May 23, 2007

Russia and Southeast Asia: Commitment to cooperation

14:51 | 23/ 05/ 2007

German Gref, Russian Minister of Economic Development and Trade

Russia has recently dramatically intensified its foreign economic policy regarding Southeast Asian nations.

Moscow firmly believes that close cooperation with the member states of the Association of South East Asian Nations (ASEAN) is logical, especially against the background of problems in relations with the United States and the European Union, which have been making claims to Moscow amidst growing anti-Russian rhetoric.

Meanwhile, Southeast Asian nations have shown readiness to promote relations with Russia, a major Eurasian state that needs to stand firmly on its feet, relying on its partners in Europe and Asia.

The mutual attraction between Russia and ASEAN countries is promoted by their common views of the multipolarity principle and a desire to maintain political stability as a prerequisite for trouble-free economic development and transition to a more advanced democratic model. Our countries proceeded in a similar way, developing a market economy and democracy.

Russia's transition period has much in common with events in Southeast Asian nations, which entered the period of post-industrial modernization with underdeveloped democratic institutes and primitive civil societies, general discontent among the public, domination of the comprador bourgeoisie, and weak local governments. Corruption is a common vice for all sectors in their societies and a natural component of their underdeveloped economies.

Russia has suffered from many of these evils, and has used the experience of ASEAN countries to address them.

The ASEAN-Russia Joint Cooperation Committee (ARJCC), set up in 1997, holds its meetings alternatively in Moscow and in one of the ASEAN capitals. The Russia-ASEAN Cooperation Foundation, which oversees bilateral economic, trade and research-technical cooperation, consists of representatives of official bodies and of business and scientific communities. The Foundation has stepped up its efforts in the past few years, when the Asian vector of Russia's foreign policy gained in strength.

The Russian economy is being reformed now, and it is my firm belief that two factors can propel it to a higher level. They are the development of innovation technologies and restructuring. Encouraging the development of a knowledge-based economy is especially important now that Russia depends so heavily on energy exports. Although ASEAN experience cannot always be used in Russia owing to differences in wages and salaries, we have been studying it carefully. We have found many things we could emulate, such as methods of attracting foreign investment, the establishment of special economic zones and free trade zones, support to small and medium-sized businesses, and the creation of a common regional currency, the Asian Currency Unit (ACU).

Russia has only just begun establishing special economic zones as growth points, whereas Singapore has eight of them. In the past 20 years, Singapore has helped to launch several such projects in China, Vietnam and Indonesia.

In 2006, the governments of Russia and Singapore signed a memorandum of understanding on cooperation in establishing special economic zones. I was appointed co-chairman of the committee on the implementation of the memorandum, co-chaired by my colleague, Minister of Trade and Industry Lim Hng Kiang. His country was attracted by Russia's proposal to assume management of a special economic zone in Russia.

We want to make use of Singapore's unique experience of attracting foreign investment and investing substantial funds abroad. Singapore accounts for 39% of total investment in Asia, and has invested over $60 million in the Russian economy. It is also a country with low investment risks, and therefore investment in it totaled $5.35 billion in 2006.

There are 750 development banks in the world, and they are very successful in Southeast Asia, where they account for 12% of all issued loans (the figure for Germany is only 8%). Russia will do its best to borrow the experience of these financial institutes.

In April, the lower house of Russia's parliament, the State Duma, passed a bill on the establishment of the Russian Bank for Development and Foreign Trade with an authorized capital of $2.5 billion. It should coordinate all new development institutions, such as the Russian Agency for Special Economic Zones, the Russian Venture Company, and the Investment Fund.

The establishment of the Russian Development Bank mirrors a new reality, which demonstrates that Russia has grown out of the clothes of a "commodities extra." Apart from working to mold Russia's positive image abroad, the Development Bank should have a revitalizing effect on the key economic sectors, such as agriculture, mechanical engineering, steelmaking, the nuclear and chemical sectors, and high technologies.

Are we happy with the development of our trade and economic ties with ASEAN countries? We certainly are, because aggregate turnover with them has almost doubled in the past six years. On the other hand, we see clearly that we are using only one-third of the potential of our trade and technological cooperation. This is why our ASEAN partners and we are looking for new spheres of cooperation.

