#1Kaliningrad and its region Slide package for a foreign investor TURUN YLIOPISTO FINLAND SWEDEN Davind Davind Baltic RUSSIA Sea ESTONIA LATVIA SHE [=]] pan-european institute LITHUANIA POLAND KALININGRAD 200 miles October 2019 Elias Kallio 1#2Contents 1. General information 2. Regional economy 3. Prosperity and consumption 4. External economic relations 5. Special economic zone in Kaliningrad 6. Rankings 7. Additional information TURUN YLIOPISTO [=]] pan-european institute 3 6 19 23 32 34 35 2#31. General information a) Geographical location Federal district: North-Western Size: 75th out of 85* regions in Russia in terms of area, (15 100 km²), about half the size of Belgium Time zone: Moscow -1, GMT+2 Border with: Lithuania and Poland Distances from Kaliningrad to some European capitals: Vilnius (350 km), Riga (390 km), Warsaw (400 km), Berlin (600 km), Stockholm (650 km), Helsinki (660 km), Copenhagen (680 km), Oslo (850 km) *international community does not recognize Crimea and Sevastopol TURUN YLIOPISTO 11 pan-european institute Government of Kaliningrad Oblast, www.geobytes.com 3#41. General information b) Basic facts Inhabitants: 1002 187 (beginning of 2019) Largest towns: Kaliningrad 482 443 Gurjevsk 68 579 Chernjahovsk 46 351 Sovietsk 39 150 Share of urban population: 78% Main industries: Food industry (fishing), fuel industry, machine building and metal industry Natural resources: Amber, some oil, brown coal, peat, rock salt, mineral water services TURUN YLIOPISTO I pan-european institute Sovjetsk • Krasnognamensk Polessk Bolshakovo Primorsk Kaliningrad Gvardeysk ■ Baltlysk Chernjahovsk Gusev Nesterov * Mamonovo * Pravdinsk Bagrationovsk Ozjersk 0 15 30 Kilometers Kaliningradstat 2019 4#51. General information c) Population and labor force 8% 2014 2015 2016 2017 2018 Unemployment rate Population (thousands) 963 969 976 986 995 6% Population change from previous year (%) 0.9 0.6 0.8 1.0 0.8 Unemployment (thousands) 29 31 32 27 25 4% Level of unemployment (ILO definition, %) 5.4 5.8 6.0 5.2 4.7 -Kaliningrad Russia 2% Development of labor force (economically 529 530 524 519 525 active population), (thousands) 0% Number of pensioners (thousands) 2014 2015 2016 2017 2018 • • 220.0 226.1 230.9 234.1 The unemployment rate has been quite stable over past years, a bit over Russian average Population has been growing faster in absolute terms than number of pensioners Economically active population is decreasing, because of movement and low birthrate in 1990s TURUN YLIOPISTO ||]]] pan-european institute Kaliningradstat 2019, Rosstat 2019 5#62. Regional economy a) The Kaliningrad region in the Russian economy Basic facts (of the Russian total in 2018) Area Population 0.09% 0.7% Economy GDP 0.6%* Economically active population 0.7% Manufacturing industries 0.9%* Retail trade 0.5% • External economic relations Exports 0.4% • Imports 3.5% Foreign direct investment 0.1% *In 2017 TURUN YLIOPISTO pan-european institute Everything except imports are quite close to Russian average in terms per capita High import can be explained with geographical location of the region and the region's special economic zone (SEZ) Products are also reprocessed and exported to other Federal subjects Kaliningradstat 2019, Rustat 2019, Fedstat 2019, 6 Central Bank of Russia 2019, Rosreestr 2019#7Change to previous year 25% 20% 15% 10% 5% 0% 2. Regional economy b) Regional GDP development 8.4% 4.0% 2.2% -5% 2013 -2.0% -10% -15% -20% GDP of Kaliningrad and Russia, bn € 21.8% 21.7% Average Exchange Year Kaliningrad Russia rate EUR- 