Yuri Novikov
Doctor of Economics, Professor at the Institute of Management and International Relations, Syktyvkar
The Republic of Komi is a Russian region (oblast) covering an area of 415,900 km2, accounting for 2.4% of Russia’s territory. Komi is 7.5 times the size of Novgorod oblast. Approximately half of northern Europe’s gas reserves are located in Komi. It is estimated that Komi holds 500 million tonnes of oil reserves and about 240 billion tonnes of coal. 70% of Komi is forest (87% of which is coniferous) which amounts to over 2.8 billion m3 of timber. According to expert estimations, the gross value of the mineral wealth in Komi is US$15 trillion, and this estimate only accounts for those deposits which have been prospected.
The Republic of Komi plays an important role in helping to strengthen relations between the northwestern regions of Russia and the Baltic sea states.
The Republic is a highly developed region. Industrial and social infrastructures are supported fully by electrical and thermo-power produced within the Republic and there is a well-developed transportation network. Komi’s economy is predominantly industrial with more than 30 sectors represented. The region’s budgets for 2000 and 2001 were characterised by real growth in industrial production. This was driven, first and foremost, by the timber industry and fuel-energy complexes.
Industrial output of the Republic of Komi, 2001
Product | Output | Komi’s share of Russia’s total output (%) | Komi’s share of the NW FD’s total output (%) |
Oil | 9.5m tonnes | 3.2 | 77 |
Coal (including coking coal) | 19.2m tonnes 11.2m tonnes | 7.2 | - |
Natural gas | 3.9bn m3 | 0.7 | 99 |
Electricity | 7.7bn megawatts/hour | - | 9.3 |
Saw-timber | 676,000 m3 | 4.0 | 14 |
Paper | 439,000 tonnes | - | 23.1 |
Fibreboard | 16.7m m2 | - | - |
Plywood | 157100 m3 | 11.9 | - |
Foreign Trade
The Komi Republic is one of the Russian regions whose main feature of the economy is its high export rate. Foreign trade is Komi’s main external economic activity. Since 1993, Komi’s foreign trade balance has been positive. It made its debut in the foreign trading environment as a supplier of various fuels and related products. There are in total 91 companies in the Republic which export these supplies to 32 different countries. Of the products exported in 2000, 66% was oil including gas condensate and 14% was paper and cardboard.
In the year 2000 Komi’s export rate increased by 10% and was worth US$ 725 mn. High prices for oil and oil products has meant that fuel remains the Republic’s top export with it now accounting for 75% of goods sold abroad. Compared to 1999, the export of saw-timber has doubled. The export of plywood has risen by 11% and paper and cardboard by 6%. The primary countries are Poland (20% of total exports), the Virgin Islands (17%), the Netherlands (9%) and the Czech Republic (7%). In 2000, Komi’s foreign trade turnover increased by 17%. Komi businesses sell their products in more than 70 countries.
For many years now, manufacturing equipment (such as machine tools) has been the Republic’s main import. Other imports include rolled iron, textiles, industrial goods and foodstuffs. The primary countries from which Komi imports are the USA, Germany, Finland, Sweden, France and Austria.
The Republic is beginning to develop relations with international organisations. The UNIDO project ‘The Komi Republic: stable industrial development and competitiveness’ took shape in 1999. The agreement was signed by the Republic of Komi and the Permanent Mission of the United Nation’s Development Programme for Russia. As for bilateral relations with foreign nations, Komi is developing excellent ties with Finland, Belarus and Iran.
Direct Investment
Whatever approach Komi devises for the future development of foreign trade and cross- regional relations, the Republic will need an influx of foreign investment to back it up.
Komi was one of the first Russian regions to consistently enforce policies for attracting and protecting investments. In 1995, a law was passed specifically to attract investment to the Republic. In accordance with this law, foreign companies that invest enjoy certain tax privileges, and a tax credit may soon be introduced as well.
As a result, at present Komi attracts the highest volume of foreign investment among all other regions of the North West Federal District, with exception of St Petersburg and Leningrad oblast. A significant change has taken place in the distribution of investment by sector. In comparison with previous years, the biggest increase in investment was into the processed timber, cellulose paper and oil-extraction and processing sectors.
At the beginning of 2000, Komi Republic had received a total of US$500m worth of accumulated foreign capital. The amount of money put aside for the development of Komi’s economy was US$125m. There was a marked increase in direct investment that year – accounting for more than 28% of all inward investment. There has been little ‘portfolio’ investment (equity and bonds) since 1995, which is a consequence of limited vehicles for investment other than into joint ventures. The other main forms of investment are credits and loans. The main investing countries: Cyprus (45% of the total), France (36.5%), USA (16.5%), Finland (0.6%) and the UK (0.2%). Not only has Komi been attracting foreign investors, but Russian businesses have been paying more attention to the region since capital from Cyprus is often Russian. Large investment programmes are being formulated in the oil industry by LUKOIL and in the timber industry by the State Investment Corporation (GOSINKOR).
The Severgazprom Project is a good example of a successful attempt to attract foreign investors. The main focus of the project is the reconstruction and modernisation of the Sosnogorsk gas re-processing plant. Approximately US$100m in total has been invested. After the plant has been reconstructed, the ultimate aim is to increase the production of liquefied gas. If small regional projects like this require hundreds of thousands of dollars, then large Russian or European projects – like the proposed construction of an Archangelsk–Syktyvkar–Perm railway – would require hundreds of millions of dollars. This rail route would cut the distance, and consequently the cost, of transporting goods from the Urals and Siberia to the ports of Archangelsk and Murmansk, and in the near future, to Scandinavian ports. Without some major investors and without a concerted effort by all the Baltic sea states, this project will never get off the ground.
Another factor helping the Republic to attract foreign investment is the sheer number of businesses with foreign capital operating there. At the present, there are over 150 joint ventures in the Republic of Komi, the majority of which account for one-quarter of all industrial production. Some of the joint ventures set up in Komi are with world-renowned companies like British Gas, Occidental Petroleum and Nestle, among others.
Drawing up favourable investment legislation and establishing beneficial conditions for investment into the Russian administrative regions depend on the actions of the Russian federal bodies, and above all, on optimising tax policies and cutting the time required for customs payments. Efforts should be made to rouse the interest of not only Russian federal bodies, but that of Komi’s partners in the Baltic region as well, so that they take part in developing the region’s economy. Foreign credit lines with the Russian federal budget as a guarantor are crucial if these regions’ industries are to develop. In connection with this, Russia’s administrative regions should be given additional powers over the management of the natural resources on their territory, so that these can be used as collateral to attract investment.
One of the Komi Republic’s main priorities should be the development of cross-regional and international cooperation with businesses in the Baltic Sea area to expand the business activities of the region’s small enterprises.
