2014 Knowledge Sharing Program II with Russia (Khabarovsk Territory) 2014 Knowledge Sharing Program II with Russia (Khabarovsk Territory) 2014 Knowledge Sharing Program II with Russia (Khabarovsk Territory) Improvement on the Investment Environment of Khabarovsk Territory 2014 Knowledge Sharing Program II with Russia (Khabarovsk Territory) 2014 Knowledge Sharing Program II with Russia (Khabarovsk Territory) Project Title Improvement on the Investment Environment of Khabarovsk Territory Prepared by Korea Institute for Industrial Economics and Trade (KIET) Supported by Ministry of Strategy and Finance (MOSF), Republic of Korea Prepared for The Government of Khabarovsk Territory In Cooperation With Ministry of Economic Development and External Relations of Khabarovsk Territory Program Director Kye-Hwan Kim, Director, Industrial Cooperation and Globallization Division, KIET Senior Advisor Dong-Gyu Shin, Former President of NongHyup Financial Group Inc. Project Manager Hak-Ki Kim, Head of International Industry Team, KIET Authors Chapter 1. Hak-Ki Kim, Moon-Hyung Lee, Mok Sakong, KIET Chapter 2. Sun-Bae Kim, Research Fellow, KIET Program Officer Seung-Youb Lee, Researcher, Industrial Cooperation and Globalization Division, KIET English Editor Joo-Hyung Jeon, freelancer Dae-Hyun Kim, USC Government Publications Registration Number 11-1051000-000643-01 ISBN 978-89-5992-805-7 978-89-5992-803-3 (set) Copyright ⓒ 2015 by Ministry of Strategy and Finance, Republic of Korea Government Publications Registration Number 11-1051000-000643-01 2014 Knowledge Sharing Program II with Russia (Khabarovsk Territory) Improvement on the Investment Environment of Khabarovsk Territory Preface Actively engaging in the development of the Far Eastern district, the Russian government makes its primary goal to transfer the Far Eastern district to the advanced manufacturing-based competitive region, which should increase population and raise household income, as well as improve housing conditions and the welfare system. Tasks including building a manufacturing and natural resources processing base, developing agriculture, forestry & fishery sectors, cultivating skilled workforces, support- ing R&D activities, constructing industrial infrastructure (transportation, power, etc.) and establishing a public welfare system are the major challenges to achieving the goal. In December 2014, President Putin signed the federal law entitled “Territories of Priority Development District and Supporting Programs for other Far Eastern Countries.” From 2015, the Project of the Priority Development Territories (TOR) will be enacted. The TOR Project regulates the removal of various restrictive measures, to offer one-stop service and to provide a wide range of tax incentives for investment promotion. President Putin also proposed that the Russian government grant a free-port status to Vladivostok as parts of the development policies in the Far Eastern district. As described above, the Russian government has been proven to have strong commitments to developing the Far Eastern district. In order to explore sufficient FDI opportunities in the district, how- ever, it seems that many obstacles should be resolved immediately. In particular, poor housing con- ditions, aloft inflation, insufficient transportation infrastructure, high logistic cost, inadequate labor force, regulatory inertia, complex administrative procedure and small-scale marketplace are considered the major problems at present. Given the Russian government’s strong commitments, rapid progress in business environment improvements and the TOR Project, however, the adverse effects due to the aforementioned obstacles are anticipated to be largely relieved. If proceeded as scheduled, the Russian government expects that in the World Bank’s Business Environment Index, the country will be ranked 15th by 2020 vs. 62th in 2015. The 15th place is between Germany (2015: 14th) and Canada (16th), but is ahead of Japan (29th) and France (31th). Despite growth potentials and continuous talks since the establishment of diplomatic relationships in 1990, Korea and Russia have failed to produce meaningful outcomes in terms of the cooperative developments in the Far Eastern district. Due to the political tensions between the South and North, the Korean-Russian ground transportation network has not opened yet. Lack of skilled workforce, poor business climates, small-sized markets and few historical success stories have been other major factors hindering the Korean-Russian investment relationships in the Far Eastern district. Upon President Putin’s official visit to Korea in 2013, the presidents of both countries announced the Joint Statement. The Statement presented that the two countries agreed to cooperate in the various fields: sharing economic policy experiences for