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III. THE ECONOMY OF THE RUSSIAN FAR EAST

General Economic Profile of the Russian Far East

The Far East is Russia’s largest region and occupies 36.4% of the entire

Russian territory, while its population accounts for only 5% of the national total. In social and economic terms, the region plays a minor role on the national scene generating slightly over 6% of GDP. The percentages of the regional industrial and agricultural output in the national total are 4.3% and 5%. These figures indicate that the percentage of the tertiary sector in the region is comparatively high.

The RFE territory may be subdivided into three zones by degree of economic development: southern, central and northern. The southern zone includes the Primorsky Krai and the southern areas of the Khabarovsky Krai, Amurskaya Oblast and Sakhalin. This is the best developed part of the Russian

Far East generating more than 60% of the region’s GDP. The mainstays of its economy are fishing, forest and mining sectors as well as the communication sector. The middle zone includes the northern areas of the Khabarovsky Krai, Amurskaya Oblast, Sakhalin and the south of Sakha (Yakutia). In the second half of 1990s, this zone was characterized by a certain stability of industrial production largely dependent on the raw-material specialization of industrial branches. In the northern zone, occupying more than 40% of the region’s territory, the bulk of industrial output is generated by extractive branches. This zone accounts for 15% of the regional GDP.

The largest percentage of the regional GDP is produced by Sakha (24%). It is followed by Primorye (22%) and the Khabarovsky Krai (21%). The rest regions play a less significant role in the RFE economy: the Amurskaya and Sakhalinskaya Oblasts - 11% each, Kamchatka and Magadan - 5% each, the Jewish Autonomous Oblast and Chukotsky Okrug - 1% each.

The social indicators of the RFE economy reflect difficulties typical of Russia as a whole. Thus, unemployment rate is 9.3%, varying from 4.4% in the Magadanskaya Oblast to 15.7% on Sakhalin.

The percentage of economically active population is 9% of Russia’s total.

The structure of employment reflects the general trend toward deindustrialization of economy: employment in industry and construction dropped to 30% from 40% . Employment in the farming sector is about 5% compared with 7% in 2000 which shows little change and is explained by adverse climatic conditions. Correspondingly, the percentage of employed in the tertiary sector (services) has grown and exceeded 60%.

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Ex. 1. Find English equivalents in the text:

крупнейший регион России, его население составляет, по социальным и экономическим показателям, чуть больше, сравнительно высокий, разделять, степень экономического развития, во второй половине 90-х, определенная стабильность, занимать больше 40%, добывающая отрасль, остальные регионы, играть менее значительную роль, для России в целом, общее направление.

Ex. 2. Insert prepositions:

1.Its population accounts … only 5% of the national total.

2.The RFE territory may be subdivided … three zones … degree of economic development: southern, central and northern.

3.In the second half … 1990s, this zone was characterized … a certain stability … industrial production.

4.The rest regions play a less significant role … the RFE economy.

5.The social indicators … the RFE economy reflect difficulties typical …

Russia as a whole.

6.It is explained … adverse climatic conditions.

Ex. 3. Expand the following:

1.The Far East is Russia’s largest region.

2.The RFE territory may be subdivided into three zones.

3.The social indicators of the RFE economy reflect difficulties typical of Russia as a whole.

Vocabulary:

entire – общий

output – объем производства

GDP – gross domestic product – валовой внутренний продукт mainstays – основа

the tertiary sector – обслуживающий сектор raw material – сырье

extractive branches - добывающие отрасли significant – значительный

to reflect – отражать

unemployment rate – уровень безработицы to drop – падать, снижаться

to compare – сравнивать to exceed – превышать

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EXTRA INFORMATION ON THE ECONOMY

OF THE RUSSIAN FAR EAST

Resource Potential

The Russian Far East is endowed with rich natural resources unique in many respects. It has Russia’s largest reserves of some traditional raw materials and minerals: antimony, boron, tin (up to 95% of national reserves), fluorspar and mercury (up to 60%), about 24% of tungsten and 8-10% of iron ore, lead, sulfur, apatite. There is the world’ largest diamond province located in the northwest of

Sakha, which collectively contain more than 80% of Russian diamond reserves. Proved reserves of iron ore in south Yakutia amount to over 4 billion tons (80% of regional reserves). Considerable iron ore reserves are also found in Jewish Autonomous Oblast. Major coal deposits are found in Lensky and YuzhnoYakutsky areas (Sakha), the Amurskaya Oblast, Primorye and the Khabarovsky

Krai. The RFE is one of Russia’s most important gold producing areas. Vein and placer deposits and found in Sakha, Magadanskaya and Amurskaya Oblasts, the Khabarovsky Krai and Kamchatka.

