Tapping into the investment potential of russia's far east

RD Interview: Alexei Chekunkov, general director of the Far East and Baikal Region Development Fund, sheds light on the challenges and opportunities ahead for investors in Russia’s Far East.

RD Interview: Alexei Chekunkov, general director of the Far East and Baikal Region Development Fund, sheds light on the challenges and opportunities ahead for investors in Russia’s Far East.

While the Far East offers vast investment opportunities, many of the projects for the region are still in the planning stage. To find out more about concrete developments taking place in cities like Vladivostok and Khabarovsk, Russia Direct interviewed the General Director of the Far East and Baikal Region Development Fund, Alexei Chekunkov. He explains what the state has already done to boost the investment prospects in the region and points out which challenges are still present.

Russia Direct: What are the goals of the Far East and Baikal Region Development Fund? And what are the results of its efforts?

Alexei Chekunkov: Originally, in 2011 the fund was created for investment in infrastructure projects. Yet the rules of state funding for the organization were created in such a way that they did not allow for investment in infrastructure. The work of the fund was unblocked only last year, and with the help of the go­vernment we widened the investment mandate. Today there are 12 investment projects in different sectors, from projects in the realm of transport and infrastructure to those in agriculture.

RD: You launched a program to give loans to small- and medium-sized businesses in the Far East. What are their main problems today?

A.C.: Many small- and medium-sized businesses dream of expanding. But often when they come to the bank for a loan, they are denied. Usually it is because they are unable to offer enough collateral in return. This is why some interest rates on loans in the Far East are as high as 25 percent annually, and loans are typically given for no longer than a year. We developed a program under which banks will be able to give loans to business owners with interest rates of 5 percent. This will be implemented in banks across the Far East. Our goal is to lower the interest rates for small- and medium-sized business owners to 4-5 percent to allow them to grow, and increase the loan repayment period to 10 years.

RD: The biggest challenges in the Far East are transportation and telecommunication infrastructure, and the general lack of proximity to the central regions of Russia. What are you doing to solve this problem?

A.C.: We have no telecommunication projects in our portfolio. As for transportation infrastructure, in partnership with a Russian-Chinese company, we are working on the construction of a railroad bridge in China. It could change the regional economy, and open the Chinese market to raw materials.

RD: What other problems are facing the region? How can they be solved?

A.C: One of the key problems is a lack of capital. The deficit is so large that it cannot be covered with government aid. This is why it is important to create an atmosphere where the market will flourish without state intervention. So, it is necessary to provide the region with opportunities for releasing assets: It needs to be equipped with financial tools for raising capital or issuing debt. We have just such a product available — a new investment system known as Voskhod. We pin high hopes on it and want to make the process of releasing securities as easy as possible to spark interest among Asian investors, so they can buy up Russian assets. There is $20 trillion in Chinese banks, and it would be good to get a portion of this for investment in the Far East.

RD: Which projects are most interesting for foreign investors?

A.C.: Usually this has to do with pro­jects in industries such as oil and gas, agriculture, energy, forest industry, transport, fishing, and shipbuilding. For example, Japanese investors have a concrete interest in building a new airport in Khabarovsk. Now there are talks about investing in the gold mining industry in the Far East with Chinese investors.

RD: The Far East is a region where natural disasters occur regularly. Is this a serious factor that is pushing away the investors?

A.C: The natural environment affects the outcome of some projects, and capital investment sometimes has to be higher than in Europe. Thus, it affects requirements for economic productivity and profitability of the projects.

RD: The Ministry for the Development of the Far East was founded in 2012. How has the investment climate changed since then?

A.C: The ministry has accomplished a great deal since that time. The investment climate may be judged by the number of requests from initiators of the investment projects who seek to do business within the territories of advanced development and a free port [Vladivostok regained its “free port” status in 2015 — Editor’s note]. Now there are more than 200 such pioneers. Businesses understood that taxes are much lower in these territories, and that the government is helping companies in these areas. This increases their competitive capability. Even this year new companies emerge on these territories, so the process has already been launched.

RD: In the present political climate, how realistic is it to develop the Far East, and increase its investment potential in terms of Russia’s economic difficulties and the narrow planning horizon of the Russian authorities?

A.C: In fact, the major goal of our fund is to expand the planning horizon. We are the source of long-term funding, which allow business to live not only for today, but also to look ahead 7-10 years into the future.