Monday, December 21, 2015

Domestic Russian initiatives aim to capitalize on the country’s vast far eastern region and boost ties with Asia

Domestic Russian initiatives aim to capitalize on the country’s vast far eastern region and boost ties with Asia.

In 2015, Russia has aimed to revive its expansive Far Eastern Federal District through unprecedented levels of cooperation with the Asia-Pacific region. In this three part series, we’ll explore those efforts. Part 1 reviews domestic initiatives in the pragmatic transformation of this vast territory.

The center of Russia’s Far Eastern Federal District, Khabarovsk, is 6,000 kilometres and 8 time zones from Moscow. With the proximity of the dynamic Asian economy, the consolidation of the BRICS alliance and further economic decline facing the region due to the weakening ruble, President Vladimir Putin and his administration have accelerated their attempts to revive the region.

Projects this year have featured both internal and external designs. Within the territory of the Far Eastern Federal District, 2015 has seen land incentive schemes, a network of ‘free-ports,’ renovation of the Trans-Siberian and Baikal-Amur railways, construction of oil refineries, gas pipelines, a sprawling national space-center and the upgrading of nuclear shipyards.

With the hope of broadening cooperation with the Asia-Pacific region, the Russian government announced the creation of the Eastern Economic Forum (EEF) in May 2015. Alongside the new policies to liberate and grow the local economies of a region spanning 35 percent of the country’s total landmass, the conference – held from September 3-5 this year – brought together economists, political delegations, investors and industrial experts from all over the Asian continent. Over 20 countries and 800 foreign companies participated in the forum, and Russia has used the event as a spearhead to consolidate and expand ties with many of its close neighbors. New agreements have been reached with China, Japan, Indonesia, North Korea, South Korea, Thailand, Vietnam and India so far this year, and the number could yet rise further as Putin’s ambitious strategy of infrastructure links, trade, military and energy cooperation reaches ‘unprecedented’ levels.

With the primary aim of displaying the Russian Far East’s potential and attracting investment, the first EEF closed with reported agreements of up to 1.3 trillion rubles, with Deputy Prime Minister Yuri Trutnev confirming over 80 separate projects. Combined with domestic policy to initiate internal migration flows and establish a sustainable economic climate in the region, Russia is rapidly refocusing its attention eastwards.

Priority Development Area

The Far Eastern Federal District – commonly known as ‘dalny vostok’ or Far East – has a population of just over six million, and is comprised of nine provinces. These include the resource-rich Magadan and the Sakha Republic, key fishing and shipping hubs in Chukhotka and Primorsky Krai, and the wild natural wonders of Sakhalin and the Kamchatka peninsula. Despite the region’s size and the high urban concentration of its inhabitants, approximately 75 percent,  no major city has a population of over 600,000 — the largest and most prominent being the Trans-Siberian endpoint and key port city Vladivostok.

The groundwork of new Russian policy hinting at an eastern reorientation can be seen in the expansive domestic policies. Signed into action during the last days of 2014, the Law on Priority Development Areas in Russia enabled the creation of a ‘favorable environment’ for the attraction of investment, accelerated economic growth and a rise in living conditions. This includes, for example, tax breaks, subsidies and lower insurance payments for businesses entering the region. Many of the territories within the Far East experienced up to a 70 percent outflow of their local populations in the decade following the collapse of the Soviet Union, and their mono-industrial roots have caused problems in adapting to new markets and retaining a diverse labor force. The PDA policy has been enacted exclusively within the Far Eastern Federal District for the first three years, and the initial success of the Eastern Economic Forum shows promise for the decision to open up the territory to foreign investment.

Designed to initiate internal migration, a ‘homestead act’ signed by President Putin in January 2015 envisaged a boost for the rural populations of the region. The land giveaway scheme would see Russian citizens move into and develop state-held territory for farming, forestry or other enterprises. Far East Development Minister Alexander Galushko has stated that over 140 million hectares of land can be developed through this initiative and, in some areas such as Sakhalin, the government has aimed to increase the population by up to 25 percent within the next ten years.

The establishment of a new ‘free-port’ system has formed an integral and highly publicized part of the PDA policy. Initially signed into force for Vladivostok in October 2015, the decree will be expanded to include other key port cities from Nakhodka to Zarubino in the coming months. This policy has targeted the faltering cargo flows across Russia’s Pacific coast region; Petropavlosk-Kamchatsky, for example, experienced a 25 percent drop in traffic during the first quarter of 2015, while container volumes across the Far East dropped 36 percent year-on-year due to reduced demand amid rising prices. Benefits for the territories under the free-port initiative include simplified border-crossings, relaxed customs regulations and tax breaks, and the policy formed a key feature of the Eastern Economic Forum program in September. Russia is also potentially preparing for the anticipated prolonged opening of the Northern Passage – a sea route between the Atlantic and Pacific oceans along Russia’s northern border – as Arctic sea ice continues to recede and the route becomes a more viable shipping option for intercontinental transport.

In addition to ports, the redevelopment of regional center Khabarovsk’s airport, bringing it to ‘world-class’ status, will increase both business and tourism potential. The Far East Development Fund has targeted a more than two-fold increase in passenger capacity to 4.7 million people per year, increasing links with the Asia-Pacific region. Similarly, the government has pledged a 500 billion ruble upgrade of the eastern railway systems alongside policies to boost tourism, with new charter services launching from Kamchatka and the allocation of 32 billion rubles from federal and regional sources to develop Sakhalin and the outlying Kuril Islands. These are unique and ecologically important heritage sites, which are highly marketable to both Russian and foreign visitors. Russia’s largest casino also opened in October this year in the newly designated Primorsky Gambling Zone. Investment contracts worth 108 billion rubles have since been signed, together with multiple Asian investors, to bring the zone hotels, villas, a yacht club and an exhibition center by 2022.

The projects initiated by the Russian government range from the functional to the highly ambitious. The much publicized Vostochny cosmodrome in the southern Amur region bordering China has also been a focal point of Russia’s eastern development, and at a reported cost of 188 billion rubles, one of the most expensive. Involving over 130 different construction firms since 2010, it’s completion and first launch were scheduled for 2015. However, media reports since September have widely been concerned with delays, unpaid wages and allegations of embezzlement and the launch has been postponed until early 2016. Vostochny will become the first facility within Russia’s borders capable of manned space missions. This is sure to provide a genuine symbolic boost for Putin and his administration in displaying the regions potential while gaining a showpiece for the reawakening of the Far East.

The anticipated development of the region will only be possible with significant foreign investment. Russia has sought to expand ties in multiple economic spheres, crucially in the expansion of the Far Eastern energy sector with projects such as the Power of Siberia gas pipeline and the East Siberia-Pacific Ocean oil network. Similarly, the imminent shift to national currency trade will increase transparency, remove high conversion charges and improve financial security within the Asia-Pacific region.

Duncan Brown is a freelance writer based in Moscow, Russia.



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