Dobrograd-1 SEZ – Business of the Next Generation
Just five kilometers from Dobrograd-town, an industrial zone, unique in many aspects, is being developed. Firstly, it is a SEZ (special economic zone). Secondly, it is a private site. Thirdly, the development of this territory is closely connected to the leadership ambitions of the Askona Group and the formula of social comfort inherent to the philosophy of Dobrograd-town itself.
Aleksandr Manyonok, General Director of Askona Group, and Oleg Fomin, Vice President of Askona Life Group, member of the Dobrograd-1 SEZ Expert Council, talked to Mebelny Biznes Magazine about what kind of residents the Dobrograd-1 Special Economic Zone is looking for.
(Interview for the Mebelny Biznes Magazine, conducted by Irina Fadeeva)
MB: Colleagues, last November Prime Minister Mishustin signed a decree on the establishment of the Dobrograd-1 SEZ within the territorial boundaries of Dobrograd. That is, thanks to the efforts and will of the Askona Group, a special town as well as a Special Economic Zone emerged in the 33rd region, is that right?
Aleksandr Manyonok: That's right. Dobrograd is now eight years old. The town is in an active stage of its development. But even now, it sets new standards for the quality of life; and with the launch of a special economic zone, we also want to implement advanced approaches to developing a modern industrial platform.
For Dobrograd-town to operate as a self-sufficient and fully functional organism, it needs a business sector with high-quality jobs. And creation of a special economic (not just regular industrial) zone close to the town is a milestone event. The SEZ status is not awarded on appearance alone. A large team of Askona specialists and outside experts have been working for several years on the feasibility study of the project for the region and the concept of the Dobrograd-1 modern industrial platform. We are starting now, and, I am sure, with the launch of the SEZ, the entire Dobrograd urban planning project will receive an additional impetus for development.
MB: There is no doubt that job creation is an overriding task. But there is employment and then there is employment. If we look at Dobrograd through the eyes of a visitor, we will see a very well-groomed, creative space. How can factories and plants be incorporated into the stylistic concept of the Mid-Russian Eldorado?
AM: Do not think that some dubious production facilities with old technologies will appear on the territory of Dobrograd-1 SEZ. The smokestack industry is a thing of the past. Modern production facilities are highly environmentally friendly sites that do not harm either people or the environment. Askona, having become an anchor resident, joins the SEZ with the idea of sustainability. The first factory, which we are starting to build here and now, will produce mattresses, pillows, upholstered furniture for IKEA. One of the conditions laid down in the technological concept is the 100% environmental safety of the enterprise. We invest in renewable energy. Solar panels will be installed on the roof of the industrial building of our new production facility. Overall, we plan 48% of the electricity required for production at Dobrograd-1 to be renewable. With IKEA, we are discussing an investment in renewable electricity at our new production site and looking for other ways our partner can provide support for the sustainability program.
Now Askona is deeply involved in all aspects related to green energy, resource conservation, and recycling. Sustainable development is our company’s strategy, and we would like to extrapolate it to the entire industrial zone in Dobrograd. Does this mean that the SEZ Managing Company will select residents based on the “do not harm” principle? Yes, we are sure of that.
MB: That is, Dobrograd-1 is developing as a territory with an advanced technological and mental mainstay. Askona corporate vision of the future dictates high requirements for future SEZ participants. And what benefits can residents of Dobrograd-1 expect?
Oleg Fomin: On the one hand, there is a complete package of benefits backed by legislation. At the initial stage, transport and land taxes, as well as property tax, are set to zero for residents. Companies are exempt from VAT. Income tax is charged at the reduced rates - from 2 percent from the moment the first profit is received. In addition, SEZ residents do not pay import and export duties, since there is a special customs regime for special economic zones. I don’t think there is a need to explain how zero customs rates benefit domestic business. In general, everything related to export-import operations is important both for business and for Russia as a state. Interaction with the Federal Customs Service is a separate major task in and of itself, but we will do it. Residents of "Dobrograd-1" can count on it. Even at the start, residents will have access to the necessary energy resources and engineering infrastructure; as projects progress, access roads to the sites and road junctions will be built. Plus, they get administration and comprehensive assistance of the Managing Company in solving numerous legal and administrative issues. Our residents concentrate only on production and sales, the Managing Company takes care of the rest.