the development of the Far Eastern district, supporting joint launches of infrastructure, agriculture & industrial projects, boosting economic cooperation at the national as well as the regional level, seeking cooperative ways to develop and to utilize the port and logistic systems in the Far Eastern District, enhancing bilateral corporate cooperation in fishery investments for the region and upgrading cooperative relationships between the Korean and the Russian companies in civil aircraft, automobiles and shipbuilding sectors. In the 6th Korean-Russian Business Dialogue held in Seoul, November 2013, President Putin also stressed that the two nations should advance their bilateral relationships towards the strong technological and industrial alliance in the Far Eastern district. In regards to the joint business between the Korean government and regional governments in the Far Eastern district, the KSP-II Russia project aims to expand the trade and industrial cooperative relationships between the two countries. In detail, the Project puts its primary goal on accelerating the Korean-Russian industrial relationships in the Far Eastern district through sharing of economic policy experiences as agreed upon by the Presidents of the two countries. In order to find effective ways for expanding economic cooperation, the authorities of the two countries have extended strenuous efforts through professional exchanges. While visiting their Russian counterparties three times, the Korean government officials have engaged in talks with local govern- ments, institutions as well as company executives to explore business opportunities in the Far Eastern district. The Korean delegates have informed the Korean government and Korean companies of accurate information to implement investment projects in the Far Eastern district. They have also presented policy advice to the Russian counterparties for greater investment promotions for the region. For the Russian side, the government officials have visited various Korean institutions such as Invest Korea (the national investment promotion agency), innovation clusters, ports and local governments. The Russian delegates have also had policy consultations with their Korean counterparties to promote bi- lateral investment activities and to expand economic relationships. Hosted by the Russian delegates, the regional FDI fairs have successfully drawn attention from many Korean companies. As described, the KSP-II Russia project is the joint project between the two governments. Under the guidance of the Ministry of Strategy and Finance of Korea and backed by Consulate General of the Republic of Korea in Vladivostok, KIET (Korea Institute for Industrial Economics and Trade) and KOTRA have initiated the Project together with local governments in Russia. Offering full administrative supports and valuable advices, the Russian counterparties have also provided a wide range of in- formation regarding the 2020 Khabarovsk Investment Strategy and the activities of the regional invest- ment promoting agencies. As a principal writer for this report, Mr. Hak-Ki Kim, Research Fellow at KIET has supervised the surveys for Korean corporates. Mr. Moon-Hyung Lee, Senior Research Fellow at KIET and Mr. Mok Sakong, Research Fellow at KIET have written for the Chinese investment promotion system and the Japanese investment promotion system, respectively. For this paper, we have also been greatly supported by other institutions including KOTRA and had talks with many professionals. In order to effectively assist the bilateral cooperation between Korea and Russia, we have tried to reflect various opinions of the Korean companies herein. The views from the Russian counterparties including local governments, economic research institutions as well as the Russian Chamber of Commerce are also presented in this report. We hope this report will help the governments of both countries establish beneficial policies for expanding their economic cooperation and implement the sectional agenda as stipulated in the 2013 the Korean-Russian Joint Statement. We will be more than delighted that this report would be an effective tool for the Korean companies to invest in the Russian Far East and be a navigator for the Russian authorities to establish the investment promotion strategy. Views or opinions expressed herein do not necessarily represent those of the Korean government, KIET or KOTRA. August 2015 DoHoon KIM President Korea Institute for Industrial Economics and Trade Contents 2014 KSP-II with Russia (Khabarovsk Territory) ························································································ 011 Overview ·····························································································································································