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Investment potential of the Republic of Karelia

Economic policy of the Government of the Republic of Karelia is described by documents of strategic planning adopted in the republic: the Strategy of social and economic development of the Republic of Karelia through to 2020, the Concept of social and economic development of the Republic of Karelia for the period through to 2012 and the Program of economic and social development of the Republic of Karelia for the period through to 2010. Priority branches are defined as follows: transport infrastructure, power engineering, timber processing complex, mining, ferrous and nonferrous-metals metallurgy, fishery, tourism.

The republic possesses a number of advantages which combined with the task-oriented investment policy of the Government of Karelia increase its investment opportunities. These are:

  • rich natural resources and real opportunities for their advanced local processing: forest resources (937 million cubic meters), mineral resources base including 400 proven territories containing 50 kinds of minerals, water- and bioresources;
  • unique northen nature combined with rich cultural and historical heritage;
  • substantial scientific personnel and innovative potential;
  • frontier location of the republic (extent of the border with Finland makes 798 km) making it possible to develop industrial cooperation and use transit opportunities;
  • transit transport prospects and outlets of water system to the southern and northern seas and the Baltic.

The Republic of Karelia is classified as one of the industrial, export-focused constituents in the Russian Federation.

The industry providing 32% of production of goods, works and services plays the leading part in structure of economy of the Republic of Karelia. Essential place in total amount of the turnover of the republic belongs to manufacturing activities (16%), extraction of minerals (12.3%), transport and communication (15.6%).

At a relative density of 0.5% in the total number of population of Russia, to the share of Karelia there falls about 27% of volumes of Russia's iron-ore pelletizing, 24% of apaper made in Russia, 71% of paper sacks, 4% of commodity cellulose, 7% of industrial wood, 4% of converted timber, 70% of Russian cage trouts are bred in the Republic of Karelia.

Economy of the republic is export-focused. In total amount of industrial production the share of export makes about 50%. Within the period from 2002 to 2008 there has been observed a tendency to growth of foreign trade turnover. As a tradition, Karelia's main partner in foreign trade activities is Finland (almost 30% of foreign trade turnover).

The primary factor of economy development in the republic are investments and carried out institutional transformations.

The principle of openness to external investors, both home, and foreign, has formed a basis of the implemented program of Investment Policy of the Government of the RK in 2003-2006. Within these years in the republic it has been implemented more than 60 large and medium commercial investment projects.

Among the large Russia's partners investing their funds in industrial and infrastructural projects there are SUAL, Severstal, Gazprom, JSC Russian Railways. Large investments were made by Karelian enterprises: Segezha Pulp and Paper Plant Inc., Kondopoga Inc., Karelia DSP Inc. Foreign investors work actively: Stora Enso, PKC Group, IKEA.

In 2007 the there have been approved the Basic Directions of Investment Policy of the Government of the Republic of Karelia in 2007-2010 which chief aim is defined as achievement of favourable investment prospects of the republic, its territories in the aggregate and kinds of economic activities. The major tasks set by the Government of the Republic of Karelia is strengthening of coordination of activity of institutions of local government, territorial federal and republican executive authorities on activization of the investment process in the region, perfection of regulatory and legal framework, development of investment project support system, investment and innovative infrastructure, increase of efficiency of budgetary investments, information support of investment activity, assistance in development of business environment.

In 2008 investments in the fixed capital have exceeded 26 billion roubles with almost 23% growth to 2007.

Progressive advance of the republic is confirmed by results of the rating made by the Fitch Ratings international agency. Forecast on the Long-term and Short-term local and foreign currency ratings of the republic on the international scale and the Long-term rating on the national scale is confirmed as Stable. Innovative reorganization of economics of the republic is impossible without creating innovative institutes and corresponding infrastructure.

This direction is actively supported by the Government of the republic. In cooperation with the Ministry of Economic Development of the RK there actively operate two Technology Transfer Centers on the basis of Petrozavodsk State University and Karelian Research Centreof the Russian Academy of Sciences.

Formation of innovative system in the Republic of Karelia is carried out as due to growth of the number of enterprises producing innovative products, and due to activity of organizations aimed at technologies' transfer from without.

At the 14th exhibition congress High Technologies. Innovations. Investments in St.-Petersburg exhibits and projects of Karelian innovators have received the top prizes. In the republic there has been formed a good base of regional legislation on investment activity. The law On the State Support of Investment Activity in the Republic of Karelia is put in practice; according to it investors disregard of organizational and legal forms and patterns of ownership are granted the most favored nation status when they implement investment projects in territory of the Republic of Karelia which provides:

  • granting regional tax remissions (property tax), and federal tax remissions regarding the share included in the budget of the Republic of Karelia (profit tax);
  • granting state guarantees of the Republic of Karelia regarding investment projects out of proceeds of the budget of the Republic of Karelia on a competitive basis;
  • allocation of funds of the budget of the Republic of Karelia on a competitive basis for granting subsidies for partial compensation of interest payment expenditures on credits involved to finance the investment projects.

For all investors registered in territory of the republic the Government provides creation of investment-conductive environment. It assumes transparent, favourable and predicted operating mode of enterprises with tax, control, law-enforcement and other state bodies.

Government of the republic pays great attention to formation of economic and social infrastructure, understanding that it is the basis for economy development and raising of living standards. The basic tools here are federal and republican budgetary funds. Over 2 billion rbl. is drawn annually in the republic through federal and republican target and address investment programs.

In the intermediate- and long-term period it is supposed to involve significant volumes of investments in the republic due to implementation of large branch and corporate investment programs in fuel-and-energy, timber processing, mining, agroindustrial complexes, transport and in the sphere of tourism.

One of the key factors of investment development of Karelia is modernization of electric power industry. Therefore, within the scope of implementation of Programs of prime measures of JSC FGC UES and Karelenergo, Inc., much attention is paid to new construction and reconstruction of electric grid objects of the Uniform national electric system and electric grid objects with voltage of 35 kilovolt and more located on territory of Karelia.

Construction of a new transmission line by a pressure 330 kilovolt is conducted in parallel to the existing high-voltage 330 kilovolt line Kola Atomic Power Station – Kirishi State District Power Station. According to the Cooperation agreement in the field of electric power industry between the Government of the Republic of Karelia and Nord Hydro Joint-Stock Company in 2008 there has been launched the project of regional value on reconstruction and building of 46 small hydroelectric power stations in various regions of the republic. From 2008 to 2015 in this sphere it will be invested almost 4,5 billion roubles. In 2010 it is planned to put into operation the reconstructed 4,7-megawatt hydroelectric power station in the settlement of Läskelä.

According to the Agreement with TGK-1, Inc., in territory of Petrozavodsk urban district in 2008 there has been launched the investment program for development of Petrozavodsk heat supply system spanned through to 2015. General reconstruction of Petrozavodsk thermal power station is planned by means construction of additional power unit and reconstruction of the main thermal power system. The volume of investments in 2008-2011 will make 3,5 billion roubles.

In the sphere of railway transportation development Government of the republic annually concludes the agreement on cooperation with JSC Russian Railways. Pursuing a course towards modernization of infrastructure of railways in Karelia has been implemented consistently for several years. At the support of republican authorities railwaymen have carried out electrification of the basic course of the railway from St.-Petersburg to Murmansk. In 2008-2011 the Octyabrskaya Railroad Branch of JSC Russian Railways invests in economy of the republic more than 2,5 billion roubles. There goes preparation for implementation of the new large investment project on expansion of railway traffic in Karelia. The new project of Octyabrskaya Railroad means construction of a continuous second railwayline, and, if necessary, the third line including all the associated kinds of works: additional electrification, communication, new stations, etc. Total cost of the project exceeds 17 billion roubles. It will make it possible to extend the transit cargo traffic from the east areas of Russia to the countries of Scandinavia, as well as to accelerate rates of cargo transportation for enterprises of Karelia and develop new industrial platforms. Among the prospect joint plans Government of the republic and JSC Russian Railways also discuss opening of high-speed railway communication between Petrozavodsk and St.-Petersburg.

In 2008 there has been launched the project of Belomorsk Commercial Sea Port construction which implementation will make it possible to admit vessels of up to 30,000 tons displacement and to provide the shortest access to Northern Europe for regions of the Urals, Siberia, Kazakhstan, Central Asia and China. Perspectivity of construction of the new deep-water port is caused by creation of North-South and Northwest – Ural Mountains – China transport corridors and need to increase volumes of cargo transportation along the Northern Sea Route. Creation of modern transshipment center will make integration of Belomorsk seaport into the transnational transportation chain seamless.

Expansion of connections of the republic with the countries of Northern and Western Europe in the sphere of industry, tourism, culture have caused the necessity to improve the air transportation in the region and, first of all, the Petrozavodsk airport. To keep the international status of the airport there has been carried out its reconstruction.

Natural resources of the republic make a basis of its investment potential. In our opinion, potential investors should pay attention, first of all, to amended resources which the republic is rich in. These are forest resources, subsoil resources, water- and bioresources. Allied with certain advantages of geographical location of the republic concerning developed transport infrastructure, moderate risks and other favorable factors, development and processing of amended resources create a steady base for long-term business development.

In a traditional for economy of the republic timber processing sector in recent years there has appeared a number of new large wood-processing enterprises. These are a saw mill in Pitkäranta region (Setles Ltd.); wood-processing enterprise in Kostomuksha (Swedwood Karelia Ltd.); Solomennoye saw mill in Petrozavodsk, etc.

More than 30 large investment projects under implementation now in timber processing complex.

Among the most significant projects there are the following:

  • Modernization of pulp-and-paper enterprises of the republic (Kondopoga Inc., Segezha Pulp and Paper Plant Inc., Pitkäranta Inc.);
  • Construction of IKEA solid wood furniture production;
  • Complex development of deep processing of timber (Investlesprom Joint-Stock Company).

One of the main tools to involve investments into timber prosessing complex stipulated by the new Forest Code became an opportunity to attach the status of priority investment projects in the field of forest development to the enterprises' projects.

A perspective direction concerning introduction of high technologies in the sphere of deep processing is development of glulam production.

Extraction and processing of nonmetallic minerals draws attention of investors. Production of road metal has been growing and developing successfully in the republic since 2004, a number of modern hi-tech crushing-and-sorting complexes have been put in operation.

Besides, in the republic there are a lot of mineral objects perspective for development that have not found their investors yet.

One of the most perspective projects of the future which because of its scales may be called a megaproject is Pudozh Megaproject combining several mining and smelting projects.

The offered project includes geological studying, investigation and industrial development of Pudozhgorsky deposit of titano-magnetite ores, Aganozersky deposit of chromic ores and Shalozersky deposit of chrome-copper-nickel-platinum ores of Burakovsky massif, as well as creation of some large industrial productions on their basis.

The project costs about 100-120 billion roubles and demands use of mechanisms of public-private partnership in the sphere of infrastructure construction and involvement of funds of the budget of republic and those companies which participate directly in implementation of projects, as well as funds of power and railway companies also interested in promotion of their services.

Other mineral objects of the republic interesting for investors are objects of industrial minerals and technogenic deposits.

In Karelia there are 13 deposits and 115 occurrences of diatomites assured. Diatomites of Karelia consist of diatoms, siliceous skeleton shells of microscopic seaweed, laying at the bottom of small lakes. Due to their properties, diatomites can be used as adsorbents, filters, carriers of chemical preparations, filling agents, thin abrasives in industry and agriculture. Stocks are estimated to make 5 million cubic meters, expected reserves are measured as 250-300 million cubic meters.

Garnet ores of the North of Karelia can be used to produce abrasive cloth (for woodworking), grinding grain (polishing of kinescope details), filtrational grain (filtration and bactericidal processing of potable water). Abrasive cloth was made at the pilot abrasive development plant in St.-Petersburg on the basis of the Karelian garnet product and have successfully tested at Ladoga furniture factory.

In the immediate prospects it is planned to conduct supplementary exploration of deposits with organization of pilot extraction. The volume of extracted ore mass can be considered at the level of 2-2,5 thousand tons a year that provides garnet concentrate production at the level of 300 tons a year. Concentration can be carried out on a modular unit. Typical units are produced by home industry and abroad.

It is remarkable, that there is no other deposits of garnet ores in territory of Russia.

Within the past decade a great demand for strategic raw material has been growing in the world, especially for pure quartz to use in fibre optic communication lines. The research has shown that Karelia is a perspective region of Russia to produce especially pure quartz.

Disthene (blue talc) is a perspective raw material for production of refractory materials. At comparative tests in the All-Russian Scientific Research Institute of Aviation Materials, Moscow, it was established that ceramic forms made of Karelian disthene for moulding of turbine buckets for plane and rocket engines after roasting at 1060°С possess sufficient durability, three times surpassing durability of similar materials where Ukranian disthene-sillimanite was used.

Hizovaara deposit of disthene ores concerns to industrial raw-material base of high-alumina rocks of Russia. This object is the most prepared for development. No deposits of disthene are developed in Russia now.

Anorthosites of Karelia is a new nonconventional for Russia sort of feldspar raw material. Received during concentration, feldspar concentrate after coarseness classification may become raw material of universal purpose. It is used in production of china and crockery, glass products, such products of building ceramics as fluxes (fusing agent), and other directions.

Precomputations of probable reserves show its sufficiency for organization of extraction with annual quarry production rate of 100,000 tons and more.

