The 2016 Eastern Economic Forum, one of the key international events in Russia, highlights the nation’s bold plan to renovate its Far Eastern region and make it a transport, economic and technology hub in the Asia-Pacific region. Yet it remains to be seen if these plans will be successful.
Vladivostok. Photo: Eastern Economic Forum
Turning the Far Eastern coastal city of Vladivostok into the Russian version of America's prosperous and tech-savvy San Francisco is going to be one of the key long-term goals of the Kremlin. Russian government officials, economists, businessmen and foreign investors gave the green light to such ambitious plans at the second Eastern Economic Forum, which is taking place on Sept. 2-3 in Vladivostok.
The fact that this year the event brought together more than 3,000 participants from 56 countries, twice as many as in 2015, indicates that the extensive development and modernization of the Far Eastern region has become one of Russia's top national priorities, eliciting interest among many investors from both Europe and the Asia-Pacific region.
The authorities expect to launch 500 new investment projects worth an estimated 3 trillion rubles ($46.1 billion at today's exchange rates). Already, 13 special economic zones created in the region have attracted over 300 requests from both Russia and abroad, at a projected cost of more than one trillion rubles ($15.4 billion), according to Alexander Galushka, the minister for the Development of the Russian Far East, who took the floor at the forum. These projects primarily deal with fishing, medicine, timber and infrastructure.
Andrei Kostin, the president of the state-owned bank VTB, sees the Far East as the region of the future. Furthermore, he argues that its extensive development should be “one of Russia's key national ideas." Gradually, the authorities could implement all its potential and turn it into the Russian version of San Francisco.
However, Hans-Paul Beurkner, the chairman of the Boston Consulting Group, warned during the Forum that all dreams about a "Russian San Francisco" would come true only if the authorities are able to effectively tackle the region’s three challenges: the lack of talent, very bad infrastructure and the absence of reliable institutions that guarantee the rule of law. Otherwise, all dreams will remain just on paper.
Indeed, Russia’s railway system is underdeveloped in the Far East in comparison with other countries: The U.S. has five transnational railway lines, while Russia has only one such line — the Trans-Siberian railway, constructed more than 100 years ago. Likewise, Russia lacks high-speed railways, with its Asian-Pacific counterparts extensively investing in this kind of transport, says Hiroshi Meguro, the general director at Mitsui & Co Moscow. After all, China started with the improvement and modernization of infrastructure before heavily investing in its economy.
Nevertheless, Japanese investors, including Meguro and Tadashi Maeda, the director of Japan Bank for International Cooperation (JBIC), see the Far East as a region with “a huge potential” and are ready to invest in it. Patience is what one needs while dealing with Russia, said Meguro, expressing belief that investment into the country’s Far East will bring a lot of payoffs in the long-run. Their Chinese counterparts, also participants of the Forum, agree.
“From Lisbon to Vladivostok” gets a second wind
Moreover, Russia's government authorities expect the Far East to become a sort of bridge between European and Asian economies. The long-cherished idea has always been one of a greater Eurasia — the famous concept of an integrated economic region extending “From Lisbon to Vladivostok.” Now, that idea appears to be getting closer to finally being implemented. This concept shifts a great deal of responsibility for providing security and sustainability in the Eurasian context to Russia and makes it one of the central players in the region.
Given the tensions between Russia and the European Union, the bold project will be very hard to get off the ground. Europe is not ready so far for such a scenario, according to Antonio Fallico, the president of the Conoscere Eurasia Association, a nonprofit organization seeking to develop economic and cultural relations between Italy, Russia and the Eurasian Economic Union.
Likewise, Alexey Likhachev, Russia's First Deputy Minister of Economic Development, argues that “we are waiting for the signal from Brussels,” but these expectations seem to be futile, with no positive response from Europe. According to him, decision-makers and experts who consult them are driven basically by political calculations.
However, European economists and consultants say that EU business is in fact interested in creating a sort of free trade zone from Lisbon to Vladivostok. For example, Ulf Schneider, the general director of Schneider Group, a global business consultancy, argues the cooperation between the EU and the Eurasian Economic Union is relevant.
“Today Russia is in a deep economic crisis, but this is the right time to come up with such ideas like the single economic space from Vladivostok to Lisbon,” Schneider told Russia Direct at the Eastern Economic Forum. “At the moment Russia is at a dead end and it needs to get ideas of how to get out of this very difficult situation. So, a common economic space is helpful.”
