Russia hopes to attract investment in the Arctic territory

Russia has recently approved new strategies framing its policy in the Arctic region. This is particularly topical as Russia is about to assume the two-year rotating chairmanship of the Arctic Council. The Arctic territory, which spans 4 northern regions in whole and 5 in part, generates about 6 % of Russia’s GDP and is home to about 2 % of its population. Most economic activity in Russia’s Arctic territory involves exploitation of natural resources. It accounts for over 80 % of the natural gas produced in Russia and 17 % crude oil (our Finnish-language BOFIT Policy Brief 6/2021 presents a more detailed look at the oil & gas sector in Russia’s Arctic territory, English version coming).

Russia’s current Arctic territory policy is based on two framework documents approved last year: The principles of Russia’s Arctic Policy for 2035 and the Development Strategy of Russia’s Arctic Territory and national security for 2035. These documents largely view the Arctic territory from the perspective of Russia’s national security needs. The loss of population due to unfavourable living conditions, rapid global warming and increased risk of military conflict are seen as the most important threats to the Arctic territory’s development. In response to these threats, the strategies prescribe economic development and better living standards, improved monitoring of climate and natural conditions, as well as support for military readiness.

The oil & gas sector plays a major role in the 2035 development strategy. In recent years, the Arctic territory has been lifted by the establishment of a liquefied natural gas (LNG) production hub on the Yamal peninsula. The strategy assumes LNG production will continue to enjoy rapid growth. The increased production levels have been facilitated in part by improved transportation possibilities due to the loss of annual ice cover in the Northeast Passage. The Northeast Passage has already seen cargo volumes soar in recent years with the LNG and crude oil shipments. Last year, net tonnage of freight about 30 million metric tons was shipped last year, of which only about 1 million tons was transit freight. The development strategy assumes that transport of raw materials will continue to rise rapidly. The Northeast Passage has sometimes been described to an alternative to the Suez Canal, linking Asia and Europe. The 2035 development plan only anticipates net tonnage of transit freight to reach 10 million tons by 2035. Ships with a net tonnage of about 1 200 million passed through the Suez Canal in 2020.

To meet its long-term strategy for the Arctic territory, the Russian government approved a 2021–2024 development programme at the end of March. The programme is divided into two parts: attracting investment and supporting economic and social development. For attracting investment, the Russian state is offering subsidies for construction of infrastructure, labour costs and credit. The government has set aside 20 billion rubles (220 million euros) of budget funds for these measures during 2021–2024. The hope is that these enticements will attract another 180 billion rubles from extra-budgetary sources. No budget funds have been set aside to support economic and social development. The government would like to get 20 pieces of legislation dealing with economic development passed by 2024.