into a year-round tourist centre and the rest of the world level. Thus, the results of the Olympiad, economic implications and expectations initially depend on the objectives that have been set by the organizers of the games. As a rule, many Committees set ambitious social goals. For example, the Concept of the Olympic games of 2012 in London was based on the development of economically backward areas in East London [11].

The experience of the previous Olympiads shows that contracts with national sponsors — the main source of income for the organizing committees of the Olympic games. The record for the winter Olympic games belongs to the Games in Salt-lake-city, the income from ticket sales was $154 million [12]. Operating profit of the organizing Committee «Sochi 2014» amounted 5 billion rubles [13], however, the fact of profit does not mean that the infrastructure of the Olympic games has been paid off. This amount will be spent on the development of mass sport in the country.

Let us also note, that the Bank of Russia in the report concerning monetary policy assessed the contribution of the Olympics in the GDP growth of 0.3 percentage points [13]. According to a survey of global risks of the Bank of Russia, the Central Bank expects an improvement of the balance of payments, as the flow of tourists during the Olympics in Sochi will help to strengthen the ruble and to improve the balance of payments [8]. However, against this background, with a parallel growth of foreign currencies the weakening of the ruble may happen. But President Putin said that for various sectors of the Russian economy different dynamics is advantageous: the export-oriented production are interested in weakening of the ruble, working for the domestic market — in strengthening of the Russian monetary unit [14].

According to the rating agencies, the following positive trends can be distinguished. The inflow of investments is marked: at the present time in the province implemented 225 large investment projects worth over 941 billion rubles with deadlines until 2025. Tax revenue at all levels of the budget are estimated at 60,1 billion rubles. The infrastructure is developing: in 2013, Krasnodar region took the second place in the country in volume of input of the real estate. In preparation for the games in Sochi was built about 350 km of new roads and bridges. The growth in employment was marked. For several years in Sochi was created 560 thousand new jobs. In 2013 in the city had the lowest unemployment rate in Russia, constituted only 0.17%. The output of products with symbols of the Sochi Olympics was the most ambitious in the history of the Olympic games. About 5 thousand names of Souvenirs from sportswear to coins, stamps and even of products for pets were released. Sales of soft toys in the form of the mascots of the games — Leopard, White bears, and the Bunny — breaking records, exceeded 3.6 million copies. Total revenues from the Olympic retail obtained by companies-licensees, could reach more than $ 500 million [15].

We emphasize the importance of investment of the Olympic Games as a contribution to the development of industry and energy. As in the structure of total expenditures on holding of the Olympic games, as mentioned above, the cost of construction of Olympic venues and holding Olympic and Paralympic games constitutes only 20%, then 80 percent invests in infrastructure, we note that by the example of the Olympiad were implemented following investment projects in the field of industry, energy [15].

The most ambitious project is the combined (car and railway) road Adler — mountain-climatic resort «Alpika-Service» with the solid construction of the second railway track Sochi — Adler — Veseloe. The total estimated cost was about 240,1 billion rubles [6]. The total length of roads created by JSC RZD in the district of holding the winter Games in 2014, is 157 kilometres. The total estimated cost of building a railway from Adler to the Sochi airport is 9.8 billion rubles [6, 15].

In the framework of the project of creation of freight yards in Sochi opened two freight yards «The Russian Academy of agricultural Sciences » and «Sochi». The cost of construction amounted to 3.7 billion rubles [6, 15].

By the Olympiad-2014 were reconstructed passenger`s terminals of railway stations Dagomys, Sochi, Matsesta, Khosta. The total cost of the project amounts to 5.4 billion rubles [6, 15].

JSC «Gazprom» has implemented the program «Gazprom 2014», which included the construction and operation of sports, infrastructure and energy objects in Sochi.

Another project is the Adler thermal power station. The function of the investor performs 100% subsidiary of OJSC «Gazprom» — LLC «Gazprom investment project». For the project loan was raised from the Vnesheconombank. Power plants with total capacity of 360 MW could cover more than a third of the predicted peak load of the Sochi energy district during the winter Games in 2014. The cost of the power plant — 23 billion rubles [6, 15].

The third project — a gas pipeline Dzhubga-Lazarevskoye-Sochi, which aimed to improve the reliability of power supply of the region, to provide gas to Adler thermal power station and sports facilities. The costs amounted to 31.5 billion rubles [6, 15].

In summary, we note that the decision to hold the Olympics it is in the South of Russia, adopted in Guatemala, where was held the 119th session of the International Olympic Committee (IOC) in 2007, aimed to develop the region. Now, thanks to the joint efforts, in the South there is a new cluster. The Olympics was aimed the development of this segment of the country. Now new directions for the implementation of similar investment projects are possible (both sporting and industrial, infrastructure development) as for similar regions that require investment and development, namely, the Crimea and other segments. So, during the business lunch at the world economic forum in Davos, dedicated to the development of Siberia, it was noted that it is also necessary not less than a large-scale project for the full development [16].

 

Bibliography:

  1. Internet-portal the government of the Russian Federation [Electronic resource] — access Mode ADDRESS: http://special.government.ru/docs/3362 (date of access — 01.2014)
  2. Special economic zone in Sochi — NIA FEDERATION [Electronic resource] — access Mode ADDRESS: http://www.nia-rf.ru/news/economy/1701 (date of access — 12.2013)
  3. The Ministry of economic development of the Russian Federation of Special economic zone — [Electronic resource] — access Mode ADDRESS: http://www.economy.gov.ru/wps/wcm/connect/economylib4/mer/activity/sections/sez/main/ (accessed on — 09.2013)
  4. The Ministry of economic development of the Russian Federation of Special economic zones (Presentation for investors)- [Electronic resource] — access Mode ADDRESS: http://www.economy.gov.ru/wps/wcm/connect/economylib4/mer/activity/sections/sez/main/ (accessed on — 09.2013)
  5. Sochi-2014: the Main objects: Value and characteristic parameters of the objects of transport and road map — [Electronic resource] — access Mode ADDRESS: http://sakura.bloglit.ru/2014/01/09/sochi-2014-glavnye-obekty-stoimost-i-xaraktiristika-parametry-obektov-transportnaya-karta-avtodorog/ (accessed on — 01.2014)
  6. Financing Olympic facilities in Sochi and the main investors — RIA Novosti real Estate — [Electronic resource] — access Mode ADDRESS: http://riarealty.ru/analysis_info/20130226/399764764. html#ixzz31OiSwP00 (date of access: 03.2014)
  7. XXII Winter Olympic games in Sochi: the triumph or failure of Russia? — [Electronic resource] — access Mode ADDRESS: http://www.chaso.ru/magazine/2013-03/xxii_zimnie_olimpiyskie_igry_v_sochi_triumf_ili_proval_rossii/ (accessed on — 01.2014)
  8. The ruble will win at the Olympic games in Sochi — [Electronic resource] — access Mode ADDRESS: http://1prime.ru/Forex/20140120/775719114. html (accessed on — 01.2014)
  9. Financing Olympic facilities in Sochi and the main investors «Sochi-2014» — [Electronic resource] — access Mode ADDRESS: http://sochi2014.rsport.ru/sochi2014_analytics/20130226/647701294. html (accessed on — 01.2014)
  10. Kommersant Newspaper — «Olympstroy» lay down under «Washer» — [Electronic resource] — access Mode ADDRESS: http://www.kommersant.ru/doc/2122435/ (accessed on — 01.2014)
  11. Expert: the total economic effect [Electronic resource] — access Mode : http://www.willan.ru/news/2070/ (accessed on — 04.2014)
  12. What money are building 2014 Olympic games- [Electronic resource] — access Mode ADDRESS: http://www.yaplakal.com/forum3/topic703471.html (date of access — 01.2014)
  13. Experts: the profit of the organizing Committee is not equal to the economic success of the Olympics| RIA Novosti — [Electronic resource] — access Mode ADDRESS: http://ria.ru/sochi2014_around_games/20140407/1002880578. html#ixzz2yPQJJyxO (date of access: 04.2014)
  14. The speaker believes that the weakening of the ruble in 2014, more likely than strengthening — [Electronic resource] — access Mode ADDRESS: http://1prime.ru/News/20140122/775894282. html (accessed on — 01.2014)
  15. The Sochi Olympics: what economic effect will be [Electronic resource] — access Mode ADDRESS: http://www.metronews.ru/novosti/olimpiada-v-sochi-kakim-budet-ekonomicheskij-effekt/Tponbe—KH1WoiK564Mio/ (accessed on 04.2014)
  16. Deripaska proposes to transfer the capital of Russia and Siberia [Electronic resource] — access Mode ADDRESS: http://news.mail.ru/politics/16621663/?frommail=1 (date of access — 01.2014)

World and Russian experience of special economic zone`s formation

1470474_sez.jpg

 

Статья опубликована в сборнике материалов VIII Международной научно-практической конференции «Россия и Европа: связь культуры и экономики» Прага, Чешская республика  28 февраля 2014 года

ВНИМАНИЕ!!! При копировании данной статьи полностью, либо частично, необходима активная ссылка на её автора:

