In a 1995 cover story on Russian Far East city of Vladivostok, Forbes magazine wrote "the Russian Far East will be to the early 21st century what the American West was to the late 19th century". In other words, there is "gold in them there hills".
Separated from the world market for most of its history, the Russian Far East is only today becoming a full participant in international trade. This presents both unique opportunities and challenges for the U.S. exporter. The Russian Far East (RFE) market has four time zones, 6.2 million square kilometers (two-thirds the size of the continental United States), and a population of 8 million. It is rich in natural resources, including oil, natural gas, gold (more than 70% of Russia's output), timber, fish, coal, diamonds (almost 100% of Russia's production), silver, platinum, tin, lead, and zinc - the percentage of extractive industries is about 17% of Russia's total. The $40+ billion oil and gas development projects on Sakhalin Island present major contracting opportunities for U.S. construction and engineering firms. At the same time, Russian federal, regional, and local taxes, regulations, and red tape, daunting logistical challenges, and high operating costs make the RFE a challenging market.
Though the RFE may not have kept pace with Western Russia in terms of regional reforms and foreign investment, the region does provide many opportunities for US companies seeking new markets in Russia, as well as for U.S. companies seeking to expand their Asian portfolio. The Russian Ministry of Economic Development and Trade estimates that the highest growth of investment during the next 2-3 years is expected in the Russian Far East, and that by 2004 the volume of investment in the region's economy is to grow by 94% against the year 2000. Significant natural resource wealth, a skilled work force, and advanced technology in the region offer a range of promising commercial opportunities for U.S. companies, while proximity to Asian markets and the U.S. West Coast offer further incentive to explore the region.
U.S. Exports to the Russian Far East vs. U.S. Exports to Russia (in $ millions):
U.S. Exports to the Russian Far East vs. U.S. Exports to Russia (in $ millions):
1996 1997 1998 1999 2000 2001 Average
U.S. Exports to Russia 3,340 3,289 3,585 1,845 2,318 2,585 2,827
U.S. Exports to the RFE 425 470 270 325 70 126 281
RFE Share of U.S. Exports 13% 14% 7.5% 18% 3% 5% 10%
Though the RFE is home to only 5% of Russia's total population, the above trade data shows that, on average, 10% of U.S. exports bound for Russia are shipped to the RFE. On a per capita basis, this means RFE residents purchase approximately twice as many US exports than the Russian average.
Below are brief overviews of the RFE's major administrative regions (oblasts, krays, and republics), along with links to some of our favorite regional web sites (some links are in Russian language text only, but don't let that scare you away). For more detailed reports on these regions, please contact our office at vladivostok.office.box@mail.doc.gov .
Amurskaya Oblast
The Amurskaya Oblast is one of the least accessible and least visited cities in the RFE, lying 18 hours east by train from Khabarovsk. The region's south is rich farmland sprawled against a 1,243-kilometer border with northern China; the region's north is sparsely forested tundra bordered by the vast Republic of Sakha. Its border with China is one of its commercial assets and its capital city, Blagoveshchensk (population 216,700) is separated by only a kilometer of river from the modern Chinese city of Hei-Hei. A lively cross-border shuttle trade (via an ice road in winter and a ferry service in the summer) fills Blagoveshchensk markets with low-cost Chinese foodstuffs and clothing. In addition to being Russia's largest grower of soybeans, the region also greatly contributes to Russia's gold production (ranked 3rd among Russian regions). U.S. interest in the region has been low, and exports have averaged only a few million dollars a year. A federal road project designed to connect the 375-kilometer gap between Khabarovsk and Chita, which will complete the Trans-Siberian highway, may also provide opportunities for manufacturers of road construction equipment.
BEST SALES PROSPECTS
- Food-processing equipment
- Packaging equipment
- Mining equipment (drilling equipment, earth-moving equipment, excavators with bucket size 1.8-2.2 cubic meters, heavy bulldozers)
- Forestry and wood-working equipment (timber cutting machinery, timber harvesters)
- Agricultural equipment (tractors, soybean combine harvesters)
- Road construction equipment (auto-graders, asphalt vibrocompactor, trucks, scrapers)
Guidebook for Businessmen (in English): http://www.nns.ru/gallery/stos/amur.html
Jewish Autonomous Region
Stalin established the Jewish Autonomous Region (JAR) in 1934 to plug a vulnerable hole in the vast Soviet-Chinese border and to provide a place to move potentially dissident Jews, far away from the Moscow political center. The region he provided was no prize: a small area of 36,300 square kilometers, half mountains and half plain, which is a three-hour drive from Khabarovsk. The JAR has 80,000 hectares of unused farmland, and the regional government hopes to induce local farmers or foreign businesses to use this land to grow grain and fodder. Forests cover almost half the territory, but the wood is not export quality. Today the JAR is a reviving center of entrepreneurship and Jewish culture, and, despite its small size, U.S. businesses should give the JAR a good look.
