Galina Disterlo / REQ

The city of Voronezh appearing in the distance. The city and region both have undergone economic growth.

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The Voronezh region is in the middle of European Russia near the Ukrainian border, and its main city bears the same name. Distance from Voronezh to Moscow: 439 kilometers.

A Time for Gathering Stones: Rebuilding

Perestroika and the troubled times that followed made a substantial mess of the nation's economy, and Voronezh was no exception. An area with enormous economic potential, it was highly subsidized for many years. Neighboring regions — the Lipetsk and Belgorod regions — actively developed their manufacturing and infrastructure, but Voronezh seemed more like a city of symptoms. Public transportation acquired from Europe's dumps moved along the unswept streets, and the factories and plants spewed out black smoke on smashed-out windows. Meanwhile, trained workers such as engineers and scientists were forced to sell their belongings at the local markets. By 2005, there was serious public discussion about transferring the capital of Russia's black earth region from Voronezh to perhaps Lipetsk. At that time, Voronezh's only ambitions as a regional capital were in its theater, opera and ballet.

Voronezh needed not only to revive what had been ravaged, but to bring its economy into modern times as well. In 2005, the region took up "The Program for Economic and Social Development of the Region Through 2015." Also in 2005, Leonid Selitrennikov, who was then deputy governor, spoke about the fundamental priorities at that time.

"First of all, we need to help the well-meaning investor realize profits for his projects," Selitrennikov said in a 2005 interview with this reporter. "Before preparing a law that would let us seriously affect the procedure for supporting investors, we analyzed what laws were in effect in other regions in Russia. The [most] appropriate laws turned out to be in the St. Petersburg market, and we used them as a starting point," he said.

The total amount of investment in the region in 2005 was 27.4 billion rubles ($941 million).

Today the typical Voronezh resident doesn't chime in with such optimism. According to figures from the State Statistics Service, the region is getting closer to first place in the black earth region for the lowest salaries and highest prices for food, gasoline and real estate.

By the start of 2009, life had at least become a bit brighter under Alexei Gordeyev, who had been appointed governor that year, as the former agriculture minister's personal ties turned out to be helpful for the Voronezh region.

"You gave the government [in Voronezh] a close look, and you did a good job of it," Prime Minister Vladimir Putin said in June 2009 about the Voronezh governor's report. "You are bringing in ministers to work on the region's problems. I think that these connections will have a beneficial effect on the social health of all residents of the Voronezh region," Putin said.

Gordeyev, for his part, said an analysis of the situation showed that "besides problems with the economy, there are three factors that are causing problems: backwards technology, very weak management and the indifference — and sometimes even the greed — of business owners."

In 2010, just 15 major investment projects in the Voronezh region produced a total of 211.9 billion rubles ($7.28 billion). Those projects included the construction of two power generating units in Novovoronezh at a cost of 130.9 billion rubles, the creation of a granite mining and processing mill for 17 billion rubles and the construction of a cement factory in the Podgorensky area for 15 billion rubles. However, Voronezh's budget for 2011 will run a deficit of 500 million rubles: Revenues are calculated to be 12.5 billion rubles, while expenditures amount to 13 billion rubles.

For and Against

The Voronezh region has a clear agricultural-industrial character. A hundred years ago, geologist and soil scientist Vasily Dokuchayev established the Voronezh region's black earth — rich, dark topsoil — as the standard for fertile soil.

Over the past 50 years, under the slogan "Discover the Virgin Soil of Voronezh!" the land has been depleted. With priority given to land under cultivation, forests and forest cover were cut down.

"Today, about 80 percent of cropland in Voronezh is under cultivation," said Alexei Sviridov, head of the local ecology branch of the Dokuchayev Science and Research Institute. "The landscape has been ruined. The flow of new organic material into the soil has slowed down. To restore the land's productivity, you need fertilization, you need the correct crop rotation."

Today, it is theoretically possible to harvest 5,000 kilograms to 6,000 kilograms of grain per hectare in the black earth region. But these figures may not be entirely accurate.

"People are talking about the development of agriculture. They commission a regional development strategy for a huge sum of money, but they do so on the basis of reports, tables and records that are 20 years old," said Vladimir Parshikov, a Ph.D. candidate in agricultural science.

