Kaliningrad to be Putin’s Hong Kong

The Times. Russia's exclave of Kaliningrad was the land that time forgot a decade ago, isolated in Europe and with its economy devastated by the collapse of the Soviet Union.

Today it is enjoying an unprecedented boom, as the Kremlin strives to turn Kaliningrad into a showcase for cooperation with the European Union. A new £29.7 million airport terminal has been built to turn the city into an international hub linking Britain, Germany, Italy and Spain with ten Russian cities.

Investors are also pouring in millions to turn Russia’s outpost inside the EU, enclosed by Poland and Lithuania, into a Baltic Las Vegas. President Putin named Kaliningrad as one of only four areas in Russia where gambling will be legal from 2009 and a special casino zone is being constructed with up to 30,000 hotel rooms.

Stylish new shopping malls have opened, with several more under construction, although drab Soviet architecture still dominates much of the city centre. Amber jewellery is everywhere, as Kaliningrad boasts 90 per cent of the world’s amber reserves.

Georgi Boos, the regional governor, is a former director of Russia’s federal tax service who was sent by Putin from Moscow in 2005 to raise the pace of investment. A law passed last year gave Kaliningrad special economic status, providing new investors with a six-year tax holiday on profits.

Boos says: “Average salaries have risen by 31 per cent compared with the first quarter of 2006 and Kaliningrad was the top region in Russia for economic growth last year. Five years ago people would not have believed what has taken place here.”

To boost tourism, the authorities are attempting to restore some of the historic squares and streets of the city that was known as Koenigsburg until 1945. The ancient capital of East Prussia, founded by Teutonic knights in the 13th century, was among Europe’s most beautiful until it was flattened during the Second World War as British and Soviet forces laid seige to the retreating Nazi army.

When it was annexed by the Soviet Union in 1946, the remaining German population was expelled and replaced by Russians. The city’s Gothic cathedral survived, but lay in ruins throughout the Soviet period, spared from demolition only by the presence of the tomb of Immanual Kant, the German philosopher.

Kaliningrad depended heavily on the Soviet military as an important naval port and home to a garrison of up to half a million troops. The end of the Cold War, the loss of a direct link to the motherland with the recognition of Lithuania’s independence from the Soviet Union and Russia’s economic crisis caused serious poverty.

Unemployment rose sharply and many young people left.

Putin has pushed hard for development of Kaliningrad, which retains strategic and commercial importance as Russia’s only ice-free Baltic port. He attended the 60th anniversary celebrations of the annexation last year, which included the consecration of a new Orthodox cathedral.

Wealthy Russians have taken the presidential hint and begun to build luxury dachas and resort accommodation along Kaliningrad’s attractive coastline.

The carmakers KIA and BMW are among foreign investors taking advantage of cheaper labour costs and the special economic zone, while retaining easy access to EU markets.

Kaliningrad is also building on its historic status as a port, leveraging the competitive advantages of the economic zone and its rail links to the Russian mainland with its proximity to the main ports of Europe.

The region’s prosperity has always been connected with its port, which now handles eight million tonnes of cargo annually.

The Sea Commercial Port plans to expand warehousing and create a new container terminal, and there is plenty of land for further development.

Recent projects include a small fuel oil terminal and a refrigeration unit fitted with modern German equipment.