BEST SALES PROSPECTS
- Food processing equipment
- Textile machinery
- Building materials and construction equipment
- Wood processing equipment
- Mining exploration and equipment
- Telecommunications services
Region's official web site (in Russian and English): http://www.eao.ru/index_e.html
Kamchatka Oblast
Kamchatka Oblast is a remote territory in the northern RFE, washed by the Bering Sea and the Sea of Okhotsk. The regional economy depends on fishing and fish processing, as Kamchatka's capital, Petropavlovsk-Kamchatsky, is the second largest fishing center in the Far East after Vladivostok. Fishing is a cash-rich industry, and the Far East currently holds a near monopoly on national fish exports, accounting for 92% in 2000. There are the world's largest stocks of salmon and codfish in the Pacific seas surrounding the RFE, as well as the harvesting of crab, which is one of Russia's top ten exports to the US.
This primary export is a source of cash to pay for imported food products and fuel. Kamchatka is rich in natural resources, including gold, silver, copper, natural gas, and coal; but lack of infrastructure, remoteness, high energy prices and fuel supply disruptions hinder regional economic development. Its substantial timber reserves and lack of technology present an opportunity for U.S. wood processing equipment exporters. Designated as an UNESCO World Heritage Site, Kamchatka also has growing opportunities in the area of eco-tourism, but needs assistance from western firms experienced in marketing and tour planning. Domestic tourist operators offer tracking, rafting, mounting, sport hunting and fishing, while 29 active volcanoes, geysers and hot mineral springs attract tourists from all parts of the world.
BEST SALES PROSPECTS
- Fishing vessels and fish processing equipment
- Wood processing equipment, especially dry kilns
- Fuel
- Food products
- Tourism support services
Destination guide (in English): http://www.kamchatkapeninsula.com/
UNESCO Heritage site: http://www.unesco.org/whc/sites/765.htm
Khabarovsk Kray
Khabarovsk is the leading industrial region in the RFE and the only region in the RFE where machine building dominates (30% of GDP). Many consider it to be the unofficial capital of the region, including Konstantin Pulikovsky, President Putin's federal representative to the RFE, who based his office here.
Unlike the other regions in the far east, which rely on extraction industries, Khabarovsk has a strong manufacturing and processing base, the result of the former Soviet Union's burgeoning defense industry. This manufacturing base, combined with the kray's close location to Sakhalin (especially the Vanino port), should provide the region with an opportunity to assist in the development of Sakhalin's oil and gas industry. Key industries include machine building, oil refining and metallurgy (much located in the northern city of Komsomolsk-na-Amur).
The RFE accounts for over 35% of Russia's output of forestry products. Although the Sakha Republic (Yakutiya) is the richest in forest resources (about 50% of the RFE's total timber stock), its remoteness from timber markets prevents this region from being one of the key-players in this sector. Therefore, Khabarovsk's timber industry leads the RFE in logging and lumber production, accounting for more than one-third of the total timber output of the Russian Far East. Although rising production and transportation costs have reduced output in recent years, the region's vast timber resources and geographical proximity to Asia/Pacific markets make it a promising area for future development. However, logging is accompanied by immense losses of raw materials - as much as 25% of the felled timber. To cut these losses, it is essential to introduce more advanced processing technologies, which could be done only with the help of foreign investment. Also, timber export is virtually 100% unprocessed wood (round logs, processed wood chips). Local exporters are becoming increasingly interested in exporting value-added wood products and lumber rather than raw logs.