I’d like to focus on a very important point. Reduction of costs for residents is brought about not only by financial preferences, as we usually think. Significant savings are achieved if operational flows and logistics are correctly built on a shared industrial platform, if raw materials supply and the production of components and semi-finished products work in conjunction with the production of finished products.
MB: In other words, if the SEZ brings together “related” enterprises that make up a closed cycle? Are you forming the Dobrograd-1 resident pool according to the cluster model?
AM: No, we will not be limited to sleep products and furniture. However, a complete business chain within the framework of Dobrograd-1 is the key idea of Askona, for which we, as an "anchor", receive carte blanche. It is clear that you can ensure maximum production and commercial efficiency only if you have all the industry specific links at hand and you work in the paradigm of vertical integration.
I cannot disclose all the cards yet; I will only say that raw material producers, such as producers of polyurethane foam, wire, padding polyester are planning to join the SEZ together with us. However, this is not all that is required for the manufacture of our products. Today we are negotiating non-stop and many suppliers, both Russian and European, confirm their desire to build their production facilities near ours. The Managing Company is also aware of what product lines we want to see on the territory of the SEZ.
OF: I will add that the cluster theme in Dobrograd-1 is suggested by elementary logic. I have no doubt that we will find legal mechanisms and arrangements that will allow us to combine the institutional capabilities of the SEZ and the industrial cluster, because it is cost-effective to move a product with an ever-increasing added value along the chain. In this case, residents get a double effect: benefits from the synergy of businesses are added to the preferences guaranteed by in Federal Law 116.
MB: At the present moment, 38 special economic zones are registered in Russia; fifteen of them are industrial production zones. At the same time, experts assess the feasibility of such a business format differently. There are optimists and there are skeptics. According to the Auditing Chamber, SEZs with the volume of residents' investments significantly exceeding the volume of budgetary investments are the most successful - for example, in Alabuga, Tatarstan, and Lipetsk. What arguments can be made in favour of the potential efficiency of the Dorograd-1 Special Economic Zone for its residents?
OF: I do not agree that the special economic zone is an unfeasible format. Having passed a long and difficult path since the late 90s, the SEZ brand has fully taken off. The high ratings of special economic zones from the Russian gubernatorial corps and businesses themselves further confirm my thesis.
Talking about Dobrograd-1 - this zone is being developed for distinct business goals, confirmed by detailed calculations, and not because of the expectations of hypothetical preferences from the state.
The specific nature of the platform combines three essential factors, which, in my opinion, can be capitalized on. Firstly, it is a private platform, which removes a number of organizational and communication problems in advance. Secondly, the Askona Group is not just an experienced and high-profile investor, but a company oriented at exceptional development dynamics and long-term prospects.
The creation of infrastructure in a specific industrial area is very difficult and expensive. The platforms that announce the provision of infrastructure must go through a series of mandatory bureaucratic procedures: the deputies must vote, the declared costs must be included into the regional budget, and the region must transfer the funds to the Managing Company. And this process usually does not go smoothly in any region. This creates certain risks: an investor comes in, but a particular necessary infrastructure component is missing from the site.
This is out of the question here. External and internal infrastructure, sequence and commissioning period - everything is planned and balanced, put on paper and protected by funds. Therefore, we confidently say that every investor who comes to us will be provided with the necessary base - first for the construction, and then for the operation of the facilities. Each SEZ resident has his own investment cycle. Selection of a specific site, land surveying, cadastral updating and registration, tax registration, request for project technical specifications, design, project appraisal, preparation and execution of documentation, construction, commissioning. It is a long distance. The length of this cycle allows us, the Managing Company, to properly do our own work so that all potential options become available at the right time.
