Interview With the CEO of the Russia Far East Development Fund, Mr Alexei Chekunkov.
Interview by John Harrison
The Far East of Russia is off the radar for most international investors, and yet there are some interesting opportunities for investors and entrepreneurs available now and coming up which are worth checking out. In this interview, Mr Alexei Chekunkov, the CEO of the Russian Far East Development Fund reveals some of the secrets of the area.
What is the background to the region? How has it developed since the fall of the Soviet Union?
Over the past 30 years, the major influence on the development of the Russian Far East has been its exposure to Asia. We share a 4000-kilometre land border with China, and you realise how much a part of the East the Russian Far East is when you are in a place like Vladivostok. It is twice as close to major world capitals than Moscow is. It takes 4 hours to get to Paris or London from Moscow, but only one and a half hours from Beijing to Tokyo. The Far East of Russia isAsia.
You have mentioned that there are a large number of ports in the Far East, but surely most of them are closed during the long Russian winter? Are the flights direct, don’t you have to fly to Moscow first?
The connectivity of the Russian Far East within Asia is pretty good. You can easily fly from Khabarovsk, Vladivostok or Sakhalin to Tokyo, Beijing or Seoul. Perhaps the biggest development that is occurring right now is the introduction of electronic visas. For the first time foreign visitors can come to Russia visa-free; for the time being only to Vladivostok – Vladivostok is if you like the commercial capital, the San Francisco of the Russian Far East. Now you merely fill out a form online, you get an email, you print it out and you arrive. You can stay for 8 days and over 14,000 people have already come to Russia in this way. A lot of ports such as Vladivostok work year round thanks to warm currents. The development of the Northern Sea Route is changing everything. Hydrocarbons are being developed. The giant LNG projects that are being developed in Yamal with European capital, such as with Total of France, and with Chinese capital, is transported via the Northern Sea Route using specially reinforced, ice-protected ships. In order to shorten the route there will be a large terminal built on the Kamchatka Peninsula where the LNG will be transferred to normal ships, so we will have a really short and efficient route for energy to reach Asian markets.
That’s a very different impression of the Russian Far East from the one that I received at school – the version I heard was all about bears and concentration camps.
I have to say that bears are a real issue. Any local will tell you how he or she personally had an encounter with a bear.
How will the Chinese One Belt One Road strategy affect the Russian Far East?
From my point of the view, the real driver for the development of the Far East is Asia; China, Korea and Japan in particular. You must realise that a lot of people live just to the south of the region. Vladivostok, Khabarovsk, the Amor region, are very pleasant places. The climate is much better than in Moscow, it’s not anything like the concept that people have of Siberia. Vladivostok can be compared to Sochi. We have an average 280 sunny days a year there, something that is difficult to believe until you get there. The air is very clean, so is the water, and that for Chinese tourists is extremely important. The last main deal we signed, was with the Chinese Construction Communication Company, to build a large health care resort, a rehabilitation centre and a care home for senior citizens, catering exclusively to Asian tourists. If you imagine an average Chinese megapolis, ecology would probably count as a number one issue for the people who live there. We offer clean, very beautiful landscapes. Greenery, blue skies, not much industry and few people, and if you build tourist centres – hotels, resorts, health care centres of sufficient quality, people will come. People are flying to Ireland, people are flying to Bali, to Thailand, people will be coming to this pearl of the Russian Far East, big time. I think this the consumer tourist market is the key, and this will be the main driver of development over the next decade. Having said that, transit and resources are there, these are presently the largest investments that are being made in the Far East, including the giant Gazprom project, the Power Of Siberia pipeline, which is a $50 billion project.That will carry gas from eastern Siberia to China. New cities are going to be built along the way as giant new energy hubs. There is a project going on now to link Japan with Sakhalin. The interesting thing is that the rail link from Japan to China is going to run through Sakhalin island. So I think we are going to see a lot of cargo traffic from Japan to China along that route. This is going to be a very useful route for the Asian economy. But this is not a short term project, I would say the time scale is from 7-10 years.
The One Belt One Road project is I think the most important strategy that China has today. It means that China is thinking globally, China itself is no longer large enough for major Chinese businesses; they need external markets to apply their financial capital and productive capabilities. Also, they need to learn, they need to follow the Coca Cola approach – ‘think global, act local’.
I’ve been working with China for over 10 years, and I’ve never seen so much resolve, so much determination to do overseas projects – to learn, to open up offices. Of course there are bumps and setbacks on this road, but overall; trillions of dollars and millions of people, hundreds of companies are seeking opportunities abroad, obviously starting with the closest countries, and this will very clearly benefit the development of the Russian Far East.
