Award No: L324253005
Duration: 1.4.95 to 30.9.98
Date of this report: 1.1.98
Award Holder: Dr M J Bradshaw, Senior Lecturer
Phone: 0121 414 5535
Fax: 0121 414 5528
Institution: School of Geography
The University of Birmingham
Aims and Methods of Research:
Aims: to present a rigorous appraisal of the present and potential future role of the Russian Far East (hereafter RFE) as a resource-supplying region for the core economies of Pacific Asia; and to provide a comprehensive and critical assessment of the role of export activity and foreign investment in promoting the regional economic development of the RFE. These aims are realised through three specific objectives:
Highlights of the Research and Important Findings
Over the past 12 months efforts have focused on the second and third objectives of the project.
Analysis of the attitudes of would be investors and potential competitors involved fieldwork at various times in Australia, China, Japan, South Korea and the United States.
1. Russian Regional Research Group Working Papers
4. N J Lynn: The Far East of Russia: regional and national perspectives on economic development. (29pp)
5. N J Lynn: The resource base of the Russian Far East: the potential for regional development? (35pp)
10. W.E. Murray: Forestry and Fisheries in Pacific-Asia Resource Depletion, Import Dependence and Potential Implication for the Russian Far East. (50pp)
R. Moodgal: Russia-Japan Economic Relations.
N.J Lynn: Controlling and Developing its Resource Wealth: The Republic of Sakha (Yakutia).
D. Kerr: Russia-China Economic Relations.
A number of journal articles have been written and are being submitted based on work from the project. It is envisaged that there will be further articles and book chapters, however, during 1998 work will focus on the project book. At present we have prepared articles for Geography and Russian-Area Studies journals, there is also a need to publish in journals devoted to Pacific-Asia (probably for Pacific Review). This will be a priority in 1998.
Bradshaw M J and Lynn N J, (1998) "Resource-Based Development in the Russian Far East: Problems and Prospects", Geoforum (accepted).
Bradshaw M J and Kirkow P, (1998) "The Energy Crisis in the Russian Far East: Origins and Solutions", Europe-Asia Studies (submitted January 1998).
Bradshaw M J, (1998) "Globalisation, Transition and Regional Change: the case of Sakhalin Oblast", Regional Studies (in preparation).
Bradshaw M J (1997) "Sakhalin: the right place at the right time", Russian and Euro-Asian Bulletin, Vol. 6, No. 9, pp. 1-7.
4. Book projects
Two book projects are underway. The first is an edited collection directly related to the project. The full contents and contributors are provided in Appendix 1. It is hoped that Routledge will publish this volume in their series related to Pacific Asia programme. The second project is a single-authored book entitled; "Economic Transformation and Regional Change in the Russian Federation" which is contracted to Wiley for delivery at the end of 1998. The RFE forms a case study of regional development.
During the last twelve months I have also contributed material to reports by the Business Russia, the Russian Far East Update and Oxford Analytica. I have also helped prepare an Open University text on the Asia-Pacific.
Engagement with Potential Research Users (outside the academic community)
This has taken a number of formats. Dr Bradshaw has been involved a project organised by the Royal Institute for International Affairs and sponsored by MITI/JETRO (Japan). As part of this project a paper has been prepared in the ‘Future of the Russian Far East’. In November a seminar was held to present this paper to a group of UK government officials and business representatives. A final report will be prepared early in 1998 and it is planned to publish the report as a Chatham House discussion paper in the spring. This report was used by the Foreign Office to help prepare for the British Ambassador to Russia’s visit to the RFE. Also in November, Dr Bradshaw participated in a Workshop in Washington D.C., sponsored by the US State Department and the CIA, which examined regional issues in Russia. This has provided contact with US policies makers interested in developments in the Russian Far East. In 1998 it is planned to present project findings to the FCO and DTI in the hope that they will support the end-of-project seminar at Chatham House. The most obvious from of end-user contact has been through our cooperation with British Petroleum. BP funded a research visit to Sakhalin last May and remains interested in our research. Through this relationship the project is making a direct contribution to supporting British commercial interests in the RFE. It also provides the project unique insight into the foreign investment process in the RFE. It is hoped that BP will provide additional financial support for the end-of-project seminar.
As requested by the Programme Co-ordinator, a dissemination strategy was prepared last summer and this has been discussed by Dr Ferdinand, the member of the Steering Committee overseeing the project. Plans include a book (see Appendix 1), a series of publications in academic journals, conference/seminar presentations and an end-of-project seminar. Our working paper series is up and running and provides an ideal format for rapidly disseminating project reports. We also have a web site, which will be expanded in early 1998. I am confident that we have a strategy in place to disseminate the project findings to the academic, policy-making and business communities.
The most significant development has been our cooperation with British Petroleum plc. In May BP financed a weeklong field visit to Sakhalin. Dr Bradshaw and Dr Kirkow conducted interview research and collected statistical information. A close working relationship has developed and it is hoped that BP will continue to support, both financially and logistically, our research on Sakhalin and the RFE more generally. As part of this relationship, a number of consulting reports have been produced and these have also formed the basis of a number of publications. Direct involvement in the foreign investment process has also provided unique insight into the issues that influence investment decisions.
