The Russian Far East as a Business Partner

|Russia

* The following is the personal opinion of Mr. Maeda and does not in any way represent the views of the Japanese government, which runs the Japan Center project.

I would like to explore the problems and issues regarding economic relations between Japan and Russia, looking at the changing situation in Russia not only from an overall perspective, but also concentrating on the country’s Far East region, based on the trends of enterprises in that area.

1. Firstly, in order to expand economic relations with the Russian Far East, we should explore the direction that cooperation between Japan and Russia is taking, understanding correctly the situation in which the Far East currently finds itself with regard to its position in Russia. That is to say, the situation wherein the region cannot break free of its dependence on the central government, but where there is a lack of support from that government. We should then imagine ourselves in the position in which the Russian Far East finds itself.

2. As the political and economic situations in the Far East (including East Siberia) vary greatly depending on the region, it is necessary to avoid lumping those regions all together as a single entity. The peculiar features of each region and their relationships with Japan need to be understood correctly and it is necessary to make an effort to understand what it is that they seek from Japan. As the respective regions have historically had economic links to Japan, I would like to explore to the greatest degree possible the problems facing each region in the future.

The following shows the amount of trade and investment in Khabarovsk and Primorsky Territories:

Khabarovsk Territory Primorsky Territory
2000 Quantity of Trade:
1 China $554 million 1 China $377 million
2 Japan $245 million 2 USA $296 million
3 Singapore $237 million 3 ROK $278 million
4 ROK $75 million 4 Japan $227 million
2000 Investment from overseas:
1 Austria $8.5 million 1 ROK $42.4 million
2 Singapore $5.5 million 2 USA $11.8 million
3 USA $5.4 million 3 Japan $11.8 million
4 UK $3.2 million 4 China $1.3 million
(5 Japan $3.1 million)
(The above figures were obtained from the government of Khabarovsk Territory, the newspaper Priamurskie Vedomosti and Japanese enterprises)
Total foreign investment in Primorsky Territory was $75.5 million, as compared with $27.2 million in Khabarovsk Territory.

3. It is necessary to understand the changes in Russia

The Russian economy experienced (1) the collapse and a period of confusion of the Soviet Union in the early 1990s, as well as (2) the ruble crisis in 1998, and has undergone great change as a result.

In the Far East also, a great many Japanese companies set up their operations in Russia during the first period, and there were many incidents of joint ventures being created, which then withdrew after being caught up in various problems. There are a lot of reasons for this that are attributable to the Russian side, such as confusion on the Russian side and the fact that the legal system was undeveloped, but there are also successful joint ventures, so it is necessary coolly to analyze what the problems were.

  • In the last year or two, with the stability of Russia’s political situation and the revival of its economy, the situation in the Far East has altered considerably in comparison with 1992 and a feeling of calm is returning to the region. In particular, in the fields of light industry and the food industry, domestic industry is developing and products that freeze out imports are also appearing.
  • Going into 2001, great improvements can also be seen in terms of legal aspects. One of the problems in Russia has been that even where laws have been set out, there have been problems in terms of implementation, with interpretation and points to be implemented differing from region to region, as well as differences in the courts’ interpretations of the laws. It is necessary to keep an eye on the implementation situation with regard to this in the future. Almost all the people from Japanese companies who visit this area only understand period (1) mentioned above. This is also the reason why there is a lack of mutual understanding between Russia and Japan. It is necessary to make an effort to ensure that as many Japanese companies as possible have a correct knowledge of the present situation in Russia.
  • It is necessary to pay attention to the moves in the Far East made by the US, the ROK and China, etc. In response to expanding Sino-Russian border trade, the Khabarovsk branch of Russia’s Bank for Foreign Trade (Vneshtorgbank) and a branch of the Bank of China have cooperated in establishing direct accounts for the settling of border trade accounts. The USA also deals with small loans, from a lower limit of $1,000. The ROK and China are manufacturing textile products (apparel manufacturing) in the Russian Far East and exporting these to the USA. As there are no restrictions in Russia on textile exports to the USA, companies from China and the ROK homed in on this area.

