Economic policy and state of productive industry branches

The basic strategic purposes and tasks of social and economic development of the republic are formulated in the Concept of social and economic development of the Republic of Karelia for the years 2002-2006-2010 Revival of Karelia which implementation allows to concentrate efforts of the state and society on solution of the main problem which is real increase of standards of living and quality of life of the citizens of Karelia on the basis of steady economic growth. It defines priority directions of economic policy of the Government of the republic in the sphere of production of goods, investment and foreign trade activities, and in the field of finance.

The effective mechanism of realization of policy in sphere of economy are target programs and specific projects, agreements of the Government of the RK on cooperation with the largest companies and enterprises, support of external relations and inter-regional cooperation.

Investment policy and support of business

Necessity of structural reorganization of the economy aimed at profound processing of natural resources and development of industrial sector have made the Government of the Republic of Karelia liven up investment strategy. Since 2002 the course of more open functioning of the economy, providing equal access of effective proprietors to republican resources for attraction of investments and increase in rates of economic development has been pursued.

Within the framework of realization of the program Investment policy of the Government of the Republic of Karelia in 2003-2006 in the past year investment activity has become considerably more active.

In 2004 new edition of the Law of the RK On the State Support of Investment Activity in the Republic of Karelia has been pased, tax privileges for investors remained. On the beginning of 2005 investment agreements on granting tax privileges with 4 enterprises (Karhakos, Ltd., Setles, Ltd., Swedwood Karelia, Ltd., and Segezha Pulp and Paper Mill, Inc.) regarding realization of 7 projects which total volume of investments has made over 5,3 billion roubles operate. The budgetary effect of realization will make 3,7 billion roubles, and more than 1 thousand workplaces will be created. Possibility of concluding agreements with another 14 enterprises is being considered.

Granting soft loans from the budget of the RK on a competitive basis for co-financing investment projects continues. For these purposes 150 million rbls. has been allocated in 2004, projects on construction of a hypermarket Sigma and modernisation of enterprises (Prionezhsky Gabbro-Diabase, Ltd., State Unitary Enterprise of the RK "P.Anokhin Printing House) have been accomplished successfully.

Within the framework of the concluded agreements on cooperation between the Government of the republic and the largest external investing companies (Russian Railways, Inc., Gazprom, Inc., Northwest Telecom, Inc., IKEA, etc.), the parties' positions have been coordinated for the solution of problems occuring at realization of some large projects on the territory of he republic.

A working group on attraction of investments into the economy headed by the Prime Minister of the Government of the Republic of Karelia has been formed. At its sessions aspects of realization of investment projects at 25 enterprises were considered, specific actions on elimination of reasons interfering promotion of projects were developed.

Special attention has been paid to information and analytical work with potential investors. The information on the web site "The Republic of Karelia for Investors" created in the end of 2003 was constantly updated, about 4 thousand hits have been registered there. A database on 90 commercial projects has been generated. Presentations of investment potential of Karelia took place in the consulte General of Canada in St.Petersburg (March, 2004), in New York (June, 2004), in Finland (October, 2004), and also in the Government of the republic for a group of the Russian businessmen (November, 2004). A brochure The Republic of Karelia for Investors hss been published.

Significant for the republic was hosting an investment forum Financial Market Tools for Development Enterprises: Real Experience and Problems ( September, 2004) where 350 representatives of bodies of the government, business circles of the Northwest of Russia and of Moscow gathered.

Performance of rent obligations by forest exploitators regarding investment of means in wood-processing has beeen monitored. The 12.8% increase in total amount of investments into a fixed capital in the Republic of Karelia (10.9 % in the Russian Federation), and 17% growth of foreign investments may be concidered as specific result of realization of investment policy of the Government of the Republic of Karelia in 2004.

Volumes of investments assigned for development of the following spheres increased considerably: industry (60%), trade and catering, agriculture, real estate activities, financial spheres, crediting, insurance, provision of pensions. It creates a good reserve for the further economic growth in Karelia.

The role of bank sector in financing the real sector of economy became more active, as in 1998 the share of bank credits in total amount of investments made about 1%, in 2003 it was 11.3%, and on results of 9 months of 2004 it was 37.6%.

Last year realization of some large and significant for republic commercial projects has been completed:

• in timber industry complex: in Segezha Pulp and Paper Mill, Inc. (modernization of continuous boiling plant N4, paper-making machines N9 and N10, installation of sack lines), in Kondopoga, Inc. (construction of a thermomechanical pulp shop);
• in mining complex: construction of a macadam factory Lobskoye-5, development of gabbro-diabase quarry (Prionezhsky Gabbro-Diabase, Ltd.), reconstruction of Sortavala Crushing-and-Sorting Plant, Inc., development of Raikonkoski quarry and construction of a macadam factory;
• in engineering industry: expansion of manufacture (2-nd turn) in Karhakos, Ltd. (RKS Group Concern (Oulu, Finland);
• in transport: input of the head gas main Petrozavodsk - Kondopoga, completing construction of vessels Rossiyanin and Ukrainets;
• in social sphere: reconstruction of Kivatch sanatorium (Karelnerud, Inc.)

