Asian investors are eyeing Siberian development

Asian investors are eyeing Siberian development

Russia’s Central Bank has slashed interest rates from 7 percent to 6.5 percent in response to subdued domestic economic growth and fears that a global slowdown could cause further shrinkage. The bank hasn’t ruled out the possibility of additional intervention if inflation doesn’t edge closer to the government’s official 4 percent target.

There’s no doubt that Russia is feeling the pinch. In its statement, the Central Bank referenced the government’s apparent reluctance to make available $400 billion under a National Projects infrastructure investment programme as a constraining factor on economic activity. The programme would especially benefit development in Siberia, long considered Russia’s treasure chest.

Releasing Siberia’s vast economic potential

Indeed, Siberia’s resources could be the solution to many of the country’s economic woes, but to be able to fully exploit resources like fossil fuels, metals and gems, infrastructure needs to be built to increase connectivity of Russian regions, as well as developing strategic trade routes connecting Central Asia with Europe and China.

Back in 2013, Russian Prime Minister Dmitry Medvedev announced investment in Siberia amounting to billions of dollars of development funding. Plans are afoot to boost the capacity of the Trans-Siberian railroad, as well as improving Siberia’s airport and seaport infrastructure. And, while the program of investment isn’t explicitly linked to a rapidly developing market for Siberia’s output in neighbouring China, it’s impossible to ignore the correlation between the growing demand from the Asian markets and the drive to improve the region’s infrastructure.

The problem to date has been a lack of consensus on how to transform this resource-rich region into a key player in the Asia-Pacific. Moscow has already begun the process but has – as highlighted by the Central Bank – been slow to release the funds needed to help Russia diversify its export markets and to tap into Asia’s voracious appetite for energy and material.

Inviting international investment

However, it may well be that Russia’s infrastructure overhaul receives a much-needed boost from outside the country. Recognizing the huge business opportunity, many Asian investors have already been prompted to allocate substantial funds to Siberian projects, thereby helping to galvanize the infrastructure development project. It’s likely that, given its size and development potential, international investments will continue to be welcomed into the region. An approach to economic development that leverages entrepreneurial investment may yet be the best and most pragmatic solution to the challenge of scaling up Siberian output.

As a case in point, Hong Kong-based investment fund Meridian Capital Limited is a 50% owner of Novaport, one of the fastest-growing regional airport operators in Russia with 16 airports across the country, and plans to expand into Uzbekistan. According to Meridian’s founding principal Yevgeniy Feld, the fund’s investments are greatly needed to help develop the airport infrastructure across Russia, having “been able to contribute to Russia’s ambitious regional connectivity plan and cater to the country’s boom in air passenger numbers.”

Indeed, this involvement in the air travel sector is symptomatic of a particular emphasis on developing air links to the region, with a number of additional regional transport hubs already under consideration. For instance, Novaport’s Baikal airport has increased the number of flights between the Russian region, Central Asia and the Asia-Pacific, connecting China, Mongolia and South Korea. The Ministry of Transport has already announced the upgrade of 60 regional airports to dovetail with the development of Siberia’s burgeoning S7 airline, and the Novaport acquisition is expected to fast-track capacity growth, increase freight and passenger traffic and open up valuable new routes.

Russia’s national carrier Aeroflot is also planning to launch an international transport hub at the Krasnoyarsk International Airport, enabling transfer schemes between the region’s cities, as well as to and from China and other Asian destinations. It’s estimated that within the next five years, the airline will carry around a million passengers via the Krasnoyarsk hub.

The bigger economic picture

As ever more Asian investors look to Siberia for opportunities, Far East Russia is undergoing something of a boom. According to Dezan & Associates, another major investor in Siberia, 32 percent of all FDI into Russia is directed at its Far East, turning this former backwater slowly into a place of serious economic activity.

The growing involvement of Asian funds in Russia’s regional development presents a win-win situation for both Russia and its neighbourhood, but specifically China: strategic trade connections are being built, such as the Northern Sea Route, and it provides opportunities for burden sharing, which stabilizes long term economic outlook.

Co-operation between the two could include joint investment in navigation facilities, as well as shipping and aircraft monitoring activities in the Arctic. Negotiations on the so-called ‘Eastern’ and ‘Western’ gas supply routes are already at an advanced stage, further strengthening the countries’ energy alliance as China shifts away from its reliance on coal.

The mostly positive experience involving Asian investment funds in Siberia should provide incentives for Moscow to do more. Clearly, a lot is to be gained, not only for Russia but all of East and Central Asia.

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