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Export to Asia remains a problem

Why do exports of the Far East and the Baikal region fall?

Export to Asia remains a problem
Photo: shutterstock

Igor Makarov

Associate Professor, Department of World Economy, Higher School of Economics, Ph.D.
Four years have passed since the meeting of the Governmental Commission for the Development of the Far East in Komsomolsk-on-Amur, where for the first time the contours of a new model of the development of the region were outlined. This model was supposed to replace the former, never earned, based on massive public investment in infrastructure projects. Prime Minister D.A. Medvedev listed three possible scenarios for the development of the region. Two of them - the orientation towards the production of products for local needs and to meet the demands of the all-Russian market - were recognized by him as unrealistic due to the small capacity of the regional market and high transport costs, respectively. Thus, the third scenario was recognized as the priority: "development of export potential, export to the countries of the Asia-Pacific region, creation of new industries oriented to this one. ... the world's largest market today. "

At the same time, the main directions of development of the Far East were also identified: the creation of special zones for the production of competitive products, sustainable social development, a favorable investment climate and business environment, the development of human and intellectual capital, and the attraction of foreign investment.

For the past since the meeting in Komsomolsk-on-Amur time was taken a big step forward. The Russian Far East has in fact become one of the priorities of the country's policy. A new strategy and a new state program for the development of the Far East and the Baikal region have been adopted. A network of advanced development territories has been established, which provides favorable conditions for private investment. Notable efforts are being made to develop universities, urban and social environments, and develop transport infrastructure. An unprecedentedly close relationship has been built up with the largest countries in the region: China, Japan and the Republic of Korea. Ambitious plans for cooperation with each of these countries have been announced, which, however, are being implemented primarily in the form of concluding dozens of non-binding agreements.

But the main task set four years ago and laid in the basis of a new model for the development of the region, has not been resolved: the Far East has not turned into a region truly oriented to export.


Export of the Far East and Baikal region in 2013-2016.

Source: Federal Customs Service of Russia
Moreover, export volumes from the Far East and the Baikal region from 2013 to 2016. consistently reduced. Together, they fell by a third, including exports to Asian countries - by more than 40%. Of course, there are a number of objective reasons for this: the price of raw materials has plummeted from 2014, and the economic crisis has erupted in Russia. The export dynamics from the Far East is even better than the national one: in the country as a whole, exports over the same period decreased by 46%. It is worth remembering that the export of the Far East and the Baikal region will inevitably increase in a few years, when gas supplies will begin within the framework of the Power of Siberia project.

A certain brake on the development of Far Eastern exports in recent years has been the policy of import substitution, announced in response to sanctions from Western countries in combination with the introduction of a food embargo. The goal of import substitution in the speeches and actions of federal and regional officials quickly began to replace the goal of export development. Meanwhile, these two goals are exactly the opposite. First, part of the production (primarily food), which could be exported, was, as a result, reoriented to the domestic market. Secondly, in order to stimulate exports, it is necessary to strive to reduce barriers to Russian goods in partner countries. This is almost impossible to achieve without opening your own market, which, in turn, is at odds with the objectives of import substitution. This is one of the reasons for Russia's relatively passive participation in regional integration processes in the Asia-Pacific region: from all countries, the Eurasian Economic Union still has an agreement on a free trade zone only with Vietnam.

Meanwhile, the markets of the countries of the Asia-Pacific region are extremely closed, characterized by a large number of non-tariff barriers related to technical standards, requirements for labeling, packaging, sanitary and phytosanitary conditions, etc. Thus, the huge Chinese market is still closed to Far Eastern wheat (for the Siberian restrictions, although with numerous reservations), Russian meat has also been removed. The reason is the phytosanitary restrictions introduced at the end of 1990-x - the beginning of 2000-x. Despite the fact that all violations have long been eliminated, and Russian products meet the highest standards of security, the lifting of restrictions has not yet been achieved. In fact, they are openly used by China as an instrument of protectionism and the subject of bargaining.

The work of the Ministry of Economic Development in recent years has shown that such barriers can be reduced, but this requires systematic efforts. And most importantly - partners need to offer something in return. Neither Russian business, nor Russian officials, nor Russia's partners in the EAEU are often ready for this.

Russia is clearly losing to its Asian neighbors and in terms of direct export support. For 2016, Eximbank issued export credits for 36 billion rubles. It is planned that in the coming years at the expense of additional allocated budgetary funds and the consolidation of support for exports around the Russian export center, this amount will grow several times. However, even in the most optimistic scenarios, it will not approach the volume of export support in the leading Asian countries. For comparison, only Korean export-import bank KEXIM issued in 2016 loans for 49 billion dollars, and at lower rates than those available to Russian exporters.

Does this mean that the breakthrough on Asian markets should be forgotten, and the model of development of the Far East should be corrected by abandoning export orientation? Certainly not.

First, it is unlikely that even the most favorable tax and administrative regime that can be created in the territories of priority development will be sufficient to attract significant investments without opening the channels for the supply of products to Asian markets. The problem of the small capacity of the domestic market remains relevant and unresolved even in the long term. Without a reduction in customs barriers and the involvement of the Far East (and Russia as a whole) in the integration processes in Asia, international business is unlikely to come to the region, and numerous investment projects agreed with foreign partners in recent years risk remaining in the stage of memorandums of intent.

Secondly, the processes in East Asia continue to open up a lot of opportunities for Russia, although it is in no hurry to use them. In China, instead of an extensive model of economic growth based on cheap labor and consumption of natural raw materials, another form of socio-economic development is gradually coming to the end, based on stimulating domestic consumption. The result of this transformation is likely to be a slowdown in the growth in demand for natural resources (hydrocarbons, metals, building materials) and investment goods and services (equipment, construction), while expanding demand for consumer goods, including durable goods. The whole of the Asia-Pacific region is gradually adapting to this metamorphosis, orienting its production to the new needs of the Chinese market.

Russia has every opportunity to occupy a niche of one of the key suppliers of energy-intensive and consumptive consumer goods and services - from agricultural products and paper to data processing services.

The problem, however, is that Russian producers are not quite ready to work in this segment. In contrast to the market for raw materials and investment goods, in the case of consumer goods, tastes and preferences of customers are much more important, in Asia they are often specific. Greater importance is marketing, implying the need for the presence in the information space of the importing country. While in the case of commodities, the support of exporters was mainly in reaching agreements at the political level, in the case of consumer goods, the state’s ability to open markets (for example, through trade agreements) and also to provide a radical expansion of export support measures come to the fore: export crediting and insurance, provision of state guarantees, services of consulting centers and activation of trade missions. Russia is just taking this path, and there is still a lot of work ahead. The routine and often imperceptible, but in the long run, no less important than the signing of high-profile energy supply contracts.
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