China, India, Vietnam and a number of Asian and Pacific countries are already gearing up for the 7th Eastern Economic Forum scheduled to take place on 5–8 September in Vladivostok, Far East. With the emerging new economic order and the United States and European Union’s sanctions on Russia for its “special military operation” in the former Soviet republic of Ukriane, the Asian and Pacific countries are stepping up efforts in collaborating in economic sectors in the Russian Federation.
As part of the preliminary preparations, the Ministry for the Development of the Russian Far East and the Russian Far East and Arctic Development Corporation (FEDC) have organized a roundtable on the development of industry in the Far Eastern Federal District.
Anatoly Bobrakov, Deputy Minister of the Russian Federation for the Development of the Far East and the Arctic and moderator of the roundtable noted that the main economic sectors of the Far East (mining, manufacturing, transport, and logistics) account for 43% of the gross regional product.
“More than 2,700 projects are currently being implemented in the Far East with state support. Amid unprecedented sanctions, it is important to note that investors are not ready to give up on the declared projects. That, however, they face multiple risks caused by companies from unfriendly countries, when those refuse to supply equipment and components necessary for the implementation of projects or refuse to install and maintain the equipment,” he explained.
Bobrakov believes that it is necessary to create conditions so that the equipment and components would be produced locally in the Russian Federation, including through joint ventures with companies from friendly countries that own technology and know-how. “I am confident that we can ensure the technological sovereignty of the Russian Federation, provide both our traditional and new industries with technology,” said Bobrakov.
While inviting the participants to the discussion, Darya Kiryanova, Deputy General Director for Economic Development of FEDC also noted: “What is happening in Russia right now is perceived as a stress on the one hand, but on the other hand is viewed as an opportunity. Domestic industry is facing a challenge to localize production within the country. It is necessary to understand what needs to be reinvented and what can be reused by changing supply chains.
She would, therefore, like to collect the main issues and problems faced by industrial companies and form a package of proposals and necessary changes in the state policy for further integration into the sessions at the Eastern Economic Forum.”
Mikhail Kuznetsov, Director of the Eastern State Planning Centre (Vostokgosplan), described the current situation in the industrial sectors of the Far East and the Arctic: From 2017 to 2021, the growth rate of the manufacturing industry in the Far East outpaced the national average. Metallurgy, transport engineering, and the chemical industries were among the leaders.
In 2022, amid growing sanctions pressure, many Russian enterprises faced a shortage of spare parts, chemical components, as well as disrupted supplies channels for finished products. At the same time, the Far Eastern Federal District has the potential of untapped natural resources, growth in transport engineering and cargo transit. This can become the basis for the development of import substitution in the country. However, the product transformation of enterprises requires all available funding, as well as time for technical re-equipment and personnel training.
According to Vostokgosplan’s Kuznetsov, the most promising enterprises that potentially can help overcome the problem of import substitution are operating in the chemical and machine-building industries. According to the forecasts of the development institution, industrial production in the Far East will grow at a faster pace than the Russian average, and by 2025 this indicator may exceed 15%.
Alexander Didenko, General Director of Metallenergo, and Nikolay Radko, Acting General Director of Rusolovo, and Alexander Patlach, Design Director of Bystrinsk Ore Mining Company, all shared their views on what needs to be improved to strengthen support measures for manufacturing enterprises in the Far East. The speakers noted the importance of creating a tin cluster in the Far East and including it in the list of industrial priorities.
Additionally, they spoke about revising the terms for transferring land from one category to another for the implementation of industrial projects within an ASEZ. For example, the Bystrinsky Mining Company (the subsoil user and operator of the Kumroch project) plans to create a modern high-tech gold mining and processing plant from scratch in Kamchatka Territory by 2026. The project worth RUB 20 billion will be implemented as an ASEZ resident.
“Not a single Russian territory can boast such diverse and effective measures to support investors as those in place in the Far East. This is very important when implementing a project,” says Alexander Patlach.
The company is currently preparing the relevant documentation and expects to start the advanced development of the Kumroch deposit by the end of the year. The necessary machinery and equipment in the amount of more than 50 units has already been purchased, the investor has prioritized Russian producers, Chinese equipment has been purchased to cover some required positions.