Nonstaining micas-muscovites of Karelia is a new type of pure industrial minerals. Ores of this type, due to low content of iron impurity and high technological properties of muscovite, are a unique sort of raw material for production of pearl pigments. There are no analogues of it in Russia.

Fine-sized muscovite it is used in electronics, production of paints and varnish, wallpaper, cosmetic, rubber products, as well as for special technology at production of polymers and pigments.

In Karelia there is a number of occurrences of talc and the only in the European part of Russia Svetlozersky deposit of talc. Some types of ore are suitable as talc stone, others can be used for production of talc and microtalc.

Organization of cement production is possible in Karelia. By results of exploration within the borders of Tikieozersky massif there have been revealed apatite-bearing carbonatites being of interest as industrial raw material. There is a geological-and-technological-and-economic assessment of complex use of carbonate rocks of Tikieozersky massif. The local mining technological unit includes a quarry, a concentrating factory producing apatite and calcite products, as well as mica and magnetite and a cement-producing factory.

The deposit is located in the north of the republic, close to a railway station.

Stocks of carbonatite ores are estimated to make 52 million tons. There are additional poorly-assessed resources. Organization of cement production will considerably reduce its sharp deficiency in the Northwest Federal District.

Karelia is a perfect place for trout cultivation. Lakes of the republic are featured for necessary ecological purity that initially assumes high quality of fish products. However, the main thing is the optimum temperature conditions for trout breeding. Trout breeding today became the most dynamically developing branch of economy of the republic.

Coast of the White sea has significant potential opportunities for accommodation of trout farms. Scientific researches confirm that cultivation of trout in the sea environment has a number of advantages compared to fresh-water cultivation.

An important direction of development of industrial aquaculture of the Republic of Karelia is cultivation of mussels, extraction and processing of seaweed. Plantations at the White Sea now reach the area of 15 hectares. Raw stocks of the seaweed are estimated at the level of 50% of general admissible volume of extraction on the White Sea.

There is a potential opportunity to produce agarose used in genic engineering and pharmacology (for production of antibiotics, vaccines and other products). This kind of bioresources of the White Sea remains unclaimed so far, as therev are no domestic manufacturers of agarose in Russia.

Perspective objects of investment are also production of forages and seeding; construction of fish processing capacities.

Of course, one can't but associate the land of midnight sun and thousand lakes with tourism. Unique northen country allied with cultural and historical originality define exclusive tourist and recreational potential of the republic. Our republic is one of the most famous Russian territories in the sphere of international tourism due to presence of unique architectural, cultural and historical objects on islands of Kizhi and Valaam inscribed on World Heritage List of UNESCO.

Karelia is on the first place for Russian tour operators on its attractiveness for adventure holidays, and on the third – for winter rest among Russians.

Essential progress in development of material resources of tourism in Karelia was observed in 2004. Active efforts of Karelian businessmen directed on strengthening of tourism infrastructure have received development as a result of arrival of large external investors.

Nevertheless, does not seem to be possible to satisfy a great demand for visiting the republic. Development of tourism infrastructure of the Republic of Karelia represents a significant niche perspective for investing.

Among the basic segments of economy of the Republic of Karelia where there is a demand and need for production we may mention several spheres for investments:

  • deep processing of deciduous wood;
  • production of logging equipment (analogues to foreign forwarders and harvesters);
  • production of furniture;
  • introduction of new capacities for generation of electricity and development of power transmission lines;
  • production of building materials (heat insulation, trim stone, etc.)
  • innovations (development of the sphere of nanotechnologies, electronics and robotics, biotechnologies);
  • output of products of mechanical engineering;
  • development of deposits of uncommon types of commercial minerals: quartz, schungite, garnets, mica;
  • production of consumer goods;
  • construction of fish processing capacities;
  • production of fish forages and seeding;
  • use of bioresources of the White Sea: cultivation of mussels, extraction and processing of seaweeds;
  • industrial processing of berries, mushrooms, etc.
  • development of tourism infrastructure.

In the republic there has been generated about 30 investment projects and proposals offered for investment in the amount of more than 150 billion rbl. including: Pudozh Megaproject; construction of deep-water commercial sea port in Belomorsk; construction of downhill-skiing balneological resort of Spaskaya Guba; creation of the enterprise producing eco-houses; complex site development of Drevlyanka-II residential area in Petrozavodsk; production of mineral wool board, etc. Besides, there are more than 100 investment площадок for accommodation of various manufactures. This and other information is available on the site The Republic of Karelia for Investors.

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Created: March 23, 2010. Last updated: March 25, 2010.
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