May 1998

by Rachel Freeman

Novgorod is traditionally called "Veliki," the Great, in recognition of its role as a historic center of Russian life and culture. The historic title is gaining new luster as Novgorod is increasingly recognized as one of Russia's most attractive locations for foreign investment. This recognition comes not only from U.S. and other foreign companies, which have invested more than $490 million dollars in the region ($96 million in 1997), but also from the U.S. and Russian governments, which have designated Novgorod Oblast as a key focus for their "Regional Investment Initiative."

Novgorod the Great, a region of less than one million people previously known mainly for its history and monuments, regularly places in the top ten regions for trade and investment. The reason is not great mineral resources, nor a powerful industrial base Novgorod has neither but rather, the no-nonsense, pro-business attitude of its business and political leaders.

Foreign Investment
During Soviet times, Novgorod's economy relied heavily on the manufacture of electronic equipment for the military. Due to massive cuts in Russia's defense budget, the region has had to diversify its economic base. In the process, it has become a major importer of foreign and domestic capital and a serious exporter of successful products and ideas.

Foreign companies have been drawn to the oblast because it is an easy place to do business. From Arthur Andersen, which has advised the regional administration since the early 1990s, to AlphaGraphics, the latest U.S. company to begin operations there, foreign companies praise Novgorod for its forward-looking local businesses and the ease of working with the regional government. Mary Pat Sloan of Alphagraphics, a franchise copy center business, says, "My lease in Moscow is 60 pages long, and took months to negotiate; my lease in Novgorod is a page and a half and was developed in a day." Kristin Chernenko of Opportunity International, a finance company serving small business, observes that her organization cut its "product-to-market" time by six months in Novgorod because of the "Team Novgorod" program, which assists companies planning investment in the region. Peter Knauer, Commercial Director at Cadbury, Novgorod's largest foreign investor, notes that in his experience, foreign investors in Russia are viewed by many "as cows that can be milked by all; Novgorod took a different approach. In Novgorod, businesses are allowed to grow and prosper, before they are taxed."

Food processing is one of the oblast's strongest industries, and is attracting major investment from both foreign and domestic companies. Cadbury ($155 million investment) and Stimorol ($100 million investment) are the names most often connected with Novgorod, but Dovgan, a major Russian food processor and distributor, and Moscow's meat processing operation Cherkizovski Zavod, have also selected Novgorod as regional operations centers.

While larger U.S. companies have been slow to enter the region, small and medium-sized businesses have found their way to Novgorod. Genesee-Volkhov Connection, a U.S.-Russian joint venture financed by The U.S.-Russia Investment Fund, has opened eight photo labs in Novgorod. U.S. multinationals are opening smaller ventures in Novgorod, as well. Dresser Industries Controls & Valve divisions recently formed a $450,000 joint venture with Splav, a Novgorod manufacturer, to produce two Dresser valves in Novgorod.

Although the regional government actively courts prospective strategic investors, it recognizes that small business is the principal engine for economic development and job creation. As far back as the early 1990s, Novgorod provided seed capital for a high-tech innovation center and an equipment leasing firm specifically for small business. Novgorod, whose government promotes it as Russia's "Proving Ground for Experimentation," will also be the testing site for innovative real estate and other taxes.

U.S. Government Support
The U.S. and Russian governments selected Novgorod for their "Regional Investment Initiative," which was launched in Novgorod by the Gore-Chernomyrdin Commission. Through the RII, a number of U.S. Government agencies are working with the private sector to promote economic development and spur increased trade and investment. The program includes land reform; development of a secondary real estate market; debt and equity capital for small business; assistance for educational institutions in the areas of business, government, and law; investment promotion; and increased grassroots ties between U.S. and Novgorod business and non-governmental organizations. The RII has an office in Novgorod which serves to coordinates US government programs active in the oblast. For more information, call 7 (8162) 132-238, fax 7 (8162) 278-051, send e-mail to riinov@telecom.nov.ru, or visit the Novgorod RII website at www.RII.Novgorod.com.

Rachel Freeman works for the State Department in Novgorod.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)