Programme

For the last four years, Russian federal authorities have been working to create conditions for investment and doing business in the Russian Far East, which will make it a serious competitor within the Asia-Pacific region. Thanks to new mechanisms, including ASEZs, Vladivostok Free Port, and infrastructure support for investors, more than 700 new investment projects have been initiated in the Russian Far East and 40 new companies have been established. However, without improving the entrepreneurial climate in each specific region – the direct result of efforts by regional government teams – these new mechanisms will fail to have the necessary multiplicative effect. In the 2017 Russian Regional Investment Climate Index, only two Far Eastern regions demonstrated positive trends: Khabarovsk Territory and Amur Region. The positions of the other regions had worsened significantly. In the opinion of entrepreneurs, what positive and negative changes have taken place in the regions of the Russian Far East over the past year? What are the major needs and requirements from business with respect to the regional authorities right now? How do investors rate the effectiveness of local governors’ teams? What policy changes are regional leaders planning to make in order to improve the investment climate?

The sea ports of the Russian Far East connect Russia logistically with the countries of the Asia-Pacific region and compete for trade flows in this rapidly growing part of the world. Vladivostok Free Port was established to create globally competitive conditions for their development. Planning for the Free Port took into consideration best international practices in the creation of free port zones, as well as Russia’s own experience of developing the free port system. Investors in Vladivostok Free Port receive tax incentives and benefit from preferential administrative policies. A system of 24-hour state border crossing points operates within the Free Port, together with a ‘single-window’ service, electronic declaration and shortened customs clearance times, and a simplified visa entry regime for foreign citizens (using eight-day electronic visas). Vladivostok Free Port is now home to more than 300 investors, and more than 20 new enterprises have been launched. How do residents of the Free Port rate the success of this modern approach? What economic effect are the conditions having on new enterprises? How can the unified tax for Free Port residents and related administrative burden on business be shifted? What adjustments are needed to the free customs zone regime within Vladivostok Free Port? What effect will electronic visas for foreign citizens have on investors? Is extending the free port regime to all ports and airports in the Russian Far East a necessary step?

New conditions for doing business in the Russian Far East are increasingly attracting the interest of small companies. Last year the number of projects in ASEZs and Vladivostok Free Port with a total investment of between RUB 1 million and RUB 60 million has increased from 80 to 300. A programme of tax credits for small and medium-sized businesses has been launched in the Russian Far East. Nearly 300 business owners have received tax funds to aid their development. What adjustments need to be made to the ASEZ and Free Port regimes in order to make them more attractive to small and medium-sized companies? What can the government do to help small businesses in the Russian Far East access the large Asia-Pacific market? What else can be done to make concessional financing available to small and medium-sized businesses? What is the greatest obstacle to the growth of small and medium-sized businesses in the Russian Far East?

A programme to lower energy tariffs in the Russian Far East was launched on 1 July this year. Although it is too early to discuss outcomes, the question for today is clear – how can the maximum benefit for the region’s economy be extracted from the programme, and used to increase competitiveness in the Russian Far East? Following the lowering of energy tariffs for businesses, in combination with easy transport accessibility in the Asia-Pacific region, the Russian Far East is attracting renewed interest, both from Russian investors representing the energy sector, and from industrial corporations in Korea, Japan, and China. Global and Russian experience of liberalizing the energy market suggests that the effectiveness of tariff lowering as a mechanism is heavily dependent on the quality of dialogue between economic stakeholders, and on striking a balance between the interests of the state and those of energy consumers. What direct and indirect effects will businesses in the Russian Far East experience as a result of lower energy tariffs? Can we expect growth in investment following reductions in the cost of electricity? What investment projects will receive fresh impetus once energy tariffs have been lowered to the Russian national average? The mechanism for lowering energy tariffs is set to operate for three years – what will happen after 2020? How will the decisions made impact energy development in the Russian Far East as a whole? Could this experience of reducing energy tariffs be applied to other kinds of business costs in the Russian Far East?

