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29 August 2019

The Russian Far East a little closer

Accelerated wth: industry and investments

The Russian Far East is developing faster than the country at large. Last year, its industrial production index grew by 104.4%. That is 1.5 times greater than the Russian national average. The flow of investment has also increased: last year, direct foreign investment reached $33bn, accounting for about a third of all incoming investment in Russia.

Foreign investors have shown the most interest in the following sectors: transport and logistics (644.1bn rubles, 29.7% of total FDI volume), agriculture (360.9bn rubles, 16.6%), timber (137.6bn rubles, 13%), extractives (171.5bn rubles, 7.9%), and mining (133.4bn rubles, 6%).



FOREIGN INVESTMENTS

200 investment projects with foreign capital participation are underway in the Russian Far East (not including the Sakhalin 1 and Sakhalin 2 projects). The total amount invested stands at 2.169 trillion rubles. The largest share of this capital comes from the People’s Republic of China (71.5% or 1.55 trillion rubles); 10% comes from the Republic of Korea, 5% from Japan, and 12% from other countries.



INVESTMENTS

1,745 new investment projects were being implemented in the Russian Far East at the start of 2019, of which 870 were launched in 2018 (up 31% from 2017). The total volume of investment amounted to 3.8 trillion rubles, of which 600bn was invested in 2018 (up 19% from 2017). 141.7 thousand new jobs are being created, including 48,001 in 2018 (up 50% from 2017). To date, 237 new enterprises are already operating and 37.5 thousand jobs have been created.



Ports for the air and sea



In accordance with the Compre- hensive Plan for Trunk Infra- structure Modernization and Expansion, drawn up by order of President Vladimir Putin, 66 Russian airports are due to be renovated by 2024; of these, 40 are in the Far East.

Thus in Khabarovsk this year, as part of the Khabarovsk ASEZ, a new modern passenger terminal will open at the local airport. As a result, the flow of passengers will increase to 3 million people per year. By 2021, the renovation of Yakutsk Airport’s international terminal and runways will be completed. Renovations are also planned for the airports in Okhotsk, Ayan, and Kherpuchi, which are currently inaccessible by road.

Last year, a new logistical centre began operation in Nak- hodka, which will further help the Russian Far East towards becoming the forefront for developing trade and economic ties with Asia-Pacific countries. Other ports in the region are already seeing an increase in cargo turnover: over the last year, the Vladivostok Commer- cial Port’s cargo turnover grew by 39%, while the Troitsa BaySeaport saw a 76% increase.

Yakutia takes the gold



Among the regions of the Russian Far East, the Republic of Sakha (Yakutia) has taken the lead across a number of econom- ic indicators. In 2017, its gross regional product (GRP) stood at 916.6bn rubles. Also, for the first time in modern history, Yakutia’s gold production has closely approached the 27 tonne mark (source: Russian Ministry of Finance), its oil output reached 12 million tonnes, and its coal out- put, 17.7 million tonnes. 403.4bn rubles in fixed-asset investments was made in 2018.

Porto franco

The Free Port of Vladivostok (FPV) has been another point of growth. Its porto franco status gives businesses to operate under a simplified customs procedure. FPV residents also benefit from lowered administrative barriers and tax deductions. As a result of these attractive conditions, the number of free port residents has increased from 432 in January 2018 to 1,384 in early August 2019, while the volume of investments in the same period grew from 365.4bn rubles to 675.9bn. FPV residents have launched 141 operational facilities and created 10,141 jobs.The latter number is planned to reach 67,019 by 2025.

Besides Primorsky Krai, the FPV’s regulations framework currently also extends to two municipalities in each of Khabarovsk Krai and Sakhalin Oblast, and one in each of Kamchat- ka Krai and Chukotka Autonomous Okrug. Two further applications for Free Port of Vladivostok framework extension are currently pending— for Blagoveshchensk and Chita, the respective capitals of Amur Oblast and Zabaykalsky Krai. A decision is expected soon.

