1 INVESTMENT OPPORTUNITIES IN THE RUSSIAN FAR EAST SECTOR: AGRICULTURE APRIL 2018 11 2 GOVERNMENT SUPPORT OF INVESTORS IN THE FAR EAST OF THE RUSSIAN FEDERATION 2 2 3 STRATEGIC IMPORTANCE OF THE FAR EAST “The Upswing of Siberia and the Far East is our national priority throughout the whole XXI century round.” Vladimir Putin President of the Russian Federation 3 4 WHAT RUSSIA OFFERS TO INVESTORS IN THE FAR EAST Simplified Low level of administrative fiscal burden procedures Provision of Low costs infrastructure, Efficiency of investors’ labor resources, inputs concessionary financing 4 5 VERTICALLY INTEGRATED SYSTEM OF GOVERNMENT SUPPORT FOR INVESTORS THE GOVERNMENT OF THE RUSSIAN FEDERATION Far East Development Far East Human Capital КОРПОРАЦИЯFar East Development РАЗВИТИЯ Fund Agency ДАЛЬНЕГОCorporation ВОСТОКА SUPPORT AND ATTRACTION OF CO-FINANCING OF INVESTMENT ATTRACTION OF SKILLED CONSTRUCTION OF INVESTORS PROJECTS WORKFORCE INFRASTRUCTURE IN SEZ 5 6 FAR EAST INVESTMENT AND EXPORT AGENCY (FEIA) FEIA’S BUSINESS MODEL HOW FEIA HELPS INVESTORS IN THE RUSSIAN FAR EAST 1 PROJECT SOURCING: ▪ Greenfield and brownfield investment projects with local partners ▪ Development of new investment projects Investors 2 PROJECT FINANCING: “One-stop shop” Investment for investors Projects ▪ Far East Development Fund (low-cost, long-term) ▪ State financing of infrastructure development (free of charge) 3 LAND ALLOCATION / ZONING / PERMITS ▪ Finding agricultural land and industrial sites for investors ▪ Control of zoning and receipt of permits Federal and regional authorities 4 INFRASTRUCTURE SUPPORT: ▪ Assisting in the development infrastructure facilities Regional development institutions 5 EXEMPTION FROM TAXES, SPECIAL AGREEMENTS ▪ The status of special economic zones for projects Local business groups, banks and suppliers ▪ Agreeing special conditions (as required) 6 7 ADVANCED SPECIAL ECONOMIC ZONES (AEZS) AND THE FREE PORT OF VLADIVOSTOK (FPV) Advanced Special Free Port of Vladivostok ASEZ Economic Zone (ASEZ) (FPV) FPV Chukotka Autonomous Area 18 economic zones with 21 districts with simplified ready-to-use administrative infrastructure procedures Kamchatka Krai Free customs zone The Magadan Region Simplified land acquisition procedure Republic of Sakha (Yakutia) “Single window” approach Khabarovsk Krai Simplified regulation of business The Sakhalin Region Simplified customs control procedure The Amur Region 8-day electronic visa for foreign citizens The Jewish Autonomous Region Government financing of infrastructure construction Primorski Krai 7 8 TAX PREFERENCES ASEZ and FPV RF 0% in the first 5 years 0% in the first 5 years 0% in the first 2 years for 10 years 10% in the next 5 years 0,5% in the next 5 years 1,6–7,2% in the next 8 years 30% 8% 8% 20% 2.2% 0% 0% 0% Social Dues Profits Tax Property Tax Mineral Extraction Tax* * Note: By the example of the Mineral Extraction Tax on nickel 8 9 INVESTMENT ATTRACTIVENESS OF THE AGRICULTURE SECTOR IN THE RUSSIAN FAR EAST 9 9 10 AGRICULTURE: INVESTMENT APPEAL OF THE FAR EAST OPPORTUNITIES FOR INVESTING Dynamic sector of economy : ▪ >10% growth (CAGR) within the period from 2006 to 2016. Chukotka region Production volume - USD 3 bln (in 2016) Availability of land resources: ▪ Potential: 8 mln hectares of cultivated areas, including 2,9 mln hectares of arable land Kamchatka Region ▪ Actual: 0,8 mln hectares are not cultivated and can be used Magadan Region by new investors Geographic proximity to major markets of APAC countries: ▪ USD 280 bln – annual import of agricultural goods in Eastern Yakutia Region and South-Eastern Asia (6% of import growth in 2010-2016) Low level of self-sufficiency of the Far East in the food production: Khabarovsk Region ▪ USD 3-5 bln – market size for new investors. Meat, milk, Sakhalin Region vegetables are the most sought-after goods. Amur Region State support: ASEZ ▪ Federal and regional system of institutions for development “YUZHNAYA” ASEZ and support of investors “BELOGORSK” ▪ State and regional program to support agriculture ▪ Jewish Primorskiy Region Preferential business environment in the territories of ASEZ Region and FPV ▪ Funding of the Russian Far East Development