A new technology joint venture was planted in St.Petersburg last week. Foxconn Technology Group teamed up with Hewlett-Packard to build the computer factory, which will be producing personal computers under HP brand. Foxconn Technology is the provider of joint-design, joint-development, manufacturing, assembly and after-sales services to global Computer, Communication and Consumer-electronics leaders.

The spiraling demand for high-tech products has been a trend in the Russian ICT market for the last few years and two technology manufacturers are eager to capitalize on this demand.

“This place will become a huge techno-park, producing high-tech electronics and computers to satisfy growing industrial, scientific, and educational needs throughout Russia…”

Valentina Matviyenko, St. Petersburg Governor

The venture to build a $50 million technology plant on the outskirts of St. Petersburg is supported by the government of St.Petersburg. The city authorities which has proved its interest towards making information technology an inherent part of the city life. Last year their efforts brought two MNCs' technology centers to St.Petersburg - Hewlett-Packard Labs and EMC.

In March the international rating agency Standard & Poor's revised Russia's rating outlook to Positive (A-) due to the continuous growth. The upgrade reflects the agency's expectations of the future progress of Russia, forecasted for the budget and external reserves of the country, which have recently revealed rapid growth.

Russia's GDP grew by 8,1% in 2007 according to the estimates from the Ministry of Economic Development and Trade. Last year has also seen the surge in investments which soared by 21% in comparison to 2006. The increase in capital flows and the growing purchasing power are among other distinctive trends in the Russian economy.

The outlook is bright and risks to our forecasts are mainly on the upside. 2007 is likely to be the strongest year of growth since 2000, and 2008 will probably not lag very much behind either.

The analysts point out to the outright investment boom which in their opinion reacts to the overall boom in the economy. Investment was boosted by the strong capital inflow in H1 2007. FDI reached its highest peak in H1 2007 with a little less than USD 25bn gross. Other distinctive trends in the Russian economy are the increase in capital flows and the ever growing purchasing power.

Late July has seen Frost and Sullivan press-release their stance on the future of Russian IT outsourcing exports and Russian ICT Industry - The Russian information and communications technology (ICT) is going from strength to strength on the back of robust economic growth, greater political stability, expanding consumer base, and increasing foreign investments.

The forecast reads that the Russian ICT Industry has especially pronounced opportunities in the fields of offshore software development, broadband technologies and equipment, managed network security, IP telephony, packaged software, communication value-added services (VAS), 3G networks, as well as in fixed line telephony. 

Among the ICT-supporting strengths of the country, Frost and Sullivan drew attention to the usual: strong governmental support in the form the E-Government program and special economic zones (SEZs) and techno-parks, Russia's vast pool of human resources and low labor costs, ‘reinforced' by a competent education system, as well as increasing amount of venture capital coming to Russia, and the constantly rising national spending in IT.

To top it all off, Russia continues to be an attractive market for the world and has plans to turn into one of top three global outsourcing destinations by 2010.

EMC, the world’s leading provider of products (like Documentum), services, and solutions for information management and storage, has announced the opening of a new research and development (R&D) center in St. Petersburg, Russia. With this, EMC follows examples of Alcatel, Hewlett-Packard, Motorola, Sun Microsystems and Intel, the companies already benefiting from St. Petersburg software engineering talent.

St. Petersburg share in Russian IT exports volume is estimated to be 30% and the city presents a lucrative location for European and American enterprises willing to access the vast talent pool and benefit the strong cost advantage. The local government has been positive in assisting the IT companies in the region and strives to cooperate with the IT community in the city.

We are proud to be living in St. Petersburg, a great city with great history and culture. But what about the business environment? There is good news here - St. Petersburg is not only the second largest city in Russia, but is the leader in terms of investment attractiveness among other Russian cities. In many respects, this is achieved thanks to the St. Petersburg government efforts.

Today, those investing into production assets in the region, benefit from a profit tax reduction, from 24 to 22 per cent for investments starting at RUR 150 million and up to RUR 300 million. For those, investing above 300 million the profit tax is reduced to 20 per cent. The values in Russian Rubles come out to about Euro 4.4 and Euro 8.7 million, respectively. Moreover, the property tax rate is cut by 50 percent. The taxation benefits are granted for the period of 3 years.

Apparently, these measures target medium-sized businesses entering the region. But the government has great plans for supporting large companies as well.

Natalia Sherbakova, a PricewaterhouseCoopers executive, shared her vision on the future of the St. Petersburg investment climate with the American Chamber of Commerce:

"A valuable benefit of the incentives for strategic investors is that they allow charter capital contributions to qualify as investments. This permits multinational companies to combine regional tax incentives with federal customs benefits for production assets imported as an in-kind contribution to the charter capital of Russian subsidiaries."

Read the full text along with other AmCham news and analytics

Keywords: FDI Russia, Taxation Benefits, Government Investors Support Program, St. Petersburg, Special Economic Zones

Foreign investment into the Russian telecommunications industry reached $3.875bn in the first nine months of 2006 as it was reported by Russian Federal Statistics Service (Rosstat). Out of the nearly four billion, $113m - is direct investment, $135m – is portfolio, and $3.627m – is other investment types.

Among foreign investors, Holland is the most active, having invested $1.607bn, Great Britain - $730m, and Luxembourg - $715m.

Source: RosBusinessConsulting

As Russian officials announced today, the volume of FDI into Russian economy has reached $26 billion in the first six months 2006. This is the amazing growth if compared with $9.3 billion in the same period last year. Although the exact figures could slightly differ after the Central Bank and the State Statistics Service assessments, such impressive results mean that we are witnessing a shift in the country attractiveness level.

Source: Russian News and Information Agency

The mid-summer is a good time for reviewing the progress in the country’s economy and for looking into the nearest future. The "Russian IT Quarterly" offers an updated report on the latest Russian economy trends and the current business atmosphere. "Russian Federation: The Macroeconomic and Business Environment Overview" provides you with recent information on Russian economy developments, its level of integration into the global economy, foreign direct investments (FDI) trends, and a glance at the Russian business culture.

Download the PDF version of the report: "Russian Federation: The Makroeconomic and Business Environment Overview"

“The tendency of the international media to highlight bad news rather than good can lead to perceptions of risk among foreign companies that outstrip the reality…Yet many investors have decided the rewards outweigh the risks” FT Special Report “Investing in Russia”, 10/11/2005