[This is a discussion paper for the OECD trade committee’s Roundtable taken place at Vladivostok, Russia in October, 2001.] A Statistical View of the Russian Far East (Positioning of the Russian Far East and a Strategy for a New Development) October 23, 2001 Tatsuhiko KASAI 0-0 Foreword 0-1 Positioning is a very important process in fixing a strategy for economic and business development. This paper aims to set such an appropriate positioning of the Russian Far East economy, providing readers with statistical data useful in reflecting on this. 0-2 Frankly, the present author is not confident that data provided in the Appendices to this paper reflect a true picture of the Russian Far East, an area in which the shadow economy is particularly large compared with that in other regions of Russia. We may notice discrepancies between the image provided by economic statistics and that which we observe in daily life. 0-3 The statistics given in the Appendices on one side indicate that the economy of the Russian Far East is weak, although it potentially possesses enormous mineral resources. In daily life, on the other hand, it demonstrates apparent dynamism. For example, a foreigner visiting Vladivostok for the first time, one of the representative cities of the Russian Far East, may be impressed by the apparent and vivid dynamism; the streets are full of cars (albeit second-hand foreign ones), the people stride vigorously, stores and restaurants welcome the rich. 0-4 Thus, it is difficult to understand exactly what the situation really is. Therefore, the present author attempts in this paper to provide not only statistics in the Appendices, but also to supplement the explanation in the text, in order to give readers a fairly objective image of the Russian Far East. 1-0 Overview of the Russian Far East 1-1 When the new Russia was born 10 years ago, comments were heard, such as "the Russian future is located in regions" and "the Russian Far East, possessing rich mineral resources such as rare metal, oil and natural gas, timber and fish may be easily developed and its future is full of prosperity". We are now in the midst of the Russian economic recovery that began in 1999. The GDP grew at 1 8.3% in 1999 and 5.4% in 2000. It is often said that economic recovery began in resource-rich areas and spread to the large cities such as Moscow(1) and St. Petersburg. If indeed this is true, then the Russian Far Eastern economy, blessed with innumerable resources, should be in good condition. But the sad fact is that in fact, if one believes the statistics, its economy does not appear to be healthy and its recovery process is not as fast as that of other regions of the country, and many foreign companies withdrew from the market of the Russian Far East. 1-2 The Russian Far East consists of 10 federal subjects. They are Sakha republic (Yakutia), Jewish autonomous oblast, Chukot autonomous okrug, Primorsky krai, Khabarovsk krai, Amur oblast, Kamchatka oblast, Koryak autonomous okrug, Magadan oblast and Sakhalin oblast (2). The Russian Far East is a vast area stretching north and south for 2500 km, east and west 2500 km. It covers a total of 6,220,000 square km, or 36% of the entire Russian territory. On the other hand, the population is thinly spread out and declining. The transportation infrastructure is poor. There is the Siberia Railway and BAM Railway that connect the eastern and western parts of Russia. However, traffic networks connecting the north and south as well as within this are quite limited. 1-3 Most of the Russian Far East territory is hilly and mountainous. Basins are located only along the Lena River of the Sakha (Yakutia) republic, the Amur River of the Amur oblast and the Khabarovsk krai where the Amur River runs from the south-west to the north-east part of the krai towards the Okhotsk Sea, and the extreme north near the Arctic Ocean. In the west of the Russian Far East is the East Siberian region. The eastern seacoast faces the Okhotsk Sea, the Bering Sea, and the Sea of Japan. The Sakhalin Island, the Kamchatka Peninsula, and the Chukotka Peninsula are located in the eastern part. The northern part faces the Arctic Ocean. In the south are found China, North Korea, Mongolia and across the sea, Japan and South Korea (ROK). At the easternmost end, it faces to USA and Canada through the Bering Channel. 