Speaker of the State Duma Gryzlov, Presidential Plenipotentiary Envoy to the Far Eastern Federal Okrug Safonov, Governor Ishayev, Members of the Federal Assembly of Russia, Deputy Chairman of Sub-Committee for Finance and Economics of the China’s National People’s Congress Standing Committee Mr. Wu Ritu, Ambassador of Japan to Russia Yasuo Saito, Members of the Khabarovsk Krai Government and Duma, Ladies and Gentlemen. Thank you for inviting me and giving me the opportunity to address this distinguished audience. Over the years the Far Eastern Economic Forum has become a key annual event for an exchange among the dynamic economies of the Asia and Pacific region. I am honored to be with you and to offer the perspective of the World Bank. We meet in Khabarovsk at a time of global turmoil in financial and commodity markets. No country is immune to its impacts. No country can weather the storm alone – we are all in the same boat. The capacity of the international system to respond fast and forcefully through concerted action is being tested. While we deal with the immediate challenges before us, we must also keep our eyes on the longer-term. For this reason, I welcome the opportunity to highlight the theme of this Forum – Strategy 2020: The Regional Dimension – by sharing a very new, geographic perspective on development priorities in the region. The Russian Far East is at the geographic nexus of APEC – one of the largest international trade and economic cooperation organizations in the world. Its member countries account for 2.5 billion people with a combined GDP of $19 trillion. It is no accident that the APEC summit will be held in Vladivostok in 2012. My main message is that your neighborhood is key to your potential. Geography and Development In November, the Bank will publish its 2009 World Development Report on Reshaping Economic Geography. It finds that progress in advanced economies over the last two centuries depended on big cities, mobile people and businesses (reducing distance to economic activity), and connected countries (improving access to world markets). These factors are now driving growth in China, India and Southeast Asia. Workers are migrating to centers of economic opportunity, and borders are melting as economies integrate through international trade. There are several implications of these findings. Growth by itself may be unbalanced, yet it can and must also be inclusive. Every member of society must share the benefits of growth through higher living standards. Also, fast growth should not come at the expense of the environment on which we depend. Designing appropriate development policies that are inclusive and sustainable must take into account the particular geography of a region. How does geography influence economic prospects in the Russian Far East? What are the development priorities to unleash its economic potential? Russian Far East development and trade potential, constraints, and opportunities The Russian Far East’s size, mineral riches and economic potential are enormous. The Far East Okrug accounts for more than a third of the territory of the Russian Federation. The proven gas reserves at the Kovykta in the neighboring Irkutsk region are one of the largest in the world – with 2 trillion cubic meters. And there are also additional, large oil reserves in Chukotka, Kamchatka and Sakhalin, that are presently surveyеd. Yet the living standards of the Far East’s relatively small population (6.5 million) have not yet reflected this huge, potential wealth. Overall, the Far East’s Gross Regional Product per capita is higher than the Russian average due to resource rich regions like Sahalin, Saha-Yakutia and Magadanskaia oblast. But the Far East also has some of the poorest regions such as Amurskaya and Kamchatskaya oblast. Average life expectancy in the Okrug is the lowest in Russia, a full 3 years lower than Russian average (66.6 years). So why, then, this gap between resource wealth and social outcomes? In a very broad sense, the Far East’s developmental problem is epitomized by poor market access. The issue is not just about movement of people but of commodities and services. There is enormous potential in the Okrug to increase production of metals, gas and coal and other resources, as well as enhance trade in services provided there is better availability of reliable transportation to the largest market centers. For example, the coal from Yakutsk is still transported by expensive and inadequate road routes because there is no complete rail service to the main sources of demand in China. Also, a gas pipeline that could move gas from Taishet in Eastern Siberia to Chinese markets – via Irkutsk oblast or, alternatively, via the Republic of Buryatia – still remains to be built. And if you look at the transport and logistics map of the Okrug, it is surprisingly sparse in terms of connectivity of even existing resource centers with urban, market agglomerations, with extremely limited connections with the rapidly expanding Chinese markets. This is especially the case for the regions such as Khabarovsk and Primorskiy krai and Amurskaya oblast that are adjacent to the Chinese border. In some ways, these Russian regions are similar to the Canadian regions along the US border. In contrast to the Far East regions, these Canadian regions managed to prosper much more, in large part due to extensive transport and trade and migration links with the US markets. The good news is that geography is opportunity. The Russian Far East can exploit opportunities and significantly accelerate its growth and achieve high standards of living for its people. Others have done it, and so can you. Trade overcomes major geographic obstacles. I cannot overemphasize this issue. Without trade and exchange of goods and capital, ideas and know how, as well as mobility of people, regions and countries inevitably fall behind. The importance of trade as a factor of long-term growth is now a well documented fact in development economics. Every major development success story involved a sustained expansion of trade facilitated by logistics and interconnectivity with its neighbors and larger markets. This is especially the case with countries with difficult geographic – such as Australia, Canada, Sweden, and countries in Central Asia. Recent economic research at the World Bank shows that Far East would likely be one of the three regions to gain the most from WTO accession and this is due largely to the potentially greater Foreign Direct Investments in services (e.g., all modes of transport, telecom etc.). The size of the potential gain is significant: these estimates suggest that Far East could raise its total consumption and GDP per capita by about 10% a and international exports by 11% a few years after the WTO accession. A 10% increase in the annual volume of trade in the Far East is associated with a 3 percentage points higher annual growth in the Gross Regional Product. Returns to unskilled and skilled labor would be highest from among the regions that were subject of the study. Additional, successful infrastructure investments that improve connectivity with markets would help further raise productivity of the Far East economy, thereby increasing incomes and standards of living of its population. Political support for the emergence of the Russian Far East is there. It is rightly one of the priorities of the Russian Government’s regional development policy. Its challenge: the slow pace of development, poor connectivity within the Okrug and with the European part of Russia, and substantial outmigration. These are well recognized in the current regional development policy of the Russian government. The government is planning several infrastructural projects to improve transportation and communication networks such as air traffic, roads, and railways for resource transportation. These are the right priorities. The issue is to focus on the key infrastructure bottlenecks with the largest impact on the Okrug’s economic activity and standards of living and implement these projects with vigor. The payoff is potentially huge. A recent World Bank study of productivity growth in Russia and other CIS countries shows that increasing the stock of infrastructure in Russia as a whole to the level of the median industrial country would raise productivity growth in Russia by 1.4 percent; this effect is very large and is likely to be greater in the Far East where infrastructure and poor access to markets acts as a binding constraint to growth. The question is how to implement these priorities in an operationally sound way. This will require significant financing, technical and institutional expenditure of resources and implementation challenges that the Far East should not have to bear alone. According to the transport strategy of the Ministry of Transport, upgrading
rail, air, road, marine transport (including improving connectivity with other regions) would cost USD 15.5 billion equivalent of 387.5 billion Rubles in the region for 2010 to 2015 alone. As I will discuss in a moment, the World Bank is ready to assist the Far East in meeting these challenges. Let me first emphasize two particular areas of development priority for the region: Fostering inter-connectivity between people and trade within the Okrug and with neighboring markets, especially China, is of critical importance. In order to grow, the Far East must integrate—via infrastructure and trade—both internally and with the nearest internal markets of China, Japan and Korea, which will hugely expand its potential trade and growth opportunities. Just focusing on the internal market is not enough and would result in missing major trade and development opportunities. This is especially relevant in the Khabarovsk region. An example of the region’s efforts to improve its interconnectivity is the Greater Tumen Intiative (GTI) is an intergovernmental cooperation mechanism in North-East Asia, supported by the United Nations Development Programme (UNDP), with a membership of five countries: China, Democratic People’s Republic of Korea, Mongolia, Republic of Korea, and the Russian Federation. Conceived in 1995, the Initiative could serve if indeed implemented, only the initial concept and serve a unique platform for economic cooperation, serving as a catalyst in expanding policy dialogue amongst the member states, strengthening the fundamentals for economic growth in the region, and improving living standards. Regional cooperation is to be a vital building block for effective participation in world trade and capital markets, and moreover, helps to ensure energy security, improve basic infrastructure, develop tourism, and promote international environmental standards in the region. Improving social services for the people of the Far East is pivotal for its population and to attract new residents. Good schools, hospitals, social assistance packages, and basic communal services are vital for people, especially in areas of harsh climate. People everywhere and always migrate to places where they can educate their children, where health care is good, and where they can see an economic future.
Role of the World Bank Group The World Bank Group's main mission is development. For more than half a century, we have provided finance to and advised governments at all levels. To date, our support totals $600 billion. But we are more than just money. More importantly, we bring international knowledge to design unique country solutions. You may not think of Japan as an erstwhile World Bank client, but I can attest to the instrumental role the World Bank played in my own country to address issues of density and distance. In 1961, a modest loan from the World Bank to the Japanese National Railways helped finance one of the most technically advanced railway projects in the world – the New Tokaido Line (the Shinkansen Project) between Tokyo and Osaka that carries the famous Bullet Trains. World Bank lending to Japan ended in mid-1960s after a total of 31 loans from 1953 over a dozen years for $862 million. What is important here is the role that the Shinkansen and the successive expansion of this system played in virtually shrinking distances in Japan and intergrading markets. We have seen a similar progress underway in Western Europe with the construction of high-speed railway network Rural roads are just as important as high speed trains for commerce and connectivity. In the Chuvash Republic, the World Bank Group provided a loan to the regional government to finance an extension of the rural road system. The advice was as important as the finance in designing a cost-effective strategy to link rural people to nearby agglomerations. Finally, to bring Asian and European markets closer, the World Bank is currently preparing a $2.2 billion loan, the largest ever for project finance, to finance the Kazakh leg of the Western Europe-Western China International Transit Corridor. While the goal is to improve market access and transport efficiency, the operation is part of a broader dialogue among countries in the region to remove non-physical barriers to trade and transit across borders. The World Bank’s Partnership with Russia A changing relationship. Our current lending portfolio of $1.7 billion, financing 17 projects from judicial and customs reform to health, education and infrastructure development is touching every corner of this vast country. However, since 2000, the Russian Federation has sustained high growth and presently does not need external financing at the federal level. Yet like all countries, it still faces social and economic challenges. Leadership from Government is required. Whether in Moscow or in regions across Russia, public officials are availing themselves of the global experience and expertise of the World Bank Group. This advice ranges from designing policies to planning major new investments in human development, infrastructure and institutions. In addition, we are providing finance at the sub-national level in eligible regions – no federal guarantee is required. A track record of results in the Russian Far East. Considering the economic geography of the Russian Far East, how have we already helped address development challenges posed by the geography of the region? Well, in six ways: We support cities: the first sub-national loan in the Russian Far East was made directly to the municipality of Petropalovsk-Kamchatky, without a federal guarantee, to support vital municipal services for this capital city. We connect people and countries: Connectivity through information and communication technologies (ICT) is a central factor in world economic competitiveness. It also supports education in remote areas. The Bank advised the Government of Russia to orient the educational system to the modern learning needs of the global information society. The project was particularly successful in Khabarovsk Krai, where ICT capacity expanded even in very remote areas. This was accomplished through the establishment of 40 teachers’ support centers. We promote economic integration through trade which has been at the center of the Customs Reform project, where in the pilot regions average customs clearance time has been reduced from five days to one day, and where goods selected for inspection have been reduced from 30% to 3%, facilitating trade flows markedly. We help adjust to climate change: The Hydromet project is giving Russia a faster response time to natural disasters caused by changing weather patterns. Economic savings of RUB 16.8 billion have been estimated since 2006 from the faster response to adverse conditions such as flooding. New satellite stations have been installed in Khabarovsk and Chita; a mini-super computer aimed to develop and run regional weather forecast models is under installation in Khabarovsk’s Hydromet regional Center; and the hydrological network is being modernized in Ussuri River basin, one of the most flood-prone rivers in Russia. We protect the environment: Under the Sustainable Forestry Pilot Project, the Bank has modernized forest fire management systems in seven of the most fire-prone regions across Russia, including Khabarovsk Krai, where forest fires represent one of the most serious threats to the forest economy, biodiversity, and human health. The Krai was the largest beneficiary of the project, with RUB 278 million invested in a new, more effective system of mechanized inter-district forest fire units. Now many more fires are contained within the first 24 hours, and per hectare unit costs of ground fire fighting are lower. We strongly advocate protecting the tiger. Uncontrolled fires are just one factor putting under stress the unique ecosystems of the Russian Far East – including your precious Amur tiger population. Major pressure also continues to come from unabated wildlife poaching and habitat fragmentation. During an inaugural ceremony of the Global Tiger Initiative recently launched by the World Bank and its partners, President Zoellick drew international attention to Russia’s successful efforts to save the Amur tiger, a rare example of how coordinated action can really work. This flagship species is not just a noble emblem of your region. The survival of wild tigers also represents the health of your ecosystems and an undeniable mark of sustainability of your regional economic development. The World Bank has been pleased to support in the recent past Russia’s international commitments to conserve biodiversity values in globally important ecosystems, including Lake Baikal in Siberia and the Sikhote-Alin Mountains here in the Far East. A recent project in Khabarovsk Krai, implemented by a local NGO in partnership with the regional government, has strengthened conservation of the region’s highly endangered forest habitats. Within the new Global Tiger Initiative, we and our international partners and other tiger range nations look forward to a strong collaboration with Russia’s federal and regional authorities, conservation practitioners and NGOs towards a smart integration of environmental protection and wildlife conservation priorities into the overall sustainable development agenda of the Region.
Conclusion The Russian Far East clearly has great potential, and the world will see this at the 2012 APEC meeting. For its part, the World Bank stands ready to help. We can be of assistance at three levels, in line with our current strategy of partnership with the Russian Federation: local level - following our positive experience in St. Petersburg and Kazan we can support wide-ranging economic development, public finance and public-private partnerships for infrastructure development. regional level - for individual oblasts/krais we can provide sub-national loans or advisory services to improve transport, education and health sector reforms and develop infrastructure. international level - here we must be visionaries. There are many possibilities. Starting with sustainable development as it crosses borders, we can be helpful in addressing protection of the Amur tiger, following the World Bank President’s initiative in Washington. We may also provide support to the organizers of the 2012 APEC Summit on Russky Island near Vladivostok, such as for municipal infrastructure and preparing analyses of regional investment opportunities. This would be similar to the support we extended to the federal government as background to discussion of energy security policy at the G-8 summit.
Speaker of the State Duma Gryzlov, Presidential Plenipotentiary Envoy Safonov, Governor Ishayev, and distinguished guests. We see the Russian Far East as a gateway to the wider Pacific region, not only as the border of Russia and Asia. In the past, borders were like barriers – points of separation. Today they represent meeting points of cultures and commerce. In 2012, as you welcome neighbors from nineteen nations, it will demonstrate in spirit how geography is indeed opportunity. |
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