BEST SALES PROSPECTS
- Timber Processing Equipment
- Machine Building and Metal Working Equipment
- Food Processing Equipment (bottling, vacuum food packing, milk processing, soy-bean processing equipment)
- Metallurgy
Foreign Investment Promotion Agency (in English & Russian): http://www.fipa.khv.ru/
Duma's site (in English & Russian): http://www.duma.khv.ru/
Magadan Oblast
As with other regions of the RFE, Magadan's economy is based on extraction and processing of raw materials, mainly mining and fishing. More than half of Magadan Oblast's population lives in the capital city of Magadan, which was founded in 1933 as a transit point for political prisoners bound for the Kolyma gold fields. Mining is still the region's leading sector, accounting for more than 70% of industrial output, and other leading sectors are oriented to supporting the needs of the mining industry, particularly gold mining. Coal is another important commodity, and there are more than 2 billion tons of coal in existing deposits and estimated reserves of 26 billion tons (the RFE accounts for 20% of Russia's total coal exports, with production in Primorskiy and Sakhalin as well). However, coal consumption continues to decrease as a result of economic difficulties. Magadan city is also a key port city in the RFE and home to a large fishing fleet (Negayevo port remains open year-round with icebreakers). Fish and fish products account for 37 % of all exports from this region.
The Magadan Oblast administration is also pursuing investment in offshore oil and gas exploration and production, and in 2000 the Russian Ministry of Natural Resources approved a plan for an oil and gas lease sale off shore of Magadan. According to available data, minimum estimates of oil and gas deposits are 6.4 billion barrels and 61 trillion cubic feet, respectively.
Most of the region lies in the permafrost zone, limiting the growing season to about 100 days; as a result, most food products are imported. The region's remote location also contributes to Magadan having one of the highest costs of living in Russia, and increasing economic difficulties and declining federal subsidies and other relocation incentives have led to a net negative migration during the last five years.
BEST SALES PROSPECTS
- Mining equipment
- Fishing vessels and fish processing equipment
- Oil and gas equipment and services
City information (in Russian): http://http://www.magadan.ru/rus/magadan1.htm
Primorsky Kray
Commercial activity in Primorsky Kray is centered in its capital, Vladivostok, the largest city in the RFE and one of its leading trading, manufacturing, and financial centers. It is the eastern terminus of the Trans-Siberian railway, a major port city, and the principal base of the Russian Pacific Navy Fleet. Most large fishing companies of the RFE are based in Vladivostok. With nine consulates and trade representations, including the American Consulate General, the city is also the political center of the RFE (though the Russian Federal representative is based in Khabarovsk).
In 1948 the Soviet government closed Vladivostok to foreigners and Russian citizens from other regions. It was reopened only in 1992. Despite this comparatively late start, Vladivostok is home to more several 30 U.S. firms and many companies from neighboring South Korea, China, and Japan. Western and Chinese brand-names dominate the many kiosks and small shops in the city center, while Russian farmers and Chinese traders are active in the open air markets (rynoks). However, when Vladivostok first opened to foreigners after being closed for nearly 40 years, there were hopes that it would become Russia's version of Hong Kong, a transportation and financial center for the Russian Far East. Sadly, it has not met this potential. Hampered by its xenophobic former governor, the economic crisis, and decreased transit and export cargo volumes in RFE ports, the region did little to attract foreign businesses or investment during the last decade.
In addition to Vladivostok's ports, numerous large and small commercial ports, including the ports of neighboring Nakhodka and Vostochny, make Primorye the leading transportation center in the RFE. Despite devastating crises in Asia and Russia, transit shipment continues to be one of the Primorsky region's leading industries. The industry transports exported natural resources (timber, coal, metals, fish) and imported food products, consumer goods, and machinery. The famous trans-Siberian railway ends in Vladivostok, with spurs branching throughout the southern part of the region. Plans to open the East-by-West Corridor, which will use Primory ports to by-pass the over-utilized Dalian-Harbin route to NW China, hopes to save U.S. and Chinese shippers 1,600 miles and several days. Russia is also pursuing plans to open a rail link with South Korea via North Korea, which should add to the region's transportation strengths.
Fishing and fish processing provide one-third of the region's budget income, and much of its local employment. The Primorsky fishing fleet catches two-thirds of all fish in the RFE and one-third of all fish in Russia. The industry is focused on deep-sea fishing: companies harvest and process pollack, cod, salmon, halibut, herring, crab, and plaice caught in the Sea of Okhotsk, the Sea of Japan, and the Bering Sea. The regional administration hopes to shift the fishing industry from deep-sea to smaller scale, lower-cost coastal fishing. The major obstacle is lack of modern, small fishing boats. The regional administration has established a leasing center to attract equipment and funds for development, and is seeking to have this program on a list of federal programs eligible for sovereign guarantees.
