President Putin’s Speech At The 2021 Far Eastern Economic Forum

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By Chris Devonshire-Ellis

The key regional Far Eastern Economic Forum has been taking place in Vladivostok, with guests including senior Russian politicians and businessmen along with overseas Ministerial guests, and senior politicians from Armenia, Australia, Brazil, Cambodia, China, Finland, India, Italy, Japan, Kazakhstan, Mexico, Mongolia, Norway, South Korea, Thailand, and Vietnam.

President Putin’s address contained detailed development plans and planned investment into the Russian Far East, encompassing a wide variety of sectors from infrastructure, new technologies, transport corridors and industries to specifics concerning climate change and improving regional human well-being. In what amounted to a policy speech, this brings numerous opportunities for foreign investors across a wide range of disciplines. I have categorized his speech into different topics below, interested parties may scroll down to the pertinent section of interest. More detailed analysis of opportunities within the Russian Far East may be obtained from Dezan Shira & Associates upon request by emailing russia@dezshira.com

President Putin’s Speech

I welcome all the participants and guests of the Eastern Economic Forum.

Once again, after a break caused by the pandemic, Vladivostok welcomes company heads, businesspeople, and experts from dozens of countries.

I am very happy that the presidents of Kazakhstan and Mongolia accepted our invitation. They are taking part in the plenary session via videoconference, as we can see. The leaders of China, India and Thailand sent their greetings to the forum.

Such broad representation and an interest in the development of the Russian Far East show that the economy is recovering and returning to its normal business mode. Russia is open to mutually beneficial partnership with all countries in the Asia-Pacific Region.

I would like to note that the APR, which accounts for one third of the global GDP, has been a driver of the global economy for a long time; this is a well-known fact. The growth rates of the region’s countries invariably exceed the world’s average.

Russia As An Asia Pacific Nation

Russia – and I would like to stress it even though it is obvious – Russia is an inalienable part of the APR, and we will establish in our Far Eastern regions a powerful center for attracting capital and the new economy, create a space of opportunities for citizens to implement the most daring business ideas and projects. Let me emphasize that even under the tough conditions of the pandemic and its economic impact we did not give up the implementation of the long-tern development plans for the Far East. On the contrary, we tried to speed them up.

I would like to tell you about the outcome of these efforts. At any rate, this is what I am going to start with, and I will also talk about the new decisions that already have been adopted or are about to be adopted to strengthen the economy and the social sphere in the region.

Investment In The Russian Far East

The volume of accumulated foreign direct investment in the Russian Far East has almost doubled in the past six years, reaching US$80 billion. Industrial growth in the region exceeded the national average. During the same period, industrial production in the region has shown a growth rate of around 20 percent, or twice the national rate. New special mechanisms for supporting capital investment have allowed more than 2,500 residents to register in the priority development territories and the free port of Vladivostok. Sixty-eight thousand modern jobs have been created. Global projects in aviation, shipbuilding, chemical industry, gas processing and logistics have been launched in the Far Eastern regions such as the Amur Region, the Khabarovsk Territory, and the Primorye Territory.

This kind of diversity is gratifying. This diversification of the region’s economy cannot but inspire us to achieve new heights across all these industries. The region already had its combat aviation and we have started developing and continue to successfully develop civil aviation as well. The shipbuilding industry fell into almost total ruin after the Soviet era. Now it is experiencing a revival, based on new technologies, with new products in development and excellent long-term orders. The chemical industry is developing, not to mention the gas processing industry. I think these projects are well known. This is what the overall progress in the Russian Far East has been like, each region working on a wide variety of projects. We continue to elevate conventional industries as well – for example, developing large ore and metal deposits in Chukotka, the Trans-Baikal Territory and Buryatia.

I would like to praise local management teams for improving the business climate. A great deal has been done locally and I would like to thank regional officials for that. Four Far Eastern regions were included in the top 30 of the 2020 National Investment Climate Ranking. I hope this number will continue to grow. It was zero not so long ago.

