Experience of attracting investment to a Closed City

Attracting investors to a city requires constant systematic effort, it demands special knowledge and experience and must be carried out in a way which takes account both of general economic principles and the specific features of the closed territory.

The difficulties facing the economic development of Zheleznogorsk in the 1990s were similar to those facing most of the Russian Closed Cities. They were linked both to subjective factors such as the colossal deficit in management skills relevant to the new market conditions, and to objective circumstances:

• narrow specialisation of production structures and, as a consequence, problems relating to employment as the scale of production in the large state enterprises declined;
• the closed status of the city, which created barriers for access by business;
• distance from the market;
• defence orientation;
• weak commercialisation of technology.

Recognising that the City Administration was in practice unable to address issues relating to the activities of the state enterprises, or to change the closed status of the City, the main efforts were directed at increasing the investment attractiveness of the territory. For this it was essential to accept that only diversifying the range of production could provide a guarantee that the population would remain in employment as circumstances changed.

Everyone understood that investors were not standing in the doorway, or indeed standing outside the door. Focused work was needed to attract them. To achieve this it was essential, in the first place, to create the infrastructure needed to provide for collaboration with investors.

In 1999 in Zheleznogorsk, with financial support from the international programme the Nuclear Cities Initiative (NCI), the International Development Centre – Zheleznogorsk was founded. Its first tasks consisted in engaging enterprises which were already functioning in the Closed City in development and also in attracting new companies to the territory of the City.

To spread the risks involved in the work of creating jobs, three priorities were established.

First, an analysis was carried out of the potential of enterprises already active in the Closed City to extend their business activities and their penetration of the market. In this connection, attention turned to daughter companies of large state enterprises, which had the potential to grow. Attracting financial resources for the development of these companies involved minimal risks and could create new jobs more quickly. This meant that the basic structure for the development of business was already available.

The second very important priority involved carrying through a cluster of measures aiming to establish an information base, which was essential if investors were to take decisions on the possibility of implementing projects in the territory of the Closed City. With this in view, a review was carried out of all sites which might be suitable for manufacturing activities. This led to the preparation of documentation spelling out the basic parameters of each of them. This information was then made available through an Internet site (http://idc.atomlink.ru).

With financial support from NCI, a strategic plan for the development of the City to the year 2010 was prepared, which spelt out development priorities together with the main opportunities and risks. The development plan was prepared with the involvement of both City experts and independent experts from outside. A short version of the strategic plan was prepared for use by potential investors, and this too was made available on the Internet.

An analysis was then carried out to identify companies which were developing dynamically in the Krasnoyarsk Region. Their leaders were invited to seminars where information was provided on the situation. The Mayor of the City, the President of the City council, representatives of the international donor programmes, and the leaders of projects receiving financial support in the Closed City all took part in these events, together with the potential investors. Extensive information materials were prepared for all participants, which illustrated the opportunities and the conditions for the development of a business in Zheleznogorsk.

A business incubator for manufacturing companies was established in the City. This helped to reduce the barriers to start up facing new projects, especially investors coming from outside.

The third priority was linked to the training of management specialists with knowledge relevant to the market economy. To achieve progress here, resources were drawn from practically all interested parties: the City Administration, the State Enterprise MCC, the NCI Programme and CNCP. Based on IDC Zheleznogorsk’s educational centre over a nine year period, more than 180 people received education through the President’s Programme for the preparation of management staff, and more than 40 people through the British Open University programme.

As a result of consistent work on these three priorities, and with the financial support of the NCI and CNCP Programmes, in the space of nine years, 45 commercial projects, creating between them a total of over 2,000 jobs, were implemented on the territory of the Closed City of Zheleznogorsk.

Sergey Usoltsev
Director, ID C-Zheleznogorsk