Three years ago, in July 2020, Federal Law No. 193-FZ 'On State Support for Entrepreneurial Activity in the Arctic Zone of the Russian Federation' was signed. With it, a new era in the development of the Arctic began—on 5 mn square kilometres, businesses and the state entered into close cooperation for the forced development of the Polar Region's economy.    Today we can summarise the intermediate results of the hard work of thousands of people creating unique projects in places where 30 years ago people were talking about dying cities, a depressed economy and the need to forget about life in the North forever.

This is why the AZRF was created!

The Arctic zone of the Russian Federation is a special economic zone that covers 9 subjects of the Russian Federation. It includes entire territories of the Murmansk Region, Yamal-Nenets Autonomous Area, Nenets Autonomous Area and Chukotka Autonomous Area, and partially includes the Republic of Karelia, the Komi Republic, the Republic of Sakha (Yakutia), Arkhangelsk Region and Krasnoyarsk Territory.

Due to the special status of these territories, entrepreneurs willing to invest over RUB 1 mn in establishing a new enterprise receive federal government incentives and preferences that significantly expedite their growth. These include zero income tax for 10 years, subsidising 75% of insurance premiums, a simplified taxation system and much more. Additionally, there are regional incentives for entrepreneurs, paid for by the local budget. For example, in Arkhangelsk Region, AZRF residents can reduce their profit tax to 5% for the first five years and then pay only 10% for another five years. The property of organisations is also taxed, reduced to 0.1% for the first five years, and then 1.1% for a further five years.

Local government support measures vary from region to region depending on the development priorities of the territories—somewhere there is a need to grow fresh vegetables, and in another place, to repair ships or take tourists to see the northern lights.

A total of 679 investment projects totalling RUB 1.6 tn have appeared in the AZRF over the last three years. So far, 12,900 jobs have been created, and the full start-up of existing businesses will generate about 38,000 jobs. On average, about 50 new projects are established per quarter (between the third quarter of 2020 and the second quarter of 2023), which clearly shows the interest of entrepreneurs in developing Arctic resources.

And these are not only large projects for the development of coal, oil and gas deposits, as well as their maintenance. Small and medium-sized businesses make up the overwhelming majority of projects, representing 90% of AZRF residents. Tourism, restaurants, cafes and food trucks, hotels, transport companies, microgreen farms above the Arctic Circle, down and feather production, fishing and hundreds of other activities engaged in by locals and visitors alike. At this point, it can be confidently asserted that the AZRF as a tool for intensifying regional economic development has met all expectations.

Big fish in the northern seas

The development of the Arctic is inextricably linked to the implementation of large-scale projects, both in terms of mining and infrastructure construction. They become the foundation, the basis that ensures the work of the whole huge mechanism of the AZRF. At the moment, most of them are under active construction and the first production lines are being launched.

For example, the largest investor among AZRF residents was Ruskhim Gas LLC, which invested RUB 204 bn in the construction of a gas chemical complex in NAA. It will process natural gas into methanol. It is followed by the Centre for Construction of Large-Capacity Offshore Structures from Novatek with investments of about RUB 136.4 bn. This is where the floating plants for Arctic-LNG 2 were built and are now being towed to their permanent location. The Lavna coal transshipment complex, in which about RUB 58.5 bn was invested, rounds out the top three. It is a year-round mineral processing plant combined with a port. Located in Murmansk, the Lavna MTP will become a key part of the North Sea Route infrastructure once it reaches its design capacity.

Where are we sailing, comrades?

The AZRF is a dynamic public-private partnership system that adapts to meet current challenges. For example, the Ministry for the Development of the Russian Far East and Arctic together with VEB.RF is working on the issue of preferential subsidised lending for investment projects in the AZRF. So far, this support has been provided to 13 projects, including under the crisis plan. A scheme to bring back a mechanism to recover the compensation or cost recovery mechanism for the construction of project infrastructure will be returned soon. This is an important factor for the development of remote areas, where often useful elements for production such as roads, power lines, etc. are simply not available.

The results of the AZRF in 2023 are the first step for a grand plan to make the Arctic the driving force of the domestic economy. The 'North Sea Route Development Plan until 2035' lists more than 150 measures worth RUB 1.8 tn. This includes the construction of a nuclear-powered icebreaker fleet, the creation of a stable satellite constellation for all-weather monitoring of the North Sea Route, the construction of ports and repair facilities, the organisation of the northern supply system and much more.

According to Mikhail Mishustin, Chairman of the Government, in the long term, the development of the AZRF will bring the state about RUB 20 tn, i.e. each invested rouble will generate another RUB 30. The colossal scale of the challenges means that the need for AZRF residents will not end for many decades to come. Find out about the terms of cooperation and apply here.