Рыбалко А.Н. World and Russian experience of special economic zone`s formation // VIII Международной научно-практической конференции «Россия и Европа: связь культуры и экономики»: Сборник материалов конференции 28.02.2014,—Прага, Чешская Республика: WORLD PRESS s.r.o., 2014

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WORLD AND RUSSIAN EXPERIENCE OF SPECIAL ECONOMIC ZONE`S FORMATION

The investment policy of a particular state is implemented in the framework of the national foreign economic policy. It`s specificity depends on the content and objectives of the prevailing direction of foreign trade policy – of import or export policy, and on the ratio between the trends of the foreign trade policy — between protectionism and liberalization.

In the XX century after the Second World War elimination of many obstacles on the way to the free exchange contributed to economic and social development in most countries of the world, and especially those countries which farther than others went towards the liberalization of foreign trade (creation of free trade areas, customs unions, regional markets). Conversely, countries, that embark on the path of autarky, protection of its economy from the influence of foreign competition, as time goes by were forced to change the course and carry out more or less profound reforms of foreign economic relations, aimed at the release of external trade excessive state intervention [6].

Nowadays, one should distinguish between the principle of free trade and the principle of fair trade. According to the principle of free trade, public policy is the opposite of protectionism policy, i.e. market is open to foreign goods, as well as foreign capital in the country. However, this policy and the uncontrolled influx of foreign goods, especially at a lower price, i.e. goods which compete with national products, retreating either quality or price, or, according to these two criteria simultaneously, which can certainly cause undermining of national production and the national economy as a whole. The policy of fair trade means that the state, through the measures of the customs regulation, establishing quotas, tariffs, and the introduction of legislative restrictions supports necessary for the country “balance” between the quantity of imported and produced production in the country. Through these measures, so-called “Golden mean” is achieved, and the market of the country does not suffer from import and overabundance of foreign goods. But this position is considered by the manufacturer, how a complex of these measures influences the market of goods and services of a particular country.

From the position of the buyer the opposite trend is observed: the limitation of the import of foreign goods, stimulating firms-manufacturers of a country to create products of appropriate quality at the best price, leads to strengthening of the monopolies and the lack of competition, and, as a result, the buyer has to buy the goods of a certain quality (sometimes second to foreign analogues) at higher prices. Protectionism in the long run undermine the foundations of the national production, because it weakens the pressure of the global market, necessary for the development of entrepreneurial initiative. As a result, routine prevails innovation and progress, reluctance to part with the acquired privileges and revenues. Also protectionism raises the risk of a “chain reaction”, because after protection of certain industries from the adverse effects of the competitive environment of the market, soon there might be a necessity to protect others.

The dominant element of the investment policy of the Russian Federation are liberalization and investment promotion. However, with the rise in recent years of restrictive investment measures and administrative procedures, the risk of investment protectionism is significantly increased [4].

The most urgent is the policy of foreign direct investments, which is becoming increasingly interconnected with the policy of industrial development at the national and international levels [4]. The main importance is to find a “Golden middle” between strengthening the domestic productive capacity on the one hand, and preventing investment and trade protectionism on the other, as well as strengthening international coordination and cooperation.

At the G20 summit, Russian President Vladimir Putin called for «honestly agree on protectionism» [3]. At the present time, Russia currently has a policy of free trade, which is associated with the releasing of Russia into the international market, removed borders and trade restrictions, however, on some sectors and market segments, for example, the automotive market, the tendency is opposite — protection of domestic producers, which is connected with the establishment of quotas and increasing customs duties on imported cars. This policy is showed up in these facts that for many of the concerns it became more profitable to produce their goods directly on the territory of the state, that, certainly, gives positive and beneficial consequences, both for producers and for the country on the territory of which it is performed, as well as for consumers. This creates favorable investment climate in the country, new jobs due to the opening of new plants, but also reduces the cost of production due to reduced costs and delivery of its individual parts. However, the main disadvantage is the “Domino principle”, according to which, in case of a crisis or fall of production in one country, by a chain that trend will affect the partner countries.

World practice shows, that the most successful foreign business takes place in special (free, special) economic zones (hereinafter — FEZ). FEZ – is a part of the national territory, where in accordance with the legislation, special conditions for conducting business activity, in comparison with the main territory`s conditions, are prevailed.

In the modern history free economic zones appeared in The USA in the course of overcoming the consequences of the great depression as a special customs zones to Detroit auto companies.

