Russia has just hosted this year’s Asia-Pacific Economic Cooperation (APEC) forum. Held in Vladivostok, on a tilt of the country that borders Japan, North Korea and China, the event was intended to showcase the potential of Russia’s east.
Although little of substance was announced, there is reason to believe the summit had the desired effect for its hosts. Mazda has recently decided to set up a plant in Vladivostok. Meanwhile, commenting in the Moscow Times, a Dow Jones executive suggests growing awareness of the region: “We should not always be hung up on maps,” he said. “Going to sleep and waking up in Vladivostok [made the] reality set in of what’s going on in Russia”.
Data on gross value added per capita illustrate how Siberia and the Far Eastern District have lagged the Central Federal District in terms of development. Yet, there is rising confidence in future developments. Writing in the Financial Times, Oleg Deripraska outlines an ambitious path which sees Siberia’s per capita annual GDP rise fourfold over the next 20 years.
The potential of Russia’s east is underpinned by its location and vast natural resource wealth. It is often said that this century will belong to Asia and the region is well-placed to partake in this rise. Reflecting rising commodity demand from the likes of China, perhaps the greatest potential lies in energy. Another long term aim is to increase the supply of agricultural goods to the continent, while President Putin is keen to develop the automotive industry.
However, the challenges are equally daunting. Underinvestment means the infrastructure is sorely lacking to carry out the grand transition that is envisaged. Funding is required, and the government will need to be a large contributor in order to gain the confidence of the private sector.
We have commented in the past that Russia’s investment rate is closer to a developed country, such as Germany, than a developing country. For instance, in 2011, gross capital formation was worth 47% of GDP in China, compared with 25% in Russia. Raising the share of investment in GDP is a crucial step to facilitating rapid growth in the economy – especially in the underdeveloped east. Achieving this will be a more lasting test of the commitment of policymakers than the success of a one-off summit.