A review of development strategies

Four research questions were put forward in the introduction of this report:

1) What is the relation between enclave costs and benefits and how is it possible to make enclavity an advantage rather than a disadvantage?

2) What are the structural characteristics of Kaliningrad’s economy?

3) What is an optimal development strategy for Kaliningrad in view of its enclavity/exclavity, comparative/competitive advantages, its current specialisation and various economic challenges?

4) Does the current state of Russian–EU relations make such a strategy possible or is further development of EU–Russian relations necessary?

Chapter 1 concentrated on the first question and chapters 2-4 provided an answer to the second.

Overall, the current chapter aims at synthesising the previous findings to provide answers to the two remaining research questions on the theme of an optimal development strategy.

First, we review the major development strategies for the Kaliningrad region proposed by scientists and practitioners in the last decade. Some of these strategies have guided contemporary policy to a certain extent. It is clear that the strategies possess many overlapping elements and their substance may not differ as much as may be presumed by public arguments.

Table 5.1 compares the major proposals, namely the economic strategy elaborated under the leadership of Ivan Samson (2000a and 2000b), the region of cooperation, the pilot region, the official Strategy of Socio-Economic Development until 2010 and the ‘unsinkable assembly shop’.

The comparison reveals a number of commonalities of major importance. All of the proposals stress the necessity of openness – there exists a consensus that autarky or one-sided orientation (‘fortress’ or ‘aircraft-carrier’ Kaliningrad) is not an option. All of the strategies presuppose the development of economic relations with the EU. The region should valorise the Russian–EU interface and find an adequate place within the framework of Russian–EU economic cooperation. The degree of proposed cooperation or integration varies, however. Also, all of the proposals stress the importance of exports for the region, but differ on the issue of whether the export orientation should be exclusive or be combined with an orientation towards the Russian market. Furthermore, there is a wide consensus on the necessity to preserve the SEZ but to revise the SEZ mechanism. But the devil is in the details, as they differ on the theme of modifications to the SEZ regime.

The principal divide is on the issue of a specific industry focus and on the question of state intervention, i.e. whether the state should conduct an active industrial policy and which industries should be supported. Samson’s proposal (2000a and 2000b) and the pilot region concept are on the liberal side of the divide, as they assume no specific industry focus.

Accordingly, the state should concentrate on the creation of general incentives heading towards upper-scale functions and the valorisation of the Russian–EU interface. Yet such approaches of the region of cooperation and the Strategy of Socio-Economic Development are more proactive.

They propose certain backbone and breakthrough sectors, with an accent on infrastructure (especially transport) and on issues of economic security (energy and agriculture).

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Table 5.1 Comparison of regional development concepts on the matters of economic specialisation

Concept Official Strategy of Social and Economic Ad-hoc Group, 2002; Birkenbach &

Wellmann, 2003) on the subject. It vaguely envisages the combination of import substitution and export orientation in the spirit of the region of cooperation, for both industrial products and services.

This approach is primarily export-oriented, to be achieved by stages, moving from export promotion through import substitution to export

substitution based on high value-added products as well as service functions.

This strategy involves a combination of targeting the EU and Russian markets, with the long-term focus on the former.

This concept features a gradual movement from import substitution to export orientation based on the advantage in labour costs. The specialisation is in high value-added goods and services, and in stimulating an economy of innovation.

Russian regions and the EU are the primary targets; the CIS and the rest of the world are supplementary targets.

The focus here is on the EU;

Kaliningrad should acquire its place in the ‘South Baltic growth triangle’. There is a gradual change of primary markets:

Russia–Baltic States–CEECs–

EU core countries.

This concept involves an EU–

Russian region of cooperation.

The pilot region concept is the strongest proponent of economic integration with the EU, including a free trade zone, comprehensive application of EU standards and elements of joint administration.

The focus is on an EU–

Russian region of cooperation.

Table 5.1, cont.

Future of the SEZ regime

This strategy maintains the SEZ. The SEZ is maintained but altered it so that it favours export substitution and “clean gate” functions.

The SEZ is maintained but may gradually be replaced with a system of various kinds of local economic

FTP focuses on investing in infrastructure and energy; the

There is no specific industry focus. The “clean gate”

function stresses services. On the product side it advocates products with higher focuses on the role of the specific resources and assets.

The focus of this approach is on infrastructure

There is no specific industry focus. projects with the FTP, regional economic security

EU: technical support and consulting

Russia: creation of a special regime in order to integrate the regional economy into the EU division of labour

EU: investment and financing projects rather than grants for technical support should become the main EU instruments in its Kaliningrad policy; Russia: special preferences for exports to the European market; the

5.2 An optimal development strategy