Discussion below relates to the second objective of the project: analysis of present and projected patterns of resource supply and demand in Pacific Asia; and, analysis of the attitudes of would be investors and potential competitors.
Analysis of current patterns of resource demand and supply in Pacific Asia was sub-divided into energy and non-energy resources. The current export profile of the Russian Far East suggests that coal, forest-products and fish and fish products are the major resource exports. Analysis of foreign investment activity and the Federal Programme for the Economic Development of the Russian Far East and Transbaikal suggests that mining and offshore oil and gas are the sectors with the greatest potential to expand resource exports.
Analysis of the current energy situation in Pacific Asia revealed that increasing demand for energy, couple to a lack of indigenous energy resources, has resulted in a high level of dependence upon imports of energy from outside of the region. At present the RFE plays a very minor role in the region’s energy trade. However, the oil and gas projects now underway offshore of Sakhalin promise to change this situation. These projects are still in their early stages, but could deliver oil before the end of the century and gas to Japan by the middle of the next decade. Further projects are likely and China is emerging as a potential market for gas piped from Sakhalin. The development of Sakhalin oil and gas will also solve the energy crisis, which is currently crippling the economy of the Russian Far East. Thus, in the case of oil and gas, the RFE certainly has the potential to become a major supplier to Pacific Asia.
The situation in the non-energy sector is somewhat different. The RFE has not been a major player, except in niche markets, such as crab exports to Japan. Ageing capital stock, the collapse of processing industries and rising transport costs now hampers domestic production of forestry products and fish and fish products. Furthermore, the more accessible forest stands are now depleted and many fishing grounds are suffering from over-fishing. Finally, the activity of joint ventures and foreign companies is increasing competition in both the forestry and fishing industries. Thus, the domestic industries are in deep structural crisis. The forest sector remains dominated by the export of low-value-added logs and sawn timber. The high level of criminal activity aggravates the problems facing the fishery and the fact that much of the revenue earned by fishing is kept in offshore bank accounts reduce the impact of the sector on the economy of the RFE. Furthermore, the Russian fishing fleets no longer use local port for ship repairs. In short, the traditional resource sectors are not capable of providing an economic base for the recovery of the economy of the RFE. Substantial investment is required if these sectors are to become effective suppliers in a highly competitive international market.
Analysis of the attitudes of potential competitors and would-be investors has comprised the second major component of our research over the past twelve months. Fieldwork has been conducted in Australia, China, Japan, South Korea and the United States.
In April Dr Bradshaw visited Australia and spoke with academics, business representatives and government officials in Melbourne, Sydney and Canberra about Australian perceptions of the RFE. From this research it is clear that Australia is not a major actor. While Australian companies, particularly food producers, would like to export to the RFE, they have encountered serious non-payments problems. Consequently, Australian companies are focusing their attentions elsewhere in the Pacific-Asia region. Australian resource companies are aware of the potential of the RFE and are monitoring developments. However, as yet, they have not invested in the RFE. Australian aluminium producers were involved in tolling operations in East Siberia, but this is no longer viable due to rising transport and energy costs in Russia. In sum, Australian companies are only likely to be interested in trade with the RFE once the region has resolved it economic problems and has a sound economic and legal system.
Dr David Kerr has been responsible for research on relations between China and the Russian Far East. This autumn Dr Kerr visited North China and the Russian Far East for five weeks and worked at various research institutes. Now he is focusing upon three dimensions of the Sino-Russian relationship: the emerging strategic partnership between the two countries; the present trade and foreign economic relationship, including at the regional level; and the role of energy in the future economic relationship between the two countries. Since 1994 the focus of Sino-Russian economic relations has shifted from inter-regional cross border trade to large-scale trade agreements between Moscow and Beijing. This is because of Russia’s desire to curb the influx of Chinese traders in the Russian Far East; and because the Yeltsin government is seeking to improve bi-lateral relations with China as part of its emerging post-Soviet foreign policy. In November 1997 President Yeltsin visited Beijing and Russia and China announced their intention to cooperate on the development of Siberian gas fields and the construction of pipelines to China. The ultimate irony here is that the project at the heart of this agreement is located in Irkustk Oblast, outside of the RFR. Thus, improved relations between Moscow and Beijing will not necessarily bring improved prospects for the RFE. At present Chinese economic activity in the RFE is restricted to trading, not investment. In the future China’s role may be as a market for Russia’s resources, but China is unlikely to provide the investment necessary to develop the resource potential of the RFE.