The ASEZ powerhouses

The Advanced Special Economic Zones (ASEZs) have certainly been living up to their name. To date, 20 ASEZs have been set up in the Russian Far East upon initiative from investors, most recently in the Re- public of Buryatia and in Zabaykalsky Krai, two regions that joined the Far Eastern Federal District relatively recently, in late 2018. ASEZs have already helped create 18,979 jobs in the Far East, due to increase to 60,978 by 2025. 94 operational facilities have been launched.



ADVANCED SPECIAL ECONOMIC ZONES (ASEZS) IN THE RUSSIAN FAR EAST

20 ASEZs have been set up in total. The number of investors who have been granted ASEZ resident status has increased from 211 in early 2018, with 2.2 trillion rubles in private investment and the potential to create 39.7 thousand jobs, to 364, with 2.47 trillion rubles in private investment and the potential for 61 thousand jobs by 2025. On 17th June 2019, the Buryatia ASEZ was created by decree of the Russian government, followed by the Zabaykalsky ASEZ on 1st August. Projects have been announced to a total of over 200bn rubles in investments. Over ten thousand jobs are being created.

Beyond commodities

In order to create a favourable investment climate, the government had to clear a fair amount of rubble of a bureaucratic and administrative nature. 42 federal laws and a further 191 government acts have been passed specifically addressing the needs of the Russian Far East.

By the end of 2018, the National Regional Investment Climate Ranking showed positive trends for 5 of the 11 Far Eastern regions.

Yakutia emerged as the Far Eastern growth leader (rank 22, +30 points), followed by Primorsky Krai (+21 points); Kamchatka Krai (+4) and the Jewish Autonomous Oblast (+3) solidified their standings.

The Far East faces competition not only—indeed not so much—from other Russian regions as from Asia-Pacific countries. Areas for further improvement include diversifying regional development and moving away from primarily com- modity-oriented economies. Currently, the focus is mostly on modernizing existing industries.



GROSS REGIONAL PRODUCT (GRP) GROWTH IN LEADING FAR EASTERN REGIONS (2017)

Two thirds of the combined Far Eastern GRP is contributed by Yakutia, Sakhalin Oblast, and Primorsky Krai

Yakutia: 5.5% GRP growth (916.6bn rubles) Primorsky Krai: 5.6% (777.8bn rubles) Sakhalin Oblast: 3% (771.2bn rubles)

Hectares for the people



It was in the Russian Far East that the national free land distribution project saw its launch, with the Far Eastern Hectare project. With no lengthy proceedings—the agreement takes about 30 days to execute—a person can receive a plot of land that they them- selves had chosen via a national online information system at http:// надальнийвосток.рф. Over 70 thousand Russian citizens have already become owners of land in the Far East. Since 1st August 2019, the Republic of Buryatia and Zabaykalsky Krai have joined the pro- gramme. Initially, land plots will only be available to local residents; from 1st February 2020, to all Far Easterners; and from 1st August 2020, to all Russians as well as participants in the State Programme for Voluntary Resettlement to the Russian Federation of Compatriots Abroad (for details on this programme, see p. 32).

For those who plan on building a house on their land, as well as young families in which one of the spouses is aged 35 or under, the Far East Ministry is developing a preferential 20-year mortgage plan at 2% interest.

One region, one passport

The Eastern Economic Forum (EEF) and other major events have put Vladivostok on the map as an important Russian event hub. Experts note that a similarly great potential exists in other regions of the coun- try, including in the Far East. With an eye to fulfilling this potential, exactly a year ago, at EEF 2018, the Russian Convention Bureau first announced its Regional Passport project.

A «Regional Passport» is a datasheet that allows valuable informa- tion about a region to be aggregated and organized for the purposes of promoting the region as a venue for business events. Work on 11 Regional Passports is currently underway, including for three of the Far Eastern regions: Primorye, Kamchatka, and Sakhalin. One of these is due to be presented at EEF 2019.
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