13.9% RUB 11.4% 11.1% 10.2% 9.4% 2013 6.5 1 277.8 42.34 8.3% 8.2% 2014 6.2 1 161.7 50.95 5.3% 2015 5.1 965.9 68.07 1.2% 2016 5.2 933.9 74.14 2014 2015 2016 2017 6.3 1 136.3 65.94 2017 -3.3% -5.4% -9.1% -16.6% -16.9% Kaliningrad RUB Kaliningrad EUR Russia RUB Russia EUR TURUN YLIOPISTO |=1]]] pan-european institute • Because of Ruble's devaluation the GDP development in RUB and EUR is radically different The one in EUR describes the development of real GDP and purchasing power more adequately The location of Russian Baltic Fleet Army base in Kaliningrad brings incomes to the region Rosstat 2019, Statista 2019 7#82. Regional economy c) Structure of regional GDP in 2017 Healthcare and social services 6% Agriculture, hunting and forestry 6% Public administration, defense and social security 6% Others 22% Construction 7% Transport and communications 9% Manufacturing industries 23% Retail and wholesale 13% Real estate, renting 10% The special economic zone (SEZ) has increased industrial production in the Kaliningrad region 1:1 TURUN YLIOPISTO pan-european institute Kaliningradstat 2019 8#92. Regional economy d) Investment potential ranking (out of 85 Russian regions) Ranking of investment potential Labor potential Consumption potential Production potential Financial potential Institutional potential Innovation potential Infrastructure potential Natural resource potential Tourism potential Ranking of investment risk 2017 2018 33 31 47 48 55 54 38 37 54 54 23 16 59 57 • 2 3 29 29 34 37 37 34 Wages are small in Kaliningrad, which makes consumption and financial potential quite low The best universities of Russia are located in St. Petersburg and Moscow, which affects innovation potential of other regions, including Kaliningrad region In 2018 FIFA World Cup was partly held in Kaliningrad and therefore investments to infrastructure have been substantial TURUN YLIOPISTO 11 pan-european institute RA Expert 2019 9#10%-change from previous year 50% 40% 30% 20% 2. Regional economy e) Development of investment in fixed capital 10% 8.32% 29.63% 45.76% 8.67% 6.13% 0% -0.04% 2015 -10% TURUN YLIOPISTO P=1 2016 Kaliningrad pan-european institute 2017 Russia In 2018, fixed capital investments in Kaliningrad totaled 1762 million € 0.07% 2018 9.78% Rosstat 2019 10#112. Regional economy f) Investments into fixed capital by sectors in 2017 Production and distribution of gas, electricity and water 4% Real estate 6% Retail trade and wholesale 8% Administration 8% TURUN YLIOPISTO Manufacturing 11% pan-european institute Others 12% Agriculture, hunting and fishing 32% Construction 19% Statistical yearbook "Калининград в цифрах 2018" 11#122. Regional economy g) Transport infrastructure • . · Highway density 521 km/1000 sq. km (2017) The density of the road network is nearly 10 times higher than on average in Russia Main airport about 10 km north of Kaliningrad (Khrabrovo) . Direct flights to Moscow, St. Petersburg, Warsaw, Berlin, Copenhagen and Riga Major sea ports in Kaliningrad, Baltiysk and Pionersky . Russia's only ice free ports in the Baltic Sea • Total port capacity including inland river ports 33,4 million tons • • 40 km long Kaliningrad sea canal Railway density 44.2 km/1000 sq. km (2017) • Direct connections to Lithuania and Poland, and further on to various countries • Some construction projects • Construction of deep-water port complex, cross-border stations and 700 km of modern roads, modernization of railroad between Kaliningrad and Baltiysk TURUN YLIOPISTO I pan-european institute Government of Kaliningrad Oblast 2012, Statistical