Go East: Russia wages Asia charm offensive amid sanctions

MOSCOW — Following the Western sanctions imposed on Russia over the Ukraine crisis, the beleaguered economy is looking eastwards to woo investments from Asia, including Singapore, to keep itself afloat.

It is planning to build 14 accelerated special economic zones (SEZs) in Russia’s largely undeveloped Far East region within the next two years, as part of efforts to bolster ties with Asia as its relationship with Europe and the United States falters.

The accelerated zones — as the name suggests — will differ from Russia’s existing SEZs in that they allow for a speedier pace of development, enabling companies to build their business within two years from which they decide to set up shop in the zones.

“This is impossible now,” Russia’s Deputy Minister for Development of the Far East, Mr Maxim Shereykin, told reporters last week on the sidelines of the Moscow International Forum for Innovative Development, Open Innovations. “(Now) it is difficult, linked with land plots, infrastructure, permissions,” he said

With the accelerated SEZs, the infrastructure will be completed before investors arrive at the site, Mr Shereykin elaborated. Russia will also provide a one-stop service for investors that will “combine authorities from the federal level, from regional levels, from a municipal level … at one organisation responsible for the accelerated SEZs. It makes the projects easier and quicker”, he added.

Mr Shereykin said by the first half of next year, the government will develop the strategy on the best use of land plots and projections. By 2015 to 2016, infrastructure will be built.

THE SINGAPORE CONNECTION

Russia is interested in attracting foreign direct investments from South Korea, Japan and China — in that order — but is also looking to other Asian countries such as Singapore.

Just last month, Mr Shereykin said, he had held talks with International Enterprise (IE) Singapore as well as several Singaporean companies.

“Singapore has experience in building special economic zones in China, so we want that experience. We are interested in attracting companies which are in the construction, infrastructure businesses,” he told TODAY.

Singapore’s economic ties with Russia have come a long way, with bilateral trade nearly doubling from S$3.8 billion in 2008 to S$7.14 billion last year, according to figures from IE Singapore. There were also more than 400 Russian companies in Singapore as of last year, up from just over a hundred five years ago.

SPREADING OUT

In the first stage of building these SEZs, said Mr Shereykin, 1,000ha of land will be made available

The industries of petrochemicals, gas chemicals, production of construction materials, forestry, agriculture and fishery, shipbuilding, mining, will be targeted for these zones.

Finally, he added, foreign labour limits will be lifted in these SEZs.

Earlier this year, Russian President Vladimir Putin had separately ordered the government to create a special economic zone in Vladivostok, a hub in the Far East, as part of a broader effort to increase Moscow’s economic integration in the Asia-Pacific. It was to be completed by June.

Excluding that, Russia presently has 28 special economic zones covering four categories: Industrial and production zones, technology and innovation zones, tourist and recreational zones as well as port zones.

CHASING ASIA

Amid an array of sanctions on Russian individuals and businesses by the United States and the European Union over its actions in Ukraine, it has never been so evident that Russia is on a charm offensive to lure Asian investors.

Last week, for instance, China was its biggest partner for the Open Innovations Forum, an annual global forum for innovations in science and technology, business and government.

China Premier Li Keqiang also attended the forum as part of his trip to Moscow, where he signed some 50 agreements and memorandums of understanding with Russia, in areas including nuclear energy, natural gas, financing and banking.

Foreign companies in Russia also say that governments at the municipal level have been doing more to lure foreign investors since the sanctions were imposed.

Mr Dmitrii Koklia, the Russian representative for Singapore oil drilling rigs company Brian Chang Holdings, said the local Russian governments have been offering more services and benefits to companies, such as tax incentives, support to cut through red tape, as well as offering link-ups with local suppliers. “They have also been helping to solve many issues with permits and certifications, or with financing and logistics issues. Some cities make it easier for businesses and offer more incentives, as compared to others, such as Tyumen in Siberia, Kaluga near Moscow, and Khabarovsk in the Far East,” he added.

THE WEIGHT OF SANCTIONS

This comes as Russia is feeling the effects of several rounds of sanctions since March, with retail prices rising, banks tightening lending to Russian companies, the rouble falling to a new low recently, and the International Monetary Fund expecting Russia to grow by only 0.2 per cent this year.

Ratings agency S&P estimates that £36 billion has also left the country in the first three months of this year, almost the entire outflow from last year.

However, Russia’s officials were still upbeat about the impact of the sanctions. During a meeting with foreign journalists on a press tour showcasing Moscow’s business and tourism sector last week, Mr Oleg Bocharov, a Deputy to the Moscow City Duma (parliament) and Head of the Department for Industrial Policy, Science and Entrepreneurship called the sanctions “an opportunity” for growth.

“The sanctions for some types of technologies (have led to a) rapid increase in prices for some innovation products and growth of consumption, which means they are really in demand in the country. And we can see now that the substitution of imports today (has led to) a situation where billions of dollars are being streamed to the high tech innovations and investments sector,” said Mr Bocharov.