Meanwhile, Igor Shuvalov, the nation's First Deputy Prime Minister, argues that Russia should take the initiative on the Eurasian project as soon as possible, otherwise it will fall behind given such integration projects as the U.S.-led Trans-Pacific Partnership (TPP) and the U.S.-led Transatlantic Trade and Investment partnership (TTIP). Both of these rival projects might create many obstacles for Russia later, especially if Eurasian integration fails. While TPP brings together 12 countries across the Pacific Rim, TTIP is its European counterpart, consisting of the EU countries.
“If we don’t come up with this agenda today by ourselves, it will come from the West [TTIP] and from the East [TPP],” Shuvalov warned at the Eastern Economic Forum.
Can Russia’s Far East be a bridge between Europe and Asia?
However, Veronika Nikishina, a board member of the Eurasian Economic Commission, argues that the TPP agreement won’t hamper Russia and cannot be seen as a rival to the Russian-led integration projects because “Russia is weakly integrated in the markets of the TPP members” and its exports are not competitive enough in comparison with those of the TPP members. In fact, TPP represents an expanded agenda of a free trade zone; as such, it brings together the Asia-Pacific countries, which have a long history of trade and cooperation.
In the short-term, Russia won’t lose, but strategically it might face unfavorable implications. According to Nikishina, Russia should start integrating in the Asia-Pacific markets now; otherwise it might be too late. “We have to become an integration project between the Asia-Pacific region and Europe, between the countries that have different competitive advantages. The opportunity of bringing together these advantages is key for success and a driver for developing our exports.”
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Likewise, Yaroslav Lissovolik, the Eurasian Development Bank’s chief economist, argues that geographically Russia is destined to be the bridge between Europe and Asia.
“Geography is destiny. It is inevitable for us,” he told Russia Direct. “If we are between two centers of the world economy — the East and the West — it is beneficial for us. We could and should bring them together. It is a matter of using the advantages of our geography to yield economic dividends.”
However, Dmitri Trenin, the director of the Carnegie Moscow Center, argues that Russia doesn’t have any true potential — either politically or economically — to be the bridge between Europe and Asia, given the current economic and political stagnation. Unlike the advocates of Russian Eurasianism, who see Russia as the center of a big and robust Eurasia, Trenin is somewhat skeptical about the idea of Russia being the bridge between Europe and Asia.
“In the 21st century, Russia has a chance to become not a notorious bridge between Europe and Asia or the outpost of China near the EU gates, but an important stakeholder with its independent role,” Trenin writes in his book “Russia and the World in the 21st Century”.
Similarly, Ivan Timofeev, the program director at the Russian International Affairs Council, says that Russia won’t be able to be a bridge connecting Europe and Asia, because this function is served more effectively by oceanic routes. Russia would better focus more on narrow and modest tasks, such as transportation of specific goods.
Meanwhile, Christopher Hartwell, the president of the Center for Social and Economic Research in Warsaw (CASE), argues that the idea of transcontinental economic collaboration “is not at all possible today, for reasons under Russia’s control and those outside of its control.”
“Unfortunately today, that bridge is still not built, and many Russians and their politicians see such a bridge as some sort of pretext for a NATO invasion,” Hartwell told Russia Direct. “Yet the Far East can be a bridge, but on its own merits, not directed from Moscow. Perhaps even making the Far East a special economic zone, exempting it from Russia’s normally oppressive business environment, could be a path to take.”
All this indicates that Russia could foster integration, but in a very specific way. It may focus more on scientific and technological integration while remaining open for cooperation with the West and the U.S., in particular, given America’s robust high-tech sector and experience with innovation.
“Today our biggest partner should be America, because it is more open technologically for us, while China is our weak partner in this regard,” said Viktor Vekselberg, the president of the Skolkovo Foundation, during the Eastern Economic Forum.
Likewise, Lissovolik believes that Russia should not forget about cooperation with the West. Moreover, Russia should be an additional element in the TPP and, in the long-run, should be part of broader cooperation that the expert calls the North-Pacific Partnership. This could involve the U.S., Japan and Russia. In fact, Trenin echoes this idea.
“However, being a Euro-Pacific country also means that Russia should not turn its back on the West,” he told Russia Direct in an interview.