1-4 In the Russian Far East, diamond, gold, silver, tin, copper, fluorite, boron, tungsten, lead, zinc and other rare metals exist as mineral resources. In particular, 98% of the Russian diamonds, 90% of boron, 80% of tin, 50% of the gold are produced here. 1-5 As for energy resources, there are rich coal reserves almost everywhere. Moreover, an estimated 29 billion tons of oil and natural gas exist in the Sakhalin continental shelf, as well as in the Sakha republic. Mining of these resources occupies about 60% of industrial production of the Russian Far East. These resources, however, are not processed there, and most are transferred to other areas of Russia or exported abroad. If we look at the energy situation in the Primorsky krai, a huge problem with the energy supply occurred last winter, when the coal supply (main fuel for electric power and hot water supply) proved 2 insufficient due to a delay of the renewal of the coal mining equipment and financial problems. As for hydro power generation, the potential is enormous, as there exist several large rivers, but it is not fully utilised. 1-6 Timber and fishery resources are abundant. In particular, more than 60% of all Russian fish catches are found here. This draws in foreign capital, and the processing industries are expanding rapidly. In addition, as forestry and fisheries are labour-intensive industries, they are especially important in providing employment for the population. 1-7 The severe climate and the lack of cultivatable land make the area unsuitable for farming. Thus, agriculture is limited and food self-sufficiency rate is very low. Although the Russian Far East occupies 36% of the Russian territory, wheat output, milk production, and meat production are low, at 2.4%, 3.7% and 3.1% respectively of the Russian whole. Potato and vegetable production are at 2.8% and 0.8% respectively. They are unusually low compared to the size of the territory. Chemical fertilisers are not produced in this area. In the basin along the Amur River, which enjoys relatively warm weather, soybean and vegetables are grown. 1-8 As for the manufacturing industry, it has always been weak in the Russian Far East, even during the Soviet period, and remains so today. The exception is the military(3) and shipbuilding industries. They, however, are in an difficult situation due to the decrease in state defence orders and unfavourable business circumstances which have lasted since the collapse of the USSR. If one looks at the manufacturing industry by area, the Khabarovsk and the Primorsky krais have weapon manufacturing, related to machine tool production and shipbuilding. The steel-making industry is very weak although there is a small scale steel-making industry in Khabarovsk. Thus, Khabarovsk krai has more or less a balanced manufacturing industry, with two industrial centres, Khabarovsk and Komsomolsk na Amure. The Jewish autonomous oblast is home to light industries. 1-9 Transportation is one of the most important elements for the Russian Far East’s economy, at the same time it is the Achilles’ heel for the region. During the Soviet period, transport between the Russian Far East (and beyond to the Asian- Pacific countries) and the European part of Russia (and beyond to the West European countries) was the main objective. Because of this, the Siberian and BAM railway network, running between the east and west, as well as port facilities that linked the east and the west, were developed and kept in good condition. But the rail and road networks within the region, including links between the north and south, are not developed and in poor condition. The railway system in the Sakhalin Island, created during the Japanese period, is antiquated. 3 1-10 Maritime transport is also important, together with the railway. In particular, the Primorsky krai, with its year-round unfrozen sea-ports such as Vladivostok Port, Nakhodka Port, Port Vostochnyi, and Port Poshet, as well as its Siberia Railway terminal station, is an important hub in the traffic network. However, since the last years of the Soviet era, its volume of transportation decreased sharply due to the sudden rise in fares and the deterioration of service. It is now gradually recovering. One more aspect in connection with the maritime transport should be mentioned. Previously there was a certain functional differentiation in the harbours. For example, the Port Poshet was for timber transportation, the Port Vostochnyi for container handling, etc. But now, with the decrease in the absolute volume of cargo, each port is handling all types of cargo, and competition intensification is making it hard for each port to survive. Many believe that there are simply too many ports for the present cargo level. River transportation is important in delivering large quantities of necessities such as food and fuel to the northern region. Rivers are used for only a short period, from summer to autumn. 1-11 One of the largest factors hindering the development of the transportation network in the region is its sparse population. The demographic aspect will be discussed later.