Russia’s Far East rolls out the welcome mat for investors
Natural resources combine with big ambitions for value-added industries as Moscow pushes to develop the region
Russia’s government is offering tax breaks, special economic zones and other incentives to investors in the Far East areas of the country, including the Free Port of Vladivostok, to broaden the economy from natural resource extraction to processing industries and services.
“The Far East shares a border with some of the most dynamically developing economies in the world,” said the Minister for Development of the Far East Alexander Galushka. “It’s key for us to harness that economic power for the benefit of developing our eastern territories,”
The Far East region has long been known as Russia’s resource base, containing oil and gas deposits and about half of the nation’s gold and silver reserves.
Companies also mine the region for about 70 types of ore, including zinc, coal, iron ore , titanium, platinum and manganese. But the largest deposits are typically in hard-to-reach areas, with undeveloped transport and energy infrastructure.
Analysts at the Center for Economic and Financial Research and Development said the government now seems committed to providing the infrastructure support needed for development.
“The state is ready to build roads, add energy sources and other necessary engineering and utilities infrastructure for the mining projects,” according to the center.
Investment took off in the Far East from 2000 to 2005 when oil and gas projects in the Sakhalin Oblast territory attracted about 96% of foreign direct investment.
This allowed Russia to export oil and liquefied natural gas (LNG) to Asia-Pacific nations.
Still to come is the Sakhalin-3 oil and gas project, while Japan’s Mitsui & Co. has said it will invest more than $1 billion to add a third production line to the Sakhalin-2 LNG plant, which is expected to come online in 2021.
More recent investors include Australia’s Tigers Realm Coal Ltd. and India’s Tata Power. Tigers Realm in June this year shipped its first 40,000 tons of coking coal to China from a coal field in Chukotka in 2016. Output for this year is set at 400,000 tons.
Tata Power is developing the $560 million Krutogorovsky coal deposit in Kamchatka, which at full capacity will produce up to 10 million tons of coal a year.
The uptick in investments is largely due to a new economic policy for the Far East.
“We’ve attracted $37 billion of private investment to the region, but this is not a one-off action. We plan to keep going and by the end of 2017 accumulate a total of $67 billion in private investments,” said development minister Galushka.
Beside the known attraction of natural resources in Russia’s Far East, the region also has vast unused arable land and a climate suitable for growing soybeans, corn, barley, and feed for livestock.
Investors are now waking up to this potential, said Leonid Petukhov, Director General of the Agency of the Far East for Attracting Investments and Supporting Exports.
“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 now is agriculture not mining,” said Petukhov.
The biggest selling point for the region is its proximity to export markets with neighboring countries, including China, importing about $250 billion worth of food each year.
This potential led to establishment of the Russian-Chinese Fund for Agro-Industrial Development in the Far East to provide financing and technologies for farm projects.
Russian agribusinesses as well as investors from China, Japan, New Zealand, Mexico, and Israel are setting up to grow soybeans, corn, and rice, as well as establish meat and dairy farms.
More produce for export means transportation infrastructure and logistics is the logical next step for investors.
The largest projects are the international transport corridors Primorye-1 and Primorye-2, which provide northeastern provinces of China access to the sea on Russia’s Pacific coast.
Russia’s Far East Development Ministry and China’s State Committee for Development and Reform sign a cooperation accord on the joint development of the corridors on July 4, this year.
Other territories of the Far East are working on the creation of logistics centers and construction of specialized terminals in seaports and airports, attracting investment from Japan, Korea, and Singapore.
Other value-added industries are starting to crop up in aircraft and shipbuilding in the Primorsky region home to Vladivostok and the Khabarovsk territory, while an aerospace cluster is being formed in the Amur territory. A number of foreign investors have found openings in car assembly and shipbuilding.
“Investors are finding promising niches, breakthrough technologies, launching projects and making profit,” Denis Tikhonov, the general director of the state-run Far East Development Corporation, told Asia Times.
Tourist visitors have increased, helped by the opening in Primorye of the first hotel with a casino about 18 months ago. Others are planned with about $2 billion pledged to invest in the gaming zone to build integrated resorts, using knowhow from Macao and Hong Kong.
Beijing was the first to bet on the new strategy for the Far East with 23 of the new projects involving companies from China in farming, manufacturing, energy, transport and logistics, as well as construction of hotels.
South Korean investors followed, according to the Deputy Minister for the Development of the Far East, Artur Niyazmetov.
Six South Korean investors have taken advantage of relaxed regulations in the region to move forward with projects valued at $67 million, including an automated payment system for Vladivostok buses and a factory making household chemicals.
There’s momentum building from Japanese investors as part of the economic cooperation agreements signed with Tokyo last year. These projects include coal terminals and production of electric vehicles, local officials said.
“By the end of this year, 85 new enterprises will be launched in the Far East,” said development minister Galushka. “That’s a total of more than $1.8 billion in investments and 5,500 jobs.”