To diversify its national economy, Moscow has pledged to boost investments and trade in Russia’s Far East. The region is rich in natural resources but requires more infrastructure building for deeper economic integration and to boost exports. Asian companies are likely to cash in. Tom McGregor takes a closer look
By Tom McGregor, CCTV.com Panview commentator and editor based in Beijing
There’s more to Russia than oil and gas, and with Western governments imposing harsh sanctions on Moscow, Russian President Vladimir Putin has touted a look to the Far East proposal.
By cutting taxes and opening doors for foreign direct investments (FDI) in the country’s Far East, which borders China, Mongolia, the Korean Peninsula and is in close proximity to Japan, Russia will be able to enjoy higher annual gross domestic product (GDP) growth rates again.
The Far East covers more than 6 million square kilometers of territory, but is sparsely populated with 6.2 million people, many of them based in the western coast port city of Vladivostok. The region holds an abundance of untapped reserves of natural resources, while rich in agriculture and fisheries.
Unleashing the Benefits
“The Far East shares a border with some of the most dynamically developing economies in the world,” Russian Minister for Development of the Far East Alexander Galushka told the Asia Times. “It’s key for us to harness that economic power for the benefit of developing our eastern territories.”
Moscow has set up special economic zones and renovated the Free Port of Vladivostok to streamline trade flow between Russia and Asian markets.
Asian miners can explore huge deposits of gold and silver, along with 70 types of ore, such as zinc, coal, iron, titanium, platinum and manganese.
Nonetheless, the major moneymaker for the region remains oil and gas that can be found in the Sakhalin fields. Russian plans to boost liquefied natural gas (LNG) exports to Asian countries.
In the Sakhalin-3 oil and gas project, Japan’s Mitsui has just invested over $1 billion. to add a third production line to the Sakhalin-2 LNG plant, which is scheduled to go online by 2021.
Russian oil and gas companies have built mega pipeline networks to export fossil fuels to China as well.
Feeding Its Neighbours
“In the Far East today, more than 500 projects are in the implementation stage with plans for another 300 and when we look at these projects we see that the most popular with investors is agriculture, not mining,” said Leonid Peluhkov, director-general of the Far East for Attracting Investments and Supporting Exports.
Asian countries have enjoyed remarkable economic growth rates with rapid industrialization and urbanization. Such measures have helped hundreds of millions of Chinese and Asians escape poverty, since many have migrated to cities for higher-paying jobs.
Nonetheless, many farming families had departed from their lands, which means China and other Asian countries can no longer feed themselves. Each year, China imports about $250 million worth of foodstuffs.
Ironically, Western-imposed sanctions have forced Russian agriculture to reform, so there’s a larger supply of livestock, dairy and crops, not only to feed the country but also to be exported abroad without inflicting increased inflationary pressures.
Russian farmers are producing soybean, corn, wheat, rice and rapeseed, as well dairy and meat for Asian consumers.
Last September, Moscow and Beijing had set up a $10 billion agricultural fund, mainly funded by Chinese capital, to upgrade logistics on imports to China and to ensure stronger food safety standards for Chinese buyers.
Building Transport Corridors
“We’ve attracted $37 billion of private investment to the region, but this is not a one-off action,” said Galushka. “We plan to keep going and by the end of 2017 accumulate a total of $67 billion in private investments.”
Sounds optimistic, but there’s still a significant challenge. Much of the Far East stands isolated with few roads and logistics centers after minerals get extracted, timber — ready for shipment and foodstuffs — set for delivery.
China’s One Belt One Road can help. Beijing has pledged to invest in the construction of massive infrastructure projects to jump-start cross-border trade and investments with member states.
Russia was one of the first countries to enroll, as they have upgraded customs on the border to make trade between the two countries more efficient.
China was one of the first supporters of the Far East, launching 23 new projects in farming manufacturing, energy, transportation, logistics and hotel construction.
Meanwhile Japanese firms have tapped in to Russian energy projects, including coal and have ushered in high-tech innovations for Russia’s manufacturing sector.
Open Spaces, Open Opportunities
Russia’s Far East can lead to riches for Asian companies but it won’t happen overnight. To tap into its natural resources, including agriculture and fisheries, much groundwork lies ahead.
Asian companies have already played a pivotal role to urbanize the continent and perhaps the Far East needs some urbanization too for the proposal to succeed.
By constructing more logistics hubs, economic corridors, energy zones and trading ports in the sparsely-populated region, such activities would encourage more Asian investors to move in and score bigger profits in the long term.