In September 2002, Primorskiy will be putting its best foot forward when it hosts the APEC Investment Forum and InvestmentMart. This will be the first time that Russia, a relatively new member to APEC, will host an official event.
BEST SALES PROSPECTS
- Food (meat, grain, sugar, fruit)
- Consumer Electronics and Computers
- Telecommunication Equipment
- Construction/road Building Equipment
- Timber Processing Equipment
- Fish Vessels and Fish Processing Equipment
- Food Processing Equipment (bottling, vacuum food packing, milk processing, soy-bean processing equipment)
Local news site (in English): http://vn.vladnews.ru/
Local news site (in Russian with English summaries): http://www.zrpress.ru/
APEC conference: http://www.primorsky.ru/prim/symposium7/
The Republic of Sakha
Sakha, a remote Russian region the size of India, holds surprisingly strong business opportunities despite its small population (one million) and location (almost half of the territory lies within the Arctic Circle). The republic has the largest share of the region's GDP (in 1998 -24%). Sakha, already one of the world's leading producers of diamonds, is also potentially one of Russia's leading producers of gold, oil and gas, timber, and furs. The proudly autonomous regional government has fashioned a unique economic strategy that combines state investment and control of key natural resource industries with strong support of small business and entrepreneurs.
The mining industry provides the best opportunity for sale of U.S. equipment, as natural resource extraction dominates the regional economy. Sakha possesses 84.1 % of all of Russia's kimberlite-type diamond reserves and its diamond-mining industry produces 98 % of Russia's production. There are also significant gold and coal reserves (42 % of the 19.3 billion tons of proven coal reserves in the RFE). A special agreement with the Russian federal government gives the Republic the right to keep a significant portion of its diamond and gold production, providing revenue needed for infrastructure development and future growth. There are more cranes operating on the Yakutsk skyline than any other city in the RFE, and the city already boasts a new stadium, luxury hotel, Russian orthodox church, airport terminal, fine arts center, hospital, and many new apartment complexes. Sakha has adopted English as its second official language, so they are very open to conducting business with US firms.
BEST SALES PROSPECTS
- Mining Equipment
- Oil and Gas Equipment and Services
- Food processing equipment
- Wood processing equipment
Government web site (in Russian and English): http://www.sakha.gov.ru.
Sakhalin Oblast
The Sakhalin and Kuril Islands are situated in the Russian Far East, north of Hokkaido, Japan, and surrounded by the Sea of Okhotsk and Sea of Japan. Sakhalin is the largest island in the region and by far is the most developed; it is positioned to become one of the most important centers in the RFE for commercial and investment activity. Considered to be Russia's North Slope, oil and gas projects on Sakhalin are now attracting one in every four dollars of direct investment in the Russian economy, and this is expected to grow as nearly $30-45 billion is invested in foreign-led oil and gas projects.
ExxonMobil, Shell and BP are a few of the energy companies that have had some level of activity in the region. In October 2001, ExxonMobil (Sakhalin 1) announced its project to be commercially viable and that over the next seven to eight years the company will invest $12-15 billion in its development (and $30 billion by 2030). In an October 31, 2001 address, U.S. Commerce Secretary Donald Evans stated:
"the Sakhalin I Consortium underscores exciting new opportunities for U.S. investment in Russia and sends a strong signal from Russia's leaders that foreign investment on a large scale is welcome. Similar successes on other Production Sharing Agreements would continue to strengthen Russia's position as a country that is interested in attracting large and complex investments. Russia is demonstrating a willingness to work with investors to make these types of projects succeed."
Though it is clear that there are possibilities for companies involved in the oil and gas industry, these projects will result in strong downstream commercial opportunities. Supporting projects will include improving existing air and seaports on Sakhalin, road and bridge construction, telecommunications and transportation services. Also, Sakhalin could soon have one of the largest expatriate communities in Russia, and already has the highest concentration of American citizens per capita in Russia. This means construction projects for new housing and offices, especially on the north side of the island where the production platforms are. This will also increase demand for consumer products, from western foods to dry cleaning equipment.
BEST SALES PROSPECTS
- Oil and Gas Equipment and Services
- Fishing Vessels and Fish Processing Equipment
- Construction Materials and Equipment
- Consumer Goods
- Wood Processing Equipment
General Background (in English): http://www.sakhalin.ru/Engl/
Administration's page (in Russian and English): http://www.adm.sakhalin.ru/