Fund ▪ Government subsidy for the construction of infrastructure ASEZ “MIKHAYLOVSKY” 10 11 AGRICULTURE: LAND AVAILABLE FOR INVESTORS (1/2) AGRICULTURE LAND OF THE RUSSIAN FAR EAST Region Total: 8 014 th. ha Arable land: 2 766 th. ha Amur Amur 2 734 1 574 Chukotka region Region Region Primorskiy Primorskiy 1 649 754 Region Region Yakutia Yakutia 1 640 105 Kamchatka Region Region Region Magadan Region Khabarovsk Khabarovsk 666 98 Region Region Yakutia Region Jewish Jewish 537 95 Region Region Kamchatka Kamchatka 476 64 Khabarovsk Region Region Region Sakhalin Region Sakhalin Sakhalin 183 51 Region Region Amur Magadan Magadan 122 24 Region Region Region Chukotka Chukotka Jewish Primorskiy Region 9 0 Region region region ▪ Amur and Primorskiy regions – key clusters of arable land in the Russian Far East 11 12 AGRICULTURE: LAND AVAILABLE FOR INVESTORS (2/2) REGIONAL STRUCTURE OF CROP PRODUCTION IN THE FAR EAST COMMENTS 000 ha 2 900 ▪ Arable land in Far East: 2,9 mln ha. Actual crop operations 2 076 cover 2,1 mln ha. 0,8 mln ha – 1 884 1 949 1 788 potential for new investors but 1 672 1 596 1 383 1 482 land requires melioration 435 474 424 414 379 379 ▪ During 2010-2017 CAGR of 314 341 actual crop operations 1 059 1 165 1 214 1 261 790 855 1 001 929 increased 6% ▪ Amur region has the largest 2010 2011 2012 2013 2014 2015 2016 2017 Potential* size of arable land (1,6 mln Amur region Primorskiy region Jewish region Khabarovsk region Yakutia region ha), in 2017 crop operations Sakhalin region Kamchatka region Magadan region Chukotka region covered 1,3 mln ha. Primorskiy region is top-2 CROP PRODUCTION STRUCTURE region in terms of arable land 000 ha ▪ Far East is a largest producer of Russia of soybeans. During 2010-2017 area of soybeans 141 production doubled and 124 149 117 amounted 1,4 Mt in 2017. 137 101 128 Soybeans are mainly 130 1 267 1 422 produced in Amur, Primorskiy 1 109 1 244 950 935 and Jewish regions 710 802 ▪ Other key crops in Far East include wheat, perennial 2010 2011 2012 2013 2014 2015 2016 2017 grass, potato, oat, corn, Soybeans Wheat Perrenial grass Potato Oat Annual grass barley, vegetables, buckwheat and rice Corn Barley Vegetables Silage corn Buckwheat Rice Note: * During Soviet times crop area in the Russian Far East amounted to 2,9 Mha 12 13 AGRICULTURE: TARGET FOREIGN MARKETS IMPORT DYNAMICS, $BN China Japan South Korea ASEAN India 99 100 97 76 70 61 56 45 44 26 27 22 16 17 10 2009 2013 2016 2009 2013 2016 2009 2013 2016 2009 2013 2016 2009 2013 2016 MAJOR IMPORT PRODUCTS, $BN Oil seeds 38 Fish 11 Fish 4 Fish 10 Fats/oils 11 Meat 10 Meat 9 Meat 4 Feed 10 Vegetables 4 Fats/oils 7 Meat pre. 6 Cereals 3 Cereals 10 Fruits 3 Fish 7 Cereals 5 Feed 2 Fruits 7 Sugars 1 Fruits 6 Oil seeds 5 Fruits 2 Meat 7 Coffee/tea 0,8 Cereals 6 Beverages 3 Oil seeds 2 Beverages 7 Beverages 0,6 Beverages 5 Fruits 3 Sugars 1 Sugars 6 Cereals 0,5 Cer. Prep. 5 Veg. prep. 3 Fats/oils 1 Vegetables 5 Feed 0,5 Dairy prod. 4 Vegetables 3 Veg. prep. 1 Oil seeds 5 Oil seeds 0,4 Feed 3 Feed 2 Beverages 1 Fats/oils 5 Cocoa 0,2 13 14 AGRICULTURE: LOCAL MARKET POTENTIAL OF THE FAR EAST DYNAMICS OF “CROP PRODUCTION” SECTOR CROP YIELD COMMENTS bn RUB Russia Far East ton/ha ▪ Agriculture is the most 15.3 dynamically developing sector of the Russian Far 12% 12.8 CAGR East. >10% growth (CAGR) within the period from 2006 to 2016. The production 98 105 volume is USD 3 bln (in 87 2016) 64 62 2.6 2.4 53 57 1.5 1.2 1.8 1.8 ▪ The possibility of increasing the yield of major crops Cereals Potato Soy Perennial through the use of modern 2010 2011 2012 2013 2014 2015 2016 grasses technologies, development of infrastructure of agro- industrial complexes and DYNAMICS OF “LIVESTOCK ” SECTOR PRODUCTION observance of crop rotation ▪ bn RUB Russia Far East Per capita The Russian Far East is 297 characterized by low self- CAGR 7% sufficiency in key livestock products. To achieve all- 210 Russian average level, it is 190 required to produce 290 67 thous. tons of meat, 760 60 64 54 thous. tons of milk and 660 48 52 87 44 67 mln eggs in the Russian Far East. USD 3 bln – volume of 20 local market for new investors Milk, kg Livestock, kg Eggs, pcs 2010 2011 2012 2013 2014 2015 2016 14.