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
News
The cartoon produced by Bruce MacKinnon for the Halifax Chronicle-Herald on Thursday, showing the bronze soldiers of the war memorial in Ottawa welcoming Corporal Cirillo into their midst
news
Voices
Funds raised from the sale of poppies help the members of the armed forces with financial difficulties
voicesLindsey German: The best way of protecting soldiers is to stop sending them into disastrous conflicts
Voices
Nigel Farage has backed DJ Mike Read's new Ukip song
voicesNigel Farage: Where is the Left’s outrage over the sexual abuse of girls in the North of England?
Property
One bedroom terraced house for sale, Richmond Avenue, Islington, London N1. On with Winkworths for £275,000.
property
PROMOTED VIDEO
News
The Edge and his wife, Morleigh Steinberg, at the Academy Awards in 2014
peopleGuitarist faces protests over plan to build mansions in Malibu
News
i100
News
peopleFox presenter gives her less than favourable view of women in politics
News
Mario Balotelli has been accused of 'threateningly' telling a woman to stop photographing his Ferrari
peoplePolice investigate claim Balotelli acted 'threateningly' towards a woman photographing his Ferrari
Arts and Entertainment
Paul Anderson plays Arthur Shelby in Peaky Blinders series two
tvReview: Arthur Shelby Jr seems to be losing his mind as his younger brother lets him run riot in London
Voices
Don’t try this at home: DIY has now fallen out of favour
voicesNick Harding, who never did know his awl from his elbow, is glad to see the back of it
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Saw point: Bradley Cooper and Jennifer Lawrence in ‘Serena’
filmReview: Serena is a strangely dour and downbeat affair
Life and Style
The Zinger Double Down King, which is a bun-less burger released in Korea
food + drinkKFC unveils breadless meat beast
Arts and Entertainment
A shared vision: Cerys Matthews has been familiarising herself with Dylan Thomas’s material, for a revealing radio programme
arts + entsA singer, her uncle and a special relationship with Dylan Thomas
News
In other news ... Jon Snow performed at last year's Newsroom's Got Talent charity event
people
News
i100
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

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years