This is hardly a new idea for Russia, where 18 free economic zones were created from the early 1990s through 2002. However, the authorities had to close almost all of them, as they had turned into internal offshore zones. Alexei Skopin, a professor at the Higher School of Economics, believes that the idea of special economic zones was distorted in practice. Indeed, world famous zones were well-considered business projects, whereas in Russia no one calculated how much to invest in projects or how much a region would gain. It was more important to secure customs, tax, financial, administrative and other breaks, than to think about what they would help produce.
It is not surprising that these unexpected allowances attracted criminal elements. The zones came to be used for smuggling, and not for economic comforts.
Nevertheless, now that the idea of special economic zones is being revived, even this sort of experience is very useful. There are many examples to follow throughout the world, such as Silicon Valley in America, Grenoble in France and Bangalore in India. Give the success there, why not make a second attempt in Russia? The Ministry of Economic Development and Trade has drafted a bill on special economic zones in the Russian Federation. Minister German Gref claims that the new law will be fundamentally different from previous ones, which were fiercely disputed in the government. The new law will determine the innovative line rather than pursue export and trade benefits. President Putin has backed the idea. After visiting the free economic zone in Bangalore and discussing the problem of IT development with scientists in Novosibirsk, the president instructed the government to submit a bill on special economic zones to the State Duma.
Alexander Ustinov, the deputy head of the Social and Economic Reform Strategy Department of the Ministry of Economic Development and Trade, specified that the draft proposes establishing two kinds of zones to distinguish between industrial production and the innovative sphere. The former will embrace an area of no more than ten square kilometers and house the production of highly processed goods. Investment must be at least a million euros in the first year of work under work contracts and no less than ten million euros over ten years (the maximum length of a contract).
Innovation zones will help develop and introduce scientific products. Though smaller, no more than two square kilometers, they will not be subject to any investment restrictions. Zones of both kinds will operate for a maximum of 20 years, after which the results of the experiment will be analyzed.
The ministry says that the uniform social tax will be cut to 14% for the zones. It also suggests a free customs regime and promises to simplify the registration procedure for residents in such zones. Moreover, mandatory tax inspections will be conducted only once in three years. Residents of free economic zones will also be guaranteed against changes in federal and local legislation while their contracts are valid.
Russia has evidently come up with a good and promising business. However, is it reasonable to combine two absolutely different concepts, production zones similar to Chinese ones and high-tech zones of the American or French type, in one bill?
There is ample space for both kinds in Russia. Production zones can be based in southern Siberia, the Kemerovo and Tomsk regions and the Far East, where they are likely to attract Korean, Chinese and, probably, Indian investors. Indeed, they can make a profit on the Russian market, given the proximity of production facilities and, consequently low risks and tight control of the situation. Privileges will reduce the cost of production and thus fuel demand on the domestic market. Russia already has a successful economic zone, the Kaliningrad region, where the defense industry has been converted to produce civilian output. The European Union, which is interested in demilitarizing the region, has supported many projects there, which has led to the emergence of car assembly plants and the production of domestic appliances. And the output is good quality.
Therefore, Russia's new free economic zones must work for the domestic market. However, experience shows that production supported by the state to provide the domestic market with cheap products tends to put out noncompetitive goods in the long run. Bureaucracy, larceny and corruption finally discredit the idea. An assumption was made during the discussion of the bill that any expensive budget project is sure to fail unless the state management system is reformed.
The concept of innovative zones is based on completely different logic. Silicon Valley shows that this kind of zone must be developed around a large university and a number of scientific research centers. The core of the project is financing the latter. Silicon Valley is known to have only started developing owing to a major defense order. The scheme was the same as with other zones, in Grenoble, on the Cote d'Azur and in Japan. A union of science and the military creates an infrastructure zone and new production facilities, which put a research center design on the assembly line.
This model can be applied in three places in Russia: Moscow, St. Petersburg and Novosibirsk. It is worth mentioning that the American model for such high-tech associations was used in the Soviet era. Akademgorodok in Novosibirsk received numerous orders, including from the defense, and research and production enterprises emerged there. The same scheme developed in St. Petersburg and Moscow, causing the commuter towns of Troitsk and Zelenograd to appear near the capital.
The scheme worked well in the past, but problems are likely to occur now. With virtually no funding from the state, research centers have no substantial orders. And business currently developing in Russia is based on raw materials. There is no need for domestic technology research, because Western technologies are already being used. Accordingly, Russia's main problem is to find a source to finance scientific research.
Of course, the law cannot solve this problem, and a sound policy needs to be worked out in this sphere. Interestingly, IT and other high processing businesses that would be most interested in the new law are not enthusiastic about the ministry's draft. "This law is not about technoparks," says Oleg Byakhov, head of the Department of Information Society Development Strategy at the Ministry of Information Technologies and Communications. "It cannot solve the problems of the IT sector."
