Russia's smaller regions seeking investors

WASHINGTON, March 31 (UPI) -- Even one of the most desirable places for foreign investment in Russia is at a disadvantage if it isn't Moscow or St. Petersburg, but Alexander Tkachev, governor of Russia's Krasnodar territory in Eastern Russia, is trying to change that.

"The whole world knows about the great cities and the developments in Moscow and St. Petersburg ... but of course you understand that's not all of Russia, like New York and Washington don't represent all of America," Tkatchev said.

With abundant arable land -- more than 5 million acres' worth -- and strategically located between the oil-rich area of the Caspian Sea, the resort areas of the Black and Asov seas, and boasting several of the biggest ports in Russia, Krasnodar is already the recipient of plenty of foreign direct investment from countries such as Germany and Italy. Major companies including Nestle, Phillip Morris, Coca-Cola, construction materials producer Knauf and agricultural equipment maker Claas have already set up shop there; in all about 500 businesses have established a presence in Krasnodar. In 2003 it ranked third for FDI in Russia, had $250 million in total foreign investments in 2003 -- a 61 percent increase over 2002 -- and had total FDI of $118 million.

But even with power players such as Coke and tobacco giant Phillip Morris, the United States ranks a distant No. 10 for FDI to the territory, largely due to Krasnodar's remote location far from the urban epicenters of Moscow and St. Petersburg, Tkachev told UPI.

"I think that American businesses are poorly represented in Russia, especially in Krasnodar krai. The country that has the highest investment in our krai is Germany. America is in 10th place. I think it's probably because few Americans are familiar with Krasnodar Krai. Few Americans know about us."

Still-shaky intellectual property protections and Russia's seizure of the assets of Russian oil giant Yukos have also scared off many potential U.S. investors.

So Tkachev last week spent several days meeting with U.S. financial industry heads and fund leaders to try and entice more U.S. foreign investors into his province. He is traveling with the National Agency for Direct Investment, an organization that works to create and sustain favorable investment climates and to bring business to Russia's smaller regions. Tkatchev said he is focused mainly on increasing investments in food and wood processing, tourism, and communications infrastructure.

Krasnodar offers plenty of investment opportunities. Besides potentially vast oil and gas resources -- Krasnodar already produces 1.5 million tons of and more than a billion cubic liters of gas a year -- Krasnodar is the top agriculture producer in Russia, harvesting 7 million metric tons of wheat annually. It is also the largest seaport arena, with more than 100 million metric tons of freight moving through every year, including oil and gas from several major pipelines.

The port of Novorossisk, for one, is in an optimum location to receive agricultural cargo shipped from other agricultural zones down either the Volga or Don rivers, thanks to the Volga-Don Canal.

The territory is also one of Russia's top tourism spots. More than 6 million visitors a year flock to the beaches of the Black and Asov seas, enjoy the curative powers of local spas or simply enjoy the natural scenery. Indeed, with the most southern point in Russia located in Krasnodar, some areas of the province even enjoy subtropical climate.

"So, we have a very broad base of geographic advantages, many legs on the stool," Tkatchev said.

Tkatchev is so eager to bolster Krasnodar's investment opportunities that the government has decided to take the unusual step of co-establishing a $20 million investment fund. Fund members also include several Russian companies.

"This trip is an initial effort to establish relationships with specific individual American businesses and investors who are ready to make an investment," Tkatchev said, "But to further stimulate investment we have created a fund in the krai to assist in the development of direct investment."

While Tkatchev admits that it is unusual to use government capital to set up investment funds, "We did it because we want to attract specifically American investors," he said. "By setting up this fund we're showing them that we're willing to share the risk with them."

"We know that the mentality of the Western investor is such that if he sees that the (state) government is invested in the fund he understands that the government will also take steps to protect the other investors in the fund," he said. "We want to make sure that investors understand there won't be any ... red tape with their investment in the krai if they come in through this fund."

Tkatchev also met with financial community leaders during the trip to tap the potential of the U.S. fund market.

"I know in America they have various funds such as pension funds that play a very large role in ... the financial health of the country. In New York we met representatives of the financial community and representatives of several of the large funds in America. The purpose of those meetings was to interest these funds and fund managers in participating in this fund that we're setting up in Krasnodar krai."

Of course, he said, joint investments in Krasnodar via the fund are only one way by which investors can invest in Krasnodar. "We are eager to talk to specific potential investors who can make 100 percent investments in building factories in the krai."

While there is growing investment in goods production in Krasnodar, however, the tourism industry is still underdeveloped due to inadequate infrastructure, another thing Tkatchev wants to change.

"Tourism is one of our main ... parts of our economy and is one of the main sources of revenue for our budget. But unfortunately we are not able to compete with some of the major tourist attractions in the world," he said. "We need to increase the quality of services, the assortment of facilities, and the management of the tourism industry," he said.

"We hope that we can attract new technology new management in the tourism industry and of course capital investment ... so (our resorts) can become competitive with other major resorts in the world, so they can attract not only Russian tourists but also foreign tourists as well."