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Worldcrunch

Look East: Russia Must Exploit New Energy Along Pacific Rim

Article illustrative image Partner logo Can a new sun rise over Vladivostok?

-Analysis-

VLADIVOSTOK - In the past couple of days Russia has shown up again on the international radar. But thankfully this time, instead of anti-government protests or scandalous court verdicts, it is the 24th Asia-Pacific Economic Cooperation (APEC) Summit taking place in Vladivostok, in the Russian Far East.

APEC is made up of 21 countries around the Pacific Ocean, and encompasses 42 percent of the world's population and 55 percent of the world’s GDP. You can bet that in the coming century this area is going to be the center of world politics. 

The Pacific Ocean shores are not a “pacific” region. It includes several of the the past half-century's economic miracles: Japan, followed by Singapore, followed by South Korea. It includes California, the world center of the high-tech industry, and China, which in no time went from a poor Communist country to the world's biggest exporter of industrial goods.

The Pacific Ocean also separates the two major world powers of the 21st century, the US and China. Along the ocean’s shores are countries who borrow money and the owners of major currency reserves. There are leaders of the post-industrial world and countries that are illustrating the possibility for an industrial renaissance.

Clearly a strong presence in the Pacific Rim is essential for Russia.

Sadly, that is more of a wish than a real possibility. The GDP for Russia’s Pacific coast is only $34 billion, with a combined population of only 6.2 million people, or 4.1 percent of the Russian population, and the GDP per capita is only $7,700.

In 2011, Russia sold APEC members $92.9 billion worth of goods, and purchased $103 billion worth of goods. That represents 2.4% of trade among the members. 

Some experts have actually recommended moving Russia's capital to Vladivostok, which the Kremlin will clearly not consider. But the problem isn’t so much that our government doesn’t want to pay attention to the eastern part of the country, but that Russia really has nothing to offer its Pacific trading partners

A raw deal

We like to think that our riches are in our natural resources, but unlike Europe, there are plenty of other countries with coal, gas and metals like copper and zinc. And the logistics of delivery make Russia more of an outcast than a welcomed guest in the raw materials market. 

One of the most important economic developments in the region is the development of high-tech industrial economies. For a while in the 1990s, it looked like Asia was not adapting well to the post-industrial world economy, but now it is a leader.

Russia, however, is essentially absent from this sector. There are fewer international patents registered in Russia than by the South Korean company Samsung alone, and investments in innovative production methods is 40 times higher in China than in Russia. It is remarkably rare to see industrial products made in Russia on the market in any other country. 

Nor does Russia have much to offer financial markets, considering that each of the four largest banks in China have assets greater than the GDP of the entire Russian Federation. Even in the one place where Russia should have an advantage, transport of goods between Asia and Europe, our trading partners don’t seem to have urgent need for our services. Only 80 million tons of goods were sent overland between Asia and Europe in 2011, while 960 million tons were sent through the Suez canal.

In 2008, the German company Deutsche Bahn started offering 16-day shipping for containers from Beijing to Hamburg over the Trans-Siberian. They had to close the project a year later because it was not profitable. 

I’m not even going to talk about the problems that are even more obvious, like population size, the labor market, need for infrastructure updates and investment in education. But there is one more problem that has to be addressed - the military. 

Until the end of the 1980s, we managed to keep up with the Chinese and Japanese armies. But today we are completely out-gunned in comparison. I can’t make a professional judgement as to the Russian military’s preparation for action in the Pacific theater, but a comparison of gun-and-man power makes it obvious that we don’t get to dictate the rules of the game. 

A road forward?

Perhaps as a way to make up for some of these shortcomings, Russia has spent more on this summit than any other of the previous 23 APEC summits, showing off Russian luxury. But what should Russia do to become a more active partner in the Pacific? There are no easy answers, but I think it requires above all major new developments across all of Siberia. This would include the development of industrial production, economic liberalization and partnerships with our neighbors.

Since our main competitor would be China, it would be best not to work directly with the Chinese. Rather, I think we should work with Japan, South Korea and Taiwan. We have something concrete to offer all of them: Japan - a peace treaty and a couple of islands that nobody really needs; South Korea - pressure for a peaceful reunification with the north; and Taiwan - official recognition and diplomatic relations, which it has not had with Russia since 1949. 

The Russian Far East should become a major industrial area, producing goods that can be sent all over the world to compete in world markets. Russia can follow the American model of development, with industrial and service industries clustered on the coasts and agricultural and raw material production coming from the center. 

Asia’s strength comes from the fact that every 10 years there is a new country that rises out of nowhere and proves that you can build an economy at any level of development. We have already seen it with Taiwan, Indonesia, China and Malaysia. Myanmar is at the very beginning of the process. Why is all of this possible? Because these countries didn’t search for the meaning of life, they found their niche and identified their partners.

They also understood that the most valuable resource in the world is not oil and gas, but time. It is sad that it is running through our fingers without changing the country in the process.

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About this article source Website: http://www.kommersant.com/about.asp

Kommersant ("The Businessman") was founded in 1989 as the first business newspaper in the Russia. Originally a weekly, Kommersant is now a daily newspaper with strong political and business coverage. It has been owned since 2006 by Alisher Usmanov, the director of a subsidiary of Gazprom.

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