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Injecting Dynamism in the Russian Far East Economy

May 26, 17:01 UTC+3
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As the Asia Pacific plays an increasingly important role in the global economy, Russia's East emerges as a top national priority in the 21st century. Going forward, the Government's Far Eastern policy will primarily seek to foster the growth of industry, infrastructure, agriculture and human capital locally. The enablers, like the advanced development territories, are set to contribute to the entire national economy, not just the region.

The years of 2015 and 2016 became a turning point for Russia's Far East.

  • The key metric here is local demographics, with the natural population growth of 5,431 in 2016 year-on-year and the migration outflow down 1.5 times (14,840 vs 21,965 in 2015). This is unprecedented in the past 25 years.
  • The industrial output increased for the second year running – up 1% in 2015 and 2016.
  • The labour market stabilised, with the unemployment rate standing at 1.6% (vs 1.7% in 2015).

The key socio-economic enablers include the advanced development territories (ADT), the Free Port of Vladivostok, subsidies for infrastructure investments, and financing of the Far East Development Fund. By late 2017, these incentives are expected to bring RUB 1.67 trillion worth of investments to the Russian Far East. 

After the programme was launched, the Far Eastern region saw the creation of 16 ADTs, including five in 2016.

  • By May 2017, some 123 companies became ADT residents with total investments worth over RUB 481 billion and a potential to create more than 25,000 new jobs going forward.
  • ADTs are effectively platforms to host 255 investment projects. This will bring RUB 1.428 trillion of investments and add over 42,000 new jobs.
  • Global investors have submitted 30 applications to launch ADT-based projects (15 of which already qualified as residents). The RUB 185.8 billion of investments is set to create 5,700 new jobs.

The Free Port of Vladivostok's customs checkpoints now work 24/7. A one-stop shop system has been set up for cargoes crossing the national border, with electronic declaration of goods and green corridors for foreign trade operators put in place.

  • 118 agreements have been signed with resident companies to bring RUB 183.4 billion of investments and create 21,900 new jobs. Those include five port residents, Chinese and Japanese companies intending to invest over RUB 61.6 billion in the local economy.
  • To date, the residents of the Free Port of Vladivostok have commissioned nine facilities, investing RUB 1.34 billion and creating almost 500 new jobs.

The Far East Development Fund has 13 projects in its portfolio, with investments totalling RUB 115 billion. 

  • The Fund launched its Voskhod Investment System, an online platform for companies and projects of the Far East seeking to tap into debt and equity capital.
  • Jointly with partner banks, the Fund developed an SME lending programme.

New transport infrastructure will link the Far East to domestic and external markets to boost the region's investment case.

  • On 27 December 2016, the Russian Government approved the Concept for the Development of International Transport Corridors Primorye-1 and Primorye-2. The Russian and Chinese Governments are aligning on a bilateral agreement to develop international transport corridors. The Primorye Territory's contribution to the gross regional product is projected at RUB 30 billion per year.

On 1 July 2016, a new law enabling Russian citizens to get free land plots in the Far East (the "Far Eastern hectare") came into force, seeking to attract people from other Russian regions. So far, 86,000 applications have been filed and over 14,000 land plots allocated. The Ministry for the Development of the Russian Far East estimates that, by 2025, some 6.5 million people (vs the current 6.2 million) will reside in the Far Eastern Federal District.

According to investors, the focus should be on the improvement of regional infrastructure, logistics and cargo clearance processes, addressing labour shortages and high energy costs. 

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