Alexander Didenko, General Director of Metallenergo touched upon the programmes of preferential leasing and Industrial Mortgage. The latter is being launched by the Ministry of Industry and Trade, Ministry of Finance, and Ministry of Economic Development together with heads of several regions.
Didenko said: “We are waiting, because we have both capacities and resources, which we would like to purchase, but there is not enough working capital. Therefore, we would like to get additional support measures to minimize the regulatory time for consideration of applications.”
More detailed information about the relevant support measures for entrepreneurs who want to quickly organize a manufacturing business, was delivered by Nikolai Elantsev, Head of Monitoring and Coordination of Regional Industrial Infrastructure Development of the Department of Regional Industrial Policy and Project Management of the Ministry of Industry and Trade of the Russian Federation.
Maxim Nikiforov, Deputy General Director of Baikalengineering shared the peculiarities of localization of engine and propeller production at Komsomolsk ASEZ and raised the issue of the state commission.
Issues of financing and obtaining bank guarantees were also touched upon by other speakers. Thus, Alexander Korneichuk, General Director of NSRZ proposed to consider the possibility of 0% VAT for the shipbuilding industry.
President of the Union of Industrialists and Entrepreneurs of the Republic of Buryatia, General Director of Ulan-Ude Instrument-Making Production Association Vladimir Luchnikov noted the importance of subsidizing interest rates and financial support measures, plus suggested to consider the possibility of establishing a guarantee fund for Far Eastern industrial enterprises. The company is reinvigorating an innovation cluster in Buryatia, including all industrial enterprises of the region, and is focused on the production of import-substituting goods in medicine, aviation, instrument manufacturing, and railway trains.
Sergey Yarutin, General Director of the Association of Import Substituting Enterprises, focused on possible directions of import substitution and ways of parallel imports.
At the end of the discussion, Denis Nevzorov, Director of the Department for International Cooperation and Technological Development of the Far East and the Arctic at the Ministry for the Development of the Russian Far East, informed the audience about the current mechanisms for supporting both existing and planned enterprises. For example, the speaker called the territories of advanced social and economic development the most interesting for the implementation of industrial projects.
Among the successful examples were the projects of the Zvezda Shipbuilding Complex and Arnika in the Primorye Territory, Sibur, as well as the gas processing and gas chemical plants in the Amur Region. Baikal aircraft production in the Republic of Buryatia is being prepared for implementation. Industrial parks and technoparks are being created in Khabarovsk, Primorye Territory, Yakutia, and Chukotka Autonomous District.
An investor in an ASEZ is granted tax, infrastructure, land, and construction preferences. Moreover, this regime allows for different mechanisms of state support not only from the Ministry for the Development of the Russian Far East, but also from the Ministry of Industry and Trade, the Ministry of Construction, and the Ministry of Economic Development.
Since May 2022 the Ministry of Economic Development launched subsidies from the federal budget to Russian credit organizations for reimbursement of soft loans. In addition, anti-crisis measures were taken to replenish working capital. Besides, 124 enterprises are included into the list of backbone enterprises, including those in the areas of aviation and shipbuilding. At the same time, since this year the mechanism of the industry development fund has been functioning. If earlier industry subsidies from the budget of the regions was 30 to 70, now it is 10 to 90, according to Denis Nevzorov.
In addition to the existing ASEZs, Free Port of Vladivostok, Arctic Zone, and Kuril Islands preferential regimes, there is also the current SITC on Russky Island, with tax preferences, labour quotas, and the competition-free provision of land plots.
Daria Kiryanova, Deputy Director General for Economic Development of FEDC, emphasized: “Whatever the status of your company, whether you use the existing preferential regimes or not, the Ministry for the Development of the Far East and the Arctic together with FEDC are ready to help you implement projects, as we are extremely interested in ensuring that companies and their capacities work effectively.”
The Indian pharmaceutical business community supported by the Indian Business Alliance discussed new opportunities and cooperation as well as opportunities for Indian pharmaceutical business by presenting their projects and participating in international economic forums taking place both in Russia and around the world.
“The Republic of India is a strategic partner of Russia. I am confident that the new partners in the pharmaceutical industry will successfully continue the partnership between the two countries in this area. Moreover, our specialized Healthy Life division will provide communication and consulting assistance for the development of business projects,” said Alexander Stuglev, Chairman and CEO of the Roscongress Foundation.
It was during the meeting of 20 representatives of Indian pharmaceutical companies which focused on the need for support and assistance in expediting product registration time in Russia, as well as assistance from the Roscongress Foundation. All of them expressed an interest in participating as partners in the Eastern Economic Forum in Vladivostok (5–8 September 2022) and the Russian Investment Forum in Sochi in February 2023.
The heads of the companies stressed that the transition from simple commodity supplies to more complex cooperation and localization of production, which in turn will help the emergence of new points of growth, is an extremely important area of cooperation between the two countries. In addition, the parties noted that this process should be launched bilaterally, exclusively in competitive industries.
“I see a good basis here for deepening bilateral investment ties. And I am convinced that by working together, our entrepreneurs will be able to create new products with high added value, build production chains, and subsequently promote their goods and services in the markets of third countries,” stressed Sammy (Manoj) Kotwani, head of the Indian Business Alliance.
In the month of July, similar roundtable brought together about 50 representatives of industrial enterprises, business associations, regional authorities and development institutions, experts, as well as residents of the Far Eastern preferential regime territories. They voiced the most important proposals for further elaboration and inclusion in the industry session of the EEF 2022.
A delegation of the Russian-Chinese Business Council and Chinese partners has already visited the capital of the Russian Far East. The visit was arranged by Gennady Timchenko, Chairman of the Business Council, and Oleg Kozhemyako, Governor of Primorye Territory, with the support of Zhang Hanhui, Ambassador Extraordinary and Plenipotentiary of the People’s Republic of China to the Russian Federation, the Russian Presidential Administration, the Russian Chamber of Commerce and Industry, and the Roscongress Foundation.
The Chinese businessmen held discussions with the Governor of Primorye Territory Oleg Kozhemyako during the RCBC’s working visit to Vladivostok. The key issue on the meeting agenda was the development of bilateral cooperation between Russia and China in the face of sanctions imposed by unfriendly countries.
They expressed confidence that the meeting would help to strengthen the good relations and fruitful cooperation between the business communities of the Russian Far East and China. The Governor of Primorye spoke about the investment potential of the region and invited representatives of Chinese business to take part in the Eastern Economic Forum 2022.
The Chinese are engaged in the transport infrastructure of Primorye. On the other hand, increasing the supply of high-quality goods to the PRC, and implementing new investment projects. “We are counting on the help and assistance of the Russian-Chinese Business Council in cooperation with our Chinese colleagues. We aim to expand the turnover and develop border-related ties. I hope this visit is a platform for establishing strong partnership ties,” said Governor of Primorye Territory Kozhemyako.
In his welcoming speech, CRBC Executive Director Evgeny Markin noted the importance of developing cooperation between China and the Russian Far East in the current difficult geopolitical situation. “Russia and China are key partners and reliable allies. I am confident that the delegation’s visit will benefit the development of bilateral ties between the business communities of the two countries. For its part, the Russian-Chinese Business Council will make every effort to develop a long-term and fruitful partnership between the Russian Federation and the People’s Republic of China,” he said.
“Russia and China are key partners and reliable allies. I am confident that the delegation’s visit will benefit the development of bilateral ties between the business communities of the two countries. For its part, the Russian-Chinese Business Council will make every effort to develop a long-term and fruitful partnership between the Russian Federation and the People’s Republic of China,” he said.
“China’s economy is developing ahead of the curve, it is stable and sustainable. Our country is now more able and willing than ever to be a reliable partner for Russian business. In the context of sanctions pressure and a difficult political situation, the role of the Far East is becoming extremely important in building profitable cooperation between China and Russia. We hope that the visit of the Business Council delegation will strengthen cooperation between our countries and become a powerful incentive for developing new projects,” said Piao Yangfan, Consul General of the PRC in Vladivostok.
“The Eastern Economic Forum is the key business event in the Far East. Every year it brings together a large number of participants that include official delegations, entrepreneurs and members of the expert community. I am confident that this year will be no exception. We expect a high interest from our Chinese partners as well. We are always happy to see them at our events,” noted Anton Kobyakov, Advisor to the President of the Russian Federation and Executive Secretary of the EEF 2022 Organizing Committee.
The 7th Eastern Economic Forum will be held from 5 to 8 September 2022 in Vladivostok on the campus of Far Eastern Federal University (FEFU). It is organized by the Roscongress Foundation.
Baltic reality: High inflation and declining of living standards
The Baltic States’ economy is in bad condition. The latest estimate from the EU’s statistics body shows that Eurozone inflation is continuing to soar to record highs.
The Baltic countries continue to be the hardest hit. These states in particular are experiencing the highest levels of inflation in the Eurozone. Thus, inflation in Latvia and Lithuania hit 22.4 per cent and 22.5 per cent respectively. Estonia also has seen inflation rise year on year from 6.4 per cent in September 2021 to 24.2 per cent in September 2022. The more so, the Baltic States continue to see soaring energy and food prices which lead to declining standard of living.
The Bank of Lithuania has published its latest economic forecast and revised gross domestic product (GDP) growth projections for 2023 from 3.4% to 0.9%.
Statistics Lithuania also reports that in September 2022, the consumer confidence indicator stood at minus 16 and, compared to August, decreased by 5 percentage points. The decrease in the consumer confidence indicator in September was determined by negative changes in all of its components.
According to SEB bank economist Tadas Povilauskas, the number of poor people in Lithuania will increase. Living standards will be affected by rising food and energy prices. The current price of natural gas is too high and the economy cannot “go” with it. It is evidently that energy prices shocks have far-reaching effects on Lithuanian economy and population.
The main cause of such state of affairs is deteriorated relations with Russia. Russia has lately been the EU’s top supplier of oil, natural gas, and coal, accounting for around a quarter of its energy.
The conflict in Ukraine and political confrontation between Russia and the West has exacerbated the energy crisis by fuelling global worries it may lead to an interruption of oil or natural gas supplies from Russia. Moscow said in September it would not fully resume its gas supplies to Europe until the West lifts its sanctions.
It is obviously that the conflict in Ukraine dramatically worsened the situation on the markets, as Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world’s exports of sunflower oil used for cooking. Ukraine is also the world’s fourth-biggest exporter of corn.
According to Euronews, the prices of many commodities – crucially including food – strained global supply chains, leaving crops to rot, caused panic in many European countries, including the Baltic States.
High inflation has become the direct consequence of sanctions imposed on Russia. As for the Baltic States, the lack of wisdom to find compromises and blindly following the European Union’s decisions have lead to declining standards of living. The desire to punish such huge state as Russia played a cruel joke on the Baltic States. It will be difficult to explain the population why they should turn down the heating in homes, schools and hospitals over the winter.
Policy mistakes could trigger worse recession than 2007 crisis
The world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced economies are quickly changed, according to a new report released on Monday by the UN Conference on Trade and Development (UNCTAD).“There is still time to step back from the edge of recession,” said UNCTAD chief Rebeca Grynspan.
“This is a matter of policy choices and political will,” she added, noting that the current course of action is hurting the most vulnerable.
UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.
Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises, the agency said.
The Development prospects in a fractured world report points out that supply-side shocks, waning consumer and investor confidence, and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures.
And while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default.
As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters.
The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity.
Despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted.
The global slowdown will further expose developing countries to a cascade of debt, health, and climate crises.
Middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns this year, according to the report.
With 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress, UNCTAD warns of a possible global debt crisis.
Countries that were showing signs of debt distress before the pandemic are being hit especially hard by the global slowdown.
And climate shocks are heightening the risk of economic instability in indebted developing countries, seemingly under-appreciated by the G20 major economies and other international financial bodies.
“Developing countries have already spent an estimated $379 billion of reserves to defend their currencies this year,” almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves.
The UN body is requesting that international financial institutions urgently provide increased liquidity and extend debt relief for developing countries. It’s calling on the IMF to allow fairer use of Special Drawing Rights; and for countries to prioritize a multilateral legal framework on debt restructuring.
Hiking interest rates
Meanwhile, interest rate hikes in advanced economies are hitting the most vulnerable hardest.
Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent.
And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries.
Moving forward, UNCTAD is calling for advanced economies to avoid austerity measures and international organizations to reform the multilateral architecture to give developing countries a fairer say.
Calm markets, dampen speculation
For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere.
And while upward pressure on fertilizer prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.
Although the UN-brokered Black Sea Grain Initiative has significantly helped to lower global food prices, insufficient attention has been paid to the role of speculators and betting frenzies in futures contracts, commodity swaps and exchange traded funds (ETFs) the report said.
Also, large multinational corporations with considerable market power appear to have taken undue advantage of the current context to boost profits on the backs of some of the world’s poorest.
UNCTAD has asked governments to increase public spending and use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative.
‘Sanctions Storm’: Recovery After the Disaster
After the start of the special operation in Ukraine, a “sanctions storm” hit Russia; more sanctions were imposed against Russia in a few months than against Iran in decades. But a catastrophe did not take place, and the stage of stabilization came.
Indeed, almost all the weapons in the sanctions arsenal were used one after another: commodities exchange was suspended in some sectors, export and import controls were put in place, restrictions on air and sea transportation were introduced. The sanctions have spread to the investment and financial sectors, paralyzing many transactions with the West and complicating them with the East. An image impact came from the mass withdrawal of foreign business from the Russian market—not directly caused by the sanctions, but demonstrating “over-compliance,” excessive submission to them.
In the public mind, the destabilizing wave created the impression of the end of the story of the market economy in Russia, an impending catastrophe. But the catastrophe did not happen. The stage of stabilization has come, and it is important to use it correctly.
What to do?
In the near future, the Russian authorities and business will have to solve three groups of interrelated tasks. First, they must provide the domestic market with necessary goods, and restore value chains by the use of alternative partners. Second, they need to establish reliable financial mechanisms for working with these partners. Third, it is necessary to look for new growth points for the future, industries in which dependence on the West was critical. It is important to work out the possibilities: for new partners entering the markets and for attracting investors from friendly countries, as well as trying to integrate into new value chains.
Partners, first of all, include China and India. The southern direction is also not unpromising—to begin with, this includes Iran and Turkey, as well as a search for investors in the Arab world and the development of logistics routes through the Middle East. Nevertheless, in all areas, the key obstacle is the threat of secondary sanctions by the United States and the EU—which means that the second task becomes the main one: building a safe infrastructure for financial cooperation.
China remains Russia’s first trading partner—but despite the strategic partnership on the political level, large Chinese companies and banks that are active in the international market are suspending cooperation with Russia, fearing secondary US sanctions. In these conditions, it is important to work on explaining the nuances of the sanctions policy for Chinese business, creating secure payment channels that do not depend on foreign banks or on the dollar and the euro, and developing profitable package offers. Beijing seeks to use the opportunities opening up in the Russian market to occupy the vacant niches and strengthen the yuan in international payments, which means that its interest in finding a common solution is high.
A similar situation is developing in the Indian market, with the difference that Indian business is more connected than Chinese business with America, and its awareness of doing business in Russia is lower. As a consequence, Indian companies and banks integrated into the global economy will comply even more closely with sanctions restrictions, despite their interest in developing ties with Russia. Accordingly, even more active informational work is needed to establish Russian-Indian business ties, as well as the creation of a secure settlement mechanism. India already has similar experience, from doing business with Iran. In particular, UCOBank was formed to trade with it in rupees. Similar structures can be created in the Russian direction.
If the necessary channels are laid, both China and India can not only replace some Western goods in Russian markets, and ensure purchases from the Russian energy, agricultural, and military-industrial sectors—preserving their prospects for business—but also become zones of qualitative economic growth. Chinese partners can become a support in the development of bilateral cooperation in the fields of electronics and digital technologies (including 5G), and Indian, in pharmacology and high-tech agriculture. It also makes sense for business to look at these countries from the point of view of the development of green technologies in energy and agriculture, and the introduction of ESG practices, since these countries are also interested in this.
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