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Economic development of the Republic of Karelia in 2005

  Results of 2005

  Economic Policy


  Productive Industry



  Inter-Regional Cooperation

  Natural Resources
  and Ecology


Economic Policy and Status of Productive Industry

Priority directions of the state policy in the sphere of production of goods, in the field of finance and social sphere are formulated in the Concept of Social and Economic Development of the Republic of Karelia in 1999-2002-2010 which defined the basic strategic purposes and problems of social and economic development of the republic.

According to the Concept, the following economic programs are implemented in the republic: on development of mining and timber complexes, investment and industrial policy, support of small business, improvement of ecological conditions, etc.

Support of industrial enterprises of various branches that are the basic tax bearers is carried out purposefully; active work on attraction of investments directed on updating of production assets, purchase of modern technologies is caried out; measures are taken for expansion of export potential of the republic.

In 2003 the Government of Karelia has defined certain ways of maintenance of growth of industrial production in the context of branches and kinds of production, including both actions on creation of conditions for growth of economy, and achievement of its target reference points by 2006 (by 30% on the industry as a whole to the standard of 2001). Now almost all actions are fulfilled, stable growth of production in basic sectors of economy is provided.

The Government of the republic leads work on estimation of the potential of growth and increase of competitiveness of existing productions, search of proved investment, innovative ways of maximal increase of the total regional product by 2006-2010-2015.

Investment Policy and Support of Entrepreneurship

In 2002 the Government of Karelia has declared attraction of investments and increase of investment appeal of the republic the basic economic priority.

Implementation of the Investment Policy of the Government of the Republic of Karelia for 2003-2006 program brisked up investment activity in the republic that promoted growth of economy. Today it is possible to approve, that the economy of Karelia has investment attributes of development. orrelation of volumes of investments to the total regional product has made 21% that corresponds to the optimum level of the "investment corridor".

In 2002-2005 investments into fixed capital in the republic have made 47,7 billion rbl., that more than twice exceeds the volume of investments in 1998-2001 (18,9 billion rbl.). In 2005 the volume of investments achieved 14,7 billion rbl., that in a comparable estimation 1.2 times exceeds the standard of 2001. The share of investments into branches of the real sector of economy grows.

In the general structure of investments with regard to sources of financing the share of the external (involved) sources exceeds the share of own means of enterprises. Such tendency is basically supported due to essential growth of the share of bank credits: from 4% in 2001 to 20% in 2005. Foreign investments have increased from $41,7 million in 2001 to $74,5 million in 2005, or 1.8 times.

For the last few years the Government of Karelia orked on direct attraction of investments into the economy, support and implementation of specific investment projects. In 2004 the working group under direction of the Prime Minister of the Government of the Republic of Karelia for assistance in attraction of investments has been formed. In 2004-2005 25 sessions were held where 42 investment projects were considered. Specific help was rendered to investors in implementation of their projects.

The database which now includes more than 130 investment projects on different stage of implementation has been generated. These projects make so-called "points of growth", presented in the regional and branch context.

Pursued by the Government of Karelia policy of "open doors" stimulated investment activity, first of all, due to receipt of investments from beyond the boundaries of the republic. Most actively investments into economy of Karelia are made by such large domestic companies, as Russian Railways, Inc., Gazprom, Inc., Northwest bank of the Savings Bank of Russia, SUAL and Severstal holdings, foreign concerns Stora Enco and IKEA.

In 2002-2005 in the republic there had been implemented more than 50 large and small projects. Among the most successful commercial projects of these years it is possible to mention the following:

  • in a timber industry complex: reconstruction of woks: modernization of continuous cooking N4, box factory, paper-making machines N9 and N10, installation of a sack line at Segezha Pulp and Paper Mill, Inc.; construction of a thermomechanical pulp shop and start up of the paper-making machine N10 at Kondopoga, Inc.; construction of a factory producing woodchip boards in the settlement of Pindushi of Medvezhiegorsk district at Karelia Woodchip Board, Inc.; construction of a saw-mill in the settlement of Impilahti of Pitkäranta district at Stora Enco concern; modernization of furniture production at Karelskaya Sosna, Ltd., with participation of IKEA concern; reconstruction of works of Pitkäranta Pulp Mill, Inc.;
  • in mining complex: building of road metal works Lobskoye-5, Ltd., development of gabbro-diabase quarry (Prionezhsky Gabbro-Diabase, Ltd.), reconstruction of grinding and sorting complex (Sortavalsky Grinding-Sorting Factory, Inc.), construction of road metal factory and development of Raikonkoski Quarry, reconstruction of Pudozh Quarry, Ltd.;
  • in engineering industry: expansion of manufacture of electric wiring for motor industry and electronic products EMS at Karkhakos, Ltd.; creation of the enterprise assemblying and rendering after-sales service to modern logging equipment (Harvi Forester, Ltd.).
  • on transport: construction and commissioning of the "Petrozavodsk - Kondopoga" gas-main pipeline; construction of boats of Karelia type equipped with modern radio-navigation aids; electrification of Octyabrskaya railway - Sumposad-Malenga and Idel-Svir pieces of line (Russian Railways, Inc.);
  • in social sphere: construction of the Ice palace and a sports complex in Kondopoga (Kondopoga, Inc.), construction of the Martsyalnye Vody medical-improving center (Dvortsy hotel), reconstruction of Karelia hotel and Kivach sanatorium(Karelnerud group of companies), construction of a new country tourist complex Aleksandrovka Village, etc.. A great attention was paid to information and analytical work with investors, increase of investment appeal of the republic, in particular:
  • in 2004 brochure Republic of Karelia for Investors was prepared and published, in 2005 the brochure was modified and republished, also in English;
  • presentations of investment opportunities of the republic were prepared. In 2004 presentations took place in the Consulate General of Canada (St.-Petersburg), in the USA (New York), in Finland, in Petrozavodsk - for a group of Russian businessmen. In 2005 the most significant presentations passed in Moscow (for the 85 anniversary of Karelia), in St.-Petersburg, in the Government of Finland, in Germany, in Austria;
  • work on development of a Republic of Karelia for the Investor WEB-site and monthly actualization of information on it was carried out. Presentation of the site took place in December, 2003, by the beginning of 2006 more than 9,6 thousand visitings were registered on it.

In 2004 an investment forum of the Northwest federal district Tools of Financial Market for Development of Enterprises: Real Experience and Problems was prepared and held.

The republican legislation in the field of investment activity was improved. The law of the Republic of Karelia On State Support of Investment Activity in the Republic of Karelia is passed having defined kinds and forms of state support rendered to investors implementing investment projects in the republic, order of granting state guarantees to investment projects and allocation of means of the budget of the Republic of Karelia for financing of investment projects.

For the period from 2002 to 2005 341 million rbl. was allocated from the budget of the Republic of Karelia for financing of investment projects selected on a competitive basis. Addressees of budgetary credits were 26 enterprises implementing investment projects in priority branches: wood-processing, tourism, agriculture, food production, etc..

Alongside with preferential crediting to the investors implementing investment projects in territory of the republic, tax privileges are given regarding shares entered in the account of the republican budget.

In total for the period from 2002 to 2005 15 investment agreements on granting tax privileges to investors within the investment preference conditions have been concluded. Now implementation of 9 investment agreements proceed. The planned volume of investments according to projects makes 5942 million rbl. Settlement budgetary efficiency as a whole for periods of their implementation is expected to be 4012 million rbl. As a result of implementation of projects by investors it is planned to create more than 2,2 thousand new workplaces.

As a result of consecutive work of the Government of the Republic of Karelia with federal bodies of the government within 2002 it was possible to involve significant means from the federal budget (more than 5,5 billion roubles) for implementation of actions of federal target programs and the federal address investment program in the territory of the Republic of Karelia. Specified means were spent for restoration and preservation of monuments of cultural heritage (Kizhi open-air museum and objects of Valaam archipelago), construction and reconstruction of objects of culture (National theatre, the Museum of Fine Art, historical buildings on Kruglaya (Round) Square in Petrozavodsk), objects of education, public health services, physical training and sports, development of the transport infrastructure (reconstruction of the White Sea - Baltic channel), housing and road construction, and other purposes.

With a view of creation of favorable environment for small business changes have been made to the Law of the Republic of Karelia On State Support of Small Business in the Republic of Karelia, normative documents defining the order of carrying out of competitions and reception of budgetary funds for support of small business were prepared. The Government of Karelia developed programs of state support of small business within which scope assistance to formation of corresponding infrastructure was provided.

For the period from 2002 to 2005 actions of programs of state support rendered to small business are financed from the budget of the Republic of Karelia to the anmount of 8,5 million roubles, that is 4.3 times more, than for the period from 1998 to 2001.

In 2003-2005 by results of competitive selection budgetary financing have been received by about 40 investment projects of subjects of small business directed on development of fish industry, tourism, food-processing industry, wood-processing, communication, construction and other kinds of activity. The volume of budgetary crediting according to projects makes more than 150 million roubles.

Since 2004 the Cooperation agreement between the Government of Karelia and Russian Bank of Development, Inc., is realized under the Program of crediting of subjects of small business within which scope the bank Onego in 2004-2005 has given 33,2 million roubles of credits to subjects of small business. The Board of Guardians of the Fund for Support and Development of Small Business in the RK from 2002 to 2005 on a competitive basis selected investment projects for financing and has given out 9,5 million roubles of loans.

Through the Karelian leasing company in 2002-2005 small enterprises purchased equipment which cost made 20 million rbl.

At the support of the Government of Karelia there have been published Small Business of Karelia and Directory of the Head of a Small Enterprise of Karelia in which information on small business in the republic, successful representatives of small business, and the list of normative legal base is provided. In 2002 the Government of Karelia and representatives of public entrepreneur structures signed the Memorandum of interaction of business and authority, providing close cooperation in various spheres of small business.

In 2005 there has been gathered a Small Business Council at the Government of the Republic of Karelia which is called to solve tasks of coordination of activity of enforcement authorities of the republic and public organizations of businessmen at forming and following the uniform policy directed on support and development of small business, including overcoming of administrative barriers.

In 2003-2004 there have been held an international conference Experience of Small and Medium Business Support and Development in the North Europe and a scientific and practical seminar Northwest Russia: Problems of Transition to the Innovative Development.

In 2005 due to modification of the current legislation the State noncommercial establishment Fund of Support and Development of Small Business of the Republic of Karelia was created.

As a result of measures taken by the Government of Karelia in the field of state support rendered to small business, for the period from 2002 to 2005 the number of small enterprises has increased from 3601 to 4628, volume of production they made has grown from 7,1 billion rbl. to 12,2 billion rbl., volume of investments has grown from 44,2 million rbl. to 240 million rbl.

However, despite of active state support, the level of small business development in the republic remains unsufficient for formation of highly effective economy. Essential disproportions in development of the small business sector in districts of the republic are observed that testifies to insufficient attention of local authorities to problems of creation of favorable business environment.

For the further work in this direction there has been developed the Branch Target Program of State Support of Small Business is in the Republic of Karelia for 2006-2008. For its implementation it is supposed to allot 34,3 million roubles from the budget of the Republic of Karelia, including 8 million roubles in 2006.

The system of program actions for 2006-2008 includes such additional measures, as:

  • organization of becoming and development of industrial and innovative infrastructure directed first of all on development of system business-incubators in the republic, in particular, it is supposed to create a State Department Business Development Center of the Republic of Karelia;
  • indemnification of the rent rates' share to starting subjects of the small business renting premises in business-incubator for implementation of their investment projects;
  • subsidizing subjects of small business of a share of the investment credits's interest rate.

Thus, the policy of the Government of Karelia in the sphere of state support of small business is improved constantly according to tasks of social and economic development of the republic.

Technical support
Created: April 10, 2006. Last updated: May 8, 2006.
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