Transcript Can the Russian Far East Open to the Pacific?

Can the Russian Far East Open to the
Pacific?
What Can Be Done About
the Growing Gap
Between
Economic Potential and
Performance in Asian
Russia?
Judith Thornton
Department of Economics
University of Washington
Why Do We Care About the RFE?
Due to its size, resource
wealth, and strategic
location in North East
Asia
Its proximity to prosperous
and rapidly growing Asian
markets could afford
potential for growth and
integration into the Asian
economy
It serves as a barometer of
the storm winds ahead for
federal government
policy-makers in Russia
Evidence of Growing Regional Problems

Percent Unemployed by Age

50
45
40
35
30
25
20
15
10
5
0

t
a tka rye sk ur an lin las tka
h
k a o ov m ad ha Ob ko
is
A g ak
D Sa ch rim ar
a S ton
hu
b
n
m
r
a
P
M
C
a
h
u
te
K
K
A
as
h
is
rE
w
a
F
Je
ct
tri
20-29
30-39
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

Large inflow of funds for
infrastructure from Moscow
Investment by Gazprom and
Rosneft in energy
Rising per capita income of
the employed
Yet, weak total investment
Little private foreign
investment
Slow growth of labor
productivity
Is Russian Systema a Barrier?
Alena Ledeneva’s “Can Russia Modernize?” says Russian
government institutions create incentives for evasion, corruption,
kickbacks, informal activity and capital flight. Investment lags.
Total
Investment
Agriculture
Fishery
Extractive
Manufac
-turing
Energy,Gas
Construction
Trade
Other
Far East
927,545
7,527
3,532
189,871
31,253
90,278
17,415
3,960
583,710
Sakha
148,015
889
2
33,361
788
27,764
7,381
932
76,899
26,195
204
991
1,237
701
959
389
13
21,701
Primorye
256,931
1,378
771
1,504
7,887
31,179
1,862
1,431
210,918
Khabarovsk
168,733
2,200
210
7,857
20,542
6,854
3,054
841
127,175
Amur
113,020
2,048
0
18,263
372
13,614
2,915
360
75,449
Magadan
15,554
23
106
4,811
92
4,819
371
75
5,256
Sakhalin
168,436
426
1,450
117,156
596
2,270
1,070
185
45,285
21,484
58
0
2,354
140
1,664
89
29
17,149
Kamchatka
Jewish Aut
Obl
On the Eve of Transition Everyone Was in the
Wrong Place and Doing the Wrong Thing
Siberia’s mono-cities were placed in remote, hostile
environments with ten times more people above the Arctic
Circle in Russia than in Canada.
Large sectors of RFE economy and capital stock were
unprofitable at world prices, including fishing and logging.
Repressed inflation, capital flight, and institutional collapse;
Goods disappeared from shops. GDP fell 15 percent.
Government deficit rose to 16.5 percent of GDP. Exports
fell 40 percent, imports fell 84 percent.
Closure of military bases, cuts in production of military
hardware, and loss of central subsidies led to
unemployment and a collapse in incomes.
RFE Enjoyed Steady Recovery of GRP
After 1996, Notably in Sakhalin
Far East Real GRP Indices 1996-2010
350
RF 1996 = 100
300
250
200
150
100
50
0
1994
1996
1998
2000
2002
2004
2006
Far East Federal District
Sakha
Primorye
Khabarovsk
Amur
Magadan
Sakhalin
2008
2010
Real Income Fell to 60 Percent of 1994
but Grew Steadily after 2000
Far East Real Income 1994 to 2010
250
200
150
100
50
0
1990
1995
2000
2005
2010
Russian Federation
Far East Federal District
Sakha
Primorye
Khabarovsk
Sakhalin
2015
Population Outflow Largest in the
Far Eastern Federal District
Population Change from 1990 to 2011 by District
Russian Federation
Moscow City
North Caucasus District
Central District
Urals District
Volga District
Siberian District
Northwest District
Far Eastern District
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
RFE Population Fell 22 % between 1990 and
2011, Including 30% on Sakhalin
Population Fell 22 Percent from 1990 to 2011
Russian Federation
Far Eastern District
Sakha
Primorye
Khabarovsk
Jewish Auton Obl
Amur
Sakhalin
Kamchatka
Magadan
Chukotka Auton Okrug
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Murder Rates Remain High,But Infant
Mortality Rates Fell
Infant Mortality Rates 1990, 2000, 2011
Murder Rates by District 2005 and 2009
Jewish Aut Obl.
Sakhalin
Far Eastern District
Siberian District
Magadan
Urals District
Amur
Tiumen
Khabarovsk
Rate
Northw est District
Russian Federation Average
St Petersburg
Primorye
Kamchatka
Volga District
Sakha
Central District
Far Eastern District
Southern District
Moscow
Moscow City
0.00
Central District
0.10
0.20
0.30
0.40
Russian Federation
Rate Per Thous
0
5
10
1990
15
2000
20
2011
25
30
Industry Employs a Small
Share of the Population
Communal
services, other
Working Age
Pop 2010
Far Eastern
District
Total Employed
2010
Education,
health
Ratio
3997343
3313300
0.83
Sakha
613134
481100
0.78
Kamchatka
211118
189100
0.90
1234356
980100
0.79
Khabarovsk
855445
729400
0.85
Amur
517915
437900
0.85
Magadan
104426
89900
0.86
Sakhalin
317170
288700
0.91
Extractive
Jewish Aut
Oblast
109770
81300
0.74
Ag and
Forestry
34009
35900
1.06
Primorye
Real estate
Transport,
communication
Trade, services
Construction
Mfg, elec, gas
Chukotka
0
5
Far Eastern District
10
Primorye
15
20
Khabarovsk
25
Investment in the RFE
Shows Little Increase
Investment in Fixed Capital
Thous $
2500000
2000000
1500000
1000000
500000
0
1998
2000
2002
2004
2006
2008
2010
Central District
Moscow
Urals
Tiumen
Siberian District
Far Eastern District
2012
Investment Focuses on Energy in Sakhalin
and Sakha, Gold Mining in Chukotka
RFE Investment Fixed Capital
250000
Thous $
200000
150000
100000
50000
0
1998
2000
2002
2004
2006
2008
Sakha
Kamchatka
Primorye
Amur
Sakhalin
Chukotka
2010
2012
Khabarovsk
China is Russia’s Largest Trading Partner
Value of Exports and Imports 2010
Russia to Partner
Partner to Russia
$ million
Export
Import
Russian Federation Total
China
427,800
260,000
19,781
39,033
Including
Crude oil
Natural gas liquified
Japan
7,303
65
12,501
10,300
Including
Crude oil
5,338
Natural gas liquified
2,203
Republic of Korea
10,404
7,267
Including
Natural gas liquified
Mongolia
629
937
79
46
16
Germany
15,860
26,616
USA
12,033
9,840
DPR Korea
Russian Deliveries of Oil to China Grow
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The first phase of the $23 billion ESPO pipeline opened in 2009,
bringing crude from fields in east Siberia to Skovorodino near the
Chinese border. The second phase, which doubled capacity and
extended the line to Kozmino.

