Vladimir Shlyomin

7

00 years in Germany and 50 years in Russia
Founded by Czech King Ottakar II the city soon fell under the dominion of Teutonic Knights and for about seven centuries it was bearing the German name Konigsberg ("King’s Mountain"). Being located at the intersection of sea and land routes from Europe to Russia and Asia, the town was quickly developing: from the 14th to the 15th centuries it was part of the Trade Union of the Baltic Towns (Hanza Town Union). After the Seven-year war Konigsberg sworn allegiance to Katherine the Great and for four years it had been ruled by the Russian Empire. However, Emperor Pavel, who was bowing to Germany, returned the town to Germans.
The capital of Eastern Prussia was turned by Germany into a powerful stronghold directed against the East. Precisely from this direction successors of the Teutons twice started world wars. Only after WWII under the Potsdam Agreement of the Winning Powers and in order to liquidate the German military center in this region, Konigsberg and one fourth of Eastern Prussia were passed over to the Soviet Union. And on July 4, 1946 the town was re-named becoming Kaliningrad so as to erase the memory of the German past.
In the strict sense of the word something that was passed over to the USSR could be no longer called a town. In 1944 the British and American aircrafts destroyed with carpet bombing the town’s historical center and residential quarters: only one fifth of them remained. One of the strongest and beautiful towns of Germany was turned into ash and piles of stone fragments.
Today, it is not Konigsberg any more but a typically Russian city. Being remote from its own country, it was as though the city was looking by intuition for a basis and, maybe, because of it adopted a lot of things from the culture of neighboring countries, such as Poland, Lithuania, Latvia.
The break-up of the USSR hit Kaliningrad’s residents harder than citizens of Russia’s other areas. It is worth reminding that Lithuania is situated between this region that is located closer to the West and the rest of Russia. Having become an independent State, Lithuania immediately closed its border to free movements of passengers and freight. Although it was not called a blockade, the whole industries of Kaliningrad’s economy started dying: the defense industrial complex, fishery, fish-processing, pulp and paper industry. Enterprises were closing down. The downfall in the region’s production volume amounted up to 70%.
In early 1991 there were 946,800 people living in the Kaliningrad region with over 400,000 of them residing in Kaliningrad itself. More than 40% of residents were connected either with the Army or Navy. Industrial enterprises built during the Soviet epoch worked for meeting requirements of, above all, the Defense Ministry and the Ministry of the Navy. After the collapse of the USSR most of these people lost their jobs, insists Alpo Juntunen, the assistant professor at the Strategic Study Institute of Finland’s Higher School of self-defense forces.
I can confirm this independent expert’s assessment with my own observation. In the early 1990s I happened to witness this mass human drama: yesterday’s navy officers and jobless engineers were looking for a way to survive in "the market economy" by joining small traders. The business was built on price differences in Russia, Lithuania and Poland. Under other circumstances such an activity would be qualified as speculation and smuggling but this time authorities just closed their eyes on this not wishing to deprive people of the last chance to feed themselves.

From ship to car

In the last decade Kaliningrad’s economic priorities have been sharply changing. The former basic industries of the regional economy, such as electronics and engineering (mainly of the defense industrial nature), fishery, sea transport, are losing their importance. New promising directions are determined depending on the situation in Russia itself as well as in the States contiguous to Kaliningrad. The construction, trade and services’ sectors moved from the second and third places to the forefront starting to play the leading roles among all others by the level of taxable base.
Russia’s most Western city was persistently searching for ways to restore trade relations with the rest of the country. Freight cars with samples of products by Kaliningrad’s enterprises were sent to Siberia, the Black Sea, to the Volga river, to central regions. There was a need not only to create a product to be required on the market but also to work hard so as to make it known to the rest of Russia. And this was achieved.
"In 1998 workers at the Telebalt plant assembled 700 TV-sets a month. Now it is dozens of thousands and the whole batch goes to the Russian market", says Kaliningrad’s Mayor Yuri Savenko. As another example, Savenko refers to Lesobalt that, in his words, has "no matches not only in Europe but in the whole world". Constructed in less than a year the enterprise puts out glued beam that meets the unprecedented demand on the market. The Mayor is convinced: when the production’ design capacity is reached, it will become one of the first three budget-building enterprises of the city. Kaliningrad is getting better known to car owners as well. First Korea’s KIA, then Germany’s BMW and now also America’s GM are leaving the gates of the car assembly enterprise Autotor.
The small business, which provides jobs for about 50,000 persons, is also successful. The construction industry is on the rise as furniture made by Kaliningrad’s producers is being bought not only in the CIS but also in such countries as Netherlands.
Between 2001 and 2004 the average annual rates of growth of the Kaliningrad region’s gross regional product (GRP) amounted to 9.1%. This is higher than in any Baltic country. By its rates of industrial production growth Russia’s most Western region is surpassing the rest of the country twice as much. The city’s Mayor as well as staff members of the administration do not any longer have to travel in search for orders for Kaliningrad: partners with investments come over themselves. There is only thing left and this is to choose those, who will bring more benefits to the city.