We also have a lot of demand and opportunities in agriculture. I simplistically call it ‘food and water’. Again, China has been developing its land pretty aggressively for industry. In the Russian Far East we have millions of hectares of pristine land, we do not use GMO, we do not use heavy fertilisers, and the value of our resources is only going to increase. The curse of the Far East has always been the lack of people. But now that we live in the age of automation, you can build giant plants, giant farms and you only need a relatively small number of people to run them. You don’t need hundreds of thousands of people. If you have a $1 billion investment, you only need 1,000 people or less to run it. So I think that from this perspective, the Russian Far East is in a very advantageous position. The key markets are close by, land and water is cheap, and investment in general is going that way.
When do you see the One Belt One Road strategy actually impacting investment and development?
This year the Chinese celebrate 5 years since the programme was announced by Xi Jinping. The first 5 years were taken up with planning and drumming up international support. What we see now is companies which have set up investment funds and are very actively looking for projects. We have just signed a $2 billion project to develop a large tourism, exhibition and health care on Russky island off Vladivostok with a major Chinese company. I see dozens of large Chinese companies very seriously seeking billion dollar opportunities, doing due diligence, and assembling resources and finance. So One Belt One Road is already probably the key topic that you see and you feel working in the investment area.
If I was an investor in London or New York and I had some money to invest, how should I invest it into the Russian Far East?
There are several entities that are engaged in supporting investment in the region. Our fund has a portfolio of projects and we are actively co-investing with Russian and international investors, we are risking our own capital as well, so you may want to give us a call. Secondly there is the Far East Investment and Export Agency. They do not develop projects themselves, but they have a lot of information. You also have the Federal Ministry for Development of the Far East that is formulating policies and also very actively working with foreign investors. Finally for very important projects, the Deputy Prime Minister of Russia and Presidential Envoy to the Far East, Yury Trutnev is the man to contact. He is in charge of the whole Russian governmental policy in the Far East, and he is also personally engaged with investors from many countries. This is a very active set of organisations designed to support activities in the Far East, including finding local partners, finding partners, and handling operational issues.
So would I have to invest through a rouble based exchange in Russia or can I invest through international stock exchanges?
This is a very good question, as yet we do not have very many internationally listed companies that foreign investors can buy into and thus get exposure to this amazing economic growth. You basically only have the largest resource exporting companies, that benefit form trade with Asia, with the exception of agriculture. You can invest in the London-listed company Russagro which is currently developing a giant pig farm 20 kilometres from the Russia-China border, but these are single investments.But we are really focussed on addressing this topic. We would like to have more companies, more businesses involved in our growth story. In every project that we discuss with our Asian partners, after we set up the business and set up assets, we envisage listing securities within three or four years.
I suppose you are not getting very many large investment corporations like pension funds investing? What about individuals?
Individuals are mostly about small and medium sized business. This is extremely important, because they are really the drivers. For example, there is an English farmer I know. He’s a great guy, he moved with his family to Vladivostok where he now lives. He raised money in Australia, and he has developed a very modern and sophisticated farm business on 10,000 hectares of land in Vladivostok. Obviously, when people like him see the potential and spread the word, this really makes the Far East a more attractive and popular investment destination. So we do not distinguish between giant, important projects and small projects. We are very much supporting every entrepreneur, every active energised person who is willing to benefit from these opportunities, even if the project is relatively small.
Clearly Russia is not a very popular country at the moment in terms of public opinion, but I do notice that investment into Russia seems to be increasing again. Why is this?
Many CEO’s, including some who are now in important political positions used to say that business is not a popularity contest. I would very much like Russia’s relations with some countries to be more harmonious, peaceful and predictable, but clearly the latest developments in the Russian economy are all about developing our strength. Deepening our value added chains, developing our technologies, substituting imports, and you see a lot of that. We have had a record agricultural harvest, we are fully self-sufficient in so many goods that we never produced before. We are now producing a lot of technology. So I think that Russia is coming of age, and with this giant Tsunami of economic development now entering the Russian Far East, we will see new cities built in the Asian part of Russia. We will see billion dollar projects coming on stream, coming to world markets to compete, so I think that eventually this is all about economic competition. Russia is a self-centred economy. We are trading a lot, but we are not buying up the world. I think going forward that Russia will be a very engaged with Asian economies and hopefully we will see much better relations with the rest of the world too.