Located on the Neva River at the easternmost part of the Baltic Sea, St. Petersburg is the second-largest city in Russia and the third-largest city in Europe, with some 4.8 million inhabitants. Founded in 1703 by Peter the Great, it was capital of Imperial Russia for nearly 200 years until Soviet times, when Moscow was re-established as the nation’s capital. The city has been nicknamed the Northern Capital and the Cultural Capital of Russia given its rich history and its status as one of the country’s main intellectual centers. The historic city center of St. Petersburg is a UNESCO World Heritage site. St. Petersburg covers a total area of 1,439 square kilometers with a population density of 3,300 people per square kilometer.
Economy and Investment
St. Petersburg is an economic powerhouse, acting as Russia’s main port city, making it one of the most important gateways to Russia. This, as well as its proximity to the European Union, has established the city as one of Europe’s main logistic hubs. Furthermore, St. Petersburg acts as the center of Russia’s automobile industry and has seen increasing levels of both foreign and local direct investment in industrial capacity, as well as in the IT, tourism, and services industries.
A number of industrial brands headquartered in St. Petersburg, such as Kirovsky Zavod, the Izhorskie Plants, Power Machines, as well as enterprises for military and civil shipbuilding, such as Northern Shipyard, Baltic Plant, and Admiralty Shipyards, have seen an increased presence in international markets.
The city’s growing status as a financial and cultural center has prompted a number of government institutions and state companies to move their headquarters to St. Petersburg. Among these are SIBUR, Russia’s largest petrochemical company, the navigation company Sovkomflot, the oil giant Gazprom Neft, the mining company Polymetall, and Baltika Brewery, the Europe’s second-largest brewery.
Aside from the city’s advantageous geopolitical qualities, increasingly accommodating business conditions have contributed to a great influx of foreign direct investment (FDI) into the city’s economy. FDI-friendly legislative measures as well as a high level of political, social and economical stability have made investment easier, safer, and more profitable. The city has recently displayed a readiness to engage in public-private partnerships (PPPs) to attract private investments in previously government-controlled industries such as transport infrastructure, community facilities, and education. Aside from offering profits, the city is encouraging PPP participation by offering investors exclusive rights and discounted land purchases.
Recent years have shown considerable levels of FDI: The volume of investments in fixed capital of large and medium-sized organizations accounted for 293.6 billion rubles in 2011. The industries that received the majority of this inflow were:
- Construction (15.7%);
- Real estate operations, renting and business services (16.1%); and
- Manufacturing activities (14.1%).
Foreign investment in 2011 reached US$6.1 billion, coming primarily from:
- United Kingdom (US$1.42 billion, 17.3%);
- Republic of Korea (US$580.3 million, 9.6%); and
- Cyprus (US$569.6 million, 9.5%).
The city’s growth has driven international giants such as Coca Cola, PepsiCo, Wrigley, Kraft Jacobs, Gillette, Bosch Siemens Hausgeräte GmbH, Knauf, Lucent Technologies, Sungwoo Hitech, Foxconn, Alcan Packaging, OTIS, British American Tobacco, Toyota, General Motors, Nissan, Hyundai, and Scania MAN to open branches in St. Petersburg. Roughly one-fifth of the 500 largest companies by market capitalization operate in St. Petersburg (Financial Times 500 rating).
Regional and International Importance
St. Petersburg is host to 52 foreign consulates as well as 3 international organizations, namely the Inter-parliamentary Assembly of the Participating Governments of the CIS, a representative office of the European Bank of Reconstruction and Development, and a branch of the Eurasian Development Bank. The first establishes St. Petersburg as a center for political and economic relations between the countries of the former Soviet Union, and the latter two indicate a growing international interest in developing St. Petersburg’s political economic environment.
The Northern Capital has played host to a variety of international conferences, including the 32nd G8 summit, and summits of the Shanghai Cooperation Organization and the Council of Baltic States.
In addition, the city hosts the annual St. Petersburg International Economic Forum, one of the world’s leading economic and business conferences. Over the years, more than 40,000 participants from all over the world have taken part in the forum, among them heads of state and representatives of the world’s largest companies.
St. Petersburg’s position as Russia’s maritime window to the world has prompted many related organizational projects. The city’s transport infrastructure includes 11 highways, a wide network of railroads, river and sea transport vessels, and an extensive grid of oil and gas pipelines.
The city of St. Petersburg is the largest maritime transport hub in Russia, and also one of the largest in the world. Despite St. Petersburg’s northern location, which makes it prone to frozen waters during the winter months, the port operates year-round with the help of icebreakers. The city features international passenger terminals, a fishing port, a timber port, a commercial seaport, river port, as well as an oil terminal, ship repair facilities, and shipbuilding plants. The city ports handle some 65 percent of commercial and non-commercial transport between Russia and the European Union.
St. Petersburg’s 2011 cargo turnover amounted to nearly 60 million tons, and the passenger terminals saw more than half a million passengers going in and out of the city. Ships departing from St. Petersburg can find accessible connections to the Arctic Sea, as well as to many economically important regions, such as the Republic of Karelia, Central Russia, the Ural Region, the Caspian sea, the North Caucasus, and sea ports in the Black Sea.
St. Petersburg serves as a major crossroad and destination for several international and inter-continental transport corridors, namely the North-South corridor, the Trans-Siberian Railway, and Pan-European transport corridor Number 9. According to the volume of railway cargo transportation, St. Petersburg is the second-largest railway junction in Russia, connecting Russia with Finland and the Baltic countries. St. Petersburg has high-speed train connections to Moscow and Helsinki with travel times of less than four hours.
St. Petersburg’s Pulkovo International Airport is the third-largest in Russia by passenger volume (9.5 million in 2011) after Moscow’s two international airports. Some 71 airlines (of which 30 are Russian, 12 are from the CIS, and 29 from other foreign countries) regularly fly to and from Pulkovo. In addition to passengers, Pulkovo hosts some 20,000 tons of cargo flown in and out of Russia.
St. Petersburg is one of the largest tourist attractions in Russia, famous for its world-renown palaces and museums. Each year more than 5 million tourists visit St. Petersburg. Many international hotel chains operate in St. Petersburg, among them Marriott, Orient Express Hotels, Best Western, Rocco Forte Hotels, InterContinental Hotels Group, and the Four Seasons. The city has over 600 hotels that can accommodate over 30,000 people.
St. Petersburg’s maritime accessibility has also made it a popular destination for cruise ships, building tourism into one of the city’s main industries. It is being expanded further with the Waterfront Project, which is working towards the creation of a new, larger passenger port on Vasilievsky Island.
Special Economic Zones
Two special economic zones are situated on the territory of St. Petersburg: “Noidorf” and “Novoorlovskaya.” Companies operating in these zones are provided with special benefits such as engineering infrastructure, preferential taxation and customs regulation, government guarantees, cheaper land prices and rent rates, and access to transportation. Special priority for SEZ participation is given to companies operating in the information technology, pharmaceuticals, energy efficiency, and precision instruments industries.
RUSSIA CONSULTING has been consulting and supporting foreign clients in St. Petersburg since 2004. The company has been instrumental in helping foreign investors to set up businesses in the city and handle local economic conditions. On-the-ground presence and years of business experience in the given city are essential to giving sound advice on foreign investment. RUSSIA CONSULTING can provide you and your organization with an in-depth understanding of business set-up, business consulting, taxation, accounting, recruiting, basic legal matters, IT services, set-up of internal control systems, adapted to the local environment. Furthermore, we can provide you with office space, a local general director, or finance and tax due diligence.