Industrial parks and SEZs in Russia 2019

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Review of industrial parks and SEZ in Russia 2019 (PDF, 8 Mb)

On behalf of the Association of Industrial Parks of Russia, we are pleased to present to you the sixth issue of the annual industrial Overview “Industrial Parks of Russia - 2019”. What you see is the country’s only printed publication that contains objective and comprehensive year-by-year information on all industrial parks, including industrial special economic zones (SEZ).

The publication is a non-commercial product. Regardless of their membership in the Association, the Overview includes information on all industrial parks that have promptly provided information and, as per AIP expert assessment, meet the National Standard GOST R Industrial parks. Requirements. We, therefore, maintain analytical objectivity and create attractiveness for potential investors and external audiences.
However, only AIP members and AIP-certified industrial parks possess the privilege of having their own profiles on the Overview pages. Information on industrial parks that have not joined the AIP of Russia is taken into account in statistics and published on a list.
The first issue was published in 2013, and since then we have carried on the tradition of regularly publishing the industry growth analysis, attaching the catalogue of all industrial parks.
It is for the first time that the new issue you are now holding contains statistical and comparative indicators taking into account the comprehensive 2018 data, and the accumulated total for the entire period in regional and macroeconomic contexts.

The issue’s main conclusion is that industrial parks have retained their leadership in growth rates among all other types of infrastructure and commercial real estate. Even in the context of low investment activity globally (particularly so in Russia), the number of parks increased over the year by 37% (61% in physical terms) to amount to 227 sites located in 60 regions. Noteworthy is that, as of year-end 2018, 150 sites have the status of operating industrial parks, which is 39 parks more than in the previous year.

The geography of “industrial park movement” is also expanding: according to 2018 data, it already covers 60 regions of Russia - the RF constituent entities where industrial parks recognized by the Association of Industrial Parks of Russia are operating or under intensive construction. This clearly suggests the format consistency and the industry’s maturity, because a couple of years ago only some 40 regions could boast of industrial parks, and even fewer regions had operating parks. 
Thus, the industrial segment of real estate is growing faster than others, clearly above the market and even aggressively, which does not reflect the general economic state. Obviously, the growth is situational, and experts argue about the causes and prospects. One can only speculate on how long the explosive growth will last. In our opinion, about 600 industrial parks (including small parks and large SEZs) will be necessary, considering growth plans, to fully meet the needs of the Russian industry. At this point, our industry will move to a static state of sustainable “horizontal” development. According to the current dynamics, it will take another 5-6 years to achieve these indicators. Although in reality, the dynamics are sure to slow down and the process will stretch out for a decade. We, therefore, predict the peak of building new parks to be over by 2023.

The reasons for the outstripping growth of industrial parks seem more apparent. The most important one is the novelty of the format. Ten years ago it was not common in Russia, except for singular examples that actually founded the industry. Investors had to go to the “open fields” objectively risking and tackling unusual tasks that involved connection and construction or to “negotiate” with the owners of vacant production assets that sometimes proved technically unsuitable. Industrial parks, as a type of economic activity, offered a novel format for convenient and professional production location, to which the market responded by high demand from investors. There are already 8 roubles of direct investment in production per rouble invested in the construction of industrial parks. Incidentally, as of full year-end 2018, this figure is 15% higher than last year’s results and will inevitably continue to grow in the future until all sites are completely filled.

The boom also stemmed from state support in the form of subsidies to build and renovate industrial parks and compensate for previously incurred costs. Every year, the state invests over RUB6 billion in these goals from the federal budget alone, extending support to 20 to 30 industrial parks. The RF constituent subjects’ budgets and the corporate segment are also critical sources of funding for industrial parks. Directly or indirectly, the state participation in financing the building of industrial parks can be assessed as exceeding a half, although the number of management companies of private industrial parks (144) is almost double the number of state-owned companies. This factor also works in favour of the format’s attractiveness for investors, since rendering services of production placement and maintenance of utilities is a function more peculiar to business. As to state support, it played its role exactly from the infrastructure funding perspective, allowing the continued inflow of investment from our key target audience, i.e. new industrial plants.

This issue is where we first present an analysis of investment in industrial parks by country of origin and sector profile and analyse investment distribution by region. The year 2018 exceeded, in part, the expectations of experts and showed the acceleration of investment growth with
respect to some indicators, such as the number of new residents in industrial parks, their area in hectares and square meters of production space. In money terms, the volume of investments by residents of industrial parks has slightly declined versus the previous year, but the recovery trend after the 2014 failure continues.

All the country’s industrial parks attracted a total of RUB1.2 trillion of direct investment in establishing new industries, namely, 2882 plants now located in the country’s industrial parks. As of year-end 2018, it was for the first time in the history of industrial parks that their occupancy rate rose beyond the half and approached 60%.

Nevertheless, the main question on the agenda of each industrial park is whether there is a potential for attracting new residents. And if there is, what are the attraction sources? Our experience of working with investors and localising production in Russia suggest that companies’ interest is shifting from searching for sites with prepared infrastructure to a more complex range of services, searching for reliable suppliers of feedstock and component parts, and finding partners ready to support the presence in new local markets. We are convinced, therefore, that our future success depends on quality upgrading, extending the list of industrial park services as compared to other sites and switching to a service model of dealing with investors.

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