Net to catch capitals

The colleagues from other Russian regions sometimes say: it is easy for Kaliningrad to get developed because it is surrounded by foreign investors from all sides. This is not exactly right. Investments of foreign, mainly Byelorussian, Lithuanian and German, capital in the economy’s development do not exceed 10%. Other investors are Russians, most of whom are entrepreneurs from Moscow.
Last year Russian companies invested in their enterprises on the territory of the Kaliningrad region over $600 million, while foreign firms accounted for $62 million. Nevertheless, enterprises with the participation of foreign capital on the region’s territory are developing dynamically enough. In July a new phase of the plant producing poultry has been put in operation. The Croatian capital amounting to 50 million euros takes part in it. Lithuanians invested 15 million euros in the plant of fish-processing and producing crab sticks: at present, the plant exports its products to 36 countries. One more example of a successful step by Lithuanian investors: the refrigerator plant. The cost of the project equals 17 million euros, its productivity amounts to 500,000 items year-on-year.
Just a few general figures. Over 2,500 enterprises were set up in the Kaliningrad region with the participation of foreign capital. In other words, approximately one enterprise for every 400 residents. Most of JVs were founded with the participation of partners from Lithuania (603), Poland (568), Germany (358). Also significant is the presence of investors from Latvia (136), Byelorussia (79), China (35). In total, capital from over 70 countries is working in the region’s economy.
Of course, Kaliningrad exploited its special position. It did not ask federal authorities for donations and preferences. It just said: "Give us nets, we will be able to catch fish ourselves". The Federal Law on Special Economic Zone became the region’s economic net for investments.
Adopted 9 years ago the law, as a whole, and especially customs privileges provided by it let the new Kaliningrad industry get developing. But it did not give the answer to the main question: how Kaliningrad would function in a new geopolitical situation, after the neighboring States becoming members of the EU and Russia’s forthcoming accession to the WTO.
Instead putting accents on customs preferences the new Federal Law on Special Economic Zones stresses the tax ones. Companies, which are capable in three years to put no less than 5 million euros into implementing an investment project, will be freed from paying profit taxes for the first six years. The zero rate will be applied for six years also with respect to the property tax. It is assumed that enterprises, which are in operation already, will get a 10-year transition period, during which they can use previous tax privileges of the free customs zones, i.e. to bring in components under the effective rules.
Vice Governor Mikhail Tsikel believes that after passing the new law there will be another new economic boom in the Kaliningrad region: he expects from 15 to 25 new investment projects annually.
But before that the region should seriously improve the infrastructure, especially with the respect to providing it with power resources and developing the transportation complex, thinks Governor of the Kaliningrad region Vladimir Egorov. In November the Kaliningradskaya Heat Station with the capacity of 450 MW will be commissioned: it should cover 60% of the region’s needs in electric power. Almost 600 million cubic meters of natural gas a year are required so as to ensure its operation. It is almost the same amount as was consumed by the whole region last year (636 million cubic meters). That is why, says the Governor, together with Gazprom "we are doing much work on modernizing the gas pipeline and other technological systems on the territory of Lithuania and the Kaliningrad region".

