TRANSCRIPT: [Medvedev at] The 27th session of the Foreign Investment Advisory Council in Russia

(Government.ru – