Russia: Crimea Struggles To Attract Private Investment

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Crimea is proving toxic for private investors. On paper, capital expenditure has shown growth, but the driver of such growth appears to be Kremlin subsidies.

Foreign investors, and even major Russian private companies, are shunning the peninsula, publicly available statistics indicate. Also, outside entrepreneurs are complaining about unfair treatment by local authorities, and are giving up on Crimea.

On paper, investment in the peninsula seems decent enough. The investment web portal of the so-called Republic of Crimea states the total value of existing investment projects is 134.4 billion rubles, or about $2.27 billion USD. (Complete data for Sevastopol, which is not part of the Republic of Crimea, is not available). At an expo in Yalta in 2016, authorities reportedly inked 12 agreements worth 70 billion rubles ($1.18 billion USD), and at a forum in Sochi two more investment deals worth 9.5 billion rubles ($160.6 million USD) were signed.

But all these figures are hypothetical. The documents signed in both Yalta and Sochi were preliminary in nature, and the projects described in them may never be realized.

According to the latest available data for January-September 2016, 18.8 billion rubles (over $320 million USD) was invested in the Republic of Crimea, representing a 43.5 percent increase over the same period the previous year. Sevastopol reportedly received 6.9 billion (roughly $120 million USD) in investment, a 21 percent increase year-on-year for the reporting period.

But gaps in the data raise questions. For example, the 18.8 billion rubles supposedly attracted by the Republic of Crimea during the first three quarters of 2016 represents only 39 percent of the reported investment total for all 2015 (47.6 billion rubles). Fourth-quarter figures for 2016 have not yet been published, but few observers believe the investment figure is high enough that 2016 can match the previous year’s performance. Incomplete data for Sevastopol means that an accurate year-to-year comparison is not possible.

The official statistics encompass investment from all kinds of commercial entities, including state-run enterprises and entities funded at public expense. The Kremlin provides substantial funds to various investment projects on the peninsula, but its capabilities have recently decreased due to recession, foreign sanctions, declining revenue due to lower global energy prices and the declining value of the ruble.

Among the largest investment projects in the Crimea is the construction of a new terminal at Simferopol airport worth 32 billion rubles (roughly $540 million USD). The project is in full swing at the moment, yet it appears to be funded mostly with government money. The primary funders are the bank Rossiya, which is close to the Kremlin, as well as the state-controlled Russian National Commercial Bank (RNKB). Funds are also coming directly from the Republic of Crimea’s budget.

A specific breakdown for private-sector investment in Crimea is not readily available. There are indicators, however, that private investment is lacking. According to the investment web portals of the two regions, for instance, the total number of proposed investment projects in the Republic of Crimea is 441, but investors are listed only for 123 projects. In Sevastopol, there are two projects with investors, while another 19 still remain without funders.

In addition, Crimea appears to have gained a poor reputation as an investment destination. Some private investors from mainland Russia who have tried to enter the Crimean market say they were exasperated by myriad hassles.

Yury Rovinsky, a St. Petersburg entrepreneur, is among the disenchanted. In 2015, he said, he tried to put together a large deal to reconstruct the port of the town of Feodosia, a project that would have included the construction of an oil terminal. Ultimately, Rovinsky told, he decided to walk away from the project due to “a complete lack of understanding” on the part of Crimean authorities.

“Verbally, they welcome investors, but in fact they serve as a complete stopper,” Rovinsky said. “Everything is done either through the insiders, or for yourself. And not for the benefit of the business.”

“I constantly faced hints and suggestions to organize various kinds of corruption schemes,” he added. “In general, one should wait until everything settles down with the government. Now it is incomprehensible.”

Editor’s note: Alexander Alikin is an independent journalist based in Crimea.

Article by Alexander Alikin, EurasiaNet

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