The third unique and very significant factor for Dobrograd - 1 is the proximity of Dobrograd-town. Investments in people, in a comfortable life, high-quality social infrastructure, new technologies for essential services - all of these are a reality in Dobrograd, not just a declaration. In fact, a new coordinate system, which includes the SEZ, has been created here. I think you just cannot find a place like this on the map of Russia. Perhaps Russian entrepreneurs are not yet fully aware of how relevant the visionary approach and the harmonization of social and environmental criteria with purely economic ones are for business. But the environment shapes the mentality. Therefore, we expect that the return on investment in Dobrograd-1 will by definition be higher.
MB: Construction of internal utility systems and transport infrastructure in "Dobrograd-1" has already started. Is everything going according to plan?
OF: Quite right. Dobrograd-1 is actively preparing for development - the preparation of the site for Section 1 has been completed. In a related move, a planning design for the SEZ territory has been prepared which takes into account infrastructure facilities, roads, communication networks and the location of enterprises of potential residents.
The construction division held negotiations on the design of the gas supply network, and we have already been presented with the projected routing of the gas line. In addition, we signed an agreement with a utility company to provide the site with electricity for the construction period; the landing site for the first 200 kW transformer substation has been determined.
MB: Can you tell us in more detail about the parameters of the new Askona plant in Dobrograd-1 and, in general, about the company's investments into commodities production?
AM: In Dobrograd-1 we start with a 60 thousand square meter facility for production of sleep products for IKEA. Now all the products manufactured by our company for IKEA are produced at the main production facility in Kovrov; there are about 60 thousand square meters there as well, including all the adjacent areas. These capacities are critically insufficient, since the volume of orders is constantly growing, and the assortment is expanding.
In just a couple of years, we plan to double the floor space and double the production. I want to emphasize that the Askona Group considers the Special Economic Zone a territory for development, and not just for the transfer of production. Concurrently with the commissioning of new facilities in the SEZ, we will redistribute capacities, while preserving and modernizing the existing sites. We are planning to have up to 150 thousand square meters of modern production facilities in Dobrograd-1.
Strategically, Askona focuses on four product sectors related to creation of a comfortable, healthy, intelligent sleeping area.
The first group is mattresses. In the mattress market, we are expanding in all sales channels, on internal and external circuits, in Europe and the CIS.
Beds are the second group. To the line of interior models, we also added modular ones - with different types of headboards made of laminated chipboard. The third category is upholstered furniture - both under our own Askona brand and under private chain brand names. Judging by the increased rate of sofa sales, in the next 3 years our production of upholstered furniture is bound to triple its current volume. Most likely, a sofa-production factory will be our next construction project in the SEZ. The existing production facilities for upholstered furniture are already at 95 percent capacity, and it is guaranteed that we will need additional ones.
The fourth direction is all kinds of innovative sleep gadgets and smart sleep accessories. Products of this category are being gradually added to Askona's portfolio. We do not ignore furniture solutions for the bedroom; they will be included in our product line. We do not intend to manufacture all products ourselves. There are articles that, for a number of reasons, are produced by Askona itself, and some are purchased from partners, both Russian and foreign.
If there are companies wishing to join Askona's business as a supplier, we encourage them! I am talking, among other things, about finished products that are needed for our projects in retail, for export shipments and for the B2B sector.
MB: One last question. The procedure for obtaining a resident status - how complicated is it? Is it a bunch of bureaucratic iterations or something more?
OF: The procedure is stipulated by law. The company gets registered as a new legal entity within the boundaries of the municipality where the SEZ is located. The legal entity develops a business plan in the form specified by the Ministry of Economic Development. Constituent documents and a business plan, by convention, are considered an application for residency that is submitted to the regional government. The special expert council of the region considers the application, and if approved, a tripartite investment agreement is concluded between the governor, the investor and the MC of the Special Economic Zone. In fact, from that moment on, the company is granted the status of a SEZ resident and has the right to enter the site. As a managing company, we now have more than 70 “warm” contacts with companies-candidates for participation in the SEZ. Time will tell who will really stay in the project. In any case, we, just like Askona, are interested in attracting furniture makers to Dobrograd-1. We are ready to consider any proposals, answer any questions, and discuss different terms and opportunities. In regard to any investor, we position ourselves as partners and are guided only by the win-win principles - in the interests of business and common success.