First strategic objective: Establishment of a favorable business climate

"Business climate" - meaning the complex of economic and administrative (institutional) conditions governing business activity, e.g. business set-up conditions, taxation and investment environment, availability of skilled labor - has a decisive influence on the development of business activity in a city, and is the most important factor determining the attractiveness of a city for investment from within the country and abroad. The business environment in Russia does not provide the conditions needed for efficient functioning of a market economy. As a result, it is St. Petersburg's task to make as much progress as possible in itself establishing a well-regulated competitive environment on the products, capital and labor markets.

This strategic objective should give St. Petersburg a leading position in Russia as one of the most attractive prospects for investment, whilst making it maximally convenient for lawful economic activity.

The city's business climate must stimulate economic growth and become the main factor in attracting resources and investments to St. Petersburg. It is necessary to liberate all that is healthy in the city's economy; give fair competition and market regulators a free hand; minimize the tax burden; support new and small business; and provide security for businesses.

Creation of a favorable business climate is taken to mean liberalization of economic activity, which implies not merely greater freedom for economic entities, but also the establishment of a certain economic order. Moreover, the city's legislative and executive bodies must assume a decisive role in setting standards of conduct for businessmen.

Liberalization of the Russian economy is creating conditions for realization of St. Petersburg's competitive advantages on the world market. These advantages are in the main related to foreign trade. St. Petersburg stands to gain much more from an open economy than from federal protectionism. This is why the city must make it a strategic priority to support all measures that will contribute to expansion of foreign-trade links.

The city community has arrived at the understanding that it is necessary to transform business conditions in order to make full use of all production factors (i.e. labor, land and capital). As a result, the first strategic objective of the Strategic Plan consists of measures aimed at improving:

• conditions for entrepreneurial activity in a competitive environment;
• the taxation system (in order to create conditions for economic growth);
• the real-estate market and city-planning regulations;
• the labor market and labor relations;
• mobilization of funding on the capital market.

Selection of the above specific objectives and measures for inclusion in the Strategic Plan was motivated, above all, by the opportunity they offer of achieving results in the near future. This is not to say that other aspects of the business environment do not need to be improved.

The plan's strategy for improving business conditions is founded on two principles:

• the need to support manufacturers by reducing the tax burden, by eliminating constraints on business and by implementing antimonopoly policies;
• the need to create equal conditions for all economic entities through elimination of privileges and exemptions.

The factor that will do most to promote market competition between manufacturers is introduction of equal distribution of taxes - instead of the traditional system of bureaucratic bargaining for exemptions. Protectionism and tax privileges merely keep afloat businesses which are actually bankrupt, thus impeding competition.

The main form of protectionism should become elimination of constraints on lawful entrepreneurial activity engaged in by investors and industrial sectors of whatever kind. One of the most serious such constraints could become the imposition of unjustifiably high charges by the natural monopolies, a development which is capable of stripping all sectors of business of their competitive advantages. Thus creation of an efficient competitive environment implies, as a top priority, establishment of a system of control and monitoring of the natural monopolies. Provision of equal access to services of natural monopolies is likewise identified as a priority objective.

The principle of equal access should also be applied to the distribution of municipal contracts and municipal purchases. To this end further work needs to be done on creating appropriate normative documentation; likewise, a system should be set up for publishing information regarding municipal contracts and resources in the disposal of the city authorities and regarding procedures for tenders for such contracts and resources. Coordination between economic entities and regulatory authorities is also in need of improvement.

The necessity for reform of St. Petersburg's tax system in the direction of equalized tax conditions and a reduction of the tax burden for all is a function of the growing competition that the city faces from other regions of Russia and especially from Leningrad Region, which has a policy of granting investors considerable tax privileges over long periods. In the regional game of tax reductions, which inevitably complicates and confuses the overall taxation system, St. Petersburg can seize the advantage by offering clear and simple regulations governing economic activity on its territory.

In order to improve the investment climate it is necessary to speed up creation of market infrastructure, and rationalize procedures, in the area of real estate. Above all, this means simplification of planning-permission  procedures for development projects; development of zonal regulations; expansion of the supply of land plots for sale; and implementation of measures to guarantee property rights. Legislation should be introduced at the municipal level to strip the St. Petersburg city administration of its functions as a granter of planning and construction permissions and restrict its role to that of registration of property rights. It is likewise important to guarantee regulated and, if possible, free access to information regarding land and real-estate use and regarding existing servitudes and city-planning restrictions. It is necessary to reform the normative and regulatory framework governing city-planning so as to provide for: an efficient system for obtaining planning and construction permits; adoption of zonal city-planning regulations governing changes in use of real estate; a plan for lay-aside of land; and a new master plan for St. Petersburg. These measures will make it possible to exploit more fully the investment potential of the city's property. (See map entitled "Integral assessment of the city's investment potential" on p.47.)

Skilled human resources and high technology form the foundation of the modern economy. This makes quality of labor a factor of strategic importance. Within the general objective of developing the labor market and labor mobility, the main measures to be taken relate to improvement of training and retraining programs, creation of conditions for small business and self-employment, and reformation of general labor regulations.

The main objective in mobilization of financial resources for investment is to steadily reduce the attractiveness of transactions with federal securities and accordingly increase the attractiveness of investment in real industry. In the current situation only a small number of successfully developing enterprises are in a condition to invest capital and build up their fixed assets using their own resources, whilst in general in St. Petersburg there is a constant decline in growth of companies' funds. On the other hand, only a few companies actually have investment projects ready for implementation. Systematic efforts are needed on the part both of the companies themselves and the city administration. The former must assess the market structure and the real current demand for their products and services and, on this basis, develop adequate programs for growth. The latter must coordinate and rationalize work with domestic and foreign investors, making sure that such investors are supplied with all necessary information, and must create an overall environment such as will attract investment for projects in the city.

Analysis of the state of St. Petersburg's business climate and elaboration of measures for its improvement will be conducted by the city's administration together with business associations and public organizations on a continuous basis.

1. Establishment of a favorable business climate

GOAL

OBJECTIVES

1.1. Elimination of constraints on business

1.1.1. establish an effective competitive environment

1.2. Reduction of the tax burden

1.2.1. Assist in promoting favorable changes to federal legislation
1.2.2. Draft and enact laws of St. Petersburg to enable formation of a favorable tax climate
1.2.3. Reduce the tax burden in the region

1.3. Development of the real-estate market; reform of city-planning regulation

1.3.1. Assist in promoting favorable changes to federal legislation
1.3.2. Consolidate the normative framework for the real-estate market
1.3.3. Reform the normative framework for regulation of city-planning in St. Petersburg
1.3.4. Consolidate the institutional framework for the real- estate market and regulation of city-planning
1.3.5. Ensure security on the real-estate market
1.3.6. Develop a new master plan for St. Petersburg

1.4. Development of the labor market; improvement of labor mobility; provision of conditions for retraining and skills upgrading

1.4.1. Assist in promoting favorable changes in federal and local legislation
1.4.2. Establish a favorable information environment for the labor market
1.4.3. Create favorable conditions for small business
1.4.4. Consolidate the system of professional training and retraining

1.5. Reorientation of financial resources towards investment in the real economy

1.5.1. Stimulate private investment in the real economy