Despite American Sanctions, Russia Lures Investors To Its Far East

At a time when the United States has tightened sanctions against Russia through new legislation signed earlier last month by President Donald Trump, and the European Union has extended some of its economic embargoes, leaders in the Caspian region’s largest economy are looking to expand inter-governmental and government-to-business relationships in order to further develop its far eastern territories.

The 2017 Eastern Economic Forum, which will be held on September 6-7 in the Pacific coastal city of Vladivostok, is expected to bring together diplomats and business executives from countries including China, India, South Korea and Canada.

“The main mission is to attract investment for the development of the Far East of our homeland, " said Yuri Trutnev, the presidential envoy to the Far Eastern Federal District, at a meeting earlier last month.

Improvements to federal legislation that aim to rapidly develop Russia’s east are considered a top priority for the forum, in order to help establish conditions that will better integrate the area into the global economy.

“The multilateral format of discussions at the Forum will help to shape legislative mechanisms that will serve as the basis for the creation of a new economic policy in the Far East”, Adviser to the Russian President Anton Kobyakov said.

This year’s Eastern Economic Forum is the third of its kind, as Russia looks to lure investors that will inject capital and expertise in its underdeveloped eastern end, plagued with weak economic infrastructure. Despite steps taken to develop the region during Russia’s imperial and Soviet eras, the USSR’s collapse in 1991 hit hard and led to in socioeconomic stagnation.

But Moscow is trying to bring Russia’s east up to the same level of development found elsewhere in the country.

In 2010, Russia adopted a universal development program dubbed "Strategy of Socio-Economic Development of the Far East and the Baikal Region Until 2025.” That plan allocated about $68 billion to build new infrastructure and modernize existing businesses and social facilities in the east.

Last year, the first three territories of advanced development (TAD) were launched in the cities of Khabarovsk, Komsomolsk-on-Amur, and Primorye. An aircraft parts production facility in Komsomolsk, a cargo terminal at the Khabarovsk airport, and the construction of a metallurgical and bitumen plant were all part of a package of 20 investment projects designed by officials in Moscow.

Only 7.4 million Russians populate the entire Russian Far East, an area with only 1.3 people per kilometer in a country of over 142 million. While cities like Moscow and St. Petersburg that lay in Russia’s western half and close to Europe are well-known, the 17 million square kilometer behemoth’s eastern half often goes forgotten and misunderstood, both at home and abroad.

Russian culture and leadership have tended to be dominated by Slavic people, although the eastern sections of the country include peoples whose cultures share similarities with Sino populations like those found in Mongolia, China, and North Korea – three countries that share borders with Russia.

Vladivostok, the largest city on Russia’s eastern coast and close to its border with North Korea, is the largest and only warm-water commercial Pacific Ocean port for Russia. The port is home to the Russian Pacific Fleet and the Vladivostok Commercial Sea Port, a hub for the country’s far eastern cargo industry. Nikolayevsk, at the mouth of the Amur River, processes the bulk of Siberia’s remaining exports.

Russia’s east is rich in natural resources, including oil, natural gas, and timber. The region’s proximity to energy-starved Asian markets, including China and Japan, could provide a magic solution for generating revenue by exporting natural resources to Asian customers rather than haul them 3,000 miles across the country’s vast interior to be sent to Europe. 

In 2016, Chinese companies announced 33 projects worth $14 billion that they plan to launch in Russia’s Far East, including international transport corridors, projects for extraction and processing of natural resources, and agriculture.  

“The Chinese delegation’s participation in the third Eastern Economic Forum will continue the constructive mutual dialogue that currently exists between our countries and also testifies to the great interest our Chinese partners have in the economic opportunities of the Russian Far East,” Adviser to the Russian President Anton Kobyakov said in mid-August.

In 2016, overall Russo-Sino trade volume reached $69.5 billion, while the first four months of 2017 recorded nearly $25 billion in trade turnover. By 2018, that figure is expected to reach $80 billion.

China has been throwing its weight behind Russia’s economy since western sanctions hit Russia in 2014. Sanctions had been imposed due to what western countries felt was a Russian military intervention in Ukraine, as well as the annexation of Crimea. Their detrimental impact was reflected in the ruble’s tumble and Russia’s gross domestic product being cut by 50 percent between 2014 and 2016, according to estimates by some in the US military.

After President Donald Trump slapped new sanctions on Russia earlier August, the European Union prolonged the validity of its sanctions until January 31, 2018, as a maneuver to punish Moscow for its disobedience in regards to the Minsk agreements aimed at alleviating the conflict in Ukraine.