We are working constantly on reinforcing guarantees and expanding opportunities for businesses all over Russia. We know very well that new advanced solutions are always in demand, especially in the Far East, a region aiming for priority development at a rate above the national average. Obviously, we need to create a competitive environment for our partners, which means that the parameters such as the tax burden, the cost of debt, the delivery and quality of government services for businesses must be competitive on a global level. As I have just said, they must be the best in the Asia-Pacific. This is an extremely difficult task, but we must keep working to fulfil it. 

Investment Incentives In The Kuril Islands

We are planning to create an unprecedented package of benefits and incentives on the Kuril Islands. We will relieve business of many taxes – profit, property, land, and transport taxes for a long period of ten years. Let me emphasize that I am referring to the companies that are operating on the islands, that erect buildings, create businesses and hire employees, not those that are just registered there. These companies will also pay reduced insurance premiums of 7.6 percent for ten years.

In addition, we will establish a free customs zone on the entire territory of the Kurils. It will be easier to import commodities and equipment and export finished products. No VAT will be levied within this zone before goods leave the Kurils.

Let me make a reservation at this point that not all types of activities will enjoy these preferential tax incentives. They will not apply to intermediaries, the production of excisable goods, the extraction and processing of hydrocarbons or harvesting precious water bio-resources. Obviously, these activities are highly profitable as they are.

I would like to emphasize that foreign investors will also be able to use these tax, customs and administrative benefits, not just domestic companies. This certainly applies to our neighbors, including our Japanese partners. We have spoken with them before about the need to create conditions for the economic development of these islands and the promotion of cooperation there.

I would like to express my hope that the preferential tax incentives for businesses on the Kurils will produce tangible results for development and will be an impetus for promising projects, primarily in such areas as tourism, aquaculture, and fish processing. This is important for Russia, and of course, for our citizens in the Far East to have new points of economic growth with high export potential. This should provide additional jobs and higher incomes and encourage the development of small and medium companies.

Far East Russia Infrastructure Development

Today railways, roads and seaports in the Far East provide for a large part of Russia’s international trade, and we are working towards expanding their capacities and developing the main infrastructure, first, the throughput capacity of the Baikal-Amur Mainline and Trans-Siberian Railway. We have been talking a lot about this lately, and much is being done, but even more needs to be done.

I would like to elaborate on the Baikal-Amur Mainline. Russia has launched this project several times. Back in the first half of the 20th century, research was carried out and sections of the railway were constructed, but only in 1974, almost 50 years ago, did full-scale construction begin.

We will celebrate the 50th anniversary of the construction of the Baikal-Amur Mainline. And today I would like to express my gratitude to the veteran construction workers who built such a necessary and, if I may say so, irreplaceable transport route for Russia despite its harsh climate, through the taiga and mountain ridges. Friends, you have laid a strong foundation, and now our task is to fulfil our plans to update the mainline and develop the entire Eastern railway system as scheduled and planned. I hope that we will fully execute this.

Increases In Cargo Volume

The volume of cargo transported via the railway and Russian sea ports is growing, which means income from exports, revenue to the budget and, in the end, additional resources that we will first allocate to address people’s social problems.

However, we should not forget about the costs, environmental risks, and coal dust. It is such a simple thing, but people can feel it, so it’s not a small detail. People can feel this, and not only feel, but rightly complain about such things. We have already made several decisions in this regard, including signing agreements with stevedoring companies. They require Russian ports to introduce environmentally friendly and the best available technologies for the transshipment of goods. Such technologies are being used in Russia more widely. I hope that this will be implemented in the Far Eastern region as well, as quickly as needed.

I believe we should go further and add the requirements for Russian cargo ports, not only Nakhodka and Vladivostok but also Murmansk, Kaliningrad, and Novorossiysk among others, to introduce continuous environmental monitoring systems at the legislative level.

A shortage of construction materials is another serious problem plaguing the Far Eastern Federal District that is specific to it. A lot of construction materials must be brought in from places that are hundreds or even thousands of kilometers away. This, of course, directly affects the speed of construction and the cost of projects not only in the infrastructure sector, but the housing sector as well.