yearbook "Калининград в цифрах 2018" 12#13% to previous year 2. Regional economy h) Development of industrial production 120% 105.7% 103.9% 105.1% 101.4% 102.2% 102.8% 102.1% 102.8% 102.9% 99.2% 100% 92.6% 93.0% 80% 60% 40% 20% 0% 2015 2016 2017 2018 ■Kaliningrad St. Petersburg Russia TURUN YLIOPISTO ai pan-european institute Fedstat 2019 13#142. Regional economy i) Development of industrial production 2017-2018 Changes in industrial production by sector, %-change to previous year 2017 2018 Computers, electrical and optical equipment 61.4 9.8 Electricity, gas and steam Water Food production 6.2 2.9 0.3 -6.0 0.1 2.4 Production of beverages 9.7 -2.6 Mining -8.3 -6.6 Pulp and paper, publishing and printing 28.3 3.5 Timber and wood products -9.3 -22.5 Transport vehicles 40.3 28.1 -42.8 -5.6 Transport equipment TURUN YLIOPISTO Pai pan-european institute Fedstat 2019 14#152. Regional economy j) Development of prices (%, end of the year, 2007=100%) 130% 129% 125% 120% 116% 115% 113% 111% 109% 110% 112% 105% 105% 105% 105% 107% 103% 105% 104% 102% 103% 100% 95% 90% 2014 2015 2016 2017 2018 -The consumer price index in Kaliningrad The price index for industrial products TURUN YLIOPISTO 101 pan-european institute The consumer price index in Russia Sanctions in 2014 hit Kaliningrad harder than many other Russian regions, because of its high dependency on imports Kaliningradstat 2019, Fedstat 2019 15#162. Regional economy k) Development of retail trade %-change from previous year 14% 12% 12% 11% 10% 8% 6% 4% 2% 8% 4% 6% 3% 5% 4% 8% 0% 2014 2015 2016 2017 2018 Kaliningrad Russia TURUN YLIOPISTO pan-european institute 6% Rosstat 2019 16#172. Regional economy I) Main enterprises of the Kaliningrad Oblast Name Lukoil Kaliningradmorneft Area Oil Kaliningrad Amber Factory Amber Website http://kmn.lukoil.ru/ru/Contacts http://www.ambercombine.ru/ Arvi NPK Factory JBI-2 Sovietskiy Pulp & Paper Mill Lesobalt Moloko CTS Sodruzhestvo Fertilizers Construction materials Pulp and paper production Woodworking Dairy industry Digital television systems Agricultural products http://arvifertis.lt/en/ http://www.zhbi2.ru http://www.sovpaper.ru/ http://www.lesobalt.ru/ http://www.aomoloko.com/ http://www.dtvs.ru/ http://www.sodrugestvo.ru TURUN YLIOPISTO [=]]] pan-european institute 17#182. Regional economy m) Distribution of enterprises and organizations by ownership 2013 2014 2015 2016 2017 State- and 2 223 2 191 2 135 2 049 1978 municipal-owned Other public organizations 1 554 1 546 1 527 1 534 1 550 Private 45 506 45 855 47 504 48 308 46 321 Public-private ownership 292 247 222 178 193 Foreign 1 601 1 727 1 744 1 795 1 782 Jointly-owned by Russian and foreign 1 519 1 463 1 417 Total 52 695 52 029 54 549 1 397 55 261 1 204 53 028 TURUN YLIOPISTO [=]] pan-european institute Statistical yearbook "Калининград в цифрах 2018" 18#19900 800 3. Prosperity and consumption a) Development of average wages, €/month 798 Wages are quite 824 813 average outside 700 657 642 640 594 600 529 500 500 420 402 496 474 483 400 300 200 100 0 2014 2015 Kaliningrad 2016 St. Petersburg 2017 Russia 2018 TURUN YLIOPISTO pan-european institute 587 Moscow and St. Petersburg, where wages are significantly higher than in the rest of Russia In 2018 the average monthly wage outside these regions was about 540 € Fedstat 2019, Rosstat 2019 19#20€/month 900 3. Prosperity and consumption b) Main socio-economic indicators of living standards 813 Minimum subsistence level is decided by Government of Russian Federation, and it varies between regions As indicated