Russian-Belgian industrial park project in Klin region FAILED due to corruption

[experienced_investor_RU]

The Russian-Belgian industrial park project in Klin region (80km from Moscow), which was announced in 2006 has failed due to unprecedented level of corruption in Klin regional administration. Description of the project can be found here: http://www.belgium.mid.ru/press/061_1_en.html

The project provided for about 1Bn US$ of direct foreign investment to create about 300 hectares industrial park in Klin region. Klin boasts good location and proximity to the wealthiest Russian market - Moscow. Despite good foreign investment growth statistics in the prior years most new investment projects in Klin region fail. Two big investors Glaverbel and Sun Interbrew who already operate factories in Klin region and who originally supported the project refused to further invest. Why?

The main reason for this is extremely high level of corruption and unprecedented greed of local officials in Klin administration. The industrial park project provided for about 300 hectares of land to be purchased by foreign investors. The price per hectare was set at US$1 million! At the same time the largest Klin region land owner Mr. Zuev (who is currently deputy head of Klin administration) purchased such land just a year ago at just $100 per hectare. Now he sells it at 10 000 times the purchase price! At the same time the real market price of land in Klin region according to real estate agencies is in the range of 50 000-100 000$ per hectare, at least ten times less than what is offered to foreign investors! In addition the $1Bn industrial park project provides for about $300M investment in "social infrastructure" i.e. 30% of investment, probability that this money will actually be used for infrastructure is quite low - most likely they spend $5-10M on infrastructure and the rest will be shared by a gang of greedy local government officials.

This leads me to a conclusion, that investment in Russia is quite an expensive enterprise. We planned to set up a very specialized high-end industrial coatings plant in Klin region as a subsidiary of Belgian company, but we probably have to reconsider our affair and either find a place where we don't have to spend 60% of our investment to make rich greedy officials and local bandit land owners such as Mr. Zuev.

Anonymous investor from Belgium, Genk region
Dated 21 Mar 2008