CHAPTER 1

Russian Regions

Business Dynamics and Attractiveness

The best thing we can do if we want the Russians to let us be Americans is to let the Russians be Russian.

—George F. Kennan

US diplomat, historian, explorer, and war correspondent US Ambassador to the Soviet Union, May 14, 1952– September 19, 1952

Main Points in This Chapter

• Russia: Regional subdivisions and economic profiles.

• Business environment and investment climate in the City of Moscow: Domestic and international perspective.

Regional analysis is an integral part of business research or a feasibility study preceding the company’s international strategic expansion to the target country. Regional analysis is particularly important when it comes to large countries characterized by multifaceted demographics and complex politico-economic landscape.

For example, Japan is one of the world’s major markets and most ethnically homogenous countries.¹ From the distance of New York or Los Angeles, Japan may well seem just that—a large and very homogenous marketplace. However, two of Japan’s major metropolitan districts with the capitals of Tokyo and Osaka that are only 246 miles (396 km) apart, are quite different in their market dynamics, business practices, and strategic approaches. Variations in market dynamics require different approaches to formulating a company marketing mix, the 4Ps (Consumer Lifestyles in Japan 2016). Such variations in the marketing mix are also common in Belgium, a small, ethnically diverse European country with a population of 11.3 million that is 58 percent Fleming, 31 percent Walloon, and 11 percent mixed or other. Yet another example is Singapore, a small Asian country-city of just 5.7 million people. Despite its small geographic size,² Singapore is also ethnically diverse—74 percent Chinese, 13 percent Malay, 9 percent Indian, and 3 percent comprised of other ethnic groups (Central Intelligence Agency 2016). In large but ethnically homogenous countries such as Japan or small but demographically diverse countries such as Belgium and Singapore, there is an evident need for differentiation in marketing strategies and business practices. For a country as large and diverse as Russia, the needs for regional, ethnic, demographic, and other regional variations in marketing strategies and business approaches and practices tend to be even greater (Russia 2016; Russia: Country Profile 2016).

Russia’s Regional Subdivisions and Economic Profiles

Russia’s current governing-administrative system and regional subdivisions have come a long way, originating from the nation’s complex geography, history, political economy, sociocultural, and military developments (A Country Study: Russia 1998).

As of 2016, there were 85 federal administrative subjects that are constituent members of the Russian Federation.³ Russia’s federal subjects can be categorized into six types: 22 republics, 9 krais (large districts, plural—A.Z.), 46 oblasts, 3 federal cities, 1 autonomous oblast, and 4 autonomous okrugs (districts, plural—A.Z.) (Russian Investment Agency 2016) (Figure 1.1).

Figure 1.1 Federal subjects of Russia

Along with the federal subjects, Russian regional structure is comprised of 9 federal districts,⁴ 12 economic regions⁵ (Figure 1.2), 4 military districts,⁶ and a multitude of municipal divisions. Additionally, there are 29 special economic zones set up to facilitate foreign investment through tax breaks, insurance privileges, relaxed customs regime, ready-to-use infrastructure, and other incentives (Special Economic Zones of the Russian Federation 2011). Until recently, the regional governance and development on the federal level had been under the jurisdiction of the Ministry of Regional Development of Russia (Министерство регионального развития Российской Федерации—Минрегион России). In 2014, the Ministry of Regional Development was abolished and its responsibilities redistributed across other ministries. The task of facilitating foreign investments in Russia was assigned to the newly created federal Russian Investment (Invest in Russia) Agency (Российское инвестиционное агентство).⁷

Figure 1.2 Economic regions of Russia

As noted earlier, an international corporate business expansion to Russia or any other country is typically driven by either export-based international marketing or foreign direct investment–based manufacturing (foreign portfolio investment is beyond the scope of discussion in this book). Furthermore, international expansion can be predetermined by the dynamics of the industry or a specific business venture project. Depending on the nature of a contemplated expansion, comparative attractiveness of Russian regions may vary widely in terms of their business potential. Analytically and practically speaking, strategic potential of such an international expansion in its entirety can be translated into specific components: business benefits/advantages, costs/disadvantages, and risks.

Table 1.1 presents key economic characteristics of the Russian economic regions and major federal subjects selected on the basis of their largest economic contribution—their regional share—in the national gross domestic product (GDP). Table 1.1 reveals that the Central Federal District, which includes the City of Moscow and Moscow Oblast (Moscow Oblast is used interchangeably with Moscow region), is clearly the national economic leader.

The Central Federal District, the most economically developed one, compared to other administrative districts, accounted in 2015 for only 3.8 percent of the Russian territory, but was home to 26.6 percent of the nation’s total population. In 2013, the Central Federal District controlled 32.1 percent of the total fixed capital formation and contributed 35.0 percent to the Russian GDP nationwide. In addition, the Central Federal District’s share in the national manufacturing output reached 14.56 percent in extracting industries, 33.94 percent in manufacturing industries, and 29.96 percent in generation and distribution of electric power, natural gas, and water.

The City of Moscow and Moscow Oblast combined accounted for less than 1 percent of the country’s territory nationwide, but their population was 13.2 percent of the national total. In stark contrast, together they accounted for 26 percent of the national GDP, 23.6 percent of the fixed capital formation, 13.02 percent output in extracting industries, 21.21 percent output in manufacturing, and a 17.7 percent contribution to the national output in generation and distribution of electric power, natural gas, and water. Additionally, the Moscow Oblast, and, especially, the City of Moscow, enjoys a wide-margin comparative advantage in employee compensation. For example, in 2014 the average nominal monthly monetary labor compensation in the City of Moscow stood at 61,208 rubles compared to only 39,945 rubles in the Central Federal District and even the lower amount of 32,495 rubles for Russian Federation nationwide. In the Moscow Oblast, the 2014 average monetary compensation stood at 38,598 rubles or 63 percent of the City of Moscow level and 119 percent of the Russian Federation overall level (Регионы России 2015).

Table 1.1 Russia’s economic regions and federal subjects* with the greatest regional GDP, percent

	Area	Population as of Jan. 1, 2015	Regional GDP, 2013	Fixed capital formation (actual book value at year’s end)	Regional output by extracting and manufacturing industries
					Extraction	Manufacturing	Generation and distribution of electric power, natural gas and water
Russian Federation	100	100	100	100	100	100	100
Central Federal District	3.8	27.0	35.0	32.1	14.56	33.94	29.96
Moscow Oblast	0.3	4.9	4.5	4.1	0.10	5.87	5.51
City of Moscow	0.01	8.3	21.5	19.5	12.92	15.34	12.19
Northwest Federal District	9.8	9.5	10.3	10.9	6.03	14.16	12.02
City of St. Petersburg	0.01	3.5	4.6	3.3	0.14	6.94	3.79
South Federal District	2.5	9.6	6.5	6.4	1.88	6.10	6.26
Krasnodar Krai	0.4	3.7	3.0	2.9	0.21	2.20	2.06
North Caucasus Federal District	1.0	6.7	2.4	2.4	0.21	1.08	2.47
Privolzhsky (Volga) Federal District	6.1	20.3	16.0	14.1	14.32	20.98	18.43
Republic of Bashkorstan	0.8	2.4	2.3	1.4	1.64	2.97	2.33
Republic of Tatarstan	0.4	2.6	2.9	2.4	3.59	3.93	2.67
Ural Federal District	10.6	8.4	14.1	18.3	36.66	11.64	12.67
Sverdlovsk Oblast	1.1	3.0	2.9	3.2	0.51	4.46	3.63
Tyumen Oblast. Including:
Khanty-Mansi Autonomous Okrug-Yugra	3.1	1.1	5.2	6.5	23.36	1.32	4.39
Yamalo-Nenets Autonomous Okrug	4.5	0.4	2.5	5.4	11.15	0.52	1.06
Tyumen Oblast without the autonomous okrugs	0.9	1.0	1.6	1.1	1.27	1.76	0.92
Siberian Federal District	30.0	13.2	10.2	9.0	12.75	10.39	12.19
Krasnoyarsk Krai	13.8	2.0	2.3	1.7	3.10	2.58	2.85
Far East Federal District	36.1	4.2	5.4	6.3	13.55	1.71	5.60

Source: Регионы России. Социально-экономические показатели (2015).

Note: *Included in the table are selected federal subjects of Russia with their regional share in the national GDP equal or higher that 2 percent.

Higher salaries tend to translate into a greater regional purchasing power and boost Moscow’s potential attractiveness as a marketplace. Moscow’s higher salaries, sophisticated lifestyles, and better quality of life also tend to attract qualified workforce, thus providing favorable opportunities for foreign companies looking to recruit local talent in starting or running their business operations in Russia.

According to the 2016 World Investment Report (UNCTAD 2016), in 2015 Russia received 9.8 billion USD in foreign direct investment inflows, a sharp drop compared to 29.2 billion USD in 2014.⁸ In 2014, the Central Federal District registered 12.5 billion USD or 55 percent of the total inflows of foreign direct investments in Russia. Out of the Central Federal District’s 12.5 billion USD total, the City of Moscow in 2014 attracted 11 billion USD or 16 percent of the total foreign direct investment inflows in Russia. The Central Federal District and Moscow’s role as the nation’s leading business hub and marketplace is also evident from Table 1.2 containing Russia’s international trade statistics: In 2014, the Central Federal District accounted for 51 percent of all Russian national exports and 61 percent of imports. Moscow alone, as part of the Central Federal District, accounted for a stunning 46 percent of the Russian national exports and 49 percent of imports (Регионы России 2015).

On the opposite end of the Russian regional economic spectrum are federal entities such as South Federal District, North Caucasus Federal District, Privolzhsky (Volga) Federal District, and Siberian Federal District (their shares of contribution to the national GDP are notably lower relative to their population size). Not surprisingly, these districts lag behind in attracting foreign direct investment, with the exception of the Privolzhsky (Volga) Federal District (in 2014 it received 1.2 billion USD of foreign direct investment inflows), each of the federal districts in the laggard group attracted less than one billion dollars in foreign direct investments and generated substantially lower amount of international trade in contrast to the Central Federal District and the City of Moscow (Регионы России 2015).

Table 1.2 Russia’s top exporting and importing regions, millions of US dollars

	2012				2014
	With the countries of “far abroad”*		With NIS** countries		With the countries of “far abroad”		With NIS countries
	Exports	Imports	Exports	Imports	Exports	Imports	Exports	Imports
Russian Federation	445,478	272,323	79,258	44,941	433,850	253,864	63,984	32,806
Central Federal District	199,703	167,740	37,955	25,342	221,053	154,218	34,299	19,600
Moscow Oblast	3,101	30,776	2,473	1,898	2,569	22,991	3,173	2,323
City of Moscow	182,416	118,531	29,071	14,214	205,016	114,830	25,426	10,808
Northwest Federal District	49,000	56,013	6,571	1,750	51,082	51,939	4,669	2,592
City of St. Petersburg	19,330	35,249	4,053	1,105	19,592	29,309	2,735	1,561
South Federal District	17,159	8,628	3,507	3,213	17,177	8,624	3,038	2,424
Krasnodar Krai	8,741	4,356	1,069	585	9,641	4,704	559	585
North Caucasus Federal District	937	1,421	356	596	797	1,598	489	479
Privolzhsky (Volga) Federal District	53,705	12,967	15,501	3,415	52,848	14,508	10,880	3,132
Republic of Bashkorstan	10,345	1,008	2,764	372	12,439	932	1,416	255
Republic of Tatarstan	18,896	2,968	3,262	649	16,595	3,601	1,511	607
Ural Federal District	69,846	6,865	9,012	3,571	31,943	6,552	5,793	2,132
Sverdlovsk Oblast	9,004	3,073	1,725	940	6,478	2,933	2,050	773
Tyumen Oblast. Including:	56,894	1,809	4,995	614	22,281	1,948	1,357	129
Khanty-Mansi Autonomous Okrug-Yugra	22,114	997	1,883	43	19,416	1,238	1,062	44
Yamalo-Nenets Autonomous Okrug	3,044	360	30	70	507	157	0.5	52
Tyumen Oblast without the autonomous okrugs	31,736	452	3,082	501	2,358	552	294	34
Siberian Federal District	31,274	8,129	4,239	2,370	30,373	5,848	4,597	2,225
Krasnoyarsk Krai	8,037	1,694	279	265	7,266	1,038	466	442
Far East Federal District	25,688	10,487	270	61	28,483	10,436	198	217

Source: Регионы России. Внешняя торговля (2015).

Notes: *The unofficial term far abroad (““дальнее зарубежье””) was coined after the abolition of the U.S.S.R. in the early 1990s. It signifies the nations not included in the Newly Independent States. Despite geography, the “far abroad” category also incorporates countries having common border with Russia—Finland, Norway, Poland, Mongolia, PRC (mainland China), North Korea, and sometimes the Baltic countries (Latvia, Lithuania, and Estonia).
** NIS stands for Newly Independent States.

As mentioned earlier, the recent creation of the new federal Russian Investment Agency “Invest in Russia” was intended to facilitate incoming foreign investments. Given Russia’s large economic size, complexity, and substantial discrepancies characterizing its 85 federal subjects, each of them possessing varying potential for investment and economic development, now almost every region has its own local affiliate agency charged with attracting investments (regional investment agencies can be accessed through the Invest in Russia [2016] entry point). Prior to the establishment of the Agency there was no single framework integrating all regional development corporations across Russia. The Agency became a federal-level platform for the “investors–regions” cooperation and a tool to provide support for foreign companies in entering the Russian market. The main task of the Agency is to function as a single customer center, which serves for foreign investors as a source of relevant information about the investment potential of the Russian regions, ongoing projects, success stories, new investment opportunities.

Russian Investment Agency (2016) performs the following key functions: Developing recommendations for improving investment climate in the Russian Federation and providing these recommendations to the President and the Government of the Russian Federation, as well as other parties; building relations with foreign investment agencies and public associations of investors; provide foreign investors with reliable information about the advantages and opportunities of the Russian Federation, informing about possible problems and helping to minimize risks; organizing meetings of foreign investors with Russian government agencies authorities and business community; supporting foreign investors, including by resolution of arising difficulties with licensing and supervising authorities; facilitating interaction with subjects of the Russian Federation, cities, and districts on attracting investments and implementation of investment projects.

To perform these functions, the Agency and its regional affiliates provide information and assistance that can become a starting point in foreign company’s strategic analysis and decision. More specifically, an initial step in the regional investigation of Russia can be accomplished by using the Agency’s analytical tool that enables the user to compile comparative profiles for multiple (up to four) Russian regions with analytical data downloadable in PDF or Excel format. Additionally, the Invest in Russia portal houses business reports prepared by reputable global consultancies designated for the national economy at large as well as specific priority sectors and industries in which Russia has investment potential. They include: Pharmaceutical and Medical Industry, Real Estate, Innovations and Technology, Infrastructure, Aluminum, Iron and Steel, Lead, Platinum-group metals, Precious metals, Nickel, Copper, Zink, Coal, Telecommunications, Transportation, Agriculture and Food, Gas, Hotel, and Entertainment (Russian Investment Agency 2016).

As an example, Table 1.3 presents comparative investment profiles for Russia’s four leading regional entities: the City of Moscow, the City of St. Petersburg, the surrounding Moscow region, and the Leningrad region.⁹

In the following section of this chapter we focus on examining the business environment and investment potential of the City of Moscow, Russia’s economic leader.

The selection of a business location within a country as large and diverse as Russia, whether as a target destination in international marketing or a foreign manufacturing site, is a complex task that involves multiple dimensions, analytical and decision-making criteria, and steps. For the sake of argument, we will be following a generalized framework used by the Moscow City Investment Agency (2016). The framework presented in their investment portal (http://en.investmoscow.ru) in six languages is informative, reasonably up-to-date and dynamic in style. It includes two main sections: “Investment in Moscow” and “Guide for Investor.” Their intended purpose, respectively, is to highlight strategic advantages/benefits of investing or conducting business in Moscow and provide a potential investor/business operator with orientation on starting and running business. The framework also includes important information about the city’s social and business infrastructure, lifestyle, current business projects, future developments, and contact information in the City of Moscow.

Table 1.3 Investment profiles: City of Moscow, City of St. Petersburg, Moscow region, and Leningrad region, 2015*

	Moscow	St. Petersburg	Moscow region	Leningrad region
Key macroeconomic indicators
GRP**, RUB billion (2014)	8,248	1,431	1,646	383
GRP dynamics, percent versus previous year (2014)	123	109	127	105
Equity investments per capita, RUB thousand	131.4	100.03	88.02	112.36
Registered unemployment rate, percent of economically active population (as at the end of the period—based on the 2010 Russian Census results)	4.49	1.30	3.00	0.509
Foreign direct investments, USD million	64,667	7,504	8,067	3,423
Geography
Region population size, thousand people	12,198	5,192	7,231	1,776
Regional center population size, thousand people	12,198	5,192	12,198	5,192
Shortest highway distance to the nearest border crossing, km	440	163	480	n/a
Shortest highway distance to the nearest sea port, km	720	0 km	710	14
Highway distance from regional center to the nearest million-plus population city, km/population size in million-plus population city, million people	0/12.11	0 km, St. Petersburg, 5 mln people	12/12.11	0/5.0
Transportation and energy infrastructure
Number of international airports	3	1	3	n/a
Railway freight transportation, MT	4.20	6.00	10.60	26.80
Motor transport freight turnover, MT/km	4,971.10	2,468.70	5,328.60	1,300.10
Electricity generation/consumption, % (2014)	75.6	77.3	75.6	101
Domestic market size
Income per capita, RUB thousand	59.50	38.60	40.10	24.00
Retail sales turnover, RUB bn	4,474.50	1,057.60	1,724.70	304.50
Products shipped in manufacturing sector, RUB million	3,731,063.00	2,123,814.00	1,892,723.00	772,574.00
Labor market
Average monthly salary, RUB thousand	62.50	43.50	40.20	33.10
Economically active population, thousand people	7,140.20	2,968.20	3,911.00	959.10
Human capital
Number of students per 10,000 people (at the last reporting date) (2014)	1,164	956	248	107
Mortality of working age (per 100,000 people of working age—3-year average) (2014)	415.5	514.4	686.5	693
Migration balance (3-year average) per thousand people (2014)	98.97	154.79	149.43	123

Source: Invest in Russia (2016) www.investinrussia.ru/compare-four-regions?year=2015&region1 =41&region2=58&region3=42&region4=36

Note: *Some comparative data for the four regions on the latest 2015 Invest in Russia web portal are marked as unavailable. For this reason we included the 2014 numbers instead of the missing data for 2015.
**Signifies gross regional product.

The “Investment in Moscow” portal discusses factors shaping the business environment and investment climate and includes the City of Moscow’s Investment Strategy up to 2025 (2016). It contains profiles, trends, and dynamics for selected industries and key development issues: healthcare, education, transport infrastructure, high-tech, tourism and urban environment, and modernization of old industries. This section is also supplemented with the company success stories, special analytical reports, and investor support information from the Moscow city government.

The “Guide for Investor” section contains information about starting a business, covers in detail the issues of special zones, small and medium business, personnel, transportation, construction and real estate, engineering networks, investment protection, trade and services, and investment support.

Business Environment and Investment Climate in the City of Moscow Domestic and International Perspective

The Moscow city investment portal hosts extensive business information and offers support. Wikipedia also provides useful coverage containing comprehensive background information and extensive references (Moscow 2016).

Investment Climate Factors

Investment Opportunities

From a commercial standpoint, Moscow¹⁰ is the largest consumer market in Russia and Europe (Figures 1.3 to 1.8). Its 12 million strong population, together with the surrounding regional agglomeration, reaches about 16.6 million people, and constitutes 11 percent of the total Russian population, which is #15 in the world by population size of urban agglomerations. Being home to a sizeable population, Moscow also enjoys high purchasing power, accounting for 16 percent of the Russian retail turnover. The city is characterized by a relatively high level of household income; in 2014 the average salary in Moscow reached 971 USD (1,800 USD in 2013),¹¹ twice as much compared to 493 USD nationwide. In international comparisons of consumer spending Moscow (169 billon USD) outperforms many leading global cities acceding only to London and Paris. Additional assurance for retail operations in Moscow can be derived from a relatively low level of the loan debt burden of population compared to St. Petersburg and Russia as a whole.

Figure 1.3 Population of world’s urban agglomerations

Source: Demographia World Urban Areas (2015).

Figure 1.4 Geographic structure of Russia’s retail trade turnover

Source: Moscow Investment Strategy up to 2025 (2016).

Figure 1.5 Average per capita income, 2014, USD*/month

Source: Rosstat (Russian Federal State Statistical Service).

Note: *According to average US dollar exchange rates from the Bank of Russia.

Investment Opportunities

The City of Moscow is the leading economic region driving Russian national growth (Figures 1.9 to 1.12). In 2014, the City of Moscow’s gross regional product (GRP) reached nearly 13 trillion rubles, or 383 billion USD. In terms of cross regional domestic comparisons, Moscow’s GRP per capita in 2012 reached 27,303 USD, more than double the average Russian rate. Internationally, Moscow also fares strong being among the world’s 10 largest urban conglomerates in regard to its purchasing capacity. Moscow’s per capita GRP is higher compared to Seoul and Shanghai, although lower than that of some large conglomerates of Europe and the United States.

The structure of Moscow’s GRP is close to the economic structure of large metropolitan areas. The largest investment in the city’s GRP is from the trade sector (31.3 percent of the GRP) as well as activities that provide business and financial services, working with real estate and scientific research and development (21.2 percent of the GRP). The manufacturing industry accounts for 18.6 percent of the gross value added (including machine manufacturing, which is 14.9 percent).

Figure 1.6 Volume of individuals’ deposits per capita as of January 1, thousands RUB

Source: Bank of Russia, calculations by Moscow City Investment Agency.

Figure 1.7 Money spent by the population in the City of Moscow, trillion RUB

Source: Mosgorstat.

Figure 1.8 The ratio of outstanding loans to the volume of individual deposits

Source: Bank of Russia, calculations by Moscow City Investment Agency.

Figure 1.9 Moscow’s gross regional product

Source: Rosstat, Department of Economic Policy and Development of Moscow, calculations by Moscow City Investment Agency.

Economic-Geographical Position

Moscow is located in the heart of the most developed and diversified region of the European part of the vast Russian land (Figures 1.13 to 1.14), still far away from major global commercial destinations. The flight time to some global financial centers (New York, Hong Kong, and Singapore) is within 10 hours, and European financial centers (London, Zurich, Frankfurt on the Main) can be reached by plane within 4 hours. Moscow is located at an approximately equal distance from large markets of Eastern Europe, CIS countries, and the Baltics. Travel time via public highways to the seaports of the Baltic and Black Seas, to regional centers of the European part of Russia and the Volga region, and to the cities of Belarus and Ukraine is within 24 hours.

Figure 1.10 GRP per capita in Russian regions*

Source: Rosstat, calculations by Moscow City Investment Agency.

Notes: *According to the average annual dollar exchange rate, the Bank of Russia. ** excluding Khanty-Mansiysk and Yamal-Nenetsk regions.

Figure 1.11 GRP per capita metropolitan areas in the world

Source: Brookings Institution (2015).

Figure 1.12 Moscow GRP by economic sectors

Source: Rosstat, calculations by Moscow City Investment Agency.

Figure 1.13 Flight time from Moscow to global cities

Business Activity

As the nation’s political-economic, cultural, and educational center, and business hub, the City of Moscow is characterized by high density of global companies, media, Russian federal government agencies and regional representative agencies, and diplomatic and trade representatives located in the city (Figure 1.15). Many of the largest international companies have their offices in Moscow. On this indicator, Moscow is one of the top 10 business hubs in the world, outperforming Beijing, Dubai, Madrid, Paris, and New York.

Figure 1.14 Domestic road travel time^* from Moscow

Source: Avtodispetcher Cargo Transportation Portal.

Notes: *Fastest route (excluding traffic).

As Russia’s top business and financial center, Moscow is home to about 1.3 million enterprises and organizations (about 25 percent of the total number of all the companies registered in Russia). Over the past five years, the number of enterprises and organizations operating in Moscow has increased by 20 percent. Moscow accounts for about half of the operating banks and credit organizations in Russia. Banks headquartered in Moscow account for 80 percent share of the total bank assets in Russia.

Investment Activity

In 2015, Moscow registered around 1.5 trillion rubles (38.3 billion USD) of investment stock in fixed assets, or 10.9 percent of the total volume of investments in fixed assets in Russia (Figures 1.16, 1.17, and 1.18). Over 70 percent of investments came from nonbudget (private) sources. Over the past four years, investments in fixed assets in comparable prices grew by 52.2 percent at the 2010 comparable prices. In Q4 of 2015, Moscow attracted 17 billion USD in foreign direct investment inflows outstripping by wide margin other Russian regions in the incoming flows of foreign direct investment on a per capita basis. In 2013 this indicator in Moscow reached 855 USD in foreign direct investment per capita compared to 668 USD in the Kaluga region, 570 USD in the Primorsky Krai, 517 USD in the Leningrad region, and 245 USD in the Moscow Oblast/region.

Figure 1.15 Presence of largest international companies in cities worldwide

Source: CBRE, Global office location.

Notes: According to research results from 290 international companies.

Figure 1.16 Investment structure in fixed capital* by type of business activity, percent

Source: Mosgorstat.

Note: *Large and medium-sized businesses.

Figure 1.17 Investments in fixed capital in Moscow billions RUB, percent of 2010 (comparable prices)

Source: Rosstat, calculations by Moscow City Investment Agency.

Figure 1.18 Net inflows of foreign direct investments to Moscow, billions USD

Source: Bank of Russia (according to balance of payments data from the Russian Federation).

Conditions for Investment

Labor Force

Moscow is one of the world’s largest cities in terms of the size of its economically active population and availability of skilled labor. It is also the leader among Russian regions nationwide (Figures 1.19 to 1.22).

The size of the economically active population pool in Moscow is over 7 million and it is experiencing an upward trend. Moscow’s population is characterized as having a high level of education: on average, 815 out of 1,000 residents, age 15 years and older have professional education; 42 percent of the residents have higher and postgraduate education. According to the “Cities of Opportunity—2012” study by Pricewaterhouse-Coopers, a global consultancy, Moscow ranks #5 among the world’s largest cities in terms of the share of residents with higher education.

Moscow’s unemployment rate of 1.5 percent (compared to 5.5 percent nationwide in 2015) is lower than it is in many other metropolitan cities around the world. Moscow also has a comparative advantage in labor costs over major cities worldwide (a drastic downward trend in the USD/RUB exchange rate in 2014–2016 has partially contributed to the decline of labor cost in Russia in dollar terms).

Figure 1.19 Economically active population in Moscow

Source: Rosstat (Russian Federal State Statistics Service).

Figure 1.20 Adult population with higher education in cities around the world, 2013, percent

Sources: Rosstat, Eurostat, the Government of the Hong Kong SAR, U.S. Census Bureau, the City University of New York.

Figure 1.21 Unemployment in cities around the world, 2014, percent

Sources: Euromonitor International, the Government of the Hong Kong SAR, Mosgorstat.

Figure 1.22 Average hourly labor rates in cities around the world

Source: Euromonitor International, Rosstat, Moscow City Investment Agency calculations.

Notes: *Average monthly salary according to Rosstat in 2014 at the USD exchange rate of the Bank of Russia on January 1, 2015 (based on 22 working days a month and an 8-hour working day).

Economic and Financial Stability

Over the years, the City of Moscow’s finances have been characterized by balanced budgets, stable growth, sustainable spending patterns, and low level of public debt¹² (Figures 1.23 and 1.24). Moscow’s budget deficit for the past three years has not exceeded 0.5 percent of the GRP. In terms of the low budget deficit, Moscow outperforms the cities of Hong Kong (5.8-percent budget deficit), New York (11.7-percent budget deficit), Shanghai, Singapore, and Dubai. For the past four years Moscow’s ratio of public debt to GRP has been reduced in 2.5 times, from 3.6 percent of GRP in 2010 to 1.4 percent of GRP in 2014. In contrast, the public debt to GRP ratio in the cities of Shanghai and Dubai reached 40 percent and 56 percent accordingly. This is reflected in Moscow’s strong international macroeconomic environment rating (according to the Economist Intelligence Unit, Moscow in this rating is ahead of such big cities worldwide as New York, Istanbul, and London).

Figure 1.23 Moscow budget indicators 2010–2014

Source: Open book of Moscow, Department of Economic Policy and Development of the City of Moscow.

Note: *2014, estimate.

Figure 1.24 Debt in cities around the world

Source: Moscow Finance Department, IMF, NYC Office of the Comptroller, Shanghai Audit Bureau, Singapore Department of Statistics, Moscow City Investment Agency calculations.

The 2014 balanced financial results of large-scale and medium-sized organizations in Moscow amounted to RUB 1.46 trillion (USD 37.7 billion at the average annual USD exchange rate of the Bank of Russia). About 76.2 percent of Moscow’s profitable organizations account for 25 percent of the aggregate profit of enterprises in Russia.

Taxation of Legal Entities

In contrast to some major global cities, the City of Moscow levies a rather moderate tax burden on corporations. The corporate (legal entities) profit tax rate in Moscow is 20 percent, which is lower than London (21 percent), Shanghai (25 percent), and Paris (33.3 percent). The standard value added tax rate in Russia is 18 percent, which is less than in most European Union countries. For instance, the standard value added tax rate in Germany is 19 percent, in the United Kingdom—20 percent, and in Italy—22 percent (Figures 1.25 and 1.26).

Additionally, Moscow laws and regulations provide special tax benefits to the entities engaged in investment activities. For example, under certain conditions a reduced 13.5 percent rate of corporate profit tax payable to the budget of Moscow applies to legal entities that manufacture cars within Moscow, are residents of science parks, technology parks, and industrial parks, and are residents of the special economic zone for technical innovation such as Zelenograd.¹³ Tax exemptions are provided to residents of the special economic zone of Zelenograd for vehicles registered in their name. This tax benefit is granted for a five-year term, effective from the month of vehicle registration. Under certain conditions, corporate property tax exemptions are provided to the residents of science parks, technology parks, or industrial parks, management companies of science parks or technology parks, and entities manufacturing cars within Moscow. There are also land tax exemptions and investment tax credits applicable to entities investing in Moscow, provided that the investing entity meets regulatory compliance requirements.

Figure 1.25 Corporate profit tax rates in cities around the world

Source: Moscow City Investment Agency.

Figure 1.26 Standard value added tax (VAT) rates by country

Source: National sources.

Access to Real Estate

Figures 1.27 to 1.30 profile the dynamics of commercial real estate in the City of Moscow. As of April 1, 2015, there was a total of 34.1 million sq. m. (367 million sq. ft.¹⁴) of high-quality commercial space in Moscow. In 2014, investment in Moscow commercial real estate alone exceeded USD 3 billion. As of April 1, 2015, the aggregate volume of highquality office space in Moscow had risen to 14.9 million sq. m. (including 3.5  million sq. m. of class A office space), with a vacancy rate for the segment as a whole of 19.6 percent. The average office rental in USD terms had dropped year-on-year by 25–35 percent to USD 530 per sq. m. a year for class A and to USD 309 for class B offices. In Ruble terms, rentals amount to RUB 27, 093 per sq. m. a year (USD 470 at the Bank of Russia exchange rate on April 1, 2015) for class А and RUB 16, 769 (USD 290) for class B offices. Operating costs vary from RUB 2,500 to 6,700 per sq. m. a year (USD 43–116).

Figure 1.27 Availability of the quality commercial space in Moscow

Source: Knight Frank Research.

Figure 1.28 Lease conditions in retail centers in Moscow

Source: Knight Frank Research.

Figure 1.29 Average class A office rent in cities around the world

Source: Colliers International, Moscow City Investment Agency calculations. Global Office Highlights.

Notes: *Rental rates in national currencies as of the end of 2014 in USD to national currency exchange rate on January 1, 2015.

Figure 1.30 Average warehouse rental rates in the Moscow area

Source: Knight Frank Research.

Note: *Forecast.

The aggregate volume of high-quality warehousing in the Moscow area as of April 1, 2015 amounted to 9.7 million sq. m. (including 7.7  million sq. m. of class A warehousing), the vacancy rate for the segment as a whole being 9.8 percent. The range of rents in Ruble terms is from RUB 3,500 to 5,500 per sq. m. per annum (USD 60–95), operating costs from RUB 1,000 to 1,300 per sq. m. per annum (USD 17–23).

As of April 1, 2015, the aggregate volume of high-quality retail premises in Moscow amounted to 9.6 million sq. m. (including 5 million sq. m. of rented areas), with 8 percent vacancy. The base rents vary from USD 100 to 400 per sq. m. per annum for anchor tenants and from 200 to 3,500 USD per sq. m. per annum for gallery tenants.¹⁵

Figure 1.31 Volume of airline passengers in cities around the world

Source: Euromonitor International, airport information services.

Transportation Infrastructure

The Greater Moscow is Russia’s major transportation and logistics center that possesses a well-developed air, road, and rail transportation infrastructure¹⁶ (Figures 1.31 to 1.38).

As the nation’s largest aviation hub, Moscow includes three major international airports (Sheremetyevo, Domodedovo, and Vnukovo), as well as the second-tier Ostafyevo International Business Airport¹⁷ and Bykovo regional airport. In 2014, passenger traffic in the Moscow air transportation hub reached 77 million passengers. In terms of the number of airline passengers, Moscow is ranked among the top 10 cities in the world. In terms of flight arrivals and departures, Moscow is ahead of Toronto, Istanbul, and Hong Kong.

Figure 1.32 Moscow road network density

Source: Moscow Town-planning Policy and Construction Complex, Moscow State Program “Development of the Transport System 2012–2016 and for the longer term up to 2020” (version of March 18, 2015).

Figure 1.33 Road density in the Moscow region and countries around the world

Source: Rosstat, EMISS.

Influenced by the radial-ring road design historically common for some European cities (for instance, Paris), the City of Moscow’s ring road system is part of the 19 directions of federal highways in a unified transport network. The density of hard surface roads in the Moscow region has almost doubled over the last seven years and is comparable to such countries as Israel, the United States, and Turkey.¹⁸ In terms of the cargo transportation volume, the Moscow region is ahead of many other Russian regions. Comparatively low gasoline prices in Moscow also position it as an attractive business hub.

Figure 1.34 Road haulage

Source: Rosstat.

Figure 1.35 Retail gasoline prices in cities around the world

Source: Rosstat, Numbeo.

Note: *Average price of A-92 and higher quality petrol at the USD exchange rate of the Bank of Russia on April 1, 2015.

Figure 1.36 Rail transport density in cities around the world

Source: Rosstat, railway transport information services.

Figure 1.37 Railway passengers in 2013

The Moscow Railway Center is the largest railway center in Europe, as it connects 11 radial and 2 ring lines, 9 terminal stations, and more than 50 freight and sorting stations. The total length of railways is more than 2,700 km. In terms of the rail transportation density, Moscow is ahead of many major cities internationally, trailing only Paris and New York City.

The Moscow region accounts for more than half of the total volume of the railway passenger traffic in Russia making transport infrastructure a top priority development area in Moscow. Within the scope of the Targeted Investment Program of Moscow for 2015–2017, budget investments in development of the transport infrastructure will amount to about RUB 800 billion (USD 14 billion at the Bank of Russia exchange rate on April 1, 2015). In 2015–2017, it is planned in total to allocated over RUB 1.65 trillion (USD 30 billion) for developing Moscow’s transport system, over 35 percent of this amount coming for nongovernment sources.

Figure 1.38 Development of the Moscow transport system

Source: Moscow State Program “Development of the Transport System 2012–2016 and the longer term up to 2020” version of March 18, 2015.

Availability of Electricity

The average electric power tariff in Moscow for enterprises and organizations at the beginning of 2015 was about RUB 3.2 per kWh (USD 0.057), which is less than in many major cities worldwide, such as New York, London, and Hong Kong (Figure 1.39).

Moscow is focusing on making the energy infrastructure more accessible. The average cost of connection to the JSC MOESK grids has dropped by almost two-thirds from RUB 37,000 per 1 kW in 2011 to RUB 13,000 per 1 kW in 2013. The time required for technological connection of facilities with a capacity of up to 150 kW was cut from 180 days in 2012 to 90 days in 2014. The proportion of actual connections under contracts increased from 36 percent in 2012 to 70 percent in the first half of 2014.

Figure 1.39 Cost of electricity for commercial and industrial enterprises in cities around the world, January 1, 2015, USD* per kWh

Sources: Mosenergosbyt OJSC, city energy supply companies.

Note: *At the national currency exchange rate on January 1, 2015.

Information and Communication Technology (ICT) Infrastructure

Moscow is the national leader in ICT, being ahead of most Russian regions in terms of the mobile network coverage and fixed broadband access and accounting for about 30 percent of all corporate ICT expenditures nationwide. More than 75 percent of Moscow organizations have websites compared to about 40 percent on average for Russia as a whole. One in two employees has an Internet-connected PC compared to one in four in the country as a whole).

Internationally, Moscow is also competitive in terms of cost and quality of Internet access. The average broadband access price in Moscow is 0.65 USD per Mbit/s—lower than in many major global cities. Internet broadband access quality in Moscow is comparable to that in Singapore or London. In terms of the Internet connection speed Moscow outperforms such cities as London and Berlin. In terms of the fixed broadband access, Moscow exceeds the average level of the Organization for Economic Cooperation and Development (OECD) members (Figures 1.40 to 1.49).

Business and Financial Services

As of January 1, 2015, Moscow had over 250 thousand organizations operating in the financial and business services sector (including R&D and IT-services). This comprises 25 percent of all companies operating in this sector in Russia and 23 percent of all Moscow companies. Moscow’s infrastructure in business and financial services is profiled in Figures 1.50 to 1.55.

Figure 1.40 ICT expenditures by organization

Source: Rosstat.

Figure 1.41 Fixed broadband Internet access subscribers, June 2014, per 100 of the population

Source: OECD, Rosstat.

Figure 1.42 Mobile radio telephone communications subscribers, January 1, 2015, per 100 of the population

Source: EMISS.

Figure 1.43 Active subscribers to fixed BBA

Source: EMISS.

Figure 1.44 Organizations having own web sites

Source: Rosstat.

Figure 1.45 Number of PCs with Internet access, 2013, per 100 employees in organization

Source: Rosstat.

A significant number of organizations in Moscow offer professional outsourcing services. For instance, there are over 5 thousand law firms and about 3.5 thousand accounting and auditing firms.

Figure 1.46 Average cost of Internet access in cities around the world, April 2015, USD per Mbit/s

Sources: Ookla, Net Index.

Figure 1.47 Internet broadband access quality in cities around the world (R-factor), April 2014

Sources: Ookla, Net Index.

Figure 1.48 Average data transmission speed by Internet in cities around the world

Sources: Ookla, Net Index.

Figure 1.49 Fixed broadband Internet access subscribers, June 2014, per 100 of population

Sources: OECD, Rosstat.

There are 450 banks operating in Moscow, 149 of them with the participation of nonresidents in their authorized capital, including 69 that are 100 percent foreign-owned.

International comparisons indicate that Moscow is ranked ahead of New York, London, and other major cities internationally in terms of the number of companies operating in the financial services sector. The change in the city’s economic structure is accompanied by a rise in the proportion of the population employed in the business and financial services, R&D, and IT services sectors. More than 1.6 million people in Moscow are engaged in this sector, thus constituting 24.4 percent of the total employed population of the city. In this respect, Moscow outperforms Sao Paolo, Prague, Shanghai, and Tokyo, In terms of employment in the financial and business services sphere (18 percent in 2013), Moscow outstrips Tokyo and Shanghai, slightly trailing the world’s main financial centers, where this level tops 20 percent.

Research and Development

The Moscow metropolitan area that includes the City of Moscow and Moscow region (together—the Greater Moscow) is Russia’s top R&D and innovation hub. The Moscow metropolitan area hosts five science towns, Skolkovo Innovation Center, and five innovative regional clusters. Figures 1.56 to 1.58 specify Moscow’s R&D profile.

Figure 1.50 Business and financial service providers in Moscow, January 1, 2015

Source: Rosstat.

Figure 1.51 Business service providers in Moscow

Source: www.yell.ru.

Figure 1.52 Credit institutions in Moscow by type of participation by nonresidents in the authorized capital, January 1, 2015

Source: Bank of Russia.

Moscow accounts for about 20 percent of all Russian organizations involved in R&D and a little less than a half of all Russian scientific personnel. Together, these organizations employ about 237 thousand people in the R&D sphere in Moscow, this constituting about 4 percent of the entire Moscow employed population and about a third of all scientific personnel in Russia. The City of Moscow also leads the nation in the total number of issued patents for inventions and utility models holding a 3.4-percent share nationwide. Moscow’s level of development in the sphere of software developments and multimedia design puts it in the Top Ten major cities in the world. According to the PricewaterhouseCoopers study “Cities of opportunities 2014,” Moscow is in 9th place, alongside Tokyo and Stockholm. Of the 40 biggest companies on the Russian IT market (according to the Kommersant daily, at the end of 2014), 31 are based in Moscow.

Figure 1.53 Financial service providers in cities of the world

Sources: BvD, Mint Global.

Figure 1.54 Employment in financial and business services in Moscow, percent of total number employed

Source: Mosgorstat.

Figure 1.55 Employment in financial and business service sector* in cities around the world

Source: Euromonitor International.

Note: *Not including in the sphere of scientific research and development and provision of IT services.

Figure 1.56 Organizations involved in R&D in the Moscow region

Source: Rosstat.

Figure 1.57 Personnel employed in R&D

Source: Rosstat.

Figure 1.58 Patents issued for inventions and models

Source: EMISS.

Taxation

The Russian government applies a flat (proportional) scale for income tax. Thus, if a natural person is a tax resident of the Russian Federation, the largest part of his/her income is subject to tax rate at 13 percent (Figure 1.59). Such income, for instance, includes wages and incomes from sale of property. The law of the Russian Federation and laws and regulatory provisions of the City of Moscow for natural persons allow for special tax deductions for income tax, as well as property, land, and transport tax deductions. More details on taxes in Russia can be obtained from Deloitte (2015), Doing Business in Russia (2016), and Doing Business in Russia. Your Roadmap to Successful Investments (2015).

Figure 1.59 Maximum personal income tax rates

Source: OECD, Federal Tax Service of Russia.

Note: *Maximum combined income tax rate at central and regional levels.

Urban Environment

Housing and Hotels

Information on the dynamics and availability of housing and hotels may be important both as part of the company’s logistical preparation for expansion overseas and as an indication of the dynamics, business opportunities, and constraints in this sector.

More than 3 million sq. m. (approximately 32 million sq. ft.) of residential houses are built in Moscow each year. Moscow’s housing stock contains around 233 million sq. m., or around 19.2 sq. m. per resident. In 2014, 3.3 million sq. m. of housing were installed in Moscow (including 1.6 million sq. m. in New Moscow). Moscow accounts for 4.1 percent of the volume of housing construction in Russia. In the State Housing Program for the City of Moscow, the budget and nonbudgetary sources financing will ensure the construction of around 9.4 million sq. m. of new housing in 2015–2017 (Figure 1.60).

An average cost of housing (a typical average quality apartment, data from Rosstat for the 4th quarter of 2014) on Moscow’s primary real estate market is RUB 141,000 (USD 3,000) for 1 sq. m., and on the secondary market it is RUB 168,000 (USD 3,500) for 1 sq. m. According to the ratio of housing costs to disposable income, Moscow is comparable to the mega-cities of Southeast Asia, and is below the level of cities in Western Europe and the United States.

Moscow has more than 350 hotels, mini-hotels, and hostels. The industry development scheme will make provisions for the construction of 172 hotels (32,000 rooms) for 70,000 people in Moscow until 2016. By 2025, Moscow’s hotel network will increase to 720 hotels, with the growth in the 2–3 star hotel categories to 65 percent (Figure 1.61).

The cost of a hotel room at a 3–4 star hotel in Moscow is lower than in New York, London, or Hong Kong. Hostel prices for a 1–2 star accommodation are comparable with prices in most major cities, such as Shanghai or Paris.

Figure 1.60 New residential construction and financing in Moscow

Source: Rosstat, State Housing Program for the City of Moscow 2012–2018 (April 22, 2014).

Figure 1.61 Development of hotel networks in Moscow

Source: Hotel industry allocation scheme for the City of Moscow (ed from January 13, 2015).

Apartment rental rates in Moscow are in general higher compared to other Russian regions, but still comparable with prices in large metropolitan cities of Europe and worldwide. According to ЦИАН ГРУПП (2016), a Moscow-based real estate search system, there are around 90,000 active rental offers in Moscow. The average cost of renting residential real estate in Moscow, according to data from the global portal Numbeo, is around USD 1,250 for a one-bedroom apartment in the city center, and around USD 770 outside the center of Moscow. This is higher than average in Russia, although it is comparable with prices in large global cities. For example, rent prices in New York, London, or Hong Kong are higher than Moscow’s by 30–40 percent, and the Paris prices correspond roughly to the Moscow prices.

Infrastructure of Trade and Public Catering

The quality of infrastructure for trade and public catering is an integral part and indication of the level of country/regional development and attractiveness for international business. It is also a critical contributing factor to the quality of life in general, making the country/region attractive or unattractive for living in the eyes of the company personnel, including expatriates. If the expanding company operates in trade or catering, information on the infrastructure of trade and public catering becomes of vital direct importance.

Moscow possesses an extensive retail infrastructure (Figures 1.62 to 1.70) with more than 25,000 retail trade facilities, including more than 1,000 hypermarkets and supermarkets, as well as more than 4,000 mini-markets and convenience stores. The trade premises in Moscow take up 780 sq. m. per 1,000 residents (for hypermarkets and supermarkets this is 340 sq. m. per 1,000 residents). Over the last four years, the volume of the retail market in Moscow has grown by 15 percent (in comparable prices in rubles) and exceeded RUB 4.4 trillion in 2014 (USD 115 billion). Moscow is among the top five cities worldwide in terms of the presence of major international consumer brands (44 new brands arrived onto Moscow’s markets in 2014 and 31 in 2013).

The food stuff prices in Moscow tend to be lower compared to many major cities worldwide; there food is about 35–40 percent less expensive than in Paris, London, or New York.

Figure 1.62 Retail trade facilities in Moscow

Source: Rosstat.

Moscow has the development potential in its catering infrastructure. As of January 1, 2015 there were 11,087 catering enterprises in Moscow; of those, 7,651 were public establishments in public access and 3,436 were cafeterias owned by institutions or organizations. There are around 45 locations per 1,000 residents in public access on average, which provide residents with food in Moscow.

The turnover across Moscow’s catering sector has risen from 2010 by 19 percent (in comparative prices in rubles) and in 2014 it was RUB 174 billion (USD 4.5 billion). The share of expenditure (including tourists) on eating out in Moscow was around 7 percent, which is lower than in large cities of Western Europe, the United States and Canada where it often exceeds 25–30 percent. In terms of the number of restaurants per capita, Moscow is comparable to Sidney and Singapore, but lags behind London, Paris, or New York. On average, visiting a restaurant in Moscow costs less than in New York, Paris, or London, and is more expensive compared to Berlin or Hong Kong.

Educational Infrastructure

Education is an important characteristic of consumer sophistication and a critical factor in market segmentation. It is also a foundation of the quality of labor necessary for manufacturing projects overseas. Moreover, similar to trade and public catering, the quality of the educational environment can make the country/region attractive or unattractive for living from the company personnel standpoint (particularly important for expatriate personnel). Figures 1.71 to 1.74 characterize the educational environment in Moscow.

Figure 1.63 Retail trade turnover dynamics in Moscow

Source: Rosstat. Calculations by Moscow City Investment Agency.

Figure 1.64 Presence of international consumer brands in cities around the world*

Source: CBRE.

Note: *According to the survey of sample from 334 international retailers.

Figure 1.65 Food price index in cities around the world

Source: Numbeo.

Note: *Ratio of the average cost of food in cities around the world and New York.

Figure 1.66 Retail facilities in Moscow

Figure 1.67 Catering enterprises in Moscow

Source: Department of Trade and Services of Moscow.

Moscow is home to more than 1,000 preschool educational centers. At the beginning of 2014, 414,000 children of preschool age were enrolled in kindergarten, which is almost 34 percent higher than the 2010 level. Around 40,000 students receive preschool education in short-stay groups, and around 2,000 in family kindergartens.

Figure 1.68 Dynamics of market turnover for catering in Moscow

Source: Rosstat, calculations by Moscow City Investment Agency.

Figure 1.69 Restaurants in cities around the world*

Source: Department of Trade and Services of Moscow, World Cities Culture Forum.

Note: *Latest data available.

Figure 1.70 Price index for restaurants in cities around the world

Source: Numbeo.

In the 2013/2014 academic year in Moscow there were around 1,500 general education schools, education centers, gymnasiums, and secondary schools (including 131 private educational centers), with enrollment totaling 837,000. Four Moscow-based academic institutions are members of the Council of International Schools (CoIS), 11 schools operate under the International Baccalaureate system (IB).

At the start of the 2013/2014 academic year, Moscow was a host of 223 higher education institutions (23 percent of the total number of higher education establishments in Russia, including 92 state and 131 private higher education institutions¹⁹). In 2013, Moscow universities produced 226,000 specialists with higher education, and there were 887,000 students with university degrees. According to the amount of students calculated per 1,000 residents, Moscow is ahead of New York, Hong Kong, or London.

Figure 1.71 Student enrollment in preschool centers in the City of Moscow

Source: Rosstat.

Figure 1.72 Student enrollment in general education schools in the City of Moscow

Source: Rosstat.

Culture, Leisure, and Entertainment

Culture, leisure, and entertainment are often considered as “soft” variables of a business environment and as such are sometimes overlooked in regional analysis. However, similar to education, they contribute to consumer sophistication, impact market segmentation, and affect the quality of life of the company personnel.

Figure 1.73 Council of International Schools (CoIS) affiliated schools in cities around the world

Source: Council of International Schools (CoIS).

Figure 1.74 Enrollment in in higher educational institutions in cities around the world*

Sources: Rosstat, Eurostat, HESA, the City University of New York, the government of the Hong Kong SAR, calculations by Moscow City Investment Agency.

Note: *The Paris, Prague, Stockholm, and Berlin data is from 2012.

As the national capital city, Moscow offers extensive cultural, leisure, and entertainment opportunities. In total, Moscow has more than 360 museums, and its general storage collection is 14.7 million units rivaling most major cities around the world.

Moscow is the city of playhouses. It has 241 playhouses with a repertoire of productions ranging from classical to modern. Every year, more than 7 million spectators visit Moscow’s playhouses. In terms of the number of playhouses and visits on a per capita basis, Moscow is comparable to Berlin but trails London or New York.

Moscow has more than 110 movie theaters/cinemas²⁰ (585 cinema screens). According to the quantity of cinema screens, Moscow overtakes the majority of the main cities around the world, and is comparable to New York (501) or London (566). Therefore, Moscow has the potential to develop and provide its citizens with more cinemas. On average, there are 48 cinema screens in Moscow per 1 million residents compared to more than 70 in London and Berlin, and 85 in Paris.

Public Transportation

Figures 1.75 to 1.77 characterize the Moscow public transportation system. This system carries around 15 million passengers in per day (5.5 billion passengers per year). Moscow has more than 1,300 ground urban transport routes, including 8 night bus routes, 12 metro lines (327.5 km of track, 196 stations), and more than 53,000 taxis. Moscow and its satellite cities are linked by railways in 11 directions.

The Moscow Metro is the main mode of transportation that carries passengers around the city (56 percent of the total passenger traffic). The Moscow Metro has one of the longest lines and highest level of passenger traffic in the world. In 2015–2017, RUB 466 billion (USD 8.1 billion) from the municipal budget will be spent on developing the metro via the city’s investment appropriation program, where 34 new stations and 70 km of the rail track will be installed.

Figure 1.75 Volume of passengers in Moscow

Source: Department for Transport and Road Infrastructure Development of Moscow.

Note: *2014—estimate, 2020—forecast.

Figure 1.76 Metro (subway) lines in cities around the world

Source: World Metro Database, Moscow Metro State Unitary Enterprise.

Figure 1.77 Average public transport fares in cities around the world

Source: Numbeo.

Public transportation fares in Moscow are relatively cheaper in comparison to the other large cities of the world. Depending on the tariffs and other conditions, public transportation fares in Moscow vary between RUB 14 and 60 per journey (USD 0.28 to USD 1.17 according to the Bank of Russia’s exchange rates as of May 1, 2015), essentially cheaper than New York, Paris, or London.

Public safety

Public safety is of high priority for daily lives and business operations. In general, the trends and dynamics of Moscow’s public safety system are in line with those in major metropolitan cities internationally (Figures 1.78 to 1.81).

Over the past five years the amount of reported crime in Moscow has been reduced by 20 percent. The number of murders and attempted murders during that time has dropped by more than twice.

Since 2012, the number of road accidents over the past two years has decreased by 8 percent, and the number of traffic accidents has decreased by 15 percent over the past five years. The city has around 120,000 surveillance cameras in operation (on average 47 cameras per 1 sq. km. area of Moscow’s new borders). The safety of residents and guests in the capital is upheld by 68,500 strong personnel from the Ministry of Internal Affairs. On a per capita basis, it is comparable to New York and London. According to Numbeo.com, Moscow’s safety levels are comparable to cities in Europe such as Paris, Dublin, and Brussels.

Figure 1.78 Crime rates in Moscow

Sources: Rosstat, Moscow Department of the Russian Ministry of Internal Affairs, calculations by Moscow City Investment Agency.

Figure 1.79 Traffic accidents in Moscow per 100,000 people

Sources: Rosstat, Traffic Police of the Russian Ministry of Internal Affairs, calculations by Moscow City Investment Agency.

Figure 1.80 Safety index in cities around the world

Source: Numbeo.

Figure 1.81 Police staff in cities around the world*

Source: Russian Ministry of Internal Affairs, the Singapore Police Force, the Government of the Hong Kong SAR, GOV.UK, Federal Bureau of Investigation (UCR), calculations by Moscow City Investment Agency.

Note: *For Moscow, the data on the number of staff from the Ministry of Internal Affairs is from 2011; for other cities the data includes the civil services staff, and the latest accessible data is from 2012 to 2014.

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¹ Ethnic Japanese comprise 98.5 percent of the nation’s total population of 127 million people (Central Intelligence Agency 2016).

² Singapore’s area is just 687 sq. km of land, slightly more than 3.5 times the size of Washington, DC (Central Intelligence Agency 2016).

³ Two of these federal subjects—the Republic of Crimea and the federal city of Sevastopol—are internationally recognized as part of Ukraine.

⁴ Each federal district is administered by a Presidential envoy. Federal districts’ envoys serve as liaisons between the federal subjects and the federal government and are primarily responsible for overseeing the compliance of the federal subjects with the federal laws.

⁵ Economic regions and their parts sharing common economic trends are in turn grouped into economic zones and macro zones.

⁶ Each military district operates under the command of the district headquarters, headed by the district commander, and is subordinated to the General Staff of the Armed Forces of the Russian Federation.

⁷ National Investment Agency “Invest in Russia” was established in December 2013 under the auspices of the Ministry of Regional Development of the Russian Federation and in cooperation with the World Association of Investment Agencies (WAIPA). From May 1, 2014, the Agency operates under the new name—Russian Investment Agency “Invest in Russia.” Its primary objectives are attracting foreign investment in the Russian economy by facilitating foreign investors in entering the Russian market and promoting investment opportunities and business image of Russia by the efficient system of communication and interaction with the international investment community. Working closely with regional investment agencies, the Agency creates a platform for “investor-region” interaction at the federal level as well as forms a unique center of information on all regions, ongoing projects and investors interested in projects in the Russian Federation. The main task of the Agency is to function as a single Customer Center, which serves for foreign investors as a source of extensive information on the investment potential of Russian regions, ongoing projects, new investment opportunities, as well as a tool to create favorable conditions for foreign companies to enter the Russian market. More information about the Agency and its functions and services can be obtained at http://invest-rf.com.

⁸ In addition to the foreign direct investment inflows, as of 2014 Russia’s total foreign portfolio investment assets stood at 56.6 billion USD, including 3.7 billion USD in equity securities and 57.9 billion USD in total debt securities (U.S. Department of State 2016).

⁹ In 1914, during WWI, the name of the city was changed from Saint Petersburg to Petrograd (Петроград), in 1924 to Leningrad (Ленинград), and in 1991, back to Saint Petersburg. Currently, the Greater St. Petersburg area is comprised of two administrative-economic entities: the city of St. Petersburg and Leningrad Oblast/region named after Vladimir Lenin that retains its name to date.

¹⁰ Moscow (Москва) is the capital and the largest city of Russia with 12.2 million residents within the city limits and 16.8 million within the urban area. It is the capital of the Central Federal District and Moscow Oblast, together with the second one constituting the Moscow metropolitan area, totaling a population of 19.4 million residents. Moscow is a major political, economic, cultural, and scientific center in Russia, as well as the largest city on the European continent. In broader definitions Moscow is among world’s largest cities, being the 13th largest metro area, the 17th largest agglomeration, the 16th largest urban area, and the 9th largest within city limits worldwide. According to Forbes (2013), Moscow has been ranked as the 9th most expensive city in the world by Mercer and is one of the world’s largest urban economies, being ranked as an alpha global city according to the Globalization and World Cities Research Network and is also one of the fastest growing tourist destinations in the world according to the MasterCard Global Destination Cities Index. Moscow is the northernmost and coldest megacity and metropolis on Earth. By its territorial expansion on July 1, 2012 southwest into the Moscow Oblast, the capital increased its area 2.5 times; from about 1,000 sq. km. (390 sq mi) up to 2,511 sq. km. (970 sq mi), and gained an additional population of 233,000 people.

¹¹ In 2014 the Russian ruble’s exchange rate against the U.S. dollar drastically plunged.

¹² Russia’s historic post-Soviet macroeconomic performance on the national level has been susceptible to booms and busts. Economic busts and downturns have happened in the early 1990s (resulted from the demise of the U.S.S.R. and sharp drop in global oil prices), 1998, 2008–2009, and 2013–2014 (the current unfolding downturn caused by fundamental political-economic factors is exacerbated by sharp drop in global oil and gas prices, Russia’s annexation of Crimea, military-political confrontation with Ukraine, and resulting Western sanctions). Moscow as a vital part of Russia experiences consequences of the nationwide trends. Therefore its pattern of financial-budgetary stability should be interpreted in relative terms.

¹³ Additional specifics can be obtained from the Moscow City Investment Agency as well as KPMG’s “Doing Business in Russia. Your Roadmap to Successful Investments” (2015) and Baker & McKenzie’s Doing Business in Russia (2015) reports.

¹⁴ 1 sq. m. = 10.76 sq. ft.

¹⁵ More detail on real estate in Moscow and Russia at large can be obtained from Global Property Guide (2016).

¹⁶ Technically, Moscow is land-locked. However, thanks to the Moscow Canal, built under Stalin between 1932 and 1937, Moscow obtained indirect access to five seas: the White Sea, Baltic Sea, Caspian Sea, Sea of Azov, and the Black Sea. This is why Moscow is sometimes semi-ironically called the “port of the five seas.” Apart from transportation, the Moscow canal also provides for about half of Moscow’s water consumption, and the shores of its numerous reservoirs are used as recreation zones.

¹⁷ Ostafyevo International Airport opened in 2000 on the grounds of a former military airbase owned by Gazpromavia, a division of Gazprom. It caters primarily to business aviation.

¹⁸ One would be prudent to keep in mind Moscow road traffic jams; they are notoriously known as being among the worst in the world.

¹⁹ Institutions of higher education in Russia are a conceptual equivalent of four-year universities and colleges in the United States and Europe.

²⁰ The word “театр” (teatr) in Russian signifies playhouse, and “кинотеатр” (kinoteatr) means movie theater.