4. Trends in cooperation

(1) From the discussion to the implementation stages:

  • Even small projects and businesses can be of use, so support methods capable of implementation should be considered. With regard to this, Vneshtorgbank’s Khabarovsk Branch, at its own risk, is making efforts to unearth finance and projects for Far Eastern businesses of good standing and it is worthwhile for Japan actively to support this and consider a plan focusing on the discovery of small and medium-sized businesses of good standing.
  • Two-step loans: At this stage, each concrete proposal should be taken up in cooperation with Vneshtorgbank, Sberbank, etc.
  • Measures for expanding normal trade: Considering measures such as advance payment insurance, etc. in order to increase purchases from Russia···It is possible to compete with traders in Europe and the US, and increase the scope of imports from Russia. With the expansion of normal business, a relationship of mutual trust should be established and new investment considered.
  • Support for the revitalization of economic exchange between small and medium-sized companies: Although Russia’s legal system is in the process of being improved, the interpretation of laws varies in tax offices and customs offices from region to region, so it is still a harsh environment for Japanese joint ventures that have set up there and they are having a great deal of problems. Apart from some large companies that have bases in the area, Japanese companies do not have operational bases on the ground in Russia, and even when they have proposals, they do not have someone they can consult, and there is a lack of information, so they have extreme difficulty transforming their proposals into actual business. If not only financial support, but also such support as the provision of accurate information about the situation on the ground, legal advice and intermediaries in their dealings with native companies could be offered, the possibilities for the expansion of small and medium-sized businesses would increase.
  • Russian entrepreneurs are extremely well-versed theoretically, but apart from in a few enterprises, they lack practical business experience, and are urgently seeking introductions to Japanese companies as well as precise advice regarding how, specifically, they should establish a business relationship with Japan. It is necessary to give them answers regarding these points.

(2) Freight distribution: Geographically, this is one of the Russian Far East’s most important industries and there are many fields in which Japan can cooperate, such as general distribution centers, support for the revival of the Trans-Siberian Railway, the repair of ports, etc. Cooperation with the ROK and China should also be considered.

(3) Resource development projects: The Russian Far East will be significant in the future as a base for supplying raw materials to Japan.

(4) Tourism: Each of Russia’s regions has a great deal of interest in tourism-related issues, and there are a wide range of fields in which Japan can cooperate. Kamchatka, Primorsky, Khabarovsk, Irkutsk, etc, are all separately planning the development of tourism in their respective areas, and Japan may be able to cooperate in combining these into a coherent whole. Furthermore, it is believed that consideration should be given to combining efforts relating to Mongolia, the ROK and China, which are all popular at present. With this aim in mind, consideration should be given to sending specialist promoters to the relevant areas for a lengthy period.

(5) Nurturing human resources: This will be an important area of economic cooperation between Japan and Russia in the future. I would suggest that consideration be given to making cooperation being undertaken separately by Japanese governmental institutions and prefectural governments more effective by unifying cooperative efforts in related areas. Moreover, in the Far East at present, there is a severe lack of machine operators in the forestry, road construction and mining development industries and the training of such people is an urgent necessity. I would therefore suggest that consideration be given to cooperation in training such operators on the ground, alongside the existing training of managers that takes place in the field of economics.

(6) Promote the cooperative structure in each of the Far Eastern territories: Rather than just relying on the federal government, the Far Eastern territories should cooperate in drawing up conditions for the provision of official credit from Japan.

(7) Support regional governments, which need to elicit support from the federal government and seek out projects relating to infrastructure development, such as energy development, the refurbishment of power stations, water supply and sewerage systems, communications facilities, gas pipelines, etc., for which federal government support is essential…Even though this will take time, these should be aimed at and followed through as Japan’s support programs for Russia.

5. The role of the Japan Center

Since 1994, a network of Japan Centers has been established with the aim of supporting the transformation of Russia into a market economy, with centers being opened in Vladivostok and Sakhalin, as well as in Khabarovsk. Japan Centers have undertaken Japanese language education and the nurturing of human resources through a variety of economic seminars. These efforts have been highly praised on the ground and the Russian side also expects great things of them. In the future, it is hoped that the centers will pick up on the needs of Russia, which is undergoing change, and plan the nurturing of the human resources necessary to economic cooperation between Russia and Japan.

This is all that space permits me to write on this occasion, but I would like to do further research on the ground with regard to any areas where my knowledge is insufficient, so I would welcome any suggestions or criticisms.

[Translated by ERINA]