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Eastern Economic Forum – Day One Summary

  • Published in Economy
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© Sergei Bobylev/TASS News Agency Pool Photo via AP

On September 6, around 50 events were held at the Eastern Economic Forum 2017


Around 50 events were held at the EEF-2017 on September 6. Participants have discussed both the recent success in the development of the Far East as well as current problems and ways to solve them.

Energy

During the session dubbed “The Asian Energy Ring. Are Politicians And Energy Companies Ready?” participants deliberated on the need to supply electrical energy to countries of the Asia-Pacific Region.
The economic benefits from carrying out this project for China and Japan come to $10 bln and $7 bln, respectively. These countries have already begun to build power grids for the project.
Russia is working on new technological advances that would cut the costs of electric power transmission.
Presently, Asia-Pacific states are carrying out efforts to reduce ecological risks thanks to alternative energy. Nevertheless, the ‘Asian Energy Ring’ requires enormous investment and state funding.

Panel participants of "Lowering Energy Tariffs: The Impact on Projects" noted the importance of solving this problem in order to develop the region.  Results have already been seen. The cost of electricity in the Far Eastern Federal District has gone down on average by 1-1.5%, in particular for energy-intensive industries, which have seen a 25-30% drop. But the time period given for the program (3 years) is something that participants consider insufficient, and suggest a 10-year arrangement.  This will bring stability and help companies attract loans.  Additionally, it is necessary to reform the tariff formation mechanism.  The government has already introduced a bill to do this.    

In the session “Renewable Energy: The Outlook for Supplying Energy to Remote Regions that Are Not Part of the National Electricity Network”, panelists noted that the Far Eastern Federal District had all the prerequisites for cultivating renewable energy in place. RusHydro said the company’s total amount of investment over the next 5 years is in the region of 250 billion rubles. But so far there are no guarantees of reliability when it comes to renewable energy in the Far East. The biggest challenge is that the region has no wholesale market for electric power, which reduces the investment attractiveness of the region. The creation of the Far East Renewable Energy Fund was announced to pave the way for a market. Panelists also noted it is important to create a mechanism for securing returns on investment

Social sector and human resources

Participants in the discussion at the session titled “Creating 100,000 New Jobs” stated that intensive economic development of the Far East is impossible without tackling the challenge of labor resources shortage. It was noted that this problem is so dramatic that business had to postpone deadlines for implementation of projects and/or import workers on a rotation basis from other regions and former Soviet republics. Panelists believe at the same time that the problem of human resources deficit on the Russian Far East cannot be resolved on account of rotation workers alone – internal labor resources should be fostered. To prevent the large-scale outflow of youth from the region, it is suggested to provide an exemption from the military service for graduates of higher educational institutions intending to work in Far Eastern companies. Stimulation of people relocation to the Far East is possible through developing a high quality infrastructure and proactive information policy, including regarding the relocation program for compatriots from the CIS states.

The “Housing and Utilities. What Will Be Done?” session was devoted to renovating the Far East Federal District, especially Vladivostok. This program has already received 42 bln rubles. The participants noted that the city has no comprehensive development plans, but the city’s gentrification campaign is set to seek out Japanese partners.
Skyrocketing housing prices along with housing shortages in the Far Eastern Federal District were among the problems that were highlighted during the session.
To tackle that problem, proposals to break up the housing construction monopoly and bolster the mortgage market were made. It was noted that investors had already secured contracts which would create 110,000 new jobs by 2025.

At the round table discussion, “Residents of the Russian Far East: Demographic Development, a New Quality of Life, and New Opportunities”, sociological studies were shared and they showed that the perspective for resettlement in the region is quite promising. Many Russians believe that they can change their lives for the better in the Far East. However, they are scared of the low standard of living in these places and have concerns about safety and access to education and cultural programs. The government has already started working to create new jobs with high pay. But for now population growth in the Far East will take place through foreign immigration. Integration and adaptation programs have already been established. The conclusion made by panel participants is that the demographic situation in the Far East will improve once there is economic development.

The session called “Comprehensive Development of Cities. Initial Plans: Komsomolsk-on-Amur, Svobodny” opened with acknowledging the fact that previously taken measures had already begun to bear fruit. Komsomolsk-on-Amur is evolving as the Far East’s industrial capital. Development programs have received allocated funds, and the construction of roads and infrastructure has begun. But the mood remains depressed as more than one fifth of the Komsomolsk-on-Amur citizens have left, and only 54,000 remain in Svobodny. Participants came to the conclusion that cities in the Far East need development plans. It is important to avoid one-sided development, as well as erase the sharp contrast between old and new districts.

It was noted at the session “Healthcare for People. What Will Be Done?” that a gradual development of the sector’s infrastructure, of both traditional and hi-tech medicine, a decrease in infant and maternal mortality, and growth of  the life expectancy by two years may be considered to be the first results of executing respective state programs. However, the main challenges the region is facing still remain to be solved, those are a generally small level of access to medical services, a high mortality rate among employable men due to alcoholism and others. The participants of the discussion concluded that a focus on up-to-date forms of providing medical aid and adopting the experience of Japan and South Korea will help solve the issues.

Development mechanisms for the Far East

Discussion of the topic “Vladivostok Free Port: Successes and Challenges. Putting Our Heads Together” demonstrated that the decision of federal authorities to grant such a status to the city have already attracted investments worth hundreds of billions of rubles and contributed to recovery of business activity on the Far East at large. Continued development of the port will also affect living standards of population of the Primorsky Region and the area overall. At the same time, numerous problems were highlighted. The business complained of high administrative burden, outstanding issues with certain taxes, for example, VAT, and imbalance of benefits favoring new companies. Government authorities noted poor awareness of entrepreneurs concerning the free port capabilities in respect of customs procedures, for example. Participants in the discussion concur regarding the need to reduce the document turnover, wider use of electronic communications and making legislative requirements to companies more reasonable.

The session “How Can We Ensure an Inflow of Private Investment into Developing the Infrastructure of Russia’s Far East?” focused on the discussion of public private partnerships for the implementation of infrastructure projects in the Far East. It was noted at the discussion that the use of the public private partnership mechanism has proven efficient, first of all in the utilities sector. However, there are few capital-intensive infrastructure projects of public private partnership so far, which the participants of the session explain is the result of high risks of investment in the social sector and the lack of a mechanism to attract long-term funds in infrastructure development. In order to enhance the efficiency of public private partnership projects it was suggested at the session to draft a national program for infrastructure development and adopt a syndication law that will allow to solve the issue of project financing and crediting at the legislative level. 

At the session "Protecting Investments and Creditors’ Rights in the Russian Far East: Strategic Changes" it was noted that the Russian judicial system has a number of advantages, including the speed of legal proceedings and its relative low cost.  At the same time, there are clear problems in Russia's legal procedures that lead businesses to distrust the judicial system.  These include its closed-door nature, dependency on federal executive power, a lack of professionalism, and lack of responsibility of judges for verdicts that are made.  Alongside increasing the independence of judges by introducing a mechanism to elect and rotate them, the main idea that was voiced on the panel was to create a special territorial college of advocates to hear cases pertaining to residents of the ADT in the Far East.  Participants in the round table meeting agree that this decision, along with the digitalization of courts of general jurisdiction, should enhance investor confidence in legal proceedings within Russia.

Transport and trade

During the round table discussion "The Potential of the Northern Sea Route. From Words to Actions", participants talked about development of infrastructure in the Arctic and predicted that by 2020 the amount of cargo transportation along the Northern Sea Route will grow to 40 million tonnes. Japan is especially interested in this and the country plans to make Hokkaido a gateway to the Northern Sea Route.  This will allow for diversification of transport routes and for the continuation of development of an energy base. By the end of 2018, a system for planning safe navigation on the Northern Sea Route should be implemented. Also planned is a system to improve accuracy in climate forecasts. Additionally, by 2020, an Internet cable between Europe and Asia should be activated.  But this project is very much dependent upon participation of giants like Facebook and Google as well as Chinese communication companies.    

It was announced at the panel titled “Russia’s Gateway to Asia: The Role of the Russian Far East in Asia-Pacific Integration Initiatives” that Russia is going to maximize the focus on trade development in eastward, whereby the Far East has a potential to become the primary site for economic integration of Russia and Asia-Pacific nations. However, participants in the discussion noted outstanding challenges for closer integration of Russia and the Asia-Pacific Region, such as a small amount of mutual investments, lack of free trade agreements with Asia-Pacific nations and shortage of population in the Far East, which is a major obstacle to economic development of the region. The need to lift barriers in trade between the Eurasian Economic Union and the Asia-Pacific Region, develop transport infrastructure and optimize the tariff policy in the Far East was mentioned along with broadening cooperation between the Russian business and Asian partners. Furthermore, it is important to bring the business into negotiation processes with Asia-Pacific nations.

According to participants of the session “The Export Potential of the Russian Far East”, due to its geographic location the Far East can become a leading region in terms of Russia’s cooperation with the Asian-Pacific countries. However, there is a tough competition on the markets of the Asian-Pacific Region, which why it is very important for Russian exporters to establish themselves as reliable and responsible partners. So far, Russian products do not always meet global standards, while the deficit of transport facilities and high logistics costs do not allow to competently increase the volume of Russian exports to the Asian-Pacific markets. One of the proposed measures to raise the use of export potential of the Far East is to introduce a national standard of products’ quality, to support export, to create joint productions, as well as to freeze export tariffs for investors in advanced development zones.

The panel titled “Partnership for Greater Eurasia: Expanding a Future-Oriented Joint Development Space” dealt with the prospects of the Big Eurasia region. Washington’s statements of readiness to begin trade wars with its Asian-Pacific partners call for pushing Eurasian partnership from a concept to practical measures. A priority was given to the development of transport, as well as creating a favorable business environment, reducing red tape and creating a mechanism of common infrastructure projects. This will become pivotal steps in realizing the concept of a Eurasian partnership.

At the session "Connecting Europe and Asia. International Transport Corridors in the Russian Far East", it was announced that Russia intends to give maximum attention to developing eastern trade. Furthermore, the Far East has the potential to become the main center of economic integration between Russia and countries in the Asia-Pacific Region.  However, panel participants noted that there are difficulties that remain for closer integration of Russia and Asia-Pacific Region countries. These include a low amount of mutual investments, the absence of free trade agreements with Asia-Pacific Region countries, and a population deficit in the Far East, which is a serious obstacle for economic development in the region.  Participants talked about the need to break down trade barriers between the Eurasian Economic Union and Asia-Pacific Region countries, developing transportation infrastructure and optimizing tariff policy in the Far East, as well as the expansion of the cooperation of Russian businesses with Asian partners.  Moreover, it is important to involve these businesses in negotiations with Asia-Pacific Region countries.    

At the session on “Russia–India: Identifying New Opportunities”, the discussion’s participants noted the wide range of economic cooperation between both nations, which has taken a turn toward joint investment projects. However, at the present time mutual investment between both countries is still very low and economic cooperation is being hampered by volatility on the forex market and the Far East’s lack of transport capacities.
In order to make full use of its potential, proposals were put forward to actively engage the New Development Bank in implementing joint projects, cutting red tape and avidly promoting mutual investment opportunities.

Space

The issue of space debris was raised at the panel titled ‘International space projects in the Asia-Pacific region.’ It was also noted that nobody is capable for the time being to satisfy growing demands of users of information received from satellites. Forum participants see the solution of problems in promotion of cooperation, particularly within the framework of Asia-Pacific Regional Space Agency Forum. Connection of Beidou and GLONASS systems was also discussed. Participants considered the so-called ‘photonic sail’ when speaking about cutting-edge technologies. A proposal was made on development of nonconventional engines on the basis of the Far Eastern University.

Fishing industry

Participants in the discussion titled “Investment Projects in the Fishing Industry” noted that the capitalization of the sector will grow by 25% in 10-15 years and it will provide 50 bln rubles annually for the government. Over 100 new vessels and 20 onshore processing plants are planned for construction. However, potential investors doubt the efficiency of building the new fleet. The attendees also stated the need to improve the regulatory and legislative base in terms of quotas. Certain other challenges are present: difficulties with entering overseas markets because of insufficient certification and problems with human resources and power generating capacities for construction and support of new plants. These issues are suggested to be tackled using government allowances and government insurance of loans with assistance from the Russian export credit agency (EXIAR).

Developing SMEs

During the session dubbed “Small and Medium-Sized Businesses. Everything for Growth!” it was highlighted that thanks to the introduction of the Advanced Development Zones which encourage preferential rates on investment loans and special credit products for entrepreneurs, the number of small and mid-sized businesses has been on the rise. The participants complained about the heavy fiscal burden which primarily affects payroll taxes and property taxes. They also complained about the red tape involved in getting bank loans. In order to solve the problem, a proposal was made to introduce credit instruments, such as pre-export financing, optimizing tax payments considering the specifics of doing business in the Far East. In addition, to boost the success rate of small and mid-sized businesses, a loan incentive program for training staff for SMEs was discussed.

Timber industry

The participants of the session “Forests and Timber Processing: From Timber to Pulp and Paper Factories” noted that the amount of investment in recent years has totaled around 39 bln rubles and up to 20 bln in the planning stage. The most promising area is the creation of pulp and paper plants. The development of advanced processing is hindered by the businesses’ focus on timber export, as well as non-transparent procedures in the sector. The active state support provided to the wood processing industry, an update of legislation and state regulation, as well as the focus on up-to-date technologies should reverse the trend.

The role of state companies

The discussion of the topic “Solutions from Russian State Companies. The Far Eastern Priority” revealed that many of them are already operating in the Far Eastern regions and even have completed projects in the portfolio. Representatives of state-owned companies consider it necessary to draft a joint program on the Far East development. The members of the discussion spoke not so much about challenges, but about the general situation in Russia’s eastern constituent entities. They face insufficiently developed communication channels, the housing construction and mortgage lending are lagging behind. The infrastructure ageing is notable, the amount of transfers from the budget for provision of transport accessibility in Far Eastern cities is limited. State companies have suggested authorities should boost and expand this kind of support, while being ready to make a sizeable portion of required decisions.

Tourism

While deliberating on the topic of “Tourism. An Economy Based on Unique Experiences” participants agreed that the Far East provides an opportunity for investors to earn more in general, than in seasonal tourist regions. The area offers various rest and recreation options for each season. However, there is a dearth of information on the region’s capabilities both among potential customers and, above all, interested investors was recognized as a major challenge to its development.
This drawback was in addition to the poor transportation and low level of service on average, especially when obtaining entry documents to enter the country. Given those details, the session hammered out a list of possible solutions. In particular, it turned out that the Far East’s information void could be easily overcome using modern communication tools.

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