Virtual Tours For Foreign Buyers and Support For Exporters: Moscow Leans Into Industry And Export
Head of Moscow's department for investment and industrial policy, Alexander Prokhorov, talks about trends in the industrial sector, investments in the local economy, and how the city supports exporters
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In fall 2021, Moscow was voted one of the world's top five cities for living, working, investments, and tourism, coming in ahead of Tokyo, Madrid, Dubai, and Singapore. We talked to the head of Moscow's department for investment and industrial policy, Alexander Prokhorov, about trends in the industrial sector, investments in the local economy, and how the city supports exporters.
Banking on compact, innovative formats
Moscow's industrial sector is critical for the national economy, not just for the city. Moscow has over 3,000 companies in industry that contribute to the city's progress and wellbeing. These are fast-moving, efficient companies. The industrial giants of the past are long gone; today, the city is promoting compact, innovative ventures
"Local manufacturing posted growth of 29.1 per cent for the first eight months of the year, and we expect to see that trend continue," said Prokhorov. "In 2020, manufacturers paid the equivalent of $2.54 billion in taxes, and the sector accounts for approximately 16 per cent of the city's gross regional product."
International ratings confirm that Moscow has been successful in its quest for economic success and quality of life. For the second year in a row, Moscow came in fourth in the ranking The World's 100 Best Cities, and this year it saw significant improvement in the "prosperity" category. The comprehensive ranking is put out by the consulting company Resonance and looks at 24 factors across six categories: people, prosperity, place, product, programming and promotion.
Attracting investments for successful growth
An influx of investments is fueling an industrial boom in the capital city, which is the most attractive location for investors nationwide and accounts for 18.6 per cent of Russia's total capital investments. Third-quarter data for 2021 shows that 75 per cent of those capital investments are being made in the private sector.
Capital investments in kind were up 21.9 per cent to $33.5 billion in the first nine months of 2021. Even in these difficult times, investors are putting money in local industry because they see potential for growth and because Moscow has a wealth of highly qualified employees
"Investors are most interested in machinery, which garnered 41.3 per cent of all investments. Construction and development received 30.4 per cent of investments, residential construction accounted for 13.3 per cent, and intellectual property projects received 12.6 per cent," Prokhorov shared. "The finance, IT, transportation, logistics, industrial, and high-tech sectors are all attractive to investors right now, too."
Moscow helps industry startups
Finding the right location is one of the first hurdles a new company faces. Our department helps industrial companies find real estate that meets their needs, and we do it free of charge. Since the start of 2021, the city has helped 11 companies find sites for their facilities. Together they cover an area of 10,200 m2 and brought in $26.6 million in investments.
The city also helps businesses from other regions or countries establish production capacity in Moscow. This year alone, the city's department for investment and industrial policy was able to bring in a medical device manufacturer, vegetable and pasta product manufacturers, a company that develops and manufactures energy-saving technologies, and a textile company, to name just a few projects.
"Moscow is also Russia's top location for offset agreements, which require suppliers to establish or upgrade production facilities in a Russian region in return for purchases of a certain amount of product. The main goal of an offset agreement is to stimulate investments in new facilities or upgrades to existing ones," explained Prokhorov. "The capital city has a portfolio of five offset agreements signed since 2017 and worth almost $173.3 million, or over 80 per cent of the nation's total."
Offsets have obvious advantages for the city, from guaranteed supplies at lower prices to new jobs, an expanded tax base, and technology transfer. Investors gain a dependable, solvent customer, long-term guaranteed sales for local production, access to inclusion on the regional list of sole suppliers, and a reliable base for national and export sales.
All about Moscow's exports
Moscow has a strong presence in world markets. To a large extent, that success is due to government policy and support measures. Local companies sell their products to 180 countries around the world. The top importers of goods from Moscow are Kazakhstan, Belarus, the US and Germany. Together, these countries buy over 35 per cent of all exports from Moscow.
Looking at the numbers, in the first nine months of this year Moscow's non-resource non-energy exports were up 28 per cent year-on-year to $23 billion, making it the leader in Russia for this type of export, at 16.9 per cent of the national total.
"Industrial products are the main drivers of non-resource non-energy exports, accounting for 90 per cent of the total," Prokhorov said. "Machines and parts are a top performer ($1.9 billion), followed by electrical devices ($1.2 billion), plastics and plastic items ($884 million) and automotive equipment ($437 million). Local companies also export optics, medical devices, pharmaceuticals, and agro-industrial products."
Confectioneries are one of the best performers in the agro-industrial segment, and sales jumped 53.9 per cent in two years from $107.85 million in the first nine months of 2019 to $165 million in the first nine months of this year.
Local companies are confidently expanding into new markets. For example, local ice cream is now available in Nigeria; poultry and poultry offal are sold in Benin; and dairy products from the capital are once again available in Latin America after a long hiatus.
Research, business missions and digital tools
Companies in Moscow have access to financial and other forms of support, including grants, subsidies and preferential treatment. These are traditional tools that many countries use, and they have proven their effectiveness in many countries.
The city government also established the Mosprom Center for Export Support, which helps businesses get started exporting or expand into new markets. The Center's experts conduct individual research studies for current and future exporters to help them understand the capacity of the countries and regions they are considering, local consumers' needs, and the competitive environment. The whole package involves both research and marketing elements.
In addition to expert analysis, exporters also have access to ADEPT 7, Russia's first digital test of export preparedness, developed at Mosprom. It consists of two parts: qualification and validation. In the qualification stage, the program assesses a company's strengths and weaknesses and looks at how prepared it is to start exporting. The second stage helps companies see how successful they could be in a specific market with a specific product. ADEPT 7 gives companies export intelligence without redirecting employees away from the core business.
Once a company knows its target markets and has a development strategy, Mosprom helps find potential partners and negotiate with foreign buyers.
Prokhorov sees value in Mosprom's matchmaking services. "In the first ten months of 2021, we conducted 13 business missions for 86 local manufacturers and helped 29 exporters attend eight international trade shows," he said "Target markets include Latin America, the Middle East, Europe, Southeast Asia, and Africa. This past summer, we organized a business mission to China."Mosprom's experts also help foreign buyers pay virtual visits to local production facilities. The tours showcase local processes and technologies, encouraging virtual visitors to bring their business to Moscow.