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12 Mar, 2008 05:02

Could ‘money indigestion’ kill St. Pete?

Russia's northern capital Saint Petersburg is cashing in on Russia's economic boom and is becoming a preferred destination for major investors. Local business is flourishing, but some experts warn that the city may become a victim of its own success.

For the past three years the growth of the region’s economy has outpaced the already impressive rates across the country. St. Petersburg has become a hub for Russia’s emerging IT industry and it’s also become the car making capital of Russia.

There are also prestige projects. A naval base which was rundown has become a multi-million dollar Norman Foster urban regeneration project. Eventually a shopping centre and an all-year 3500 seat amphitheatre will be included.

Despite sinking hundreds of millions of dollars into the project, investors have little fear.

Aleksandr Shimberg, the project’s Public Relations officer, says they can’t see any risks in the short term. “Anything could happen in the wider world, but we think that Russia in particular is a profitable and convenient place to invest,” he notes.

But Economist Vadim Volkov believes that in some cases local authorities are misdirecting Russia’s newfound wealth:

“Back in the 1990s there was insufficient investment and the state didn’t have enough money. Then we could die from ‘starvation’, but now we can die from ‘indigestion’, because there’s too much money and we don’t know where to invest”.

Nevertheless, Volkov is a lone voice. Even as the world economy looks poised for a slowdown, Russia’s continues to fare strongly.

Around ten restaurants open in St. Petersburg every month. Authorities have found it easier to individually negotiate with strategic investors than to create conditions for small businesses to flourish. But the consumer boom is changing all this.

Gocha Tchkaidze, Georgian restaurant owner, says that while five years ago you couldn’t eat anywhere, now there is competition, and the sector is growing rapidly. “And people are starting to believe in us and eat out more,” he adds.

The situation has changed a lot from the 1990s when some projects ended badly.

Project consultant Gregory Ingleright says Russian partners are becoming more and more professional. “They’ve been around, they’ve seen a lot all over the world and they’re very competent in their field,” he thinks.

But fundamental economic breakthroughs will require major investment in infrastructure – new roads and a new airport top the to-do list.

Some locals believe development is killing the social fabric of the city. Last year residents protested against controversial plans for a 300+ metre skyscraper in the historical city centre.