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Thursday, November 19, 2015, 09:07

‘Russian Macao’ aims to attract millions of punters

By Ashley Galina Dudarenok

Russians, being intelligent people, know a good thing when they see it. This is why a “Russian Macao” is taking shape in the Pacific coastal province of Primorsky Krai, where Russia meets China.

Vladivostok, the provincial capital and the Russian Far East’s main port city, has just become a free port like Hong Kong — and every Hong Kong needs its own Macao.

‘Russian Macao’ aims to attract millions of punters The Primorye Integrated Entertainment Zone is situated some 50 kilometers outside Vladivostok. The master plan is ambitious: The zone will include not just 16 casinos and hotels, but also a yacht club, a marina, tracks for downhill skiing, a golf course, a shopping and exhibition center, several cinemas as well as an amusement park spread across a 620-hectare development. If the concept sounds familiar, well, it is.

It should not be surprising, therefore, to find Hong Kong companies taking the lead. One of the major partners is First Gambling Company of the East — a consortium that includes Hong Kong’s Perfect Giant Investments and Melco International Development — which is investing over $700 million in the Primorye Zone.

Although delayed several times, the firm’s 140-room hotel and casino Tigre de Cristal — the zone’s first — had its soft opening last month on Oct 8. The ceremony was attended by more than 1,000 guests and according to reports Tigre de Cristal club cards have already been purchased by over 10,000 members.

Gaming in Asia has usually proven to be a good bet. It is estimated that there is a yet largely untapped customer base of 300 million potential gamers in Northeast Asia, the region surrounding Vladivostok. Investors are hoping to lure up to 10 million of them annually, mostly from China and South Korea, to this Russian version of the Pearl River Delta. Goldman Sachs estimates gross gaming revenues could reach $1.7 billion by 2020.

Russia intends to be competitive. Russia’s Ministry for Development projects tax rates for the zone at just 3-7 percent, far below rates in Hong Kong and Macao. Staffing costs are affordable, too.

In total, $2.2 billion has been committed to development of the zone; development will take place in three stages, the first to be completed next year, and the final one in 2022. The regional authorities are expected to contribute over 1 billion rubles ($15.4 million).

No project takes place in a vacuum. Although many still remember Vladivostok as a closed navy base for the Soviet Pacific Fleet, that is not its only historical significance. Before the Russian Revolution, Vladivostok was a thriving and cosmopolitan port city, filled with Western and Asian business people, comparable in its dynamism to Shanghai and Hong Kong. Today, the city’s administrators and businessmen wish to see Vladivostok return to its former free-trade practices.

Since earlier this century, the government has taken steps in this direction. Ahead of the 2012 Asia-Pacific Economic Cooperation forum, Vladivostok received a $20-billion makeover for a new airport, transportation links and its version of the West Kowloon Cultural District. Now that Vladivostok has also become the first Russian city to be given free-port status, the relevance of the Hong Kong model is even more evident.

Russia’s plan — not unlike that of China and the Pearl River Delta — is to use the zone’s casinos and the millions of visitors as a springboard to develop tourism and wider growth in its Eastern Frontier region. China is also enthusiastic. Chinese Vice-Premier Wang Yang recently mentioned that Russia’s Far East development strategy coincides with China’s strategy of “northeast revitalization”.

It seems clear that the project to develop a “Russian Macao” was carefully thought out: There is a well-defined market and the development matches the skills and abilities of Russians with those of outside partners across Asia.

There is still some work to do. Visa-free arrangements in Vladivostok are already in place for Chinese tour groups and South Korean nationals. There is a bill pending in the Russian State Duma to allow foreign tourists 72 hours visa-free access.

To return to its former free-trade ways, Vladivostok must continue to pursue market-oriented reforms, promote entrepreneurship and nurture talent. Here, it has much to learn from Hong Kong and can tap into its expertise.

There is no denying that international sanctions and the drop in oil prices means that Russia needs to diversify its economy, with services and tourism being two obvious new sectors, especially with hundreds of millions of potential customers on its North Asian doorstep.

In the short term, the lesson from this so far successful Pearl River foray into the Russian Far East is that Hong Kong companies — or those of the region more generally — should focus on industries they know well, where they can leverage expertise and existing marketing channels, rather than attempting projects in such areas as oil or natural resource exploration where they are not, in general, major players. There are lots of opportunities in Russia, but it is perhaps not the best place to do something for the first time.

The author is a co-founder of the Russian Business Club in Hong Kong. Her marketing firms focus on Hong Kong and the mainland, and Sino-Russian business exchange.

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