Russia fired up over economic zones, despite doubts

The Russian government wants to increase the number of Special Economic Zones to stimulate investment, and help diversify the economy.

But economists have doubts over how effective the initiative will be.

The Russian government is fired up about its Special Economic Zones, such as the one in the town of Dubna, Moscow region, where it offers tax breaks to attract investment into technology and manufacturing.

“There's nothing stopping us creating more Special Economic Zones if there is a demand. In the Dubna area we are going to focus on innovation that can be implemented in other regions of the country. Thus, diversifying the economy!” said Sergey Ivanov, first deputy Prime Minister of Russia.

Russia's first six Special Economic Zones were set up this year, most with a focus on building up the tech sectors.

Companies investing in these areas are exempt from property taxes on their assets for five years, and do not have to pay V.A.T. when they re-export products they've imported into the zones.

Special Economic Zones were one of the key drivers of China's economic success in the nineties and several governments around the world are trying to replicate their success.

But China last decade and Russia today are very different places.

“The Chinese economy was very closed at that time, and the Special Economic Zones were like the only available windows onto the outside world.  And  Russia, a country where the business climate is quite comfortable for foreign investors,  does not really require these Special Economic Zones,” pointed out Vladimir Osakovsky, economist from Aton brokerage company, Moscow.

Foreign companies often complain about a lack of clarity in how these zones operate.

And many economists say to achieve the huge surge in investment that the government is after the most sensible thing to do would be to apply the tax breaks of the Special Economic Zones to the entire country.