Soon we will need to scale up the production of building materials in the Far East by orders of magnitude. Among other things, we will create a modern cluster of this industry in the Khabarovsk Territory, which has the necessary resource, production, and personnel base. Importantly, this cluster will serve the needs of the entire Far Eastern Federal District. I want the Government and our leading companies, including Russian Railways, Rosavtodor, and other major users of building materials, to come up with proposals on this. As a matter of fact, they are in the works, if not to say that they are already available, but they must be finalized and implemented as soon as possible.

Russian Far East Transport Corridors

We will be developing the potential of the Far East as a critical hub of global transport corridors based on a modern materials and technology base with account taken for the most stringent environmental standards, including increasing the Northern Sea Route’s capacities. I would like to note that over the past 10 years, the volume of cargo transport along this route has increased by an order of magnitude. I think I have my numbers right; sometime in 1986 a little over 7 million tons were shipped, last year it was 33 million tons, and by 2024, this figure should be 80 million tons. I am positive that these are not the final figures.

Literally before the plenary session – I just saw our colleagues, the moderators of the sessions that are taking place as part of the forum – a proposal was made to launch a container shipping line along the Northern Sea Route on a regular year-round basis. I have already expressed my opinion there, and I will go over several things here as well: it is necessary to carefully, but without delay, assess the prospects for this transport corridor. This is vital, and we must do this; and we will do it, but we need to work through the technical part. We need to develop the port infrastructure, ensure security, and so on. But it undoubtedly holds the future for global shipments from Asia to Europe and back.

It is important to consider the possibility of opening the first regular service for carrying goods, including containers, between Vladivostok and St Petersburg as early as next year to break in the route and create a freight shipping base.

New Economic & Technological Development

The strategic vector for the development of the Far East is towards a new economy, those areas for economic, scientific, and technological development that shape the future, set long-term trends in entire industries, countries, and regions of the world. Here a broad range of opportunities for international cooperation opens as well as the chance to really look at the development of the traditional sectors and branches of the economy.

Reliable and environmentally friendly energy sources, including autonomous ones, are vital for the Far East with its vast territory and remote towns. Such projects are already being implemented. A floating nuclear thermal power plant, the Akademik Lomonosov power unit, is already operating in Chukotka; the Toreyskaya solar power plant with a capacity of 90 MW was launched in Buryatia; methanol plants are planned in Nakhodka and the Amur Region, and methanol can be used not only as a raw material for chemical production, but also as a next generation fuel, primarily for sea-borne shipping. I ask the Government and the regional authorities to provide maximum assistance in the implementation of these projects.

We must also tap the energy potential of the Far Eastern seas, relying on modern technology, to accommodate the expected development of new markets. The planned Tugurskaya tidal power plant in the southern part of the Sea of Okhotsk is one such project.

Along with other industrial projects, the Far East offers an opportunity to create a powerful industrial cluster to produce green hydrogen and ammonia. The demand for these products will grow steadily for decades, especially here in the Asia-Pacific region.

The implementation of these plans will require the development and introduction of breakthrough technological solutions in transport, energy, and other industries; this is a serious challenge for our economy and science. I ask the Government to analyze all aspects of the creation of a center to produce green hydrogen and ammonia in the Far East, including the project’s feasibility and the participation of our foreign partners in it, primarily from Japan and China. After all, all of us have taken on serious nature conservation obligations, these countries, too, and these are the world’s leading economies. I would like to note that such projects meet global and Russian climate-related goals.

In this regard, I will say a few words about climate projects that we are going to promote in the Far East.

Developing Sakhalin & Climate Change Projects

The Sakhalin Region – you probably know this, but I will say a few words nevertheless – will become the site for a pilot project that will allow us to work out the issues of regulating the emission and absorption of greenhouse gases on a region-wide scale. As part of this experiment, large companies will provide their carbon reports and present the results of their climate projects. The goal is concrete: by 2026, Sakhalin must reach carbon neutrality, that is, absorb as much carbon as it emits.

Before July 1, 2022, the Government is supposed to develop the entire statutory framework for the implementation of climate projects and the use of carbon units in Russia. It must be done in accordance with international standards. We will discuss this work with the Government in October.

Here I suggest considering expanding the experiment on regulating greenhouse gas emissions to other Russian regions. I know that some of them have expressed their interest.

