Tula Oblast attracts investors and tourists

Residents of Tula Oblast have many political, historical, social, economic and other reasons to be proud of their region. More often than not, they point out three specific things that have brought their region to national prominence.

One is Yasnaya Polyana – the sprawling open-air state memorial estate and museum that once served as a residence for Leo Tolstoy. Another is the region’s place as the center of the nation’s military-industrial prowess. And, last, there’s the samovar tea kettle, with its special museum in Tula, and the tasty spice cakes that attract visitors to this oblast some 150 kilometers south of Moscow.

A long history

Tula Oblast was created in 1937, though the geographical entity has existed as a gubernatorial province since 1777 and the city goes back a lot further, according to regional Gov. Vasily Starodubstev.

"Tula, our capital, was founded in 1146 – a year of great pride for us, as it is a type of superiority over mightier and more affluent Moscow, which was founded a year later," he told The Russia Journal with pride in his moderately furnished but spacious office overlooking a Lenin monument in the city center.

Vladimir Arsyentev, Tula’s first deputy mayor, echoed this view, noting that the city is unique in Russia.

"It is a very old Russian city: It’s 857 years old," he said. "And, as the country’s oldest weapons-making center, Tula has nurtured highly educated scientific personnel for the military-industrial complex."

Arsyentev added that the region and its constituent districts, especially Tula city, have become attractive destinations for both Russian and foreign investors since the beginning of the economic and political transformations in the late 1980s.

He noted that the city administration has adopted programs with specific sections dedicated to boosting the city’s investment attractiveness to local and foreign investors. "These include upgrading existing and enacting new business-friendly legislation, reducing the level of bureaucracy in the business sector and offering some palpable concessions to businesspeople to stimulate economic activities in the city," he said.

The private sector today produces between 90-95 percent of the city’s annual industrial output and brings in up to 60 percent of the regional budget’s revenue, he noted.

Consequently, Tula Oblast is investment-friendly. It’s undoubtedly in its appropriate place among the Top 10 regions in terms of investment attractiveness, Starodubtsev said. "This is because we are always ready, both at the political and legislative levels, to use the powers at our disposal, within the limits of the law, to support investment plans by local and foreign investors." He added that this official support would enable investors to use their capital and new technologies to effectively tap the regional potential, including its highly qualified scientific personnel, for the overall development of the region.

Starodubtsev added that Tula Oblast is not a traditional Russian region. Its economy is not raw-commodities dependent, but a center of scientific, heavy and technology-intensive industrial complexes, including metals, chemicals, automobiles and military-industrial-complex factories. "To be honest, it’s very difficult for me to pick which of them today is more strategically important to the regional economy than the others."

The private sector

Like other Russian regions, private entrepreneurship is now a factor contributing to economic growth in the oblast.

The Tula Chamber of Trade and Commerce, a non-governmental organization that supports free enterprise, has 360 members, about 50 percent of whom are in the small- and middle-sized enterprise (SME) sector, said Yury Agafanov, the chamber’s president. "On the whole, these companies account for up to 80 percent of the region’s gross domestic product, or about 4-5 percent of the national budget," he added.

‘We are always ready, both at the political and legislative levels, to use the powers at our disposal, within the limits of the law, to support any investment plans by local and foreign investors.’

The chamber was founded 10 years ago to support businesses and promote their activities in the region, other parts of Russia and the world, said Agafanov.

"Specifically, it helps SMEs to find breathing space alongside bigger corporations, providing them with legal and other services that they cannot afford on their own," he said.

Agafanov said there are many major corporate investors in the region, including Procter & Gamble (P&G), which built a major distribution center in Tula for its European operations. Among Russian investors, Tatneft, one of the country’s oil majors, invested about $20 million in 2002. The volume of direct investments from both Russian and foreign sources in 2002 was in the range of $40 million-$50 million, he added.

Andrei Bader, P&G’s external-relations director for Eastern Europe, said his company’s management is happy with its investments in the region because it is one of the most economically developed in Russia and because of the openness and personal approach of the regional governor to investor issues.

"All this has led to a hitch-free execution of P&G’s investment programs, worth over $150 million in the region since 1993," he said. "Now, over 50 percent of our products sold in Russia and 25 percent on our export list are made in the region."

Igor Maltsev, the region’s director for external economic affairs, said U.S.-based companies are the region’s major foreign trading partners in terms of volume, which stood at $43.2 million, or about 5 percent of all the regional external trade in 2002.

"Of this, the volume of exports to the United States was $40.7 million, while imports from there were $2.5 million," he said.

Problems in the region

Despite the rosy picture painted by officials, private businesspeople, however, told The Russia Journal that myriads of problems still hamper free entrepreneurship in the private sector.

Agafanov listed outdated production facilities, lack of adequate protection for investors and the strong presence of the regional government in the economy as factors slowing economic growth. "Replacing and overhauling old facilities, as well as purchasing second-hand machinery from abroad, would be a way out of the dilemma," he said.

Agafanov also said that the government’s presence in the regional economy does not allow investment to flow freely into the area. To overcome this, he called for large-scale de-bureaucratization and privatization of the regional economy to make it more attractive to investors.

Vladimir Mikhailovski, director of the Tula House of Science and Technology, said that maintaining the current political and social stability and improving the economic situation will further boost the investment potential of the country in general and Tula Oblast in particular.

"This will increase the region’s attractiveness to foreign investors, who will now make more commitments to the country, including Tula Oblast, knowing that their capital will be well-protected at all levels," he said.

Konstantin Fridzon, general director of Demidovsky Style, a Tula financial-industrial group, said U.S. companies are less active in the region than their European colleagues and called on them to invest more in Russia.

As a positive example, he cited Austria, which runs an Austria-Russia program financed by the European Union to teach young Russian business managers and, later, take them to Austria to see the practical implementation of their knowledge in companies there.