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Vladivostock Bridge

Vladivostok in the Russian Far East lies more than eight hours away from Moscow by plane. However, it does sit within close proximity to key global economies such as China, Japan and South Korea, which is behind Vladimir Putin's drive to make the resource-rich region a centre of Russian social and economic development. Courtney Fingar reports.

There is, from most places in the world, no quick way to get to Vladivostok, on the eastern flank of Russia. Most flight connections to the Western world go via Moscow, which is itself more than eight hours away by plane. From London, an intrepid traveller crosses 10 time zones and racks up 5300 air miles to reach it. Muscovites speak of Vladivostok, and the surrounding region – known collectively as the Russian Far East – as if it is an entirely different country, or planet. 

But the first week of September saw some 3,000 people from three-dozen countries flocking to Vladivostok, including the president of Korea, Park Geun-hye, and prime minister of Japan Shinzo Abe. They came to attend the Eastern Economic Forum, an event that was established by a presidential executive order in 2015 to promote the accelerated economic development of the Russian Far East and the expansion of international co-operation in the Asia-Pacific region. The president of Russia, Vladimir Putin, was the headline act – hence, the throngs of attendees and high-level participation – and by his very presence made clear that developing the Russian Far East is high on his agenda.   

Putin power

Addressing the forum, Mr Putin was unambiguous: “We have set ourselves a big goal, ambitious in every sense, a huge-scale task: to make the Far East one of the centres of Russia’s social and economic development – a powerful, dynamic and advanced region. This is one of our most important national priorities.” 

In Russia, what Mr Putin wants, he usually gets. 

“It seems to be that whenever Mr Putin is focused on something, it usually gets done, and he has the support of the people in Russia, who trust his judgement when he says something is necessary to advance the county’s interest. He says it’s very important for Russia to develop the Far East, he seems to be doing the right things in managing the relationship with the Asian powers,” says Dmitry Afanasiev, chairman of law firm Egorov Puginsky Afanasiev & Partners.

Target: east Asia

East Asia is the one region from which it is easy to travel to the key cities of Russia’s Far East – Tokyo and Seoul are both little more than two hours away by plane – and therein lies its key advantage when it comes to attracting FDI. “Proximity to Asian markets is a major selling point for the region; there are such huge opportunities there,” says Petr Shelakhaev, CEO of Russia’s Far East Investment and Export Agency. 

Operating under the Ministry for the Development of the Far East, the agency was launched in mid-2016 and has a target of attracting Rbs100bn ($1.6bn) in direct investment by the end of 2017. It is expected that the bulk of the investment will come from domestic investors who are more familiar with the business environment, but foreign investment is also being courted. Sectors being prioritised for investment include forestry, coal and petrochemicals, machinery and hardware production, agribusiness, fishing and tourism. 

“The Far East is a large territory with a lot of resources that can be harnessed and processed in the region,” says Mr Shelakhaev.

Resource rich 

Natural resources and raw materials have traditionally provided the lifeblood of the Russian Far East economy. These can still be exploited but higher value activities and more advanced production will need to be cultivated if the region is to reach the lofty development goals set out by Mr Putin.

“The Far East is the most endowed yet the least developed third of the Russian territory, with its oil and gas, mining and biological resources,” says Alexei Chekunkov, head of the Far East Development Fund, which works as a private equity investor, managing about $1bn and deploying capital into infrastructure and other projects alongside other private investors.

“We are still at the beginning. In the 1990s, the focus was purely on resources and this has been the case for the past 25 years. But three years ago, the government set up a dedicated branch with expanded powers, where one single envoy combines the responsibilities of the president and the government [Yury Trutnyev, who is both presidential envoy and deputy prime minister].”

A people problem

The one big resource the Russian Far East is short on is people. A population of 6.2 million people is scattered far and wide across roughly 6 million square kilometres. An already sparse population has been in decline due to a low birth rate (a problem across Russia) and an outflow of people seeking employment opportunities elsewhere. But Mr Putin insists the negative demographic trend has been reversed. For the first time in 25 years, the cities of Khabarovsk Territory, Sakhalin, Yakutia and Chukotka are seeing an increase in population, and for the third year in a row the birth rate in the Far Eastern Federal District has exceeded the death rate, according to Mr Putin.

“Fewer people are leaving the Far East. There is population outflow, regrettably. However, it went down 3.5-fold for the Far East Federal District as a whole over the first half of this year,” the president told the forum. “It is true that the demographic results are still modest, but they do demonstrate an emerging trend and we must now build on this trend and make it irreversible.” 

The government has set a goal of continuing to boost the population of the region over the course of the next three years via economic, social and demographic programmes. It is even giving out hectares of land for free to enterprising people who are ready to relocate to the region. 

Another constraint is that the Russian Far East's transport infrastructure is not up to speed yet. However, that is being made a priority for investment.   

“Obviously things are not perfect yet, there’s a sort of dual reality. There’s a reality that we see here [at the forum] where the venue is very modern, people speak foreign languages and are forward looking; and if you go into the town of Vladivostok they would tell you that not much is happening in the actual daily routine in terms of economic opportunities,” says Mr Afanasiev. “But I think that things take time and Russia is making a bunch of leaps forward in a very short period of time.”

Neighbourhood watch 

Much of the success of the ambitious plans to develop this far-flung region depends on links with near neighbours. “I think everyone recognises the huge potential of economic development of the Far East. But unless strategically the Far East economy is put into the context of regional integration, I see less chance of success,” says Xian Zhu, chief operations of the New Development Bank, a multilateral development bank that is prepared to support infrastructure projects in the region. “There are the very mature consumer markets of Japan and Korea and the emerging market of China [nearby], so the Far East development needs to be somehow embedded into that situation and also get the support of these countries – of the private sector particularly.” 

Mr Afanasiev believes it is important to keep the region’s trajectory, and pace of development, in perspective. “If you look at the track record of the Russian government during the first presidential term of Mr Putin during 2000 to 2004 when he had a very liberal government, which had actually implemented a lot of reforms that created a tremendous push for economic development in Russia… They had a programme at that time, and 60% of it has been implemented,” he says. “So I think the same will be here, 60% of what is being promised will be done. Is that too much or too little? I think it’s better than nothing, and for tens of years if not more, in this part of the country there has been nothing, so I think that’s an improvement.”

This article is sourced from fDi Magazine
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