World experience identifies two variants of formation of free zones:
• option «on top»: formation of a zone on the initiative of the Central authorities and in the framework of the state program (as, for example, in South Korea);
• option «from below»: creation of SEZ in the order of market self-organization (Dominican Republic, Poland).

More dynamically the second option, including the mixed public-private financing, is developing. Proposals concerning the establishment of the free economic zone are sent to the specially authorized state Federal or regional agency that after the decision on the establishment of the zone is included in the work concerning forming of conditions for its creation.

There are some features of the formation SEZ in different countries. In some countries from the free zones may be created to provide economic recovery for depressed areas or promoting the development of certain sectors of the economy by private business.

Consider folding the free economic zone of service type in Las Vegas, Nevada, USA, which began to develop rapidly in the 30s, when the Federal government began to limit the gambling zones in the country, and the state government issued a liberal laws, that allow to place casino in Las Vegas. The funds, derived from taxes on gambling business, have been invested in state educational institutions, and other social programs of the state. In the city among the population over 25 years, graduates of high school are 81,3% of the population, with degrees of bachelor — 21,3%, which is one of the highest levels in the country [1].

In other countries the main becomes the purpose of attraction of foreign businesses in those sectors of economy that are either missing or are not competitive on the world markets, including the development of export processing zones-enclaves, usually loosely coupled with the country’s economy (for example, Russia, Kaliningrad region).

Evolution of development, through a long historical way, gave rise to many types of FEZ. While a free trade zone and industrial production zones have been mostly developed mainly in developing countries, in industrialized countries increasingly widespread are the technological development zones in the form of technology parks, scientific areas etc.

Consider the experience of scientific-industrial-territorial complex (the so-called Stanford research Park) in Silicon valley, California, USA. Silicon valley is the third largest technology center in the United States (the number of employees in the sphere of high technologies reaches 225 300 jobs), after new York and Washington (according to other data — more than 386 000 specialists from the IT-industry) [2]. Silicon valley is also called the Corporation, which consists of Stanford University and the Corporation’s IT sector. The value of this research Park-the Corporation is to use the synergy effect of interaction between scientific center — University, which is a supplier of trained specialists and the developer of solutions for the companies, and the companies themselves, which, inter alia, funding research students, post-graduates and scientists of the University interesting for their issues or are the manufacturing base for realization of scientific discoveries. This experience became the matrix of the Russian project «SKOLKOVO». However, for today, Russian President Vladimir Putin plans to close the Podmoskovny innograd SKOLKOVO, which will be replaced by the established Fund of prospective studies, which in some aspects is quite similar to the American military-technical Agency DARPA, and with a similar activity.

In Russia the special economic zone (SEZ) – is a determined by the Government of the Russian Federation part of the territory of the Russian Federation, where special routine of entrepreneurial activity is taking place [12].

Currently in Russia there are 28 the special economic zones four types (Picture 1) [8]:
• industrial and production;
• technological and innovative;
• tourist and recreational;
• port.

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Picture 1. Russia`s Special economic zones

Source: [8]

There is a trend of a significant increasing in the number of foreign investors in SEZ of Russia [9].

In considering the key indicators of the functioning of the Russia`s SEZ, we note for 2006-2013’s the trend to a significant increasing in the volume of investment in SEZ of Russia as from Federal sources, and investors-residents (Russian and foreign), and the volume of revenues from investors exceeds the volume of revenues from Federal sources, a significant growth was recorded in 2010-2013 (Picture 2), the volume of investments in 2013 (compared with 2010) increased by 46 635 million rubles, or 40%, indicating the increase of investment attractiveness of investment projects and a growing number of investors, both domestic and foreign, in the Russia`s SEZ, and, in 2013, there were over 300 (Picture 3). Considering the types of SEZ, by 2013. the greatest number of investors is concentrated in the technological-and-innovative zone — 214, in industrial production — 71, tourist and recreational zone — 39, and in port — 5 (Picture 4) [9].

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Picture 2. Investment in Russia`s Special economic zones

Source: [9]

In technology-innovative SEZ of Russia (Moscow and Tomsk regions), we note a significant predominance of funding from the Federal budget for the financing of the residents; in the SEZ Moscow and St. Petersburg — funding from the Federal budget annual and stable, but the funds made by investors-residents considerably exceeds the funds, transferred from Federal budget [9].

In industrial SEZ (the Republic of Tatarstan, Lipetsk region), the significant prevalence of funding from investors- residents in comparison with the financing from the Federal budget [9].

13

Picture 3. The number residents in Russia`s Special economic zones

Source: [9]

We consider Russian experience of special economic zones by the example of tourist-recreational economic zones, because they represent the greatest investment interest and relevance on the grounds of the current policy of the state, entering Russia on the international arena, the entry into the WTO and the Olympic games Sochi-2014.

14

Picture 4. The number residents in different types of Russia`s Special economic zones

Source: [9]

In September 2010 The government of the Russian Federation ahead of schedule eliminated the special economic zone of tourist-recreational type in the territory of Anapa, Sochi, Gelendzhik and Tuapse, because during the three years of its existence has not been made any one investment contract [5].

However, this region of the South of Russia attracts special interest, and in October 14, 2010 by the Decree of the Government of the Russian Federation was established a new Tourist cluster in the North Caucasus Federal district, Krasnodar region and Republic of Adygeya. And in accordance with the state program of development till 2025, the budgetary allocations of the Federal budget in 2013-2020 are 234,9 billion rubles [7]. Also remains an open question about the formation of SEZ in the territory of Sochi, where Olympiad-2014 was taking place, or in one of the cluster — Krasnaya Polyana [10].

Russian President Vladimir Putin noted that for various sectors of the Russian economy the different dynamics is beneficial: the export-oriented productions are interested in weakening of the ruble, working for the domestic market — in strengthening [11]. It is therefore difficult to say that for the country protectionism is always harmful, but free trade is beneficial, or Vice versa. Vilfredo Pareto counsels to discuss problem differently: «Knowing all the economic and social conditions of the country at the moment, you should understand and choose what for this country and at this moment is more suitable — free trade or protectionism».

 

Список источников:

  1. Census Data (Official City of Las Vegas Web-site) — [Электронный ресурс] – Режим доступа – URL: http://www.lasvegasnevada.gov/FactsStatistics/census_data.htm (дата обращения 07.2013)
  2. History – Part 3 (The Rise of Silicon Valley): Standford University — [Электронный ресурс] – Режим доступа – URL: http://www.stanford.edu/about/history/history_ch3.html (дата обращения — 09.2013)
  3. ВестиRU: Путин призвал честно договориться о протекционизме во время кризисов 18.06.2012 -[Электронный ресурс] – Режим доступа – URL:http://www.vesti.ru/doc.html?id=823867&tid=98234 (дата обращения 06.2013)
  4. Доклад о мировых инвестициях 2011 года – investments2011 -[Электронный ресурс] – Режим доступа – URL: http://www.un.org/ru/development/surveys/docs/investments2011.pdf (дата обращения 01.2014)
  5. За три года существования ОЭЗ в Краснодарском крае не нашлось ни одного инвестора, пожелавшего вложиться в туриндустрию – Газета.RU Финансы — [Электронный ресурс] – Режим доступа – URL: http://www.gazeta.ru/financial/2010/09/29/3424214.shtml (дата обращения — 12.2013)
  6. Ивашковский С.Н. Свободная торговля или протекционизм? Элитариум: Центр дистанционного образования -[Электронный ресурс] – Режим доступа – URL: http://www.elitarium.ru/2010/04/13/svobodnaja_torgovlja_ili_protekcionizm.html (дата обращения 06.2013)
  7. Интернет-портал Правительства Российской Федерации — [Электронный ресурс] – Режим доступа – URL: http://special.government.ru/docs/3362 (дата обращения — 01.2014)
  8. Министерство экономического развития Российской Федерации – Особые экономические зоны — [Электронный ресурс] – Режим доступа – URL: http://www.economy.gov.ru/wps/wcm/connect/economylib4/mer/activity/sections/sez/main/ (дата обращения — 09.2013)
  9. Министерство экономического развития Российской Федерации – Особые экономические зоны (Презентация для инвесторов)- [Электронный ресурс] – Режим доступа – URL: http://www.economy.gov.ru/wps/wcm/connect/economylib4/mer/activity/sections/sez/main/ (дата обращения — 09.2013)
  10. Особая экономическая зона в Сочи – НИА ФЕДЕРАЦИЯ — [Электронный ресурс] – Режим доступа – URL: http://www.nia-rf.ru/news/economy/1701 (дата обращения — 12.2013)
  11. Улюкаев считает ослабление рубля в 2014 году более вероятным, чем укрепление — [Электронный ресурс] – Режим доступа – URL: http://1prime.ru/News/20140122/775894282.html (дата обращения — 01.2014)
  12. Федеральный закон от 03.06.2006 N 76-ФЗ (ред. от 23.07.2013) «О внесении изменений в Федеральный закон «Об особых экономических зонах в Российской Федерации»- [Электронный ресурс] – Режим доступа – URL: http://www.consultant.ru/document/cons_doc_LAW_149787/ (дата обращения — 01.2014)