To the West from the European Union

No, it is not a slip of the tongue: now the Kaliningrad region happens to be far to the West than not only Russia but a certain part of the EU itself. What will be a new role of the Russian enclave, which unwillingly turns out inside the foreign territory? Will it be a "lock" contributing to the docking of the two different political and legal systems, markets and standards of living? Or a "bastion" threateningly hanging over the Baltic region, if Russia gets back the superpower status? Or "Achilles’ heel" in the European relations with the weakened Russia? Options are possible and they are all worth to be considered by politicians and businessmen, who think over prospects of the Continent.
As far as Kaliningrad itself is concerned, the city’s first year of life surrounded by countries of the EU has passed "not without problems", as the region’s Governor says.
"We were getting prepared for a radical change of the external environment due to the entry of Lithuania and Poland to the EU", tells Vladimir Egorov. "But however actively we have not been preparing, this process have had negative consequences for all aspects of our life. These are a rise in prices as well as a complication of the freight transit, a mandatory availability of foreign passports for traveling to Russia’s mainland, toughening up rules of travels by the region’s residents to neighboring countries. Now, one year later, it has become possible to reduce some problems. But there will be a need to get back to them again and again.
In principle, the European Union started even before to influence the region’s social and economic life. The economy of Kaliningrad as well as its residents managed to adapt to many things. There can hardly be another region, including Moscow, where, like in Kaliningrad, over 50% of residents have foreign passports, where the "near-border" trade is being conducted on a mass scale and the labor force is migrating, where so many industrial goods are put out under foreign brands.
Measures taken in advance by the Federal Center and the region’s administration considerably reduced sharp consequences of the changing geopolitical conditions and allowed to maintain the positive dynamics of the economic development. But in order to overcome threats of isolation, it is necessary to urgently develop transport links: air, sea and land.
Reconstruction works are actively being done now at the Khrabrovo airport of Kaliningrad. Investments of 15 million euros are directed to this project, approximately the same amount will be needed later. After the works are completed, the airport complex will be in full compliance with requirements of the international air traveling.
There are prospects for developing sea transportation. Now, there are one cargo-and-passenger and four freight ferries using the line from the Kaliningrad region to Saint Petersburg. This year a railroad passage to detour borders of the EU will be put in operation. The region’s ferries have also started going to Lithuania and Sweden.
The key task of the land transport is to construct new railroad side-lines, highways of the European level and customs-border passages.
Mark Franko, the head of the EU mission in Russia says: it is quite enough to have a look at Europe’s map so as to understand, why we need together with our Russian partners to deal with the Kaliningrad region’s economic and social development. Most projects of the EU in this region are directed to improve the everyday life of citizens. We make investments in specific measures like, for example, in the project to improve processing sewage as well as in assisting regional authorities, in contributing to their strategic plans to attract investments and create jobs. At present, we are implementing projects for the total amount of about 15 million euros and in the next two years we are planning to invest in the region another 25 million euros. Thus, we are actively participating in the development of the region.


Reference:
Kaliningrad region
• Fully separated from the rest of the country’s territory by foreign States’ land frontiers and international sea waters. By the size of its territory (15,100 square km) this is the smallest region of the Russian Federation. The number of its population amounts to 955,300 persons. The number of the townspeople exceeds the one of the rural population by as much as 4 times and equals 80% of the region’s total number of residents. The distance from Kaliningrad to Moscow is 1,280 km, to Vilnius – 350 km, to Warsaw – 400 km, to Berlin – 600 km, to Stockholm – 650 km.

• Possesses considerable reserves of mineral resources. The world’s largest deposit of amber (about 90% of the world’s reserves) is located there. There are reserves of high-quality oil with the low content of sulfur. The level of its annual production amounts to between 0.8 and 0.9 million tons with the potential growth of up to 1.5 to 2.0 million tons. There are deposits of brown coal (the total reserves are estimated at 1.5 billion tons), peat (between 2.5 and 3 billion cubic meters), the extra-class rock salt (valued at several dozens of thousands of tons), sources of mineral waters.

• Has plenty of opportunities to develop a resort-recreational and tourist complex, which may take one of the leading places in the system of the regional economy gaining a national and even international importance. Soft climate, sea coast with extensive sand beaches and such unique natural features as the Kurshskaya and Vislinskaya spits are significant factors in this respect.

• There is Russia’s only non-freezing port complex in the Baltic there. Ports are located in Kaliningrad, Baltiisk, Pionersky. Their design capacities amount to 13,95 million tons (including 12,75 million tons of sea ports). The available equipment allows to handle a wide range of freight. There are regular ferry lines in operation that connect Kaliningrad with ports of Western Europe.
The transport communication lines of the region’s territory provide the shortest way between Russia and countries of Western Europe. It creates conditions for developing the region as a large traffic, commercial and storage center.