earlier living standards in Moscow and St. Petersburg differ substantially from the rest of Russia 800 824 798 700 600 657 642 500 529 474 400 438 420 402 300 179 173 200 161 163 154 159 100 153 147 142 136 0 2014 2015 2016 -Per capita income Kaliningrad -Per capita income St. Petersburg TURUN YLIOPISTO [=]]] pan-european institute 2017 2018 Minimum subsistence level Kaliningrad -Minimum subsistence level St. Petersburg Fedstat 2019, Rosstat 2019 20#21450 3. Prosperity and consumption c) Number of passenger cars per 1000 persons 400 389 384 388 350 333 299 296 300 301 305 294 300 283 289 250 200 150 100 50 0 • 2014 2015 ■Kaliningrad 2016 Saint Petersburg The statistics do not take into account the age of the car pool [=]]] TURUN YLIOPISTO pan-european institute 380 309 302 2017 2018 Russia Rosstat 2019 21#2230 25 20 15 10 5 UT 3. Prosperity and consumption d) Living area (square meters per person) 26.1 25.5 25.6 24.9 23.4 23.7 23.7 22.9 27.1 26.7 25.2 24.4 27.5 27.8 26.5 24.9 0 2013 2014 2015 2016 Kaliningrad (total) Kaliningrad (towns and cities) ■Kaliningrad (outside towns and cities) TURUN YLIOPISTO pan-european institute 28.1 28.3 27.6 25.2 2017 Russia (total) Kaliningradstat 2019 22#234. External economic relations a) Imports Kaliningrad's share of Russian imports 6% 5.54% 5.45% 5% 4% 3% 2% 1% 3.46% 3.19% 3.17% ● 0% 2014 2015 2016 -Percentage of Russian imports 2017 2018 Taking into account that Kaliningrad's population share in 2018 was only 0.7% of the Russian total, the share of import is relatively high TURUN YLIOPISTO | 1]]] Rustat based on data from Russian customs 2019 23 pan-european institute#244. External economic relations b) Imports as a percentage of GDP 250% 200% 150% 100% 50% 0% 2013 2014 2015 2016 Kaliningrad I Leningrad region St. Petersburg Russia TURUN YLIOPISTO 11 pan-european institute 2017 Kaliningradstat 2019, Rosstat 2019 24#254. External economic relations c) Exports (million USD) Others 40% • Exports in 2018 Norway 11% Norway Finland 7% Netherlands Belarus The Netherlands 7% China Finland Algeria Algeria 7% Germany Belarus 7% Poland Lithuania China 7% Denmark Sweden 2014 2015 2016 2017 2018 165.0 130.0 134.0 177.0 213.0 43.7 56.9 46.1 44.8 211.0 95.8 10.9 11.7 23.5 146.0 1.1 25.1 51.5 116.0 128.0 49.2 46.7 29.0 25.4 125.0 129.0 138.0 125.0 188.0 121.0 2 190.0 146 74.3 60.5 110.0 130.0 117.0 94.7 92.7 54.5 43.8 43.5 20.5 70.0 51.9 101.0 72.4 49.0 64.1 36.2 25.3 30.5 26.2 45.1 47.0 57.3 23.1 32.8 45.9 29.9 Lithuania 3% Poland 5% Germany 6% Countries located geographically close dominate the list Exports of petrochemicals has rapidly increased to Netherlands and Finland TURUN YLIOPISTO | =]]] pan-european institute Spain Belgium Other countries Total 30.3 40.6 20.8 13.7 21.4 637.0 1846.5 466.5 414.2 948.7 3 700.0 2 740.0 1 200.0 1 270.0 2 000.0 Rustat based on data from Russian customs 2019, Federal customs service 25#26Poland 5% 4. External economic relations d) Imports (million USD) Czech Republic 5% Others 27% Imports in 2018 South Korea 19% South Korea China Germany China 11% Slovakia Brazil 2014 2015 2016 2017 2018 1630.0 505.0 621.0 1270.0 1610.0 3040.0 2140.0 708.0 741.0 859.0 1640.0 566.0 546.0 655.0 855.0 1090.0 582.0 443.0 687.0 803.0 680.0 501.0 595.0 728.0 642.0 Czech Republic Paraguay 147.0 51.3 88.7 570.0 492.0 448.0 374.0 245.0 426.0 416.0 Poland Paraguay 5% Brazil 8% Slovakia 10% TURUN YLIOPISTO [=]] pan-european institute Germany 11% USA Belarus Netherlands Lithuania Italy Other countries Total 730.0 434.0 349.0 393.0 387.0 767.0 519.0 386.0 371.0 350.0 119.0 