We have said openly that we want to shift the focus to the services and high-tech goods. We have held several consultations on the issue with representatives of regional business communities, and Russian High-Tech Exhibitions in Kuala Lumpur and Bangkok were a success. Russian research laboratories have received first contracts from Singapore for doing research and design projects, including in dual-purpose goods.

Malaysia will invest $25 million in the next three years in a joint project to create leokain and bitomycin, antibiotics for the treatment of wounds and burns. Malaysia is also beginning a project of the Russian company Tana aimed at establishing a network of telemedical video monitoring centers for helping patients with grave infectious diseases, tuberculosis, AIDS, and malaria. Malaysia's Petronas took part in the initial public offering of Russian state-run oil company Rosneft, buying $1.1 billion worth of its shares, or more than British Petroleum or China's CNPC investment in it.

We are also pinning hopes on cooperation in space research and peaceful space exploration, which has begun only recently but has already yielded its first results. In late 2007, a Russian booster will place Malaysia's Measat-3 satellite on a geosynchronous orbit. Russia will also contribute to building a launching site on Biak, a small Indonesian island situated northwest of New Guinea. Located on the equator, the island is a perfect spot economically for the Air Launch project. ASEAN countries have also shown considerable interest in GLONASS, the Russian space-based navigation system comparable to NAVSTAR, the American GPS system.

Energy is another sphere of promising cooperation with ASEAN countries. According to modest forecasts based on projected rates of economic and demographic growth, global energy consumption will increase by 20% in 20 years and will double by the middle of the century. This will increase Russia's role as energy provider.

Russian energy giant Gazprom has calculated that Russia, which has the world's largest energy reserves, will supply some 110 billion cubic meters of gas to Southeast Asian by 2020, with the share of liquefied natural gas (LNG) growing consistently. Russia has signed a memorandum on strategic cooperation with PTT, Thailand's oil and gas corporation. Gazprom is negotiating with Malaysia's Petronas on participation in the construction of a gas pipeline across ASEAN and of gas supply infrastructure in the member countries.

Russian electricity monopoly RAO UES is also actively looking for partners and investors in Southeast Asian countries. It is discussing with Malaysia the financing of new electricity assets in Russia, hoping that Malaysian partners will invest about $2 billion in the Russian generation sector.

Russia's Silovye Mashiny producer of power machines is rapidly strengthening its foothold in the region. The demand for its equipment has grown considerably owing to the construction and modernization of thermal and hydropower plants in Thailand, Vietnam, Laos and Cambodia.

Russia has years of experience in nuclear technologies, including in designing and using fast neutron reactors. The average prime cost of electricity produced by Russian nuclear power plants is $0.014 per kWh. Russia is one of the world's leaders in the production of small nuclear power units, and its achievements could also be used in other countries.

Several regional countries, notably Indonesia, Malaysia, Thailand and Vietnam, have announced their intention to develop a nuclear sector in their power industries. Russian experts are modernizing the Da Lat Nuclear Research Reactor and assembling equipment for the Hanoi gamma-ray unit. Nuclear contracts are being negotiated with other countries. In particular, Indonesia is pondering the acquisition of a Russian-made floating nuclear power plant, an exclusive product of Russian engineers.

In addition, Russia is supplying modern aircraft and helicopters to the region and establishing technical maintenance centers in Malaysia and Indonesia. It is not selling only military equipment. Everyone knows about the destructive force of forest fires in tropical regions, which is why Asian countries have been attracted to Russian-made Be firefighting amphibious aircraft. Russia is also supplying KAMAZ trucks and many other civilian goods to the region.

When describing Russia's cooperation with ASEAN countries, I would like to say a few words about the commendable energy of Asian companies in Russia. They have invested hundreds of millions of dollars in construction, retail trade, the food sector, agriculture and timber processing in Russia.

In conclusion I would like to add that the better we know each other, the more joint regional projects we will have. I am convinced that the multitude of mutual interests of Russia and Southeast Asian countries is a reliable foundation for the architecture of our future trade and economic relations, which we view with great optimism.

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