I would also like to add that the Arctic has a huge impact on the global climate. It is important to understand and forecast the processes going on there, for which we need accurate scientific data. In this regard, I would ask you to speed up the creation of the national permafrost monitoring system and conclude the development of the statutory framework for its launch before the end of the year.

Russia currently holds the presidency of the Arctic Council. As part of this presidency, we propose an important initiative to organize an international expedition to the high latitudes of the Arctic. The North Pole drifting station, fitted out with the necessary equipment, will be the base for the expedition. The station will be located on a unique ice-resistant platform, which is currently being built in St Petersburg and will be put into operation in the next several months.

The meaning, value, and significance of all the plans that we intend to carry out here is not only and not so much to develop natural resources or attract investment and technology but is also to make life more comfortable for the people in the Far East, allow them to make use of their knowledge and talents, create families, build homes, and bring up children.

Settlement Benefits

A special demographic package has been valid here since 2019. It includes higher maternity capital benefits on the birth of a second child, lump sum payments on the birth of the first child, and monthly payment benefits on the birth of a third child and subsequent children. These are special support measures for the residents in this federal district and they are effective. Today, the birth rate in the Far East is higher than the national average.

However, we are still facing many challenges in achieving positive dynamics in population growth. We also discussed this issue at a meeting with our colleagues yesterday. We must drastically change the tide and achieve sustainable positive dynamics in this respect. The key goal here is to improve the quality of life.

Let me remind you that by 2024, the living standards in each region of the Far East must not be below the national average. This comprehensive, difficult task requires consistent work. I am primarily referring to healthcare. Doctors at Far Eastern hospitals, outpatient clinics and first aid care stations are working decently and doing all they can. However, there are obvious problems that we cannot resolve with formal, average formulas and approaches. We must always consider the specifics of each region.

I will not go into detail at this point. Obviously, it is necessary to work further on the issues we discussed at yesterday’s meeting. We will do this and carry out our additional support measures.

The Far East is a vast territory with low population density. It is essential to provide these people with quality healthcare. It must be reliable and accessible. Yesterday, we discussed proposals from the United Russia party with our colleagues from the Federal Government and the Far Eastern regional governors and adopted several important decisions on this issue.

Healthcare

The first point. We will further increase the current allocations for the healthcare system in the Far East, especially the remote and sparsely inhabited areas. We will allocate over 6 billion rubles a year for this purpose, and this will only be the first step.

Subsidies

Second, we have agreed to prolong the Unified Subsidy. Under this program, 476 social facilities have been built and 700 repaired in the Far East, including schools, kindergartens, outpatient clinics, fitness centers, and medical and midwife stations. Next year, Far Eastern regions will receive an additional sum of around 20 billion rubles for this program, and at least half of this amount will be allocated for the development of the healthcare infrastructure in the Far Eastern regions. Let me stress that this money will be allocated on top of the 57 billion rubles that are already planned for the program to upgrade the primary healthcare segment in the Far Eastern Federal District.

There is another task that is important for the entire federal district: 80 percent of the 2,500 Far Eastern post offices are in remote villages, with three quarters of them in need of major repairs and renovation. As you know, I have supported the proposal of the United Russia party to upgrade and increase the capacities of post offices so that our people will be able to get public services and remotely purchase all the necessary goods, including food and medicines, there. We will begin a major renovation of the postal infrastructure, postal network across Russia, very soon. Far Eastern pilot projects will be launched in the Primorye and Khabarovsk territories as well as in Buryatia.

Education

Next, we must create all the conditions and opportunities for everyone in the Far East to be able to receive up-to-date education and competences as well as learn an in-demand profession and find a well-paid job.

Let me remind you that United Russia’s proposal also envisages launching a program of major repairs in general education schools. Over the next five years, we plan to repair more than 1,000 school buildings here in the Far East. Moreover, we will introduce 21,500 new school places by the end of 2023 as part of the school construction program.

