Foreign Investment Opportunities In Asian Siberia

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Op/Ed by Chris Devonshire-Ellis

Trans-Siberian Rail links, commercial viability and market potential are opening up foreign investment opportunities in Central North Asia

There are many foreign investors in Asia, who when asked to define the Asian region, will mention China, India, Japan, Korea, South-East Asia and maybe some of the smaller countries on the peripherals. There may be a debate about whether the term includes Central Asia, and possibly how far West it reaches, possibly including Iran, Iraq and Turkey in the mix. But the largest Asian region of them all, combined, will probably not even muster a passing thought – Siberia.

Yet Siberia as a land mass is entirely within the Asian continent.

russia-map

The area is so vast – some 13.1 million square kilometers, that even defining it can be difficult. In Western and most Asian definitions it is just a massive land mass somewhere in the north, covered in snow and ice and broadly extending from the Ural Mountains to the Northern Far East, with a piece of sea separating it from Alaska. The map above demonstrates the area.

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To the Russians, this is too simplistic. The Siberian land mass is divided into regions – Siberia itself is a Federal District, while the Far Eastern District makes up, well the Far East. I discussed the growing trend for Foreign Investment into Far Eastern Russia in the article “32% Of All FDI Into Russia Now Heads Into Its Far East”. With cities such as Vladivostok and Kharbarovsk now developing, and a relative short distance to major Asia cities such as Shanghai, Tokyo, Seoul and Ulaan Baatar the Far East is fast becoming integrated into Asian dynamics – as the title said, 32% of all FDI into Russia now heads to the Russian Far East.

Siberia as a Federal District though is a different animal. It covers an area of just under 4.5 million square kilometers, with a population of just over 17 million, about the same number as the Netherlands. In land mass though it is about 25% larger than India.

siberias-federal-districts-1

Essentially, Siberia is divided up into two parts, West and East, comprising ten Federal subjects. We can examine these as follows:

West Siberia
Altai Republic
This region shares borders with China’s northern Xinjiang Province, Western Mongolia and Kazakhstan. As the name suggests, it is sited on the Russian area of the massive Altai Mountain range, and is essentially Alpine in appearance. It is an important source of fresh water, containing numerous glaciers, lakes and rivers, in addition to having volcanic activity giving rise to numerous hot springs. It is mainly an agricultural region, renowned for its purity of produce, while tourism is also beginning to develop. However, the region does not have a rail network, with most travel being conducted by mountain passes and highways. The capital, Gorno-Altaisk has recently doubled its aircraft handling capacity in response to the increase in up-market tourism, and is also on the main Novosibirsk road, one of the major cities in the Siberian region.
Republic Population: 206,000
An introduction to foreign investment in the Altai Republic can be found here

Altai Krai
Altai Krai lies to the north-west of the Altai Republic, and borders Kazakhstan to the south. It is part of the Steppes region, although also somewhat mountainous and again with large water reserves and a long-standing agricultural industry, including some of the worlds finest honeys. Much of the region is UNESCO protected as a world heritage site, meaning polluting industries, despite the presence of raw mineral deposits are discouraged here. The Krai has a rail network that extends into several major Western Siberian cities, and both up-market agricultural, diary, and tourism industries are being developed here. The capital, Barnaul, is well connected as is the second city, Biysk. Both are on the important Novosibirsk highway.
Krai Population: 2.4 million
An introduction to foreign investment to Altai Krai can be found here

Novosibirsk Oblast
Novosibirsk is an important region in Russia, known for its forestry in addition to oil, gas and coal reserves and major hydro-electric and thermal power, the region has an energy surplus. Because of this it has a significant amount of FDI, especially in related support industries. The region is also heavily invested in manufacturing, including steel and other non-ferrous metals, in addition to a large manufacturing and electrical products base. It is home to Novosibirsk Aircraft, which manufactures the SU range of jet fighters among others. Novosibirsk, the capital, is the third largest city in Russia and the largest city in Siberia and Far East Russia as a whole, with an international airport. The city is also on the Trans-Siberian rail route.
Oblast Population: 2.9 million
An introduction to foreign investment in Novosibirsk Oblast can be found here

Omsk Oblast
Omsk Oblast is in the Western-most part of Siberia, and borders Kazakhstan to the south. It is largely steppe, with many lakes and forests. It is also heavily industrialized, with well developed, service and financial sectors. Agriculture represents a smaller, but still significant, portion of the economy. Economic activity is concentrated in the Oblast capital, Omsk City, with over sixty-six thousand private enterprises registered, ranging from small-scale retailers to billion-dollar manufacturing plants. The bulk of industrial output is concentrated in food and tobacco processing, hydrocarbon processing, chemical and plastics manufacturing, and electrical components. The remainder of the economy is dominated by the retail sector and agriculture. The capital is also on the trans-Siberian rail network, and the second largest city in Siberia and Far East Russia.
Oblast Population: 1.9 million
An introduction to foreign investment in Omsk Oblast can be found here

Tomsk Oblast
Tomsk Oblast is in a large basin and is mainly known for swamps and taiga forests. Much of it is inaccessible. However, it is rich in natural resources, particularly oil, gas, non-ferrous metals, peat, and underground waters. Forests are also among the most significant assets of the oblast: about 20% of the West Siberian forest resources are located here. Industry makes up about half of the regional GDP, while agriculture contributing about 20%. The oblast’s major export items are: oil, methanol, and machines and equipment. Oil extraction and lumbering are the two major business of the region’s joint ventures. The capital city, Tomsk, is a notable academic centre in the sciences, and has six universities, it is also on the Trans-Siberian rail.
Oblast Population: 1.1 million
An introduction to foreign investment in Tomsk Oblast can be found here

Kemerovo Oblast
Kemerovo Oblast is an important coal, coking and metallurgy centre for Russia, and is one of the countries most urbanized regions; 70% of the total population live in nine cities. It is also a major transportation hub, as branches of the Trans-Siberian spur off from here. The capital city is Kemorovo, although Novokuznetsk is larger. These areas are parts of Russia’s rust belt, with considerable industrial decline.
Oblast Population: 2.7 million
An introduction to foreign investment in Kemerovo Oblast can be found here

Khakassia Republic
Khakassia is a land bound republic, with major industries in coal and ore mining, and some forestry. The region has been hit hard since the decline of the Soviet Union and is a rust belt area. However, natural resources are still significant and include iron, gold, silver, coal, oil, and natural gas. The Republics Molybdenum deposits are the largest in Russia. Forests cover the south and the west of the republic. The capital city, Abakan, has a sizable river port, as well as a connecting spur to the Trans-Siberian railway.
Republic Population: 532,000
An introduction to foreign investment in the Khakassia Republic can be found here

trans-siberian-railroad-map

Siberian Cities Along The Trans-Siberian Railway

Krasnoyarsk Krai
Krasnoyarsk Krai is the largest federal subject in Siberia, and runs north-south in the centre of the Siberian District. It is about 1/3 the size of Canada and stretches from the Far Arctic North to within a few hundred kilometres of Mongolia and Kazakhstan. Most of the population and commercial activity is based in the south, while the Arctic Rover basin is to the Far North, and an important fisheries area. The krai is among the richest of Russia’s regions in natural resources, with eighty percent of the country’s nickel, 75% of its cobalt, 70% of its copper, 16% of its coal, and 10% of Russia’s gold are extracted here. Krasnoyarsk also produces 20% of the country’s timber. More than 95% of Russian resources in platinum and related materials are also concentrated in the krai. The capital, Krasnoyarsk, is Russia’s largest aluminum producer and also on the trans-Siberian express, and has an international airport.
Krai Population: 2.8 million
An introduction to foreign investment in Krasnoyarsk Krai can be found here

Eastern Siberia
Tuva Republic
Tuva lies in the geographical centre of Asia, and borders Mongolia to the South. Tuva has a developing mining industry in coal, cobalt and gold, while food processing, timber, and metalworking industries are also well-developed. It is also extremely diverse, all natural planetary zones except savanna exist in the Republic, which is also undergoing some Tourism development. There are more than 100 mineral springs in Tuva. The biggest of which are the warm mineral springs Ush-Beldir and Tarys, the temperature of the water due to thermal activity is 52-85 °C. Cold mineral springs and salt lakes are popular among tourists and the general population for their medicinal qualities. The capital city Kyzyl has an airport and will be linked to the Trans-Siberian rail with the connection due to be completed in 2020. A manufacturing and tourism boom can then be expected.
Republic Population: 310,000
An introduction to foreign investment in the Tuva Republic can be found here

Irkutsk Oblast
Irkutsk Oblast borders Mongolia to the South, and is an important region along the Trans-Siberian rail. It includes Lake Baikal, which also has a sizeable fishing industry. Other industries include mining, energy, logging, oil and fuels, machine-building, chemicals, food industry, and hydroelectricity. The average wages in Irkutsk Oblast are 10% higher than in Russia. The capital city, Irkutsk is one of Siberia’s main cities, and is well known for its aviation industry, best known as being the home of the Su-30 fighter aircraft. It is a significant stop on both the Trans-Siberian and Trans-Mongolian rail networks, the former of which heads east to Vladivostok and latter south, across the Gobi Desert to Beijing and the Chinese state network.
Oblast Population: 2.5 million
An introduction to foreign investment in Irkutsk Oblast can be found here

Import and Export Between North-Asia And Siberia Along The Trans-Siberian Railway
Each of these regions and their respective capitals will benefit over the next decade as the continued development of China’s Belt & Road project, and the development of new manufacturing, and export industries along with that begin to revitalize the volume of containers using the Trans-Siberian rail routes. This affects the entire Far East and Siberian regions of Russia in two main ways:

1) Trade: Improved transportation links, especially along the trans-Siberian routes, will better interconnect commercial developments with Asia. This is especially true of China. This means Chinese goods will have better access to each of these regions and cities, and import-export traders should be taking advantage of this. I visited some of the Siberian region’s Oblast and Krai exhibition stands at the recent SPIEF event in St. Petersburg, many of the local staff managing their respective stands spoke fluent Chinese, some Japanese and Korean. Although many of the cities mentioned above may not be familiar to readers, they all exist as trade routes that originally flourished due to the Trans-Siberian rail. They have had differing and fluctuating fortunes over the years, however all also have their own regional networks and transportation/communication routes deep into their own territories. Adding local logistics and product knowledge to the proven and improving capabilities of the Trans-Siberian routes makes a lot of entrepreneurial trading sense.

2) Exports: Those same transportation routes also provide access to the consumer markets of China, Japan and Korea. Opportunities exist in regional logistics to develop hubs to supply demand. The economies of North-East Asia are increasingly wealthy, regional Siberian entrepreneurs should be looking at consumer trends and getting local products in position to supply that demand.

Improving Connections Between Siberia And India & South-East Asia
There are other new routes emerging too. It is just under a 4 hour flight from Delhi in India, to Almaty in Kazakhstan, which is also regionally connected to Siberia with regular direct flights to Novosibirsk and Omsk. This brings bringing India within reach. China has multiple direct connections with Siberia to Irkutsk, Novosibirsk, & Omsk. Korean air connects directly with Irkutsk, Japan’s JAL directly with Khabarovsk.

Irkutsk as a Siberian hub connects directly with several other cities within the Oblast, as well as with Barnaul, Krasnoyarsk, Kyzyl, Novosibirsk, Omsk and Tomsk, while Novosibirsk is a huge regional and international air hub with direct connections all over Russia and well into Europe and other Asian destinations into the Middle East, Central Asia, China, India and South-East Asia and east to Japan and Korea.

Siberia Logistics Fast Facts
Main Regional Hubs: Irkutsk, Novosibirsk
Flight times
Irkutsk-Beijing: 3 hours
Irkutsk-Moscow: 6 hours 10 minutes
Novosibirsk-Beijing: 4 hours 45 minutes
Novosibirsk-Moscow: 4 hours 20 minutes
Novosibirsk-Vladivostok: 5 hours 35 minutes
Beijing-Irkutsk by train: 10 hours
Beijing-Novosibirsk by train: 3 days 7 hours

Although Siberia may seem remote to many – even in Asia, the fact that one of its cities is the central geographical heart of Asia should not be unnoticed. At present, the region provides a still-remote, yet increasingly accessible new commercial frontier. This is linked strongly to the upgrading and expansion of certain sections of the Trans-Siberian Rail, which passes though many of the Siberian cities mentioned in this article. That will undoubtedly lead to spin off benefits for local traders, who equipped with local transportation knowledge will be able to use part of that routing for their own consumer needs and export potential, transporting goods and products further into the Siberian heartland, in addition to local products heading the opposite direction.

That also includes markets as far away as Japan – I wrote about the Tran-Siberian land bridge from Japan, and its ability to reduce transportation time to Europe by 50% in the article Trans-Siberian Land Bridge Opens

Spill over benefits will carry over right across Far Eastern Russia and Siberia. There has also been talk of upgrading the entire length of the Trans-Siberian to include high-speed trains from Moscow to Kazan and then onto Beijing.

This will ultimately lead to existing regional Siberian hubs such as Irkutsk and Novosibirsk developing further as major transportation hubs in their own right, with all the implications that carries for the other important regional capitals such as Barnaul, Krasnoyarsk, Omsk, Tomsk, and spurs leading to destinations such as Kyzyl. In turn, that will lead to greater demand for regional air capacity – which is already being put in place. Russia’s Ministry of Transport has announced it is upgrading over 60 Russian regional airports and increasing their capacity, with the full development expected to last until 2025. That coincides with the development of Siberia’s S7 airline, which has orders for 25 Sukhoi superjets and became Russia’s first buyer of the Boeing 737 Max. While there remain unfortunate short-term issues with both aircraft, the demand is there, and S7 will buy alternatives if the Sukhoi or 737 Max prove unpopular. S7 currently runs a fleet of 100 passenger aircraft, mainly Airbus and Boeing, flying to over 150 destinations. In 2017, it carried over 9 million passengers, with consistent growth rates of about 10% per annum over the past eight years. Clearly, the demand is there and improved rail connectivity will only see that develop.

There are additional positive trade factors coming down the development pipeline as well. China and Russia are negotiating products to be included in the existing Eurasian Economic Union Free Trade Agreement. Those discussions are now underway. When that is concluded, development in Siberia will also heat up as the FTA will have the effect of reducing tariffs on included products. The reunification – indeed recognition – of Siberia as part of Asia is underway.

About Us

Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at maria.kotova@dezshira.com or visit us at www.dezshira.com.

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