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
Arts and Entertainment
books
Voices
Caustic she may be, but Joan Rivers is a feminist hero, whether she likes it or not
voicesShe's an inspiration, whether she likes it or not, says Ellen E Jones
Arts and Entertainment
The Doctor and the Dalek meet
tvReview: Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Sport
Diego Costa
footballEverton 3 Chelsea 6: Diego Costa double has manager purring
PROMOTED VIDEO
Life and Style
3D printed bump keys can access almost any lock
techSoftware needs photo of lock and not much more
Arts and Entertainment
The 'three chords and the truth gal' performing at the Cornbury Music Festival, Oxford, earlier this summer
music... so how did she become country music's hottest new star?
Life and Style
The spy mistress-general: A lecturer in nutritional therapy in her modern life, Heather Rosa favours a Byzantine look topped off with a squid and a schooner
fashionEurope's biggest steampunk convention heads to Lincoln
News
Dr Alice Roberts in front of a
peopleAlice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
News
i100
Arts and Entertainment
Star turns: Montacute House
tv
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Arts and Entertainment
Unsettling perspective: Iraq gave Turner a subject and a voice (stock photo)
booksBrian Turner's new book goes back to the bloody battles he fought in Iraq
News
The Digicub app, for young fans
advertisingNSPCC 'extremely concerned'
News
i100
Arts and Entertainment
Some of the key words and phrases to remember
booksA user's guide to weasel words
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

Law Costs

Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

DevOps Engineer (Systems Administration, Linux, Shell, Bash)

£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

Day In a Page

The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor
She's dark, sarcastic, and bashes life in Nowheresville ... so how did Kacey Musgraves become country music's hottest new star?

Kacey Musgraves: Nashville's hottest new star

The singer has two Grammys for her first album under her belt and her celebrity fans include Willie Nelson, Ryan Adams and Katy Perry
American soldier-poet Brian Turner reveals the enduring turmoil that inspired his memoir

Soldier-poet Brian Turner on his new memoir

James Kidd meets the prize-winning writer, whose new memoir takes him back to the bloody battles he fought in Iraq
Aston Villa vs Hull match preview: Villa were not surprised that Ron Vlaar was a World Cup star

Villa were not surprised that Vlaar was a World Cup star

Andi Weimann reveals just how good his Dutch teammate really is
Bill Granger recipes: Our chef ekes out his holiday in Italy with divine, simple salads

Bill Granger's simple Italian salads

Our chef presents his own version of Italian dishes, taking in the flavours and produce that inspired him while he was in the country
The Last Word: Tumbleweed through deserted stands and suites at Wembley

The Last Word: Tumbleweed through deserted stands and suites at Wembley

If supporters begin to close bank accounts, switch broadband suppliers or shun satellite sales, their voices will be heard. It’s time for revolution