Putin Looks East for Growth as Indebted Europe Loses Sheen

Russia, faced with a debt crisis in its top trading partner, is pivoting east for the trade and investment President Vladimir Putin needs to meet the economic targets he set for his third term.

Russia, faced with a debt crisis in its top trading partner, is pivoting east for the trade and investment President Vladimir Putin needs to meet the economic targets he set for his third term.

The world’s largest energy exporter plans to construct an oil refinery on the Pacific coast and may send grain eastward as Toyota Motor Corp. (7203) and Mazda Motor Corp. (7261) consider building Russian plants. The government has spent more than $20 billion to showcase Vladivostok, 4,000 miles east of Moscow, as leaders gather for this week’s Asia-Pacific Economic Cooperation summit.

“The world’s economic landscape is changing right in front of our eyes,” Putin said today. Developing nations will underpin global growth and outpace economic expansion in developed countries over the next two decades, “inevitably resulting in an overhaul of trade and financial flows.”

Russia is looking to Asia as the European Union, which accounts for about half of its trade, grapples with a three-year-old debt crisis. Putin, who’s targeting faster growth and a greater role for investment, says the 21 APEC economies represent the best bet to fuel global expansion as traditional engines such as the U.S. and Europe flag.

‘Dynamic Region’

“Russia has long been an intrinsic part of the Asian-Pacific region,” Putin wrote yesterday in The Wall Street Journal. “We view this dynamic region as the most important factor for the successful future of the whole country, as well as the development of Siberia and the far east.”

Russia’s gross domestic product advanced 4 percent from a year earlier in the second quarter, less than Putin’s 6 percent medium-term goal. The president, who was re-elected to the Kremlin in March after four years as prime minister, has ordered the government to boost investment to 25 percent of GDP by 2015 and 27 percent in 2018 from 21 percent last year.

“If there’s going to be rapid growth anywhere, then this is where it’ll be,” Putin told a Sept. 3 meeting of APEC trade union leaders. The Pacific region grew 4.1 percent in 2011, outpacing the 3.9 percent global rate, “even including fairly modest results for the American and Japanese economies.”

Russian stocks are outperforming Asian equities, with the RTS Index (RTSI$) advancing 3.9 percent this year compared with 1.83 percent for the MSCI AC Asia Pacific Index. The ruble has gained 0.6 percent against the dollar, the 11th-worst performance of 25 emerging-market currencies tracked by Bloomberg.

Rogers Reassessing

“In the past few weeks and months I’ve started reassessing my view on Russia,” investor Jim Rogers, chairman of Rogers Holdings, said in an interview at the APEC CEO summit. “Putin is starting to do some of the right things.”

Vladivostok and the nearby island of Russky are hosting leaders from the U.S., China and Japan weeks after Russia formally joined the World Trade Organization. Investments in the city and the conference site reached 660 billion rubles ($20.5 billion) as the government revamped bridges, roads and power stations.

Russia’s APEC goals are trade liberalization and regional integration, food security, transportation and innovation. Organizers also predict “lively discussion” on global finance and the labor market, with International Monetary Fund Managing Director Christine Lagarde set to speak, according to materials distributed by Putin’s foreign policy aide, Yuri Ushakov.

Putin called on leaders to establish rules for measures to defend vulnerable industries from global shocks during today’s speech in Vladivostok.

Clear, Transparent

“There need to be clear and transparent rules for making decisions,” he said. “We should dot all of the i’s and agree on accepted levels of defensive measures to protect jobs during a crisis.”

APEC nations may account for a third of Russian trade by 2025, according to Andrey Kostin, chief executive officer of VTB Group, the country’s second-biggest lender. Russia would like the Pacific Rim to eventually leapfrog Europe in terms of trade, First Deputy Prime Minister Igor Shuvalov has said.

Russia’s bilateral trade with the European Union has been declining since 2006, falling to 49 percent of the total from 56 percent, customs data show. During that time, the Pacific Rim’s share has risen to 23 percent from 15 percent, according to customs data compiled by Bloomberg.

‘Historic Step’

Countries participating in the summit agreed yesterday to reduce import duties on environmentally friendly goods to 5 percent by 2015 from as high as 35 percent now, Russian Economy Minister Andrei Belousov said. The move was a “historic step,” Japanese Trade Minister Yukio Edano told reporters.

Russia has “no alternative” than to look at fast-growing Asian economies such as China and Vietnam, Kostin, who’s heading the APEC summit of chief executive officers, told reporters in Moscow Aug. 31.

Russia will extend the 801 billion-ruble East Siberian-Pacific Ocean oil pipeline to its Far Eastern port of Kozmino this year. It plans to bolster Asia-Pacific energy ties further after beginning deliveries to China via the link last year.

OAO Rosneft, the country’s largest oil producer, is considering a 173 billion-ruble petrochemical complex on the Pacific Coast that would target the Chinese market.

LNG Plant

OAO Gazprom, the natural-gas export monopoly, and a group of Japanese companies led by Itochu Corp. (8001) will sign a memorandum on building a liquefied natural-gas facility in Vladivostok at the summit, Nikkei reported Sept. 3, without saying where it got the information. The companies have been studying a 10 million-metric ton LNG plant in the region since last year.

Russia also wants to increase its clout as a nuclear-energy provider, including in partnership with Japan and the U.S., Shuvalov told reporters Sept. 3.

The country is a “natural bridge” between Asia and Europe, an advantage that should be utilized, according to Ziyavudin Magomedov, chairman of transportation and trading company Summa Group.

Summa agreed this year to pay $1.4 billion for Fesco Group, a Vladivostok-based shipping company. It’s also looking to Asia and South America for new markets for United Grain Corp., where it acquired almost 50 percent for 5.95 billion rubles through a state sale in May, he said in an interview.

Asian ‘Breadbasket’

“Siberia and the Far East can become a breadbasket” for Asia, Magomedov said. Summa plans to open a $300 million, 10 million metric-ton grain terminal near Vladivostok within two years and may also invest in growing wheat, he said.

Russia, which was a grain importer in the Soviet era, may be able to boost exports to as much as 40 million tons per year by 2020, Putin said today. Foreign investment is welcome in all aspects of Russian agriculture, and the government would welcome additional investment in Russia’s farmlands to boost output, he said.

Investments into Russia include Toyota, which is planning to open a car factory in Vladivostok, and Mazda, which yesterday opened a plant with OAO Sollers to produce two models. The Mazdas will be shipped to European Russia with government help, according to Shuvalov.

Not all deals have gone to plan. Gazprom has been in talks with China National Petroleum Corp. to supply Russian gas by pipeline since at least 2004. The arrangement has stalled amid disagreements over prices.

The summit is Putin’s biggest domestic event since he returned to the Kremlin in May after months of street protests over last year’s parliamentary vote and his March re-election.

The forum is also serving as a dry run for Putin’s stewardship next year of the Group of 20 chairmanship, as well as the bigger infrastructure investments planned to host the Sochi 2014 Olympics and the 2016 World Cup soccer tournament.

“Many imagine Russia as something different, as something they see on television,” Shuvalov said. “There needs to be a constant dialog about how our common security and common interests come from a mutual penetration of assets.”

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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