The Shape of Economic Cooperation Between Japan and Russia in Far Eastern Russia

|Russia

* The following is purely a personal viewpoint and does not reflect the position of the Japanese government, which is in charge of the Japan Center project.

Bringing together the content of my previous opinion papers, I would like to sum up the ideal shape of future economic cooperation between Japan and Russia in Far Eastern Russia.

1. In order to dynamize exchange between Japanese and Russian companies, it is necessary to establish a system that conveys the necessary information correctly to each side at the appropriate time.

  • Information on Japanese enterprises held by JETRO, local governments and other groups should be integrated and made more accessible to Russian companies.
  • Information about Russian enterprises should be collated in cooperation with Russia, local governments and other groups and made accessible on a homepage.
  • Corporate groups should be established in the provinces to exchange information.

2. Improvement of finance schemes centering around banks

Together with the penetration of capital from Moscow and China into Far Eastern Russia, it is the policy of local governments to nurture small and medium-sized enterprises in particular, it is hoped that finance schemes for such enterprises will be expanded in cooperation with Japanese and local banks.

In this field, Vneshtorgbank’s Khabarovsk Branch set a credit line of ten million dollars with Tokyo Mitsubishi Bank, based on which it held a round-table conference for Japanese and Russian businesses in Khabarovsk from January 29 to 31, 2002, to explain the new finance scheme to them. It was an epoch-making event in that, unlike previous meetings, a private company took the leading role in organizing this kind of conference, and it is necessary to provide support in order that such moves are further dynamized.

A significant achievement was that this conference was the catalyst for the continuation of various business negotiations between companies, as well as for movement on the part of companies towards investigating the possibility of business under the new finance scheme.

On March 6, the possibility of a new finance scheme using low interest yen capital arose when an 8 billion yen (of which, 1 billion to be used for Far Eastern Russia) two-step loan was agreed between the Japan Bank for International Cooperation, three private banks (Tokyo Mitsubishi, Michinoku and North Pacific (Hokuyo)) and Vneshtorgbank, in combination with trade insurance from NEXI. I believe that the profile of these finance schemes should be raised across a broad spectrum among Japanese and Russian enterprises, so that as many enterprises as possible can make positive use of them.

3. The roles of small and medium-sized enterprises and major companies (trading companies)

In Russia at present, enterprises are divided into two types: giant companies based on energy and resources, and small and medium-sized companies. Although many important small and medium-sized companies are being nurtured, they still have only a weak presence, accounting for only 5% of companies in the whole of Russia.

Future economic cooperation between Japan and Russia aims at expanding exchange between small and medium-sized companies in the two countries. In particular, cultivating Russian small and medium-sized enterprises as partners for Japan is the most important task; however, at this stage, the information available to Japanese and Russian small and medium-sized companies is so limited that substantial effort and patience will be needed in order to establish mutual trust.

On the other hand, because those large Japanese companies that have been built up around trading companies have a world-class information network resulting from many years of experience with the Soviet Union and Russia, they should seek ways to make good use of this experience and information in order to expand exchange between Japanese and Russian small and medium-sized enterprises.

For large companies, a lot of business is not worthwhile and awkward to carry out; however, as Russia is undergoing profound changes at present, it may be necessary not merely to seek big projects in line with the traditional mind-set of big companies, but rather to make efforts to gather these small and medium-sized businesses together in order to implement cooperation with small and medium-sized enterprises from now on.

4. Cooperation in nurturing local industries

While understanding the different characteristics of each region of Far Eastern Russia, the aim must be to nurture industries that are both needed in the region itself, as well as being essential to forging partnerships with Japan for the future, rather than merely selling and providing cooperation.

The situation differs in each region, but taking Khabarovsk as an example, increasing the degree of wood processing is positioned as a top priority in the region along with the construction of gas pipelines and the participation of local enterprises in tenders related to the Sakhalin projects. Cooperation in this field, including in matters relating to human resources, would make sense for both countries, with it becoming possible to transfer the Japanese wood processing culture to lumber companies in Far Eastern Russia as well as utilizing second-hand saw mills and experts from Japan.

Through this cooperation, Japan could import semi-manufactured wood products to make finished products and it would be hoped to establish a long-term cooperative complementary relationship with Far Eastern Russia. (If Japan does not take action now, it is likely that other countries, such as Finland, China and the ROK will move in on this opportunity and the Japanese presence would be lost.)

In Far Eastern Russia, besides Sakhalin, areas such as the Republic of Yakutia (Sakha), Irkutsk, the Republic of Buryatia and Primorskiy krai each have significant economic relations with Japan, and also have high expectations with regard to the country, so, based on economic principles, each region should make an effort to identify businesses that are competitive both in Japan and Russia.

5. Support from Russia’s central government to Far Eastern Russia is still lacking

In particular, certain trading companies in Moscow and Saint Petersburg still enjoy preferential tariffs and take advantage of their capital strength to import in bulk, thereby hold down expenses. As long as such inequities exist, direct marketing from Japan to Russia in such fields as electronics and personal computers will be difficult. To counter this situation, it would seem to be crucial to encourage the central government to set up preferential contact points (such as special economic zones) comparable to Moscow and Saint Petersburg in collaboration with administrations in Far Eastern Russia, as well as establishing cooperation that utilizes Japanese competitiveness in fields involving goods/materials that cannot be transported without passing through Far Eastern Russia, such as lumber processing, marine processing, food processing and energy development.

Considering facts such as the abovementioned special circumstances of Far Eastern Russia, the stabilization of the Russian economy and the rapid economic advancement of China into Far Eastern Russia, it is time to focus on nurturing enterprises in Far Eastern Russia as strategic economic partners for Japan, not merely by supporting them but purely by conforming to economic principles with the cooperation of large, small and medium-sized Japanese companies as well as support from the Japanese government and local authorities.

[Translated by ERINA]