Fuel and energy resources include oil and gas, brown and black coals. Main oil and gas reserves are found in two vast oil and gas provinces: Sakhalinskaya (major offshore gas and oil fields) and Leno-Viluyskaya (natural gas). The last one contains over 60% of RFE’s natural gas reserves.

Nonmetallic mineral reserves are also available: limestones, marl, refractory clays, quartz sands, sulfur, graphite. Mica deposits are found in the upper reaches of the Aldan River.

Mineral waters suitable for health remedial uses are found in all RFE administrative territories. Best-known are mineral spas in Shmakovka and Kuldur. There are geysers associated with volcanic activity on Kamchatka. The water of hot springs contains zinc, antimony, arsenic and has a remedial significance which opens up good opportunities for establishing resorts.

The most important biological resources are fish and seafood. There are the world’s largest stocks of salmon and codfish (cod, Alaska pollack, ‘navaga’ cod, hake) in the Pacific seas surrounding the Russian Far East (Bering Sea, Sea of Okhotsk, Sea of Japan), which are also inhabited by seals, walruses, fur seals.

The region’s forest resources account for 35% of the national total.

Agriculture

The region’s farming sector generates 5% of Russia’s gross agricultural output. The input of individual RFE territories in agricultural production depends on differing natural and climatic factors. Leaders in the farming sector are the Amurskaya Oblast (23%) and Primorye (18%) followed by Sakha and

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the Khabarovsky Krai (less than 18% each), Kamchatka (10%), Sakhalin (8%), Jewish AO (about 3%).

The region’s geographic position and related environmental conditions constrain the normal development of agriculture in the most part of its territory. Land area amounts to more than 600 million ha and is composed of three main types: forested land (44%), reindeer pasture (30%) and barren land (22%). Farm land accounts for no more than 1% of the region’s land resource.

The climate of the northern RFE is suitable for cultivating potatoes and some less delicate vegetables as well as for developing dairy farming. Also, crops are grown in hot-houses. More than 55% of agricultural production is concentrated in the central and southern parts of Primorye, in the Amurskaya and Jewish Autonomous Oblasts and in the south of the Khabarovsky Krai. Still, these areas have inadequate conditions for satisfying local demand for basic food products, and the farming sector here is specialized in the production of non-transportable (perishable) products. Natural conditions are suitable for growing grain (wheat, barley, oats, corn), vegetables, rice. Many experts assess the region’s potential for crops cultivation as considerable and explain the low productivity of this sector by insufficiency of capital investments.

Animal husbandry accounts for more than 60% of the total agricultural output. This branch includes the breeding of dairy and beef cattle, swine, poultry (broilers and egg-layers), reindeer and deer for antlers, apiculture; private households breed also rabbits and sheep. Unlike crops production, the output of animal husbandry is distributed proportionately to the numbers of population in individual RFE territories. Commercial animal husbandry is based on large mechanized farms, including fur animal breeding farms and nurseries.

Industry

The proportion of the secondary sector (processing industries) in the RFE economy has decreased during 1990s, it was undergoing structural changes accompanied by more than two-fold drop of production in absolute terms. The percentage of machine-building and metalworking has decreased from 15.5% to 8.4%, while that of the energy and fuel branches has grown from 3.5% to 25.1% and from 3.8% to 11.5% respectively. The share of nonferrous metallurgy went up by 47%, and that of food processing, logging, woodworking and building materials reduced. These structural changes have been caused by the unevenness of the reduction of real production volumes in respective branches.

The fuel and energy complex of the Russian Far East is composed of the fuel industry (oil, gas and coal production), oil processing industry, energy and heat providers. It is the region’s largest industrial complex and generates about

35% of the total industrial output. Recession in the coal industry corresponded to the nationwide decline - production volume fell from 51.6 to 31.6 million tons.

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The Trans-Baikal showed a better dynamic of coal production: in Buryatia decline was only 7.2% and in the Chitinskaya Oblast 18.4% growth was registered. Trans-Baikal inclusive, the Russian Far East’s total coal production volume amount about 19% of the national total.

Oil production reached 1.78 million tons in which was an 88% increase on 1990. Natural gas production amounts to 3.4 billion cubic meters.

