Russian minister explains why Far East investment is booming
The region has attracted more than $36 billion in direct investment, more than 95% from the private sector
In less than two months, the Russian Far East region will host its third annual Eastern Economic Forum, one of the largest investor events in the area attended by leaders and business people from Asia-Pacific countries.
In an interview with Asia Times, Minister for the Development of the Russian Far East Alexander Galushka discusses plans for the region, which has attracted more than $36 billion in direct investment — more than 95% from the private sector.
Q: This year, the Eastern Economic Forum (EEF) will be held for the third time. What will be the main theme and agenda of EEF-2017?
“During the first and second forums, we spoke more about our plans for development of the Far East of Russia, its potential to attract investments. This time around, we can talk about what has already been achieved, about the first results we’re getting from the special economic zones, from the Free Port of Vladivostok, from the infrastructure support mechanisms we’ve put in place to help investors and from the easing of the visa regulations.
“The results of the work will be presented not by bureaucrats but by the people on the front line, the investors, who are already carrying out projects in the Far East.
“There’s nothing easier to understand for potential investors than hearing about real project that are ongoing. Here, we will need to discuss not only the success stories, but also touch on the difficulties that businesses met with, so that we understand what to focus on more from now on. It’s important for us that the EEF becomes a working tool to help refine the development of the Far East and that the forum lives up to the interest it’s been generating in the international business circles for the last three years.
“A key theme of the third EEF will be greater collaboration between Russia and countries in the Asia-Pacific region in a number of industries, including energy, logistics, finance, tourism and agriculture. Particular attention will be made to the development of the Primorye-1 and Primorye-2 international transport corridors, which will link landlocked northeastern Chinese provinces to Russian Far East ports.
“An agreement to joint work on the transport routes was signed by President Vladimir Putin and Chinese leader Xi Jinping, when the latter visited Moscow at the start of July. The forum in Vladivostok will discuss ways to implement the agreement.”
Q: How many participants are expected? From which countries?
“Current estimates show that more than 3,700 people will take part in EEF. So far, investors from 26 countries have applied to attend. In addition to representatives of Asia-Pacific region, there will be visitors from Belgium, Cyprus, the Netherlands, Norway, France, India and Sri Lanka.”
Q What are the results of the past two EEFs? What results do you expect from the current forum?
“The previous two forums saw great interest from investors, and that was followed up with a significant flow of investment. At the initial EEF in 2015, 80 investment agreements were signed, worth a total of 1.3 trillion rubles. In 2016, the number of accords rose to 216 and their investment total was 1.85 trillion rubles. We expect no less this year.
“So far, our ministry has received forum applications from 148 investors working in various parts of the Far East region. The projects these investors are working amount to more than 2.4 trillion rubles of investments. That shows the dynamic development of investments into the Far East.”
Q: On the eve of the forum in the Free Port of Vladivostok, the possibility of obtaining a visa right on the border will be introduced. How does the new system work and what will it give?
“Ahead of the forum a unique visa regime will be introduced at the free port of Vladivostok. Foreign visitors will be able to apply for and receive e-visas at the border and all they will need to do is fill in a form on the Ministry of Foreign Affairs website at least four days prior to their arrival in Russia. The program is open to citizens of 18 countries and gives the visitor the right to remain in Vladivostok for 8 days. The visa is active for 30 days from the moment of issue.
“Putting in place this simplified visa regime is, first of all, a way to increase the business activity in the area. A potential investor, without any extra hassle, will be able to enter the Free Port of Vladivostok, discuss project details, see with their own ideas how new business support tools we have introduced are working and so on. The visa restrictions were always a factor holding back tourism flows from abroad. Without those restrictions, I think the numbers [of tourists] will speak for themselves.
“One example I can give is that after visa requirements were annulled between Russia and South Korea, tourists from the latter started to visit the Primorye area a lot more often. Last year’s numbers alone show a 60% jump in tourists from there.”
Q: Despite all efforts, infrastructure constraints and uncompetitive cost levels are still a big issue for the Far East. How are these being tackled?
“Our goal is to make income tax in the territory no more than 11 percent, the same as in South Korea, to limit insurance premiums to no more than 10 percent, same as in Japan, and to make sure construction permits are given out within 26 days, same as in the US.
“The EEF is a key communications platform in the Asia-Pacific region as it allows everyone to hear about administrative mechanisms and schemes that already work and this helps the organizers to reach their goals too.”
Q: Why should the EEF be of interest to businessmen from the Asia-Pacific Region?
“At present, there are 17 special economic zones in the Far East. The free port status has been introduced in eight of the nine territories of the Far East region. Two areas with tax-breaks will open later this year.
“Thanks to these new administrative instruments, the Far East has already attracted more than $36 billion in direct investment, of which more than 95% has come from the private sector.
“The private capital is going into high-technology manufacturing, in the non-resource sector. What it means specifically is 673 new factories, processing facilities, agricultural complexes, all of which will create more than 100,000 new jobs by 2025.
“Of the above, more than 300 facilities are already in the construction phase. We are demonstrating to the world that doing business in the Far East has great potential and is profitable.
“The problems in the region remain in infrastructure and higher cost levels than elsewhere (in Russia). To overcome these there needs to be spending on new infrastructure, tax breaks and the lowering of energy tariffs for industrial users.
“The region’s electricity costs four times that of the national average. However, in July a new law came into effect that in five of the nine territories of the Far East electricity tariffs will be lowered to national average levels.”
Q: How has the flow of investment from Asia-Pacific nations changed in recent years? Which countries invest more in the Russian Far East than others?
“Foreign investments are increasing in the Far East, of which in the past two years 64% came from China.
“In the Free Port of Vladivostok and the special economic zones there are 26 new companies with Chinese capital.
“Their projects total $3 billion. Second comes Japan with $1 billion in investment projects in the special economic zones and the port. After that comes South Korea with $67 million invested in six projects in the zone, followed by Singapore and Australia and India.
“The region is welcoming businesses from new countries. For example, India’s Tata Power has shown interest in taking part in the development of the Krutogorovsk coal deposit on Kamchatka, a $560 million project.
“In Vladivostok, India’s KGK Group is opening a diamond polishing factory. In Khabarovsk region for the first time Japanese investors are coming in as the nation’s trading firm Sojitz Corp. is leading a consortium that will modernize the Khabarovsk airport.
“We have something to offer our partners. The Far East is becoming a strong driver for the Russian economy.”