Russian Far East Looking at Attracting Asian Agriculture Investors

Source: kids.britannica.comRussia recently announced plans from President Putin to establish a special economic zone in Vladivostok, the largest city in the far eastern part of the country, by June 15, 2014. Although this special economic zone is designed to attract foreign direct investment to develop Russia’s agriculture sector, East Asia’s investors also have valid reasons to be pleased about this policy.

Vladivostok, endowed with a natural warm-water port, is located at the southeastern tip of the Russian border, which is neighbored by China, Japan and the Korean peninsula. Due to its strategic geographical location, Vladivostok houses Russia’s navy for the Asia-Pacific region. Moreover, Russia’s Far East Federal District is a large piece of arable land that has remained largely undeveloped. Creating a special economic zone in Vladivostok enables farmers and businesses to tap into the vast resources available in this district.

Presently, Russia has 28 special economic zones under four types of economic regimes: industrial and production zones, technology and innovation zones, tourist & recreational zones and port zones. These regimes allow local residents to take advantage of certain free trade benefits. Therefore, Vladivostok’s special economic zone is expected to provide tax preferences, modern infrastructures for transport, reduced administrative barriers for commerce, as well as other incentives for trade and investment.

“Taking into account the previous instructions of the President, a special economic zone of industrial type is to be created in Vladivostok, and funding for the construction of its industrial infrastructure must be provided,” stated the official announcement on the matter.

Japan’s Hokkaido Bank has proposed setting up special economic zones in the entire region of Primorye, of which Vladivostok is the administrative center. If this proposal is granted, Japanese businesses would enjoy many tax benefits, such as five-year exemptions from taxes on property, land and transport, as well as a preferential tax rate of two percent on profits.

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The establishment of Vladivostok’s special economic zone appears to be a win-win policy for Russia and the rest of East Asia as Putin can acquire a stronger presence in the booming Asia Pacific economy by focusing on development in far eastern Russia. On the other hand, resource-poor Japan and resource-hungry China who are constantly searching for ways to secure their food sources would be supportive of the special economic zones. This is because of the fact that Vladivostok’s geographical position allows these countries convenient access to agricultural products. As opposed to importing large quantities from far-away regions such as North America, Africa, or Ukraine, Vladivostok’s close proximity makes the food supply to these countries more secure.

According to the Circular on Comprehensive Deepening of Rural Reform and Accelerating Agricultural Modernization, published by the Chinese State Department this year, China aims to strengthen its agricultural sector in order to become largely self-sufficient in food production while increasing cooperation with neighboring countries to secure food imports to complement domestic supply. This means that the Vladivostok special economic zone’s developing agricultural sector is a significant and positive development for China’s strategic calculations.

Due to these factors, Russia is likely to attract strong foreign investment from around the region, especially from China and Japan.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asia@dezshira.com or visit www.dezshira.com.

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