Urban & Regional Infrastructure: Its Effect on the Development of Local Economies Moscow, 23 April 2008 Darrell Stanaford, Managing Director, Russia & Ukraine

Electricity & Natural Gas that power & heat the workplace, research & production facilities & the home Road, rail & air transport that gets people, raw materials & goods to the places they are in demand Built infrastructure: schools, medical facilities, factories, offices, warehouses, retail & cultural complexes “Build it and they – businesses and people – will come” Infrastructure: Foundation of Economic Development

From State Planning to no planning or “Let’s get the investor to pay for it” Electricity – heavily subsidized rates for consumers + no state control & no state spending resulted in no speculative development & prohibitive costs for investors Urban & Regional Planning – lacking, not market oriented Post-Soviet infrastructure development

Investment is slowed or goes elsewhere Growth of employment, consumption is constrained Supply of facilities & goods is constrained, prices increase Imbalances are reinforced, not alleviated Consequences of Infrastructure Lagging

Moscow Races Ahead: Bad for Moscow, Bad for Russia  Businesses choose Moscow because: Access to customers & decision-makers Air connections internationally & to major Russian cities Labor  Workers choose Moscow because: Availability of jobs & career growth potential Quality of life: culture, retail, leisure, education

Bad for Moscow: Extreme imbalance in supply & demand  Bad for business: Rapid increase in cost of facilities, services Dramatic increase in cost of labor + high turnover & shortage of qualified specialists Shortages constrain growth  Bad for workers: Dramatic increase in cost of living, especially housing Declining quality of life: congestion, pollution

Bad for Russia & the Regions  Lack of new businesses = lack of investment, new tax revenue, jobs  The young and talented leave to make their careers, start their families  Lack of qualified labor prompts businesses to look elsewhere….. …….a downward economic spiral

Leading with Infrastructure Creating the Foundation for a Modern, Diversified National Economy Large scale, pro-active urban and regional planning based upon commercially sound market principles Federal & regional legislation that creates clear rules for transparent public-private partnership Market-oriented utility authorities: profit seeking, subsidies fading, full range of financing tools available = incentive to speculatively invest in commercially sound projects promoted by local government