67.3 67.7 85.6 256.0 166.0 92.9 90.6 115.0 127.0 357.0 140.0 112.0 119.0 114.0 262.0 106.0 78.7 97.6 87.1 4 702.0 1773.5 1 206.3 1328.8 2 172.9 15 900.0 7 970.0 5 740.0 7 210.0 6 800.0 Rustat based on data from Russian customs 2019 26#27Mineral commodities 7% 4. External economic relations e) Foreign trade structure in 2018 Export structure Others 16% Oils and greases 29% Food, drinks and tobacco 4% Import structure Transport 10% . Food, drinks and tobacco 17% Agricultural products 21% Includes mostly products with a low level of value added TURUN YLIOPISTO pan-european institute Animal based products 4% Metals 5% • Transport 35% Agricultural products 15% Machinery, equipment and vehicles 17% Includes mostly products with a high level of value added Rustat based on data from Russian customs 2019 27#284. External economic relations f) Development of FDI inflow, million USD 9000 8000 7509 7000 6000 5000 4000 3000 2000 1000 138 0 153 7632 316 6467 5896 • 2015 2016 ■Kaliningrad 2017 St. Petersburg In 2018, over half of the FDI inflow went to Moscow and St. Petersburg TURUN YLIOPISTO |||]]] pan-european institute 162 2018 Central Bank of Russia 2019 28#294. External economic relations g) Foreign investments into Kaliningrad, million USD 1200 1000 800 657 617 600 400 288 228 241 222 200 138 153 0 2015 1,037 450 316 268 926 494 269 162 2016 2017 2018 Total Portfolio investments Debt instruments FDI TURUN YLIOPISTO [=]]] pan-european institute Central Bank of Russia 2019 29#304. External economic relations h) Foreign investment to Kaliningrad by country of origin in 2018 Latvia 2% Belarus 2% Ukraine 3% Germany 7% Others 30% TURUN YLIOPISTO [!]]]] pan-european institute The Netherlands 26% Kazakhstan 11% Lithuania 9% Cyprus 11% Central Bank of Russia 2019 30#31• Thousands 700 4. External economic relations i) Visitors in hotels and other accommodation services 600 500 68.6 59.1 85.0 400 54.8 300 542.6 468.0 480.7 200 334.6 100 0 2015 2016 Russian citizens 2017 2018 Citizens of foreign countries The growth in 2018 is partly caused by FIFA World Cup TURUN YLIOPISTO I [=]] pan-european institute Kaliningradstat 2019 31#32• 5. Special economic zone in Kaliningrad a) Overview of Kaliningrad special economic zone New firms conducting a capital investment at least 150 million RUB (1-150 million, depending on the field) in the region's production over 3 years may use the tax benefits • Tax benefits offered for an investor: . No duties and VAT for the first 6 years • Grants and subsidies of products exported in EEC . • Corporate income tax and property tax are: . • 0% for the first 6 years following investment 50% reduction from tax for the years 7-12 after the investment The law will be in force until the end of 2045 • Other privileges investment phase INVESTMENTS IN FIXED ASSETS 1/10/50/150 MLN. RUBLES XXIXI • Applies to the whole region • Simplified procedure for visas • Labor market supporting grants . Immutability of the rent for the land to residents TURUN YLIOPISTO pan-european institute IMPORT OF MATERIALS NO DUTIES AND VAT о operational phase of production THE PAYMENT OF DUTIES AND VAT THE PAYMENT OF DUTIES AND VAT о THE EXPORT OF PRODUCTS IN THE EEC COUNTRIES OBTAINING GRANTS 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 YEAR 11 YEAR 12 YEAR Tax on profits 0% Property tax 0% Tax on profits 10% 50% OF THE RATE Property tax 1.1% 50% OF THE RATE Invest in Kaliningrad 2019 32#335. Special economic zone in Kaliningrad b) Main residents in new SEZ 1. ZAO Sodrushestvo-Soya (Construction projects, storage and terminal services) 2. 