Why Siberia
Could Be Russia's Secret Economic Weapon
Holly Ellyatt, 6/18/13, CNBC
Once infamous as a place of exile
and no-return during the Tsarist and then Stalinist eras, Siberia is being
touted as a beacon of light by the Russian government as it looks east, rather
than west, for growth potential.
Mineral
and metal-rich Siberia is already
home to oil, diamonds, gas and coal producers and in April 2013, Russia
announced a billion-dollar investment in the region. Russian Prime Minister
Dmitry Medvedev ordered the government to devise a "Far East Development
Program" totaling $16 billion to develop Siberia and its environs by 2018,
saying it was a top priority for Russia.
"There will be payback for
money invested into the region," Medvedev said during a trip to the region
in April, forecasting trillions of Roubles would flow back into the Russian
economy.
The Russian government will focus on
boosting the capacity of the Trans-Siberian railroad, the development of
regional aviation, airport and seaport infrastructure and the building of
highways as well as developing the already-established energy sector, according
to a report by state news agency Ria Novosti in April.
Although the government has not
explicitly linked its plans to invest in the region to high growth in China, Russian
energy companies developing pipelines to China have
already benefited from the program's potential. In March, China's state energy
group CNPC signed a number of billion-dollar deals with Russian oil and gas giants Rosneft and Gazprom on the back of plans to develop pipelines and
transport networks to transport resources from Siberia to China.
Artem Volynets, chief executive of
En+ Group, a diversified mining, metals and energy group controlled by Oleg Deripaska told CNBC that Siberia's proximity to growing Asian
markets was central to Russia's investment in the area.
"Eastern Siberia region is
located in great proximity to China and Asia where the center of economic
activity is shifting to. If you look at the map - it takes only two hours to go by plane from Irkutsk,
the center of Eastern Siberia, to Beijing," he told CNBC. "The proximity to Asia and wealth of
resource of Eastern Siberia enables Russia to capitalize on Asian countries'
growing demand and to drive the region's economic growth," he added.
At present, China imports core
mineral resources from Australia, Brazil and South Africa. But Siberian mineral
resources are located in closer proximity, Volynets noted. Cargo transportation
from Brazil to Shanghai by sea takes as long as 35 days, from South Africa it
takes 20 days and from Australia it takes around 14 days – while from the
Vanino Seaport in Siberia it takes only 4 days.
"Transportation by railroad
from the Eastern Siberia across Mongolia will take only one day. With oil
prices going higher and higher the transportation costs of commodities will increase
too and this will make Siberian commodities more competitive in the long
term," he said.
"We believe now it's the right
time [to develop Siberia], but the government should move quite quickly,"
he said.
Lilit Gevorgyan, Russia and CIS,
Europe analyst at economic and financial research firm IHS Global Insight said
the Russian government's move was all about tapping into Asian markets.
"It is not news that Russia's
Siberia desperately need investment and (a) boost to its economy. The region's
wellbeing has always been critical for Moscow, but the problem for a long time
is lack of vision and a roadmap as to how to turn the vast and largely
inhospitable but resource-rich lands from being a simple raw material supplier
into a key player in Russia's economy and further in Asia –Pacific,"
Gevorgyan told CNBC.
She said a driving force was
Russia's search for a prominent strategic and economic role in the Asia Pacific
region as it seeks to diversify its energy markets away from Europe and its
financial crisis.
"Russia is aiming to develop
not only as a European but also as an Asian nation. The euro zone sovereign
debt crisis as well as the changing nature of energy markets with the arrival
of shale gas has prompted the Russian authorities to be more proactive in
diversifying the country's energy export markets and also tapping into growing
Asian markets. The construction of the East Siberia – Pacific Ocean pipeline is
already helping Russia to achieve the goal of energy export route
diversification," she added.
Neil Shearing, chief emerging
markets economist at macro-economic research firm Capital Economics told CNBC
that investment in Siberia belied the growing structural problems that
Russia needed to tackle urgently.
"Investing in Siberia is the
tip of an iceberg compared with Russia's structural problems. The Russian
economy has slowed substantially over the last twelve months and its growth
model has been propped up by oil prices. The bigger issue now is that there are
growing structural problems and it's got to explore other options for
growth."
Siberia holds just under 80 percent
of Russia's oil resources, according to the government. It is also home to
around 85 percent of its natural gas, 80 percent of its coal and similar
amounts of precious metals and diamonds, and holds a little over 40 percent of
the nation's timber resources, making it a prime location in which to exploit
those other resources.
"True, Siberia has more natural
wealth than any other place in the world. But it also has unequaled
disadvantages of cold and remoteness," Clifford Gaddy, an economist at the
U.S. think tank the Brookings Institution told CNBC.
He pointed out that the government
also needs to consider a particular problem Russia faces: its shrinking labor
force. The vast Siberian area is home to just 6 million people out of Russia's
total population of 142 million. IHS Global's Gevorgyan agreed that without an
adequate labor force any grand economic development plans are unlikely to
materialize.
"Russia's most critical
bottleneck in the next 20-30 years is its shrinking labor force. Under those
circumstances it makes no sense to have policies to attract more people to
Siberia - that weakens the national economy," he told CNBC.
The author of a book called
"The Siberian Curse," Gaddy said it was unlikely that Siberia's
industry would expand beyond resource extraction and was adamant that plans to develop the region
were foolish.
"Putin wants to spend tens of
hundreds of billions of dollars to subsidize manufacturing, high-tech, or build
infrastructure or whatever in Siberia in defiance of sound economics (and to
the detriment of Russia's national economic health," Gaddy said.
The profitability of the venture
will depend on the continued commitment (and resources) from the government to
subsidize the East, Gaddy said, a moot point considering that source of funding
to develop Siberia is not yet resolved. Medvedev has proposed using cash from
Russia's pension fund to finance the program which also envisages loan funds and private investment
as well as state funding,
"The Russian state will have to
continue to be strong enough to channel resources to that end. This gets to the
question of the durability of the Putin regime and/or the likelihood that any
successor government will share his same commitment and ability to distribute
oil and gas rents (because that's where the wealth comes from) to subsidize
Siberia," Gaddy said.
No comments:
Post a Comment