Unique conditions have been created in the Russian Far East for investing and doing business, but in the absence of a trusted specialized institution for reviewing non-arbitrable disputes, foreign investors are still behaving cautiously. Today, reforms to the judicial system are under active consideration on a federal level, the initial results of arbitral reform have been achieved, and new plans for the Enforcement Code of the Russian Federation are in preparation. But are these measures enough?
What global structural changes are necessary in order to ensure investment security and the confidence of foreign investors? Could the Russian Far East act as an experimental staging area for the work of specialized judicial institutions? What recommendations can be offered by investors in the Russian Far East, major creditors and foreign partners?

Faced with the considerable challenges of developing infrastructure and significantly expanding production in order to meet the needs of a rapidly growing middle class in the Asia-Pacific region, an intense battle for investment has begun. Asia-Pacific countries are developing and implementing more and more incentive schemes for investors as they seek to create the best conditions for doing business. In order to create a business environment in the Russian Far East which can compete with those found in the major centres of the Asia-Pacific region, and to attract private investment into the macroregion, advanced special economic zones (ASEZs) have been set up. These are stand-alone production sites, into which the government invests to establish the infrastructure investors need. The government also provides investors in these zones with tax incentives and essential government services under simplified arrangements. Since 2015, 17 ASEZs have been set up, in which more than 300 investment projects are being implemented and 20 new production facilities have been created with the help of capital from Russia, China, Japan, Australia, Singapore, and other countries. How do investors rate the effectiveness of the ASEZ programme and its influence on the economic viability of projects? What changes should be made to ASEZs to increase profitability and reduce the risk to investors? How competitive is the ASEZ programme compared to the incentives offered by leading Asia-Pacific countries to attract investment? What best practices from special economic zones in the Asia-Pacific region should be used to develop ASEZs? ASEZs are managed by companies owned jointly with Japan, South Korea, China and other countries: is it possible to count on significant growth in investment from the Asia-Pacific region? Digitizing ASEZs – a solution to the problem of the administrative burden faced by investors?

2016 saw the launch of a programme allocating free land in the Russian Far East, the key objectives of which were to attract new inhabitants to settle in the Far East and to stimulate entrepreneurial activity in the macroregion by providing maximally simplified and convenient access to a fundamental economic resource – land. Under the program, any Russian citizen can apply to be allocated up to 1 hectare of land anywhere in the Russian Far East (with the exclusion of territories where it is directly forbidden by law). They may use the land free-of-charge for any legal purpose for a period of 5 years, and if they have succeed in making use of it by the end of this period, it will be transferred to their ownership, again free of charge? More than 25,000 people have already become participants in the program, with the total number of applications submitted for a ‘Far Eastern hectare’ exceeding the 100,000 mark. The first ‘Far Eastern hectares’: why are people accepting land in the Russian Far East, and what use do they plan to make of it? What improvements must be made to the ‘Far Eastern hectare’ law and to the online applications system (available at надальнийвосток.рф) Easy money for ‘Far Eastern hectare’ recipients: what proposals are the government making, and how easy are they to achieve? New populated areas on the ‘Far Eastern hectares’: when will infrastructure appear? ‘Far Eastern hectares’ for business purposes: a new stage in the development of workers’ settlements? How can the programme be made more attractive, and 100,000 applications transformed into 1 million?

The level of administrative pressure on business and the negative impact of law-enforcement and regulatory bodies on the work of entrepreneurs is as significant a factor in the global competitiveness of regions as, for example, the tax burden or labour costs. As demonstrated by the 2017 Russian Regional Investment Climate Index, administrative pressure on business in the regions of the Russian Far East is two-and-a-half times greater than that found in top-rated regions. In the ASEZs and Vladivostok Free Port, however, special mechanisms are in place to protect investors from the excessive attentions of regulatory bodies. What major risks do investors in the Russian Far East see in working with the government? How well protected do they feel? How efficient and effective are mechanisms in place to protect investors in ASEZs and the Free Port? Is it possible to achieve full trust in businesses and no checks on entrepreneurs? How can government compensation for economic losses suffered by businesses be made standard?

