Accounts Chamber of Russia criticizes special economic zones

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/15

An investigation by the Accounts Chamber of Russia (ACR) finds that special economic zones (SEZs) have given only little support to the economy. The administration in the SEZs has often been inflexible and irresponsible, and budget monies to SEZs have been used inefficiently or misapplied. Over the past decade, 520 billion rubles (€7 billion at the current exchange rate) of budget funds have been dispensed for SEZs and construction of related infrastructure. The ACR further found that SEZs have created only about 18,000 new jobs.

The first Russian SEZs based on the current model were launched in 2006. They were supposed to attract investment through reduced tariffs and tax breaks, less red tape and ready infrastructure. There are now 33 SEZs specialised in industrial activity, technology manufacture and development, port operations or tourism.

The ACR also noted a boom in SEZ-like regional development policy instruments, like technology parks and innovation clusters. The ACR said the current approach is overbroad and the most ineffective measures should be ended.

Last year saw the creation of “territories of accelerated development” (TORs) aimed at boosting development mainly in Russia’s Far East. TORs are now also touted as a solution to Russia’s “company town” problem, where everybody suffers if the local business falters. The car-making city Tolyatti, for example, is establishing a TOR that its city elders hope will generate 24,000 jobs over the next decade. According to the ACR report, Tolyatti’s existing SEZ that was established in 2010, has created fewer than 300 jobs.

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