Other commercially available energy resources are hydropower and nuclear power.

There is great potential for use of non-traditional sources of energy which might fully satisfy local demand. However, they generate only less than 0.1% of total electricity output. The structure of energy production is dependent on the available resources: about 70% is derived from coal, oil, natural gas and hydropower.

The region’s two oil refineries are found in the Khabarovsky Krai (Khabarovsk and Komsomolsk-on-Amur). The bulk of oil is delivered from West Siberia by rail. Oil from Sakhalin comes to Komsomolsk-on-Amur by pipe (some 10%). The depth of oil refining is rather low: 60-65%.

Electric energy is produced by general-use, power plants generating more than 93% of electricity and local plants. There are several joint-stock companies providing and conveying energy and a special division, VostokEnergo, Amurskaya, Dalnevostochnaya and Khabarovskaya energy systems, YuzhnoYakutsky energy area and the eastern part of Chitinskaya energy.

Heat energy is produced by heat-and-power stations and boilerhouses. The total length of main heat and steam lines was exceeding 11,000 kilometers and the number of boiler-houses was above 15,000.

Power plants provide about 35% of heat, the rest is produced by boilerhouses. Basic type of fuel for boiler-houses and plants is coal, although some regions (Kamchatka, Primorye, the Khabarovsky Krai) use much fuel oil and diesel oil.

RFE is Russia’s largest fish and seafood producer. Fish processing is developed mainly in the onboard form.

The fishery complex is composed of fish and seafood catchers, processors, specialized facilities and services, fish stock reproduction organizations. Close linkages interconnect different parts of this complex with each other and with other economic sectors. It is serviced by a large number of specialized branches such as shipbuilding, ship repair, ports, transport and reefer fleet, manufacturers of fishing gear, packing materials, etc. Auxiliary services (procurement, sales, communications, construction and others) provide support both to fish producers and specialized services involved.

The forest complex includes forestry, logging, woodworking and pulp-and- paper branches. This complex accounts for 5.4% of industrial production. The pulp-and-paper industry is developed poorly and represented by several mills on

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Sakhalin, in the Khabarovsky Krai, the Jewish Autonomous and Amurskaya Oblasts.

Traditionally, timber processing in the Russian Far East falls behind the scope and dynamic of logging activities and the bulk of timber is exported in round logs; in the years of economic reform it has dropped two-three times.

Major woodworking centers are Birobidzhan, Blagoveshchensk, Vladivostok, Komsomolsk-on-Amur, Khabarovsk.

The chemical and petrochemical sector includes ore mining and dressing enterprises and facilities manufacturing industrial and household chemical products, varnishes and paints, plastic goods, glass reinforced plastic, etc. It accounts for only 0.8% of the RFE’s total industrial output. Major plants are found in Primorye and the Khabarovsky Krai.

Leading machine-building branches are ship repair, manufacture of electric engineering and other equipment, machine tools, etc. The sector reduced its output 1990-97 due to declining demand, low competitiveness with imported products, high transport tariffs. Its share in the region’s production volume fell from 15.5% to 8.4%.

One of major machine-building centers is Khabarovsk. The machinebuilding sector of the Khabarovsky Krai accounts for 30% of total industrial output. In other RFE regions, its percentage in gross output is insignificant: Primorye - 6.4%, the Amurskaya Oblast - 3.4%, Sakha - 1.5%, Sakhalin - 1.4%. Machine-building plants manufacture diesel engines, overhead cranes, marine machinery, cast molding equipment, metalcutting machine tools, instrumentation, tools and other products. The proportion of ship repair has considerably grown in the past decade and reached 40% of all machine-building operations. Machinery repair facilities are available in all regions.

The light industry is represented by textile, knitting, footwear, leather making and other facilities deployed mainly in large and mid-size cities. Its percentage in total industrial output has sharply dropped in 1998 which reflects a more deeper recession in this sector in comparison with an overall dynamic of the region’s industry. This reduction is largely explained by low competitiveness of the bulk of produce and re-orientation to imported goods.

The food industry sector accounts for a modest portion of the RFE’s industrial output. The rate of reduction in the food sector exceeded an average one for the region’s industry as a whole. By 2000, this percentage was 20%, with in-kind product volume having grown by 17% in the same year. Due to the insufficiency of local food production and huge competitive pressure of imported products, the Russian Far East was importing great amounts of food stuffs from overseas.

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Construction

Construction is one of investment-attracting economic sectors having extensive inter-relationships with other branches. Its percentage in the region’s total GDP is 5%.

The important role of extractive industries requires continuous investment in new facilities which makes an objective factor for developing the construction sector. Nevertheless, the volume of construction works has considerably dropped during last 10 years; for instance, reduction in housing construction was 20-30% which had its effects on the building materials industry and the total value of performed construction works. The RFE’s total industrial output dropped from 6.5% to 1.6%.

Still, the dynamic differs from region to region: in some areas the peak of recession in the construction sector was passed in 1998 and real volume of operations is growing.

Transport

Transport plays an important role in RFE economy due to its geographic position, economic specialization and specifics of production. It accounts for over 10% of the region’s total GDP. Transport costs have become a principal factor in the disintegration of the regional economy from the central part of Russia. Specific of the transport sector is orientation at cargo transit which accounts for more than 80% of rail and sea traffic. It is mainly foreign trade flows from other Russian regions and CIS states to Asian Pacific countries.

The Russian Far East uses all existing transport modes, but the principal role belongs to railway transport, which handles up to 80% of cargo traffic. Main railroads pass across the central and southern parts of the region. They are eastern sections of the Trans-Siberian and Baikal-Amur railroads. The largest railroad is Trans-Siberian. The termini of the Baikal-Amur and Trans-Siberian lie in sea ports: Vanino, Vladivostok, Vostochny, Zarubino, Nakhodka, Posyet,

Sovetskaya Gavan. RFE railways are connected with China’s northeast provinces in several points.

The sea transport accounts for 15% of the region’s freight traffic. The total number and deadweight of ships considerably decreased in the last years. The bulk of the fleet is dry cargo carriers (container ships, reefers, timber carriers, bulk carriers, ferryboats, etc.), the rest is tankers and icebreakers. More than 50% of foreign trade cargoes are carried by foreign ships among which there are many Russian ships flying "convenient" flags.

There are more than 30 sea ports scattered along the RFE’s coast, the largest of which are ten major ports providing round-the-clock services: in Primorye - Vladivostok, Vostochny, Nakhodka, Posyet, Khasansky (Zarubino), in the Khabarovsky Krai - Vanino, on Sakhalin - Kholmsk and Korsakov, in the

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Far North - Magadan and PetropavlovskKamchatski. These ports handle over

90% of the region’s cargo turnover.

The river transport is represented by major shipping companies, river ports, ship repairing and shipbuilding yards, small agency companies. The river fleet is composed of ships of various designations, including general-purpose multi-use ships of "river-sea" type capable of navigating both along inland waterways and on the high seas.

Amur Shipping Company handles traffic in the Amur Basin area. Total length of navigable waterways is about 5,000 km. The largest river ports having railway access are Khabarovsk, Komsomolsk-on-Amur, Blagoveshchensk, Svobodny, Poyarkovo.

The air transport plays a critical role in the life of the Russian Far East, especially in outlying areas of the Far North where there are no railways and navigation period is short (Chukotka, Magadan, northern Sakha). It connects the region with the rest of Russia, handles intra-regional traffic and provides international linkages.

The airports of all RFE administrative centers are open to international flights. Since 1991, the volume of international traffic (USA, South Korea, Australia and others) have accounted for a considerable portion of passenger traffic.

The road transport plays an important role in passenger and cargo traffic and in some areas (lacking railways) is a predominant transport mode. Thus, on Kamchatka and the Magadanskaya Oblast its percentage in the total volume of traffic exceeds 70%. The road infrastructure is rather developed. Total length of paved automobile roads is about 25,000 km, of which more than 70% is found in the south of the region.

Foreign Relationships of the Russian Far East

Foreign trade is a key factor for the region’s economy. At the present time, it is one of fundamental conditions for its survival and future development, an important source of revenues for regional and local budgets.

As of 1990, the RFE’s export quota (ratio of exports to GDP) was below 5% (for reference, the national ratio was 7%), and the bulk of trade was interregional exchange with other Russian economies. During the next decade, trade flows have re-oriented themselves from ex-USSR republics and the central part of Russia to Asia Pacific nations.

By 2000, its export quota has grown to 13% and the degree of openness (ratio of foreign trade turnover to GDP) has reached 24% which is close to an "open" economy. The bulk of exports in 2000 was the produce of resourceoriented industrial branches: metals (28%), timber and wood products (17%), fish and seafood (14%), fuel-and-energy complex (15%) as well as machine-