In October Dr Bradshaw and Rahul Moogdal visited Japan to conduct research on Japan’s economic relations with the Russian Far East. During this visit interviews were held with the various government agencies responsible for shaping policy with Russia, such as the Ministry of Foreign Affairs and JETRO. Mr Moodgal visited the academic institutions involved in research on the RFE, Kyoto University, the Slavic Research Centre at the University of Hokkaido and ERINA in Niigata. In Tokyo interviews were held with the Japan Association for Trade with Russia and Central-Eastern Europe and with the major Japanese companies active in the RFE: Mitsui, Mitsubishi and SODECO (Sakhalin Oil and Gas Development Company). Our visit to Japan took place just before the Yeltsin-Hashimoto summit in Krasnoyarsk. In the summer Prime Minister Hashimoto had made a major speech on Japan’s Eurasian Policy during which he laid out his strategy to improve relations between Japan and Russia. The Krasnoyarsk summit resulted in a commitment to resolve the territorial dispute between the two countries by the year 2000. However, the significant improvement in political relations cannot hide that fact that Japanese companies have not invested in Russia and have little enthusiasm for investment in the RFE. They are certainly not prepared to risk their own capital and will not invest purely for political gain. Thus, the Japanese Government will find it difficult to persuade Japanese companies to invest in the RFE unless they provide credits and insurance. The current state of the Japanese economy now makes this unlikely. Thus, while the political barriers to improved relations have been removed economic obstacles remain. The one exception is the joint development of Sakhalin oil and gas and it maybe that these projects will become the flagship of Russian-Japanese cooperation in the RFE. However, the Japanese are not the only actors interested in Sakhalin.
Also in October, Dr Bradshaw visited Seoul and conducted interviews with government, business and academic representatives. The overwhelming response was one of pessimism. In the early 1990s the Korean government had provided substantial credits to finance an expansion of Korean-Russian trade. At the same time a number of Korea’s Chaebols had announced grand investment plans for the Russian Far East. Since then the political logic for supporting trade with Russia has disappeared as Seoul has recognised that Moscow no longer exerts influence over North Korea. At the same time, the Chaebols have experienced numerous problems in trying to develop their projects in Russia. Finally, the current economic problems in Korea have resulted in some companies closing down operations in Russia and other putting their plans on hold. The net result is that Korean companies remain interested in developing trade relations with Russia, but have far less enthusiasm towards investing, particularly in the RFE.
The United States is fast emerging as a major player in the RFE. The US Government, through the Department of Commerce, has ‘talked-up’ business prospects in the RFE. Many US companies have had a look and decided not to invest, some have invested and run into problems, and relatively few have made public their success. In September Dr Bradshaw attended the ‘Far East Business Forum’ in Washington D.C. This provided an opportunity to hear from a variety of US Government Agencies involved in developing economic relations and from companies active in the region. The Government stressed the importance of the RFE to US assistance to Russia, while business community stressed the practical problems of doing business. The US Government has funded the establishment of a series of American Business Centres in the RFE and the region has become a priority for the Gore-Chernomyrdin Commission. The Commission has set up an Ad Hoc Working Group to promote economic cooperation between Alaska, Washington State, Oregon and California and the RFE. American involvement in the Sakhalin oil and gas projects is the mainstay of US interest in the RFE. At the same time US mining companies are increasingly active. On Sakhalin there is clear competition between Japanese and US companies to tender for contracts related to the oil and gas projects. Trade between the RFE and the US is picking up, but may be constrained by the lack of competitive exports from the RFE. Together with the Japanese, companies and US government agencies represent a potential source of capital investment to help finance the economic recovery of the Russian Far East.
Over the past 12-18 months the international dimension of resource development in the Russian Far East has changed significantly. It is now the case that four countries dominate foreign trade and investment activity in the RFE: China, Japan, South Korea and the US. However, their relative importance and roles have changed. In the early 1990s border trade with China dominate trade activity, but since 1994 this has substantially declined and China’s medium- long-term role will be as a source a labour to help develop the RFE and as a market for its resources. Trade with South Korea has grown, but, for the reasons discussed above, the Chaebol’s are unlikely to make substantial investments in the region. Trade with Japan has been stagnant, but Japan remains the key market for resource exports from the RFE. Improved political relations have laid the basis for increased trade, but it remains to be seen how that trade will be financed. Substantial Japanese investment in the RFE is only likely as a result of a politically motivated assistance programme. This may happen as part of the deal to resolve the territorial dispute. As relative newcomers, US companies have made a significant upon the Russian Far East. They have benighted from high level political support and from regionally targeted assistance programmes. A number of large US multinationals, Exxon, Marathon, Mobil and Texaco, are key actors in Sakhalin and US companies are seeking to create joint ventures to bid for contracted on Sakhalin. At present the European presence in the RFE is modest, but there are signs that this might change. Shell is a participant in the Sakhalin 2 project and its recent deal with Gazprom may result in an increased presence in the RFE. Similarly, British Petroleum’s acquisition of ten per cent of Sidanko will increase their involvement in the RFE. At the same time a number of the big-ticket, high-tech oil and gas contracts have gone to European companies with experience of operating in the North Sea. Thus, a situation is emerging whereby global actors from Europe, North America and Japan are cooperating and competing to develop resources, particularly oil and gas, to deliver to markets in northeast Asia, more specifically, Japan, South Korea and China.