The Government of Karelia takes an active stand on attraction of means from the federal budget for solving tasks of social and economic development of the republic. The number of federal target programs (FTP) launched in the republic has increased from 30 in 2003 up to 33 in 2004, furthermore, 16 objects were financed from the federal address investment program (FAIP).

Due to all sources of financing 1893,6 million rbls. was allotted in 2004 for implementation of FTP and FAIP that is 24% more than in 2003, including 35% or 670,3 million rbls. are the federal budget means. Moreover, 810,7 million rbls. was assigned from the federal budget for reconstruction, construction and maintenance of roads of federal and republican value.

Karelia ranks the 3 place in the Northwest of Russia (after St.-Petersburg and Leningrad region) on the level of attraction of means from the federal budget per citizen - 161.8 roubles, that is 1.7 times more than per citizen of Russia as a whole (93.6 rbls.).

Means of the federal budget are allotted on reconstruction of the White Sea - Baltic channel; creation of a fish-breeding farm on islands of Valaam archipelago; land reclamation; construction of academic and laboratory building of PetrSU, secondary school in the village Sheltozero, central regional hospitals in Pryazha and Olonets, city hospital in Sortavala; housing construction; reconstruction of the National Theatre, Karelian State Museum of Local Lore, History and Economy, Kizhi memorial estate, Petrozavodsk conservatory, church of the icon of Smolensk Mother of God, objects of Valaam archipelago.

Fourty eight target republican programs of economic and social blocks operated in Karelia in 2004. To perform these programs more than 2,4 billion rbls. has been assigned from all sources, including 410 million rbls. from the republican budget, or 17% of total amount of financing. Significant part of budgetary funds has been assigned for realization of social programs (development of the sphere of culture, public health services and sports, education, social security, assistance to employment of the population), as well as for housing and road construction, and reproduction of woods. Own means of organizations and credit resources went on development of fish farms, reafforestation, development of bowels and development of mining complex of the RK, and development of tourism.

Actions on performance of the mandates of voters received during election campaign of the Head of the Republic of Karelia in 2002, were approved by the order of the Government of the Republic of Karelia of September 19, 2002 230r-P. Of 30 mandates of the voters included in the plan, 21 were executed in 2004, 14 of them have been included in the Address investment program of the RK. To perform them 117,26 million rbls. from the republican budget and 24,5 million rbls.from the federal budget has been assigned.

In the past years bases of system of the state support of small business have been generated in Karelia. The market infrastructure of small business operates and develops, its most significant representatives are the RK's Fund of Small Business Support and Development, Chamber of Commerce and Industry of the RK, Karelian Regional Agency of Small and Medium Business.

With a view of realization of the Program of the State Support of Small Business in the RK in 2004-2005 normative documents determining order of carrying out competitions and reception of budgetary grants for support of small business have been prepared. The Program received financing of 3 million rbls. for its actions. 38 projects of which the 16 best was selected aimed on development and support of enterprise initiatives, including in the countryside, organization of free-of-charge retraining of experts of small business have been considered. The new form of financial support of small business in 2004 was granting credit resources by Onego Bank according to the Cooperation agreement between the Government of the RK and Russian Bank of Development, Inc., under the Program of small business subjects crediting, 9,3 million rbls. of credits has been issued.

The Board of Guardians of the RK's Fund of Small Business Support and Development selects investment projects for financing on a competitive basis, total sum of financing makes 853 thousand rbls., including projects: Purchase of Medical Equipment for Patients Suffering Locomotorium Diseases (Center of Pathology of Bones and Joints, Ltd.), Purchase of Cosmetology Equipment (Artemyev's privately owned enterprise), Catalogue of Goods and Services "Scandinavia" (Scandinavia, Ltd.), etc. Microfinancing of subjects of small business is continued: 22 microloans that total 1,2 million rbls. have been issued.

Cost of equipment purchased by small enterprises through Karelian leasing company has made 8,8 million roubles with 2,3 times growth by 2003.

For the first time in 2004 at the support of the Government of the Republic of Karelia books Small Business of Karelia and Directory of the Head of a Small Enterprise of Karelia have been. They cover status of small business in the republic, information on successful representatives of small business, the list of normative legal base.

Within theinternational project Assistance to Development of the Innovative Small and Medium Enterprises in the Baltic Region of the Russian Federation a scientific and practical seminar "Northwest of Russia: Problems of Switching to Innovative Way of Development" has taken place in Petrozavodsk. Growth of number of small enterprises and volume of production they produced, 5 time increase of receipts of small business incomes in the budget of the RK to the level of 2003 which total sum has exceeded 150 million rbls. may be considered the main result of realization of policy of the Government of the RK in the field of the state support of small business in 2004.