Siberia and the Far East are the integral parts of one joint macro-region 27.03.2016 17:41

Russia’s Far East and Siberia development depends on an integrated approach

Within the year 2015, Russia’s move toward the East was gaining momentum to establish a secure institutional base for the following initiatives: the law on territories of priority development came into force; the status “Free port of Vladivostok” was granted to Vladivostok; the first priority investment projects were approved on the federal level; both JSC “Corporation of Development of the Far East” and the Far East Development Fund were successfully launched.

Igor A. Makarov (Associate Professor and Senior Research Fellow of the Faculty of World Economy and International Affairs; National Research University - Higher School of Economics) is sure that with the present-day conditions in mind, much in Russia’s Far East and Siberia development depends on an integrated approach.

It is too early to evaluate the results and achievements of the above mentioned institutions, but their positive impact on improving the business climate and encouraging investment is clearly seen. Russia's economic problems have imposed severe constraints on its plans to develop the Russian Far East. Nevertheless, compared to the recent recession in the economic activity of the country in general, the Far Eastern Federal District shows positive investment dynamics along with clear signs of industrial growth.

Russia has already made its turn towards Asia, and the critical question now is how to avoid the temptation to slow down on the way: the regional organizational structure has been created and it seems to be the right time to lie on oars and wait for the results. However, such an approach can throw obstacles on the way to achieving the strategic goal.

Firstly, the basic structural problems of the Russian Far East development have not disappeared or been solved yet: the regional economy is still heavily dependent on raw materials; foreign investments remain sluggish; the population is falling. Without solving any of the underlying problems, the Far Eastern region will not be able to become a long-term driver of the Russia’s economic growth.

External environment has also changed since the launch of major state-funded projects designed to boost the economy of the Russian Far East. Without foreign capital inflows, territories of priority development have less money to spend on infrastructure development and business expansion. These territories were originally meant to become foreign investment platforms, but based on the current statistics on the activity of foreign affiliates in the region, there is only one foreign-controlled enterprise there. A downturn in Russia’s economy and increasingly frosty relationship with the West are the key risks that damage Russia's attractiveness to investors and severely impact the country's trade and investment scores in the estimation of the Asian countries’ commercial banks and investment funds. Among all Chinese financial institutions, only the China Development Bank (CDB) and the Silk Road Fund have been showing their interest in Russia, though they make the commercial terms generally unattractive. The situation is greatly exacerbated by the general slowdown in the Chinese economy, its’ financial instability and a large-scale anti-corruption campaign. All of these factors prevent Chinese elites from any risky initiatives.

Another important factor is China's turn toward the West. The country is trying to push its economic growth through accelerated development of relatively underdeveloped areas. China wants to engage Central Eurasian countries’ joint potential for the country’s export supply chain diversification as the US sea traffic competition intensifies and seriously constrains the country’s export promotion goals.

Initially, the Russia model of the Far Eastern territories development intended to focus on the different international environment. Although the recent model has to take different forms in the changed international situation in order to be successful in current surroundings. The shift from the previous approach has to be made as soon as possible in order to take advantage of new business opportunities by dealing innovatively with the changes introduced.

Firstly, considering the difficulty of attracting large-scale foreign business, more attention should be paid to cooperation with small and medium enterprises, both local and foreign ones. However, providing a favorable administrative environment for doing business in the top priority development areas is not enough to achieve this goal. Some thorough and consistent work should be done at the level of federal, regional and local authorities in order to reduce the administrative burden, ease barriers to business, facilitate access to infrastructure and create supportive social environment. The Far Eastern District of Russia should become the place for testing new business model which generates economic environment and encourages private sector initiatives. Consequently, the model can be further employed for the whole Russia’s economy.

Secondly, considering the new business environment, the new integrated approach to the development of Siberia and the Far Eastern territories becomes not just desirable but really the crucial one. This approach was embedded into the original “Turn to the East” concept, in particular, Sergey Shoigu proposed the creation of a new state corporation for the development of Siberia and the Far East. Vladimir Putin in his annual Presidential Address to the Federal Assembly of the Russian Federation in 2013 outlined the development of Siberia and Far East as a “national priority for the whole 21st century”. Unfortunately, Siberia was later forgotten and was not mentioned in the next Presidential Addresses. The Ministry for the Development of the Russian Far East (Minvostokrazvitiya) also limited its activities by the Far Eastern region of Russia excluding the Siberian one.

However, Siberia and the Russian Far East are the integral parts of one joint macro-region. In its historical use, the name “Siberia” was given by ancient fur traders and settlers to the entire region which extended eastwards from the Ural Mountains to the watershed between the Pacific and Arctic drainage basins. Traditionally, the right head of the double-headed eagle on the Russian coat of arms is interpreted as representing the special identity of the Siberian region. Nowadays, mutually supportive and respectful economic and social interaction between Siberia and the Far East is much closer than contacts with Moscow. Besides, these two regions are linked by the Trans-Siberian Railroad and the Northern sea route.

On average, the economic potential of Siberia is higher than the economic potential of the Russian Far East. The Siberian Federal District has a population of approximately 19.3 million people, though the Far Eastern Federal District has 6.2 million (despite the fact that it covers a larger territory). The Siberian Federal District is as rich in natural resources as the Far Eastern Federal District, but Siberia has greater potential for the development of high value added production. Human potential of Siberian region is higher than the Far Eastern one - five Siberian universities entered the top-20 universities in Russia, though none of the Far Eastern ones were included in the list.

Although Siberia is one of the Russian regions with the most developed industrial potential and human resources, it has to overcome its “continental curse” – remoteness from markets and outdated and uncompetitive transportation system. China’s Silk Road Economic Belt (SREB) transport framework creates new opportunities for Siberia. Integration into the Central Eurasian Union should become the main driving forces behind the transformation of Siberia into a new economic area which can link international resources, production facilities and markets.

The accelerated development of the Far Eastern region without considering its close relationship with Siberian region would inevitably lead to exacerbating the Siberia’s “continental curse” i.e. its’ remoteness from markets. Instead, the development of the Far Eastern transport infrastructure should focus on the objective to bring Siberia nearer to foreign markets. However, the main constraint here is that the Ministry for the Development of the Russian Far East has limited its activities by the Far Eastern region excluding the Siberian one.

The same problems arise also in the Arctic, which is formally divided into two areas - the Siberian and the Far Eastern one. Red tape stands in the way of the coordinated development of critical infrastructure projects in the Arctic region as the majority of cross-border projects between two federal districts (Siberia and the Far East) relate to the Northern sea route which is inter-regional in its’ nature.

Now, when the development institutions of the Far Eastern region has already begun their work, the next important task within the framework of the policy aimed at accelerating the development of the Eastern Russia is to build a common regional system without division into Siberian region and the Far Eastern region. The task should go in parallel with the integration project of the Silk Road Economic Belt and the Eurasian Economic Union. It is vitally important for Russia to keep up with the rapidly moving processes that take place in the Asia-Pacific region and in Central Eurasia. The “Turn to the East” initiative is far behind East Asia's rapid growth over the past decades, so it’s important to avoid repetition of the past mistakes.
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