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Improving Russia’s Economy through Regional Benchmarking

January 12, 2018 By Andrey Nikitin , Svetlana Chupsheva , Igor Kustarin , Vladislav Boutenko , Konstantin Polunin , and Anton Stepanenko

In 2013, each of the different regions in Russia followed its own approach to economic development. The Russian national government, regional governments, and major business associations struggled to monitor the efforts—and success—of regional authorities seeking to improve their business and investment climate. Existing ratings and statistical tools provided inconsistent—and sometimes controversial—results without a consolidated view. Moreover, no one had a simple way to identify which practices were working.

The Index

To gain a deeper understanding of the regional investment landscape and to better monitor and improve it, the Russian Agency for Strategic Initiatives (ASI) and The Boston Consulting Group began developing a national set of metrics to assess how attractive individual regions were to business investors. The project had four objectives:

  • Develop a rigorous and comprehensive tool to assess the efforts of regional authorities in improving the investment climate
  • Create a system of incentives for government bodies to improve the climate and attract new investment
  • Support regional officials in instilling better practices in their region
  • Identify best practices as they emerge so they can be replicated in other regions.

The Regional Investment Climate Index (RICI) that BCG designed working in combination with ASI consistently and objectively rates the investment climate in each of Russia’s 85 regions. Collecting and comparing regional data on 44 key parameters, the index is designed to uncover opportunities for each individual region to improve its respective position. 

The Analysis

The RICI analysis not only shows regional economic development officials how their region stacks up against its peers but  also points to the key issues that may be impeding business development, such as the need to improve the quality of the labor force or the need to reduce bureaucratic roadblocks that impede business development. 

The 44 parameters measured by the index represent different aspects of four key factors investors consider:

  • Regulatory environment
  • Institutions for business
  • Infrastructure and resources
  • Support for small business.

Those individual parameters include the efficiency of enterprise registration procedures, the efficiency of organizational tools for business support, labor quality and availability, and the relative maturity of the small business sector.

The Application

The rating system used in the index highlights the leading regions as well as best practices for each indicator, enabling regional development officers to assess their region’s potential for improvement.

RICI was tested in 21 Russian regions in 2014.  After fine-tuning the index, ASI and BCG rolled out RICI to 76 regions in 2015 and began sharing best practices across all the provinces. As a part of a National Entrepreneurship Initiative (NEI), all 85 regions developed roadmaps to improve their investment climate based on best practice examples revealed by the index.

However, benchmarking is only one part of the RICI program. After using the index to rank Russia’s regions, the ASI and BCG teams shared those rankings with local officials, and advised them on the best opportunities for improvement.

In 2016, the ASI trained 600 vice-governors, regional ministers, and deputy ministers in gathering the most information and creating the greatest economic advantage using the RICI tool. The regional authorities learned how to find their ratings, determine the areas they needed to work on to improve the local investment climate, identify best practices in other regions, and contact their counterparts to find out how to implement the best practices.

The Results

RICI is already paying off: According to the World Bank’s 2017 business rankings, Russia now holds the 35th position (of 190 countries), moving up from the 51st position in 2016 and leapfrogging over a number of powerful economies including Belgium, Thailand, Mexico, and Italy.

From 2015 to 2017, 43 Russian regions improved their RICI scores. More than half—or 24—of these achieved consistent improvement over two years.

The index has already led to important structural changes that benefit business investors nationwide:

  • The time it takes a new business to connect to a power grid fell by more than 200%, from 251 days to 84 days.
  • The time required to establish a new legal business entity declined by 28%.
  • The time needed to secure a building permit fell by 184 days from 423 to 239 days.  

Individual regions have also made huge economic gains in a short amount of time.  In 2016, three new regions—Tyumen Oblast, Vladimir Oblast, and Khanty-Mansi Autonomous Oblast—rose to the top 20 in the RICI rankings. Investors rewarded these regions’ efforts with an average of 12% per-capita increase in private investment and an 11% rise in per-capita gross regional product.

The regions ranked 11-20 by improvement (including the Republic of Tyva and the Kaliningrad and Novgorod oblasts) achieved a 2% increase in private investment per capita and a 22% increase in per-capita GRP, on average.

The information and processes used in the RICI program builds on those of prior years, and BCG and ASI have worked to further improve the RICI’s predictive value each year. This work too seems to be paying off: each year, the correlation between ranking and GRP continues to tighten. Based on RICI’s results in Russia so far, BCG estimates that a 1.3-point increase in RICI corresponds to an increase in per-capita private investment of 1%, and a 2.1-point increase in RICI corresponds to a 1% gain in per-capita GRP. 

A National Framework for Ongoing Improvement

RICI also yielded a number of important national recommendations that had not been captured by previous global economic performance surveys. Drawing on the RICI insights, ASI and BCG devised a framework intended to help the entire country improve its performance on RICI metrics, such as efficiency of procedures for construction permit issue, efficiency of procedures for power grid connection, quality of informational support of investors and business, efficiency of cadastral registration procedures, and support for small- and medium-sized enterprises.

This led the Russian government to develop 12 target models—or blueprints—of key performance indicators with targeted values, defined as current regional best practices, which were to be achieved by the end of 2017 in every region. The models were designed by dedicated federal working groups consisting of federal government officials, independent experts, business, ASI and BCG representatives, and approved by the government in January 2017. Each region prepared its own roadmap of specific steps and initiatives to implement each of the 12 target models.

Next, BCG and ASI designed a framework and IT tool for monitoring the implementation of the target models across the country and preparing analytical reports for the government. Following the approach outlined in the framework, ASI gathered data from the regional authorities and consulted regional independent experts, who verified the data, and finally, federal authorities, who approved the results.  Local project management offices continue to be trained in order to optimize the target models.

The target models are expected to deliver significant impact, yielding value for the country as a whole. This monitoring and control framework serves as the foundation of the entire implementation process, which, in turn, will help eliminate excessive regulatory procedures, encourage the passage of helpful local regulations, digitalize preparation of documents, and make the business community better informed and more engaged.

Improving Russia’s Economy through Regional Benchmarking

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