Restoring the local ecosystem and creating favorable conditions for the development of agribusiness will take time and, probably, long-term investment.

Investors in Voronezh are much more eager to put their money into industry and real estate. Moreover, the city is seeing a trend of enterprises relocating from the city to industrial zones.

"Over the course of 50 years, everything has changed — opinions, technologies, the priorities," said Boris Kolokolnikov, director of the local real estate agency Transfert. "Often it's simpler to build something new, rather than redo what's old. Manufacturing is moving outside the city, partly because a square meter in the city center costs more and can bring a larger profit," he said.

The Voronezh region is part of the so-called Red Belt, a part of the country where communists have done well in recent elections, and negative feelings against big business among the general population are very strong.

The reasons for this bias are serious. For instance, the entry about the Voronezh region's problems in the Social Atlas of Russian Regions is far from a full list:  "a high mortality rate, little economic growth, a low level of income among the general population, a serious level of poverty" and more.

But such grim indicators haven't affected the property market.

"Whereas the realtor's main difficulty in 2009 and the first half of 2010 was finding buyers, now the main problem is finding a property to satisfy the whole extent of the buyer's requirements," Kolokolnikov said. "Today on the real estate market interested buyers exceed the supply of properties for sale."

Where Is Real Estate Heading?

Since September, Voronezh has experienced a definite growth in its market for residential and commercial real estate, which can be seen in both rental agreements and purchases of commercial sites.

"Today there is an active demand for industrial and warehouse space, as well as parcels of land for industrial use," said Anatoly Boiko, chairman of the board of the investment and construction company Real Estate and Credit. "Lots ranging in size from 50,000 to 300,000 square meters are in demand."

The cost of rent for such locations is 100 rubles to 220 rubles ($3 to $7) per square meter, and the purchase price is 10,000 rubles to 20,000 rubles per square meter, Boiko added.

There have been enough offers, but quality sites with good locations and utilities are few and far between. Boiko said the biggest demand is for sites located on the first line, but sites with utilities, good layouts and locations are few in number or are very expensive.

"When you start to analyze the available supply, you find that there obviously aren't enough truly attractive sites," he said.

It is difficult to predict the percentage of growth Voronezh will see in prices on the real estate market in 2011.

"Apart from the laws of the market, [prices] can be affected by other laws, regulations and even public statements by certain people," Kolokolnikov said. "Many experts agree that, barring any catastrophes, the increase in the price of property will be 1 percent to 1.5 percent per month. Along those lines, apartments will rise in price by 10 percent to 15 percent for the year," he added.

Meanwhile, officials are looking to create a more competitive environment for investment.  

"In the Voronezh region, we need to introduce a program to develop competition," said Vladimir Rokhmistrov, chief of the Voronezh division of the Federal Anti-Monopoly Service. "This will not only solve the problem of inflation and make the Voronezh region more attractive to investors, it will also stabilize the rise in prices," he said.

The government's main task is to avoid interfering too much in the market, some said. Investors want to see possibilities: If there is demand and business takes a turn for the better, then investment will bring in revenue. Investors could be attracted — in fact, need to be attracted — to Voronezh, Boiko said.

"In the midst of a very favorable climate for investment, when the commercial real estate market [mainly warehouse and industrial] is still far from saturated, the land market is full of interesting offers," he said. "Voronezh doesn't have any large, quality sports complexes for the masses. In my opinion, this is very interesting for investors, because these venues will be in demand in the future."

However, potential investors should be wary of projects that haven't been completely thought through, especially when it comes to obtaining the necessary permissions and documentation, Boiko said. "Drawing up all the required documents often takes several years  — this is the main difficulty builders run into," he said.

"Each [project] has its own stumbling blocks, but you can't insure against every possible situation," Kolokolnikov said.

Every investor should decide what to rely on and what to be wary of while taking into consideration the best interests of his business, he said. "Everything is individual — risks, priorities, interests. But one thing can be said. As of late, Voronezh has become more orderly."

He added, "Bureaucracy hasn't decreased, but it's become more structured, it's become more transparent. Logic has appeared, and this is cause for joy."