"Real Estate and Investments. Legal Regulation", the journal

Issue 1, 1999

Investment Policy and Real Estate Development. Experience and Problems

Klimovich M.V., president of the group of companies "Sistema-Invest"

The conversions of the control systems of economy have come in the phase, when the cardinal problem of management is the ensuring of the upsurge. In the usual conditions the investment processes become the factors of overcoming of economic recession and transition to a trajectory of raising, that means the attraction of financial resources in economic circulation,their investment in the investment drafts for the revival and raising of industry, the effective utilization of the results of accomplishment of such drafts, as the lever of overcoming of the negative tendencies in the social and economic processes in regions of Russia.

From the very beginning of the market conversions the investment activity of commodity producers was suppressed by tax and credit policy. The percentage rate of the investment credit has practically excluded the possibility of its use for the industry. The financial and credit system has got wrong development. With issue and reference of the state financial credit instruments of the high efficiency the financial institutions start working only on this market. Formation of the national debt (external and internal) was not justified by the economic final pays, in result all this has arisen the state financial pyramid, which has failed in August 1998.

In conditions of the deep industrial recession and of the necessity of support of the real sectors of economy, the state without possessing free financial resources removed from the participation in investment processes. The direct investments were considerably reduced at the period of accomplishment of economic reforms.

The similar situation was observed on the regional level, it has resulted in lowering of the economic and investment activity in regions and deepening of economic recession.

We think that one of the major reasons of the economic crisis is the absence of the effective mechanisms in regions destined for mobilization of the own sources and engaging of the external resources for the industrial upsurge.

But Moscow can be considered as the exception, the city has developed the special economic mechanisms which are more efficient. In a basis of such mechanisms are the principles of market orientation of economy at the simultaneous creation by region government of conditions and indorsements for the efficient functioning of commercial structures. The important part of the Moscow pattern of reforming of management is the investment and loan system,provided the maintaining of the investment processes.

The experience of Moscow has shown, that management of the regional investment resources and processes represents one of the effective directions for the solution of the social and economic problems and, first of all, for accomplishment of programs of industrial upsurge.

The priority problems of structural policy in the cities are defined by the Order of the Moscow Governments " About a course of realization of the basic directions of town-planning development of Moscow till the year 2010. " The main problems are: ecology (improvement of the environment); development of transport system and systems of connection; development of engineering and social infrastructure; development of the business infrastructure (construction and reconstruction of business and office centres),construction of hotels and development of tourism; construction of trade complexes; development of the ranges of public catering and food industry; industrial modernization and conversion of the defensive enterprises; development of the building; repair and construction of habitation; creation of parkings and construction of garages.

The realization of the structural policy consists in engaging of the investments for proportionally elected priorities and in the international assistance to the investors, whose activity meets the policy. This assistance is rendered not only to the separate investors, but can be distributed to the whole branches of the urban economy. The instrument of realization of the structural policy is the investment program.

The annual investment programs of the Moscow government are invoked to assurance of the balance of requirements of city development and of financial resources, and the balance of the rights ande responsibilities of city administration and investors. Besides the government of Moscow designes and realizes the short-term and intermediate term investment programs, for example the program of the territorial road fund, the program of creation of the system of the wholesale food markets etc.

The following forms of cooperation are offered to the investors: creation of the joint ventures in the form of joint-stock companies and other forms; creation of the enterprises with absolutely private capital; participation of the investors in the urban privatization of the enterprises; the conclusion of investment agreements,providing the share distribution of areas of the reconstructed buildings by city and investors; crediting of the investment drafts; realization of the drafts on a concessionary basis; participation of the investors in the drafts on a competitive basis; acquiring of the shares, bonds of the municipal loan and of other financial credit instruments, of the real estate, of the long-term rights of the lease of the land lots.

The new financial strategy is realized in Moscow of association of own and extra means. The budget of development of Moscow for 1999 is complemented by the article of financing capital investments at the expense of the means of financial funds of the urban bonded loans. And the development of Moscow in 1998 is basically (on 70%)financed at the expense of realization of the programs of loan, that means that if earlier the capital investments were realized at the expense of the urban Treasury, now it is made by means of The internal and external loans. The policy of loans is formed, taking in consideration not only the needs of development of the city, but also with allowance for the real possibilities of the settlement of the debt. At adoption of the decisions concerning the adoption of the authority means of the city the situations on financial and stock markets traced. Besides, the law of Moscow "About the budget of city of Moscow for 1999" The limiting rate of the loan is established.

For the total control of a course of realization of the urban bonded loans, for ensuring of the objective selection and accomplishment of the efficient supervision of a course of realization of the urban investment drafts, funded at the expense of the extra means,the government of Moscow has formed the Investment Moscow council. The decisions of Investment council concerning the allocation of the means of financial funds of the urban bonded loans for the financing of the investment drafts are affirmd by the orders of Moscow government.

The considerable contribution in engaging of the large private investments is made by the deposited bargains by the property obligation. The privatization incomes of the urban budget are not "sold", but invested in the urban infrastructure.

The government of Moscow grants the assistance and various services to the investors which are linked to the beginning and to the course of construction, such as: designing of the circuits of the land use and of placing of the objects, registration of the town-planning documentation, preparation of territory, communications and transport ways, foundation pit and fundamental work, express business - plans and all like this, the city can provide all this, at the expense of the means of the urban budget.

In the present time the stimulation of the investments has the big possibilities. The legal conditions are created for the investors, it allows them to direct the investments on realization of the investment drafts in Moscow without haveing big hazard.

The elements of the engagings and support of the investment system are: Council of the businessmen attached to the government of Moscow, Commercial and industrial Chamber, Association of the investors, State investment corporation, specialized banks (for example, The share investment bank of Moscow, the International business centre "Moscow - city"),The Moscow International business - association.

The support on the created institutes and application of the various ways of engaging and support of the investments are supplemented by the activity of bodies of the control at the observance of city interests at the conclusion of the investment contracts. The control is realized at the share of city according to the investment contracts, at the results of the investment competitions, at the executing of conditions of the investment contracts and at the obligations of the investors, at the course of executing of the tasks of the investment programs. In the defined cases city abrogates the investment contracts.

In the middle of 1996 the special department was created at the government of Moscow. This is the department of the municipal loans and development of the stock market. Its tasks are to promote the engaging of the additional investments in economy of the city, using the mechanisms of the municipal loans.

The acknowlege and investment system developed and approved by the Moscow government represents the whole mechanism for engaging the extra means and investment financing of the drafts, which can be realized by the private firms..

The investment drafts owe to be carefully selected by the Investment council on a competitive basis with with the definition of their reliability on of the reflexivity and profitability of investments. Thus, Moscow forms the investment urban programs,adapted for a reflexivity( Reconstruction of the centre of capital, development of high technologies, construction of the objects of the urban infrastructure etc.).

The database includes 1008 industrial enterprises, 74 subjects of Russian Federation, nine countries of CIS, which can be considered as the partners for industrial activity. The access to the database of manufacturers and consumers of industrial production is granted by mean of systems "Internet", "Rusnet" and MIS.

The most complex and responsible stage is the creation of this "bank of the offers" of the investment projects. The concentration of a scientific nucleus and technical potential in Moscow creates the objective necessity for the careful selection of the investment directions, which can help to overcome the crisis in economy. First of all, it is linked to the basic strategy of overcoming of crisis,its the creation and practice realization of the XXI century technologies. The complexity of solutions of the problems is due to to the fact that high technologies and scientifically oriented enterprise are as usual possessed by the State and it demands joint decisions with the federal government.

At the present time three kinds of Moscow loans are designing and realizing: bond of the internal loan for the legal persons, savings bond loans for the population and.The attitude of Moscow government to the eurobonds loans is very serious. Big international banks, juridical and consulting firms of a global level were engaged into cooperation. Moscow became the first region of Russia, getting the international credit rating of the leading rating agencies ("Tsuudis" and " the Standard and purse ").

In 1997 by city placed the bonds of the 6 mln sum rbls., in 1998 it was expecting to receive not less then 15 mln. rbls. And all those means are destined for industrial investments, instead of speculative operations.

The reliability of mechanism of the warranties of settlement of the bonds of the urban bonded savings loan of Moscow is extremly important.

  • Absolute observance of the investment character of the loan and use of the involved means only for the returnable financing of the investment projects;
  • Competitive method of the choice of the participants of process of placing, reference and settlement of the bonds, and also of the choice of investment projects;
  • Formation of the Investment council by the government of Moscow for the control by the city of all the stages of realization of the loans and urban investment projects. The problems of the council should be an accomplishment of the control of all the loans executives and adoption of the final decisions concerning the financing of the investment projects;
  • Formation of the special mortgage fund of ensuring of the urban bonded loans of Moscow from the asset in the property of city, and also from the assets for ensuring of realization of the investment projects;
  • Constant mass media informing of the city dwellers about a course of realizations of the bonded loans and urban investment projects funded at their expense.

Moscow is the largest financial centre, in which 60% of the financial capital of Russia are concentrated. The volume of the currency market constitutes 67% of the all russian market.

For several years Moscow is characteristic by the highest,in comparison with the other regions of Russia, investment activity. In ist basis is a floppy and quite pragmatic investment policy and considerable investment potential.

In 1998 the city has invested at the expense of all kinds of financial resources about 40 trillions. rbls. for the realization of the investment programs on the territory of Moscow.

The total amount of capital investments of the investment program of Moscow government in 1999 has constituted 13,8 trillions rbls.

On the basis of resources, selected by the city the conversions in economic and social ranges, concentration of efforts for the decision of priority problems linked to the ensuring of stability of urban economy,stabilization of industry, upsurge of financial potential of city, escalating of investment activity, first of all linked to the constructions and reconstruction of houses, and also to the solution of problems of ecology, transport development of the city.