000 DSV-Transport (Logistics) 3. 000 Pyatij Element (Food) 4. 000 Miratog Zapad (Agribusiness) 5. OOO Za Rodinu-Baltika (Fish products) 6. OAO Baltkran (Industrial cranes) More than 200 residents with the declared total investments exceeding RUB 123.1 billion (1.7* billion €) are registered in the SEZ. *2018 average exchange rate 7. 000 Baltkeramika (Construction materials) 8. AO Eköpet (Plastics) 9. 000 GS GROUP (Technology) TURUN YLIOPISTO I 11 pan-european institute Invest in Kaliningrad 2019 33#346. Rankings a) The ratings of Kaliningrad among the Russian regions TURUN YLIOPISTO РИА НОВОСТИ РИАРЕЙТИНГ РОССИЯ Сегодня Forbes 2018 Kaliningrad is one of the most economically developed cities in Russia 2017 Kaliningrad is in top 10 in quality of life rating 2013 Kaliningrad is the best Russian city for doing business https://ria.ru/20180301/1515547051. html pan-european institute https://riarating.ru/infog rafika/20180214/630082 471.html http://www.forbes.ru/rating/30- luchshih-gorodov-dlya-biznesa- 2013/2013?full=1&table=1 34#357. Additional information a) Some useful links Baltic Rim Economies: https://sites.utu.fi/bre/earlier-bre-reviews/ Electronic Publications of the Pan-European Institute: https://www.utu.fi/en/university/turku-school-of-economics/pei/publications-and- reports Russian SME Resource Centre: https://rcsme.ru/en The Lithuania, Poland and Kaliningrad Region of Russian Federation Neighborhood Program: https://ec.europa.eu/regional policy/en/atlas/programmes/2000- 2006/european/interreg-iii-neighbourhood-programme-lithuania-poland-kaliningrad TURUN YLIOPISTO [=]] pan-european institute Information subject to changes 35#367. Additional information b) Some banks Kaliningradsky (Alfa-Bank filial) https://alfabank.com/ VTB 24 https://www.vtb.ru Sberbank https://www.sberbank.ru/en/individual clients Raiffeisen bank https://www.raiffeisen.ru/en/ TURUN YLIOPISTO [=]] pan-european institute Information subject to changes 36#377. Additional information c) Business supporting services The Baltic Business Club http://www.eng.bdk.ru/ Foreign Investors Association in the Kaliningrad Region https://www.fias-kaliningrad.ru/ The Ministry of Economy of the Kaliningrad oblast http://economy.gov39.ru/ Invest in Kaliningrad https://investinkaliningrad.ru Kaliningrad Regional Economic Development Agency http://en.kaliningrad-rda.org/ TURUN YLIOPISTO [=]] pan-european institute Information subject to changes 37#387. Additional information d) Some authorities The Regional Government of Kaliningrad https://gov39.ru/ The Kaliningrad Oblast Duma Russia https://duma39.ru/en/ Kaliningrad City Hall https://www.klgd.ru/ TURUN YLIOPISTO Information subject to changes 38 pan-european institute#397. Additional information e) Consulates and European Commission's Delegation Germany: https://germania.diplo.de/ru-de/vertretungen/gk-kali Latvia: https://www.mfa.gov.lv/en/moscow/embassy/kaliningrad Lithuania: http://consulate-kaliningrad.mfa.lt/ Poland: https://kaliningrad.msz.gov.pl/pl/ TURUN YLIOPISTO Information subject to changes 39 pan-european institute#407. Additional information f) Some hotels in Kaliningrad ОТЕЛЬ Radisson Blu Hotel Pobedy Square, 10 https://www.radisso nhotels.com/en- us/hotels/radisson- kaliningrad Hotel Oberteich Lux Gogolya st., 17 https://oberteich.ru /en/ Triumph Palace Kaliningrad Bolshvitsky lane, 3, https://www.marton -palace.com/home Hotel Berlin Kievskaya Str., 17b, http://www.hotel- berlin.su/ TURUN YLIOPISTO [=]] pan-european institute Information subject to changes 40