I would like to note that the number of graduates in the Far East is growing, but many of them are leaving to study in other Russian regions today. As a rule, they find jobs there, then start families and settle there. It is necessary to improve the accessibility of secondary and higher vocational education here, in the Far East, while focusing on training highly qualified human resources. In this connection, I, of course, support wholeheartedly the idea of holding the 2023 WorldSkills National Championship for Young Professionals in Khabarovsk. I am sure it will give another boost to the development of the vocational education system in the entire region.

As concerns free higher education, its availability for school graduates in the Far East is still lower than the average availability in other Russian regions. Therefore, in the years ahead, we will continue to increase the number of state-funded places in Far Eastern universities. I have a reference document here, but I will not bore you with figures. I think this data needs to be corrected because the number of state-funded places should be even higher than what the Government proposes.

As a concurrent measure, we need to improve the quality of higher education in the Far East, update study programs, education, and research infrastructure – in response to the demands of the economy, employers, the current labor market and, most importantly, the demands of students themselves. We need to attract more highly qualified professors and world-renowned scientists and scholars. The Far Eastern Federal University must become one of the world’s leading universities within the next decade. It must meet the highest international standards in terms of its facilities, research base, the level of teaching and career prospects.

Housing

Next, the most vital issue for young professionals and their families (and for all citizens for that matter) is housing, its quality and affordability. A special mortgage program was launched in the Far East in 2019, under which young families and those who are building their own houses, including on a plot of land granted under the Far Eastern Hectare program, can obtain a mortgage with a 2 percent interest rate. Around 24,000 families have already used this mortgage offer to improve their living conditions. There has been a proposal to extend this subsidized mortgage program to other categories such as representatives of essential industries that are in great demand in the Far East. We will discuss this proposal with the Government shortly.

I would like to note that the cost of housing in the Far East has increased significantly lately. There is a shortage of high quality and affordable housing on the market. I would like to remind you about the goal of increasing the scope of residential construction in the Far East by 60 percent compared to the 2019 level by 2024. This is a request for the Government and regional officials to consider additional solutions to stimulate residential property development in the Far East.

It is very important to address the problems of housing availability and the quality of life in a comprehensive manner. The issue of launching a large-scale upgrade program for Far Eastern cities is long overdue. I am not only talking about the renovation and improvement of residential areas and public spaces. We need to set vectors for the long-term development of these cities. Instead of agglomerating around major production facilities and large plants, as was the case, historically, they must become cities focusing on residents and their needs, comfortable living, and growth conditions where there is room for fresh ideas, initiatives and projects for the economy of the future, where there is convenient and eco-friendly public transport available. Cities like Tynda and Severobaikalsk, which are essential for the operation and development of the Baikal-Amur Mainline, must not be overlooked.

I would emphasize that such a program should be implemented in close communication with the residents, responding to their needs. We will also need to effectively tap the tools and mechanisms we launched recently. I am referring to government loans for infrastructure projects, DOM.RF subsidized bonds and support from the National Wealth Fund.

The Far East should also make intensive use of the opportunities provided by the public transport replacement program, as well as the Far Eastern concession mechanism, where urban infrastructure, including utilities, is built with private investment, while the state takes on long-term obligations to reimburse these investors.

Development programs and master plans for each city need to be prepared over the next two years. I propose we consider and approve the first of these at the next Eastern Economic Forum and start implementing them.

The development of the Far East is a unique effort in terms of its complexity, scale, and significance, and at the same time, it is one of the most promising areas. It poses a challenge and offers exciting projects for large, global companies, medium-sized businesses, start-up entrepreneurs, for everyone, for young professionals and experienced professionals alike.

Summary

Again, the advanced development of the Far East is our long-term and absolute priority; it is a shared responsibility and job between the Government, the regions, all levels of government, our largest companies, co-owned by the state and the private sector.

The Far East is a region with a special geographic location, climate, and nature. Here, courage and endurance are valued, and the people in the Far East have a special character and fortitude, as I said at the beginning of our meeting – they know how to set ambitious goals and achieve them.

All our efforts are aimed at creating up-to-date and comfortable living for people in the Russian Far East, for their incomes to grow, along with their families’ prosperity. I know that we will achieve these results together. And I certainly look forward to your dedicated work and wish you success.

Thank you.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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