Will the Crimea become an impetus for economic growth?

March 21, 2014, the Federation Council approved a law on the procedure for joining the Crimea and Sevastopol to Russia and approval of a transitional period for the smooth integration of the two new entities.

Certainly, the inclusion of Crimea and Sevastopol to Russia is a historical event, but opinions about how this event will affect the economic development of the country as a whole, and new actors in particular, are diametrically opposed.

Some say that the possible economic sanctions for the "acquisition of Crimea" are too large, especially in conditions of low economic growth. In this case, rather frightening are so-called tacit sanctions, such as recommendations to foreign businesses to stop the possible cooperation with Russia or downgrade of Russian companies by foreign rating agencies. Also the cost of the integration of new entities to the Russian Federation shouldn’t be forgotten. Although it is early to speak about specific numbers today, but the most immodest estimates only in the current year the total cost of joining the region may reach 150 billion rubles.

Since the process of integration is quite delicate and requires informed and rational decision-making , it is assumed that the transition period will last until the end of this year . According to Dmitry Medvedev , right up until the end of the transitional period in the Crimea and Sevastopol will act social benefits, in accordance with Ukrainian legislation, but they will be paid in rubles , on the basis of exchange at the time of accession to Russia (3.8 rubles to UAH ) . In addition, the Prime Minister noted that leading of social benefits to nationwide level should be realized gradually in order to reduce the risk of inflation.

One of the critical issues is the dependence of the Crimea from Ukrainian energy and water supply. The country leaders are considering the joining of the peninsula to the integrated power system of Russia through the Kerch Strait, or construction of two in the republic two high-power stations as possible solutions to this problem. Temirgaliev Ruslan , Deputy Prime Minister of Crimea, said that the construction of nine mobile gas and steam turbine power stations can help to solve the problem of intermittent electricity in the medium term.

The main goal that the government has set itself in the long term is the all-round development of the region with the gradual transformation of the subsidy, which it was earlier, to donor region.

Today the varieties of ways to develop the Crimea are suggested. Development of traditional sectors such as tourism and wine production, development of new sectors, such as offshore gas extraction, are among them. Deputy Prime Minister Dmitry Kozak , who was assigned to be responsible for the Republic of Crimea in the government , said that by April 15 of the current year the plan to establish a special economic zone (SEZ ) in the Crimea has to be prepared. After vesting Peninsula of SEZ status, Special Corporation will be established. Its main task will be the execution of public projects and attract private investment. According to Economic Development Minister Alexei Ulyukayev , today Russian investors are ready to invest about USD 5 billion in Crimea projects.

At the same time the Prime Minister suggested to consider the option of introducing a "tax holiday" during the transition period for enterprises that have changed to the Russian jurisdiction and paying taxes in the Crimea. In addition, many experts predict the creation of tax incentives for significant investors came to the Crimea.

Experts predict that one of the possible option for the development of the Crimea as SEZ could be the creation of our "Silicon Valley", i.e. connection of the tourist center and the center of high-tech development. Given that the world experience shows the effectiveness of such mergers, as an example, the Silicon Valley in the U.S. and Azure Coast in France.

Furthermore the Crimea can serve as an excellent model for the development of other territories and the introduction of new model of development in general, targeted not at the resource sector of the economy, but at the development of innovative technologies and industry.

Joining the Crimea and Sevastopol is definitely an event went down in history, but it will take much time to assess its economic impact fully. First we need to complete the transition period, the ending of which will be able to clarify which industries require priority development. Also it is very important to develop the region not in isolation but as part of the entire Russian Black Sea coast. Only with informed decisions by the country's leadership and the choice of the correct development strategy in the region, the Crimea could become an impulse of general economic growth.

New Corporate governance code

The Government of the RF has adopted a new Corporate governance code, the previous code of the year 2001 is played-out, that was noticed in the expert community long ago.

A lot of attention is paid in new rules to compensation policy of top-management. It is necessary to set a limit on so called «golden parachutes» to reasonable, especially in companies, where the main shareholder is the state. As an example - financial compensation in the sum of 230 mln RUB, which was got by the former Head of «Rostelekom» Alexander Provotorov by the dismissal, who had been working as General director only for three years, what became a record in the domestic practice of such payments. The Code introduces fixed severance payments, but not higher than two annual earnings; besides that, annual compensations themselves should be fixed depending on the extent of duties or complexity of work in progress.

The Code’s recommendations will be necessary to be taken into account by enterprises, whose securities are listed on the Exchange. A number of requirements is introduced for organizations, which have pretentions to a high level of listing of their securities, including to the amount of independent board directors - there should be not less than two in the company management. Public companies should become an example for all entrepreneurship of the country.

The document in whole was accepted positively in «high street», however, it has a substantial defect – it is of recommended character and cannot be perceived as call to action. Taking it into account, the Government of the RF has suggested the beginning of the introduction of corporate rules with state-owned companies, and all others, in theory, should follow them. But in all certainty it is arguable that the introduction of this Code will require a long time and positive practice in real market conditions.