Crude oil supplies to China via the ESPO pipeline began in 2011.
According to the agreement concluded in 2009, Rosneft and Transneft
pledged to supply 15 million tons of oil to China for 20 years in
exchange for Chinese loans totaling $25 billion.
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Transneft expects ESPO to operate at maximum capacity of 30 million
metric tons a year, or 600,000 barrels a day, by 2015.
Chinese President Xi Jinping Visits
Moscow in April 2013
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State-owned Rosneft will triple supplies to China to a million barrels per day, making China
Russia's single biggest oil customer. Total exports to rise from 34 million tons to 50 million
tons by 2018.

The Chinese offer Rosneft $30 billion in loans, which Rosneft will use to finance its purchase
of the British-Russian TNK-BP at a cost of $55 billion.
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Rosneft promises China National Petroleum Corporation (CNPC) a share in eight upstream
projects including a deal to explore and exploit Russia's Arctic reserves.

Gazprom and CNPC agree that Russia will deliver 38 billion cubic meters of gas a year to
China from 2018, although Russia and China remain far apart on prices.
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China's Shenhua Group and Russia's EN Group agree to develop coal resources and RFE
to expand Russian coal exports to China.
Expanded Oil Pipeline Network
What Can Be Done About the Gap Between
Economic Potential and Performance in Russia?
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Excerpts from Medvedev’s Report on the Government's performance in
2012, April 2013.
“First, as part of the National Entrepreneurial Initiative, procedures have
been identified that cause the biggest problems for business. ..We are
making good progress in some areas, for example, tax administration,
and not such good progress in other areas.”
“Speaking of capital outflow, it is still very large. In countries with
comparable economies this kind of outflow doesn't exist and it means
something is amiss in our country.”
“Last year Russia became a full member of the WTO. The accession
talks, I wish to remind you, lasted 17 years.” (Yet, Russia has imposed
a “scrapping fee” on import of foreign automobiles.)
Reducing the Gap Between
Potential and Performance

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Washington Post May
31, 2013: “Sergei
Guriev, Russian
economist critical of
Putin flees to France,
escaping ‘bogus’ legal
pressure”
Modernization is
threatened by lack of
security of person, civil
rights, and property
rights.