Invasion of the fleet-footed investors: Vladivostok, once the closed base of the Soviet navy, is opening up to eager entrepreneurs and, as Terry McCarthy discovers, the gateway to the riches of Siberia is attracting plenty of interest

Vladivostok, until 1992 a closed city harbouring the mighty Soviet Pacific Fleet, has in two years transformed itself into the business centre for the Russian Far East. The business world is full of bizarre contradictions and unexpected difficulties - not the least of which are the bureaucrats and the Navy itself, which is keen to develop profitable 'side-lines'. But as the main port for Siberia's incalculable natural resources, the newly opened Vladivostok also has unique opportunities and enormous potential.

The city has a cast of frontiersmen in the business community ranging from outright gangsters to enterprising risk takers, with a sprinkling of foreigners - mostly South Korean and Chinese, but some Japanese, Europeans and Americans - who have judged that now is the time to get in, before entry costs spiral.

There is a small but state-of-the- art stock exchange, set up two years ago with computer-matched trading by two ambitious marine biologists. And there is Vladivostok's location: right in the middle of one of the most dynamic economic zones in the world, bordering China, Korea and Japan.

'There are risks, of course,' said Andrew Fox, a former Eurobond trader who has come to Vladivostok to run Pacific Gemini, a speculative investment fund based in Australia. 'But for people who are prepared to come in now and invest, there will be big money to be made here.'

There is a historical precedent: before the Russian Revolution, Vladivostok was a thriving port city of the Far East. Similar to Shanghai and Hong Kong, it had a mixed population of European and Asian traders. And it was the terminus for the Trans-Siberian railway, the main route for transporting merchandise across the huge Siberian landmass.

Today the more forward-looking businessmen and city administrators would like to see Vladivostok returning to its former open, free-trading ways.

'Vladivostok must be opened like Singapore and other ports,' said Victor Cherepkov, the city's mayor. 'This is important for the city and for Russia as a whole. I want the city to become open and offer the same security to foreigner businessmen - political, legal, economic - as they enjoy in their own countries.'

Although others are more wary about opening up to foreigners after five decades of isolation, the business trend and the weight of money already invested makes it seem unstoppable - short of a major political upheaval.

Assuming no such upheaval takes place, Andrew Fox and his Pacific Gemini investment fund may have stolen a march on other investors. Mr Fox has already been sinking money into a colourful variety of speculative ventures: hand- painted crockery, a golf course, cows, beer, a cast-iron foundry, cement, shipping, metal ores . . .

'As companies are privatised, there are unbelievable opportunities,' he said. 'Do you know that most of the shares on the Vladivostok exchange are trading at P/E ratios of less than one?'

According to Victor Sakharov, the president of the International Stock Exchange of Vladivostok, there are 280 shares listed on the exchange, of which about 100 are regularly traded. Trading is three days a week, to be expanded to five days later this year. The total market capitalisation is still small - about US dollars 150 million. But that is bound to shoot up for two reasons, he says.

'First, when government money to companies stop - which is already happening - they will have to come to the stock market to raise capital. And second, share prices will go up after the period of privatisation is over.'

Company directors have deliberately kept their share prices cheap as they go through the privatisation process from the state - but once they securely hold their own shares, the absurdly low P/E ratios will quickly disappear as shares are bid up.

Mr Fox cites the example of the Far Eastern Shipping Company (Fesco), Vladivostok's mammoth international commercial shipping line with more than 200 ships, the top 60 of which are insured for dollars 1bn.

Fesco, which made a profit of dollars 80m last year alone and does much of its business outside Russian waters entirely, has a total market capitalisation of dollars 20m. 'And that is the share that every foreigner will buy when they start coming into the market.'

Pacific Gemini is unconventional in every sense, starting with the extraordinary coincidence that over 70 per cent of its investors turned out to have been born under the Gemini zodiac sign - hence the addition to its name.

Mr Fox has his office on the third floor of the clubhouse of Vladivostok's soccer team, and delights in listing some of his most unlikely investments and then explaining the underlying rationale behind them.

He produced a cast-iron drinking trough for cows, and a picture of an apparently run-down, ramshackle old factory. 'It might not look like much, but we love this company,' he said.

Svertilosk iron foundry, which used to make the cows' drinking troughs, is attractive because it has a siding which leads directly on to the Trans-Siberian rail artery, and also precious licences to acquire iron. The trough market may have dried up with the eclipse of collective farms, but with a few deft side- steps Svertilosk is now set to supply equipment to the flourishing construction industry.

Or take Spassk cement: the only cement factory in the Russian Far East, it has an annual capacity of 3 million tons of cement, and the replacement value of the entire plant is about dollars 400m. 'But its market capitalisation is just dollars 650,000. Who is going to build another cement factory beside such a monster?' asks Mr Fox.

The old Soviet-style factories may not be the most efficient, nor the prettiest, but the scale on which they were built is often awesome. The tin mine of Krystalnygok, an hour's flight north of Vladivostok, produces 2 million tons of tin ore per year - 3 per cent of the entire world production. In inimitable Soviet fashion, the pithead is connected to the factory by a 5 mile- long conveyor belt. 'More Metal for the Motherland' is inscribed triumphantly over the plant.

Looking around for some new business to develop with some surplus profit a few years ago, the tin mine directors set up a herbal alcohol plant. The product was sucessfully exported, and made a profit in the first year. Of course the tin mine of Krystalnygok is not as secure an investment as US Treasury Bonds - but what are the chances of the Federal Reserve allowing yields of several hundred per cent?

(Photograph omitted)

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Sport
footballShirt then goes on sale on Gumtree
Voices
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
music
News
A poster by Durham Constabulary
news
Sport
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
Emily McDowell Card that reads:
artCancer survivor Emily McDowell kicks back at the clichés
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvBadalamenti on board for third series
Life and Style
tech
Sport
Standing room only: the terraces at Villa Park in 1935
football
Sport
Ben Stokes celebrates with his team mates after bowling Brendon McCullum
sportEngland vs New Zealand report
News
Amal Clooney has joined the legal team defending 'The Hooden Men'
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine