At the Krasnoyarsk Economic Forum in Siberia this week, Russia’s top business leaders and government officials will discuss strategies for attracting more investment to the nation’s regions.

Panel discussion at the Krasnoyarsk Economic Forum. Photo: Krasnoyarsk Economic Forum

Hosting more than five thousand experts, businessmen and officials from thirty-three countries this year, the Krasnoyarsk Economic Forum in Siberia has become a model for similar types of events across Russia. The high-profile list of visitors to the Forum also includes representatives of such organizations as the European Bank of Reconstruction and Development, the World Bank and the Organization for Economic Cooperation and Development.

Judging by its title “Russia: New Sources of Growth,” the Forum will focus on the development of Russia’s regions, including Siberia and the Far East. Russia Direct discussed the Forum as well as the challenges faced by Russia in developing its regions with Alexander Ivlev, Ernst & Young Country Managing Partner for Russia, who is also a frequent visitor of the Forum.

Russia Direct: You’re the moderator of a panel on the Russian government’s priorities for achieving a better investment climate. Ahead of the discussion, what would you single out as Russia’s key achievements in this area in 2013?

Alexander Ivlev: Russia has jumped 20 places in the World Bank’s “Doing Business” rating. This in itself is a good indication of positive momentum in the investment and entrepreneurial climate, though it’s also true that the Russian economy is not in the best of shape and much still needs to be done.

Our own survey of entrepreneurs in G20 countries (the G20 Entrepreneurship Barometer Survey) shows that business is very positive about the changes the country has seen since 2012. The Foreign Investment Advisory Council has worked actively with the international business community and Russia’s leadership, and this has also had a positive impact on the business environment.

Improving the business climate in the Russian regions is a priority for both the state and business. In Russia only 15- 20 percent of jobs are created by small and medium-sized business – low by comparison with developed countries, where this figure may reach 60-70 percent.

The importance of regional development is underscored by a study presented at the Davos Forum by the Global Agenda Council for Russia. The regions will become the main drivers of national development, and three regions currently top the list in terms of success in improving business (including foreign business): Ulyanovsk Region, the Republic of Tatarstan and Kaluga Region.

Other regions can use the leaders’ experience to accelerate their own positive trends. Efforts are currently under way to establish regional standards to help the regions make more effective use of these success stories and present themselves favorably in the international arena.

RD: What is the best approach to regional development? Can we use Western experience?

A.I.: Absolutely. We need to use models of development that have proved successful in countries with a similar economic and demographic situation. The development strategy for the Russian Far East, for example, could incorporate solutions found in Australia, which has similar parameters: low population density, a concentration of extractive industries and good access to sea lanes.

Canada is another example. There they’ve created something quite remarkable: a logistics hub in the center of the country. Each dollar invested by the government has brought another fifteen dollars in private investments. Such experience should be studied and used in Russia.

RD: One of the key topics at the Krasnoyarsk Forum will be “The Middle Class as a Source of Long-Term Investment.” Why is this topic so important today?

A.I.: Ernst & Young estimates that in countries with high-growth economies, there will be almost 200 million families with an annual income of over $35,000 by 2022. That will be larger than the middle class in the world’s largest economy, the U.S. It’s up to business today to predict which goods and services these people will want tomorrow and produce them at prices they’re prepared to pay.

The growing middle class will demand improvements in infrastructure and the level of state services, healthcare and education, and it’s important not to miss the opportunity to invest in these sectors. The middle class is traditionally a source of long-term money and an active consumer of services. In developed countries, the middle class is over 53 percent of the population; in Russia, according to experts, that figure is no more than 10 percent.

The development of the Russian middle class is thus of great interest to foreigners. If you talk to foreign businesspeople in Russia, they all note the high rates of growth in the Russian middle class, though the level of development is still modest by Western standards.

RD: What is the situation today in terms of cooperation between experts and Russia’s regional authorities? Are there examples of highly successful cooperation?

A.I.: The regional authorities are working more closely with experts. Ten or fifteen years ago, the regions weren’t sensitive to the needs and requests of foreign and Russian investors, but today the situation is changing, and the regions are making a concerted effort to attract foreign investments and cooperate with investors. Investors say they run into greater problems at the federal level.