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Russia is steadfast in its intention to develop Far East

February 06, 2014, 17:30 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Ivan Belozerov

MOSCOW, February 6. /ITAR-TASS/. The Russian government is steadfast in its intention to develop its Far East on instructions from President Vladimir Putin, who last December declared the development of Siberia and Russia’s Far East as a national priority for the entire 21st century. Boosting the development of the easternmost region will in particular rely on China’s experience. Total investments in the Far East are estimated at about 3.3 trillion rubles ($95 billion) up to 2020. Yet experts believe propping up a region that accounts for about 5% of the total population and 5.5% of Russia’s GDP is going to be a tough task.

A group of senior officials met under the chairmanship of Prime Minister Dmitry Medvedev on Wednesday to focus on the creation of advanced development areas with preferential taxation and re-registration in the region together with state companies’ tax base. The troubled region’s economy is now to be re-targeted to exports to Asia-Pacific countries. According to Minister of the Development of the Russian Far East Alexander Galushka, conquering at least 0.2% of this market will help double the Far East’s gross regional product.

Dmitry Medvedev hopes the region may become a magnet for highly skilled professionals from all over the world and would speed up the development of the Far East and Siberia. A plan will be compiled to transfer a number of state companies to the Far East in order to increase the local tax base.

On the president’s instruction, the government is to determine the criteria for creating advanced development areas and compile a list of such territories by July. Deputy Prime Minister and the president’s envoy to the Far Eastern Federal District Yury Trutnev announced that first edition of the document to regulate these areas’ operations should be presented by the next meeting due in March.

A day before the meeting, the ministry announced it could create twelve areas in the Primorye Territory alone. Trutnev pledged the new formations would not match the existing three special economic zones in Khabarovsk, Vanino and on Russky Island. Advanced growth areas are “a wider phenomenon that includes various kinds of activities”, he said.

Meanwhile, entrepreneurs willing to work in newly created zones will enjoy a special tax regime - for instance, a corporate tax of 10 percent against the general rate of 7% income tax against 13% across the country. Administrative procedures for businessmen in these areas will be sped up tenfold, Trutnev added.

Overhaul of development institutes, including the establishment of a foundation to develop the region will require budget allocations of 170 billion rubles this year alone. The development of the Far East will require a total of 3.3 trillion rubles of investments by 2020. And like in most other cases, the government hopes for assistance from private investors. “We hope to see 10 rubles of non-budget investments per each invested ruble,” Trutnev said.

At a recent meeting with the business elite, former entrepreneur Alexander Galushka recalled that soon after his appointment in September he had received phone calls from famous macroeconomists who admitted they had no idea of what could be done in the region. The minister also mentioned the economic wonder of Singapore that had had no water, no land, no qualified specialists and no money - only its logistically advantageous location. Russia’s Far East has a much greater potential, he believes.

Pundits admit the government faces a daunting task. According to Dmitry Golubovsky, of the Business Russia organization, the region’s modernization will need up to $700 billion (30% of GDP), whereas the federal budget’s annual allocation is a mere $3 billion. No considerable progress can be made here without large investments, including that from abroad, he believes.

“It is a difficult task to create an advanced development zone in one particular region without resolving a number of the country’s global issues of poor investment climate, major administrative barriers, as well as low productivity and immature infrastructure,” said Investcafe’s analyst Andrey Shenk, quoted by the Nezavisimaya Gazeta daily.

Asian Pacific export orientation, chosen as a development strategy vector, is a feasible goal, believes the president’s ombudsman for the rights of entrepreneurs Boris Titov. “This pathway will hardly be strewn with roses,” he writes in the RBC daily. “For instance, competition with China on equal terms is hardly possible now. It is a great relief that the Asian Pacific market is so large that even China is unable to satisfy all its needs alone. But we should be ready to face fierce competition.”

Russia’s Far East has a potential to develop various sectors, yet advanced processing certainly offers the brightest prospects, he adds. For example, facilities to process gold, apatites, iron and uranium ores are planned in the Republic of Sakha. The Primorye Territory is to develop fish processing, construction of harvesting vessels and innovative facilities and is planned to host the Pacific innovative terminal. The Khabarovsk Territory is eager to welcome investors into its furniture industry, electric engineering goods, mechanical industry and construction. Meanwhile, the Asia-Pacific region-oriented aircraft industry and agriculture are booming in the Amur Region.

All these plans will be realistic, if Russia creates an investment environment comparable to that of the region’s most prosperous economies, the ombudsman believes.

“The plans are not unachievable for a good team supported by the government,” he concluded on a positive note.


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