Investors are waiting for safeguards

The Crimea expects to mobilize nearly 13 billion dollars

The Black Sea Economic Forum, dedicated to the analysis of investment potentialities of the Black Sea region, has come to an end in Yalta. For two days almost 250 participants from Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and other countries enjoyed the opportunity of questioning government representatives about the investment climate in the Crimea and getting acquainted with the already created investment projects for the development of the peninsula.

As expected, there was a barrage of questions from businesses and experts. Yet the dialog can hardly be described as successful. Despite the patronage of the president of Ukraine, the potential investors never saw the promised guests. Answering the questions of investors and the press was the responsibility of top officials of the Council of Ministers of the Autonomous Republic of Crimea (ARC), Ukraine’s Deputy Prime Minister Viktor Tykhonov, and several deputy ministers.

The Black Sea region has a strategic importance for the country as it will help Ukraine occupy a leading position in the region, said Tykhonov in his opening speech. According to him, it will be possible to achieve this goal via efficient use of the natural, cultural, historical, industrial, and human resources of the Crimea. In Tykhonov’s opinion, the Crimean peninsula “can become a wonderful example for the implementation of the new economic policy of Ukraine, and a center for mobilizing investments.”

On their part, the representatives of the Crimean government hurried to assure potential investors that they were open to dialog. The speaker of the Verkhovna Rada of the ARC Volodymyr Konstantynov declared that the creation of a network of single licensing centers and the Councils of Investors of the Crimea, as well as the launching of a single investment organization in the shape of the Agency for Regional Development, were the government’s concrete steps to meet investors’ demands

The regional government has also promised some progress in solving land issues. Thus, the first deputy chairman of the Council of Ministers of the ARC Pavlo Burlakov announced open land auctions in December, 2010, where 38 plots totalling more than 700 hectares will be sold.

For further improvement of the investment climate on the peninsula a “Strategy of the Development of the Crimea until 2020” is being designed at the moment. It provides for the implementation of nearly 83 large-scale projects in shipbuilding, the chemical industry, restoration of land irrigation, increasing the efficiency of the agrarian sector, as well as in the solution of the Crimea’s most acute environmental problem, solid domestic waste management.

The implementation of the investment projects will enable the autonomous republic to obtain a total of 1.7 billion dollars in additional taxes by 2019, as well as to create and preserve more than 25 thousand jobs. “Our forecast shows that the implementation of our projects will allow to mobilize nearly 13 billion dollars investments in the repbulic’s economy in the following decade,” said Konstantynov answering The Day’s question.

“Project schemes and development plans are all necessary. But today it is necessary to use what Germans and Americans did at a certain point in time: the Crimea needs a ‘Marshall plan,’” said Igor Podoliev, executive director of the EBRD for Ukraine, Romania, Moldova, Georgia, and Armenia. “I mentioned Erhard, who was the minister of economy and at the same time this plan’s ‘godfather’ in 1948-51. So he said that his plan had succeeded because the document stipulated for clear-cut goals, comprehensible for anyone. Besides, it was so concise as to take up no more than eight and a half pages.” That is why, in developing the design for the Crimea, Podoliev recommends that all levels of Ukrainian government write it in such a way that “none of the paragraphs leave room for doubt, and the plan itself is clear to the government, foreign investors, and every citizen of the Crimea.”

In his turn, the Minister of Industry and Energy of Azerbaijan Natik Aliyev suggests “creating a state-run investment fund for aiding budding businessmen,” in order to speed up the influx of investments in the Crimean peninsula. According to him, the willingness of state to invest 25 to 30 percent of the primary cost of a business is a good stimulus for investors.

Speaking of investments, Aliyev also announced that Ukraine and Azerbaijan were going to sign two international agreements on further cooperation concerning supplies of oil and liquefied gas to the Ukrainian market. “We want to set up a stable corridor of supplies of raw oil and oil products. The vo-lumes will reach up to five million tons of raw oil, to be processed at Ukrainian refineries,” he explained. Besides, the minister added that in the framework of the proposed agreements, Azerbaijan also planned to supply nearly five billion cubic meters of liquefied gas yearly, in accordance with Ukraine’s intention to build a LNG terminal on the Black Sea coast.

Turkey also joined in, making investment offers. “We can see the Crimea’s great potential, and we are ready to share our know-how. We can see good prospects in the developing of the logistic area, in the introducing of technopark know-how, and in the creating of a platform to develop small and medium businesses. Turkish investors are prepared to go to the Crimea,” added Nihat Ergun, Turkey’s minister of industry and trade.

According to him, in the framework of developing this region, joint Ukraine-Turkey ventures are quite possible in construction, the energy industry, and tourism. A visa-free regime and free trade are also important, added Ergun.

All these declarations and the wide representation of international businesses at the forum testify to the “approximately similar sentiments among Russian, Ukrainian, and international investors towards the Crimea and Ukraine,” said Ihor Mitiukov, director of Morgan Stanley mission in Ukraine. He believes that the further investment situation in the Crimea will be mostly positive, especially concerning the branches of regional and national governments. “If they succeed in finding common standpoints and consensus, the Crimea can once again climb to the top of the investment leaders’ list. Time has come to join our efforts and show that one can safely and efficiently invest in the Crimea. To begin with, land relations should be straightened out.” Besides, the expert is convinced that the Crimean government should in every possible way promote the implementation of national projects on the peninsula. This will attract significant governmental resources, as well as get political and organizational support.

All in all, in order to ensure a stable influx of investments in the Crimea or any other Ukrainian region, political stability and solid safeguards for propriety rights are necessary, said Roman Shpek, senior consultant for Alpha Bank and MIM graduate.

It is hard not to agree with his thesis: money is known to love peace and quiet. This brings to mind the story of one of the Crimea’s major investors, Aleksandr Lebedev. Our readers will probably remember that recently this Russian businessman said that he was going to withdraw his capital from the region, as the local government frustrated his investment projects.

The Day asked the regional government if a consensus with one of the major investors in the Crimean region had been reached. “It is not our prerogative to assess and make conclusions. This is the competence of relevant tax administration services, which have already made a preliminary statement about direct tax dodging. We cherish and welcome investors, and are ready to render whatever aid necessary for their development, and Mr. Lebedev is no exception. However, taxes must be paid, and they must be paid by everyone,” commented Burlakov.

This is hardly likely to resolve the problem, both Lebedev’s and other investors’, who are waiting for clearer safeguards.

THE DAY's FACT FILE

Foreign investors have made 784.7 million dollars worth of direct investments into the Crimean economy as of October 1, 2010. Of these, 66.3 million dollars have been invested during the first nine months of this year. Investments came from 46 countries. The main countries, accounting for 90.3 percent of the total volume of foreign investments, are the Russian Fe-deration, Germany, Cyprus, the Virginian Islands, Great Britain, the Seychelles, the US, France, Uzbekistan, and Belarus. The Autonomous Republic of Crimea maintains foreign trade relations with partners in 123 countries.