EUR/RUS DIRECTOR KYLE SCOTT VISIT TO VLADIVOSTOK

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000103 SIPDIS FOR EUR/RUS DIRECTOR KYLE SCOTT E.O. 12958: N/A TAGS: PGOV ECON ECIN RS SUBJECT: EUR/RUS DIRECTOR KYLE SCOTT VISIT TO VLADIVOSTOK VLADIVOSTO 00000103 001.2 OF 002 -------------- Summary -------------- ¶1. During his visit to Vladivostok on October 2, Primorye Region authorities gave EUR/RUS Director Kyle Scott an economic overview of the region, pointing out: the continuous youth out-migration; complicated transportation routes between the RFE, Primorye in particular, and the USA; and "non-favorable U.S. visa regulations" for non-Vladivostok residents. Scott also discussed the impact that the 2012 Asia-Pacific Economic Cooperation Summit (APEC -2012) is expected to have on the Primorye Region: new large projects and construction, on one hand, while, on the other, possible cuts in social programs from the local budget in order to finance APEC-2012 construction. End Summary. -------------- Big Investments, Big Projects -------------- ¶2. Oleg Shcheka, Head of Foreign Economic Relations and Tourism Department, at the Primorye Regional Administration briefed Director Scott about the Asia-Pacific Economic Cooperation (APEC) Summit preparations and the various development projects associated with the Summit. He mentioned major billion-dollar projects with Vladivostok airport renovation, the construction of two bridges and preparations for construction on Russkiy Island. ¶3. Shcheka also pointed out that the Russian Far East (RFE), and particularly the Primorye Region, now have the highest level of Federal support funds in their history. In fact, he said the Far East is getting more attention now than at any time from Moscow, including during the Czarist and Soviet days. Gas pipeline and ESPO oil pipeline construction are under construction. Gazprom, Rosneft, and Transneft are all investing capital in the RFE. Up to 2 trillion Rubles will be invested into RFE economy by 2013 and an extra 1 trillion Rubles will be invested by 2020. Shcheka stated that in total USD 100 billion will be spent for the RFE development. These tremendous Russian investments are evidence of serious Federal interest to this part of Russia and a welcoming sign for foreign business, he said. -------------- -------------- Trade Profile, Business Opportunities -------------- -------------- ¶4. Describing the region's trade and investment patterns, Shcheka noted that currently Primorye's main trading partners are China (39% of total turnover in 2008),Japan (34%),and the Republic of Korea (10.5%),while the USA had only 3.7% of total turnover in 2008. Shcheka mentioned that only adventurers invest their money without a good deal of care; smart investors, such as South Korean businessmen, account for their risk and profit in advance. He added that the Japanese Mitsui Company made wind speed tests before constructing wind power facilities in Russkiy Island in partnership with RusHydro. Nevertheless, Shcheka emphasized that all sectors of Primorye economy are attractive for investors: agriculture, marine cargo transportation, telecommunications, energy sector, tourist infrastructure. ¶5. The main obstacle for foreign business presence is an absence of direct air routes between Russia and the USA. Strict visa interview demands and less flexibility in Russian-U.S. relations work in favor of dynamic development of the Russian relations with China and ROK. Businessmen look toward the region's Asian neighbors for future business because visa regulations in these countries are easier than the U.S. The lack of good transportation links between the RFE and the US are another issue that focus business attention away from the U.S. -------------- -------------- Socio-Economic Difficulties and Challenges -------------- -------------- ¶6. During Scott's call on Viktor Gorchakov, Primorye Kray Legislative Assembly Chairman, Gorchakov said that economic strategies and initiatives of the 1990s never succeeded. Proposals made by local politicians and economists for further regional development as Russia's front along the Pacific Rim economy and Russia's point for Pacific integration did not work out due to a lack of support from Moscow. After numerous attempts to attract Moscow's attention to Primorye's problems, the federal center finally heard Primorye. Moscow's and Primorye's points of view began to synchronize and ended with the APEC-2012 idea, offered by a local economic expert in 2006. VLADIVOSTO 00000103 002.2 OF 002 ¶7. Speaking about social-economic issues in Primorye, Gorchakov stated that the local defense industry is in ruins and conversion plans were unsuccessful. Primorye, moreover, still has a lot to do to improve the quality of medical treatment, to improve the quality of housing and utilities, and to find means to keep its youth in Primorye, for example through giving apartments for young families. On the other side of the ledger: despite continuous migration out of the region (mainly youth), retired senior officers have begun to stay in Primorye, whereas earlier most of them were moving out of Primorye at the end of their Army/ Navy service. Gorchakov pointed out that "even though Russia is a democratic country, we still look for Moscow prior to doing anything." Regarding political unrest, and the popular movement TIGR (Comradeship of Initiative Citizens of Russia),Gorchakov noted that Primorye is largely "stable" but he wryly added that "there is always an opposition." ¶8. Touching on APEC-2012, Gorchakov mentioned that several construction projects will be implemented through Federal and Regional co-financing. This co-financing approach is a threat to the Region's budget and may result in regional social program reductions. Moscow's primary objective is readiness for the event even at the expense of social spending, whereas the main goal for Regional deputies will be to protect social programs for the next several years. Nevertheless, the Regional administration will be tempted to ignore social spending in order to promote a better image in Moscow's eyes. Governor Darkin wants to show the Federal center that the Region will fulfill its obligations in the APEC construction plan. Since Primorye is one of numerous subsidiary regions in Russia, local revenues are limited and Moscow subsidizes around 30% of the Regional budget. -------------- Comment -------------- ¶9. As was clear in the discussion with Gorchakov, It appears that some political leaders already recognize that APEC-2012 may be a double edged sword having a negative impact on the people of Primorye region if some important social programs (such as drug-prevention) are cut. It is true that Regional deputies may not resist the governor's desire to show Moscow that APEC preparations are more important than social spending. End Comment. ARMBRUSTER