Investing in Crimea: Sanctions and Reality
Crimea has yet to be called a region boasting ideal investment climate but the Russian and local governments are doing their best to make this happen. Innovations are mostly introduced in a manual regime but the wish of the authorities to attract foreign investors to the region speaks volumes. Not a single potential investor in Crimea will be arbitrarily rejected by an official until the latter explains to the head of the constituent territory why he says ‘no’ to the foreign businessman.
A territorial planning system of the peninsula is being actively worked out, and it is expected to boost many promising projects. A regional public-private partnership law is being prepared for adoption to facilitate and add transparency and clarity to relations between investors, local businessmen and authorities of the peninsula.
The Crimean administration had not shown any interest in attracting foreign capital in industrial and infrastructural projects for a long time. There is every reason to believe now that things will change, and accelerated development of agriculture backed by foreign investments will be included in investment areas.
What problems of Crimea as investment target can be resolved in near future?
A number of European companies which started their business in Crimea in the Ukrainian period are still working on the peninsula. The investors have quite broad interests: from the financial sector and industries to infrastructures. Of course, the tempo and scope of cooperation are a far cry from what has been planned at the start. For instance, it is not easy for a foreigner to open a checking account in a local bank. But the authorities are promising to deal with such bureaucratic hindrances within months.
The only way to reach Crimea is via St. Petersburg or Moscow because of the sanctions, and visas are not issued upon the arrival in Simferopol airport. This is a major problem which is being addressed by the government. Cooperation priorities are a subject of dialog with potential foreign investors.
Land remains the major asset in Crimea. However, billions have not been invested in the peninsula yet for one simple reason: businessmen need stability guarantees for the next 30-50 years. Long-term lease of land plots is not available, which makes land a less attractive asset although local authorities keep pledging the soonest resolution of this problem at numerous forums and meetings.
Why does Crimea attract potential investors?
The tourism industry and affiliated farming projects are a magnet for businessmen from Europe and the United States. The construction of a large number of tourist complexes is planned to begin in the peninsula within years. Crimea can attract foreign tourists for whom these new complexes are intended with Yalta, the host city of the famed 1945 conference, and Sevastopol with its legendary military past.
Regretfully, few Western tourists are aware of those events known to every Russian. It is a task of investors and local authorities to popularize the tourist image of the region alongside developing its infrastructure.
Crimea has been developing at slow rates for decades, and hundreds of billions of dollars will have to be invested for bridging this gap. These investments will not only transform the peninsula but also bring substantial dividends to foreign businessmen.
Soon enough the construction of modern yacht marinas will begin in Sevastopol and Feodosia in accordance with high European and international standards. The process will start as soon as the local administration finalizes the demarcation of land and the coastline assigned for the needs of the civilian sector and defense. Investments are expected to start in early spring 2016 once the documents are signed.
The public-private partnership law awaited by many investors and local businessmen has every chance to be adopted in Crimea in the near future. There is no similar legislative act at the federal level but more than 50 Russian regions have adopted such laws for attracting investments. Crimea is likely to follow the lead of other Russian constituent territories shortly.
Auchan is Major Investor in Crimean Peninsula
Despite the sanctions, European businessmen have a keen interest in cooperation with Crimea. The French international retail group, Auchan, is already operating on the peninsula and planning to expand its presence in the region.
European businessmen are mostly interested in recreation and entertainment infrastructures, resorts, wine-making, production of tobacco, retail trade, shipbuilding and some other industrial, agricultural and service segments which are no less promising.
Investments in Crimea in figures
According to the Crimean Economic Development Ministry, the founders of over 400 projects have expressed their wish to collaborate with the region. Eighteen projects have entered a stage of active development. Many investment agreements are under consideration and signing.
The center for investments and regional development is now adjusting 31 projects to the local realities. Investors come from Israel, Japan, France, Turkey, Bulgaria, the Czech Republic and some other countries.
Problems of land, sanctions resolved
Crimean head Sergey Aksyonov said recently that the authorities had begun to issue permits, which would enable investors to receive land lease guarantees for 30 years and more as an essential condition for starting their business.
According to Mr. Aksyonov, the local administration has also developed a mechanism for the evasion of the sanctions by companies really interested in signing cooperation agreements with the authorities of the Crimean Peninsula.
The procedure has been repeatedly tested, and Western signatories to cooperation agreements do not have to fear for their business reputation in the EU or the United States.
The new Crimean authorities have also minimized the numerous corruption impediments, and investment processes in the peninsular economy are gaining momentum on every possible track.