Weak development of transport and energy infrastructure is one of the key factors hindering the implementation of major investment projects in the Russian Far East. In response to this problem, a mechanism for delivering targeted infrastructure support to investors in the Russian Far East was developed and launched in 2015. The key purpose of this mechanism is to make state funding available to build the infrastructure which is vital for the commissioning of new production facilities. The resources are made available free-of-charge and no repayment is required. The infrastructure created remains the property of the investor. Fourteen investors have already used this mechanism to launch their projects. Some of them had been unable to proceed for several years, or even decades, prior to the availability of government assistance of this kind. Has the infrastructure subsidy mechanism lived up to the expectations of investors and the government? To what extent has it already made its mark on ROI and the profitability of private investment? How much funding is available and how many projects will it be sufficient to support? How will a new tool for providing support – tax incentives in exchange for investment in infrastructure – function? What new steps must be taken by the government to attract major investment to the region?

The eastern regions of the Russian Federation possess a strong resource base and an advantageous geographical location, and offer vast and mostly unrealized potential for development. In the current environment, growing the medium and large business sector is, for the most part, impossible without attracting long-term finance. The main sources of financing in the Russian Far East are entrepreneurs’ own funds and bank financing. The potential of the stock market is hardly used at all. The issue of bonds could be used as an alternative source of financing (in relation to bank lending) that would enable business entities to diversify the debt burden on capital, to release collateral, to take their first steps towards the ‘public’ debt market and, as a result, get cheaper funding for further business development. What are the reasons for the low activity of enterprises in the Far East in attracting financing through the obviously advantageous issuance of bonds? What are the ways to increase the attractiveness of bonded loans? Is it possible to attract tens or hundreds of millions of roubles through bonds? How much does an ‘entrance ticket’ to the market cost? What are the ways to optimize costs? How can regional authorities in the Far East help their potential bond issuers? Is it possible to work with foreign investors, given the current sanctions? What mechanisms exist for attracting Asian investment?

In order to accelerate development in the Russian Far East, all available resources must be consolidated with this objective in mind. President of the Russian Federation Vladimir Putin issued an instruction at the first Eastern Economic Forum to make it a special priority to generate finance for the Russian Far East through the activity of state companies. These companies must coordinate their strategic and policy documents with the Ministry for the Development of the Russian Far East with the aim of prioritizing development in the macroregion. This move is aimed at synchronizing plans for the development of the Russian Far East enacted by state programmes and in the policies of state companies. This will significantly increase the effectiveness of state investment in accelerating development in the Russian Far East. At the present time, Gazprom, Rosneft, Transneft, Russian Railways, RusHydro, and FGC UES are already participating in the implementation of strategic projects such as the construction of the Amur Gas Processing Plant, the Far Eastern Petrochemical Complex, and the Zvezda Shipbuilding Complex, and the modernization of the Baikal–Amur Mainline and Trans-Siberian Railway, as well as new power stations and transmission lines. Traditionally in the Russian Far East, it is state companies which have acted as the catalyst for economic processes and which enable the implementation of projects of national importance. Where and in what are state-owned companies planning to invest in the Russian Far East? What support are they counting on? With respect to investment by Russian state companies, how can a multiplier effect be achieved that will accelerate growth in the Russian Far East? How can small and medium-sized businesses in the Russian Far East become participants in the investment programmes of major state-owned companies?

The structure of the global economy is set to change fundamentally in the coming years. Not only will new markets emerge; the very foundations of the economy will be transformed. Success will belong to those countries and regions that manage to implement new technologies faster than others. A full complement of key sectors in the Russian Far East are in need of innovative development. Advanced unmanned technologies are essential to the future of agriculture and forestry. The fishing sector requires the latest technologies for freezing, storing, and transporting seafood. The region’s aviation and shipbuilding industries need the advanced manufacturing technologies that are part of the Industry 4.0 paradigm. Without essential robotization, the extractive industries could become uncompetitive in the twenty-first century. What real needs do the sectors of the Russian Far Eastern economy have with respect to innovation? What domestic innovations might be applied in the Russian Far East? Who are the main clients of innovation: the regions or big business? Which institutes for innovative development in Russia are ready to work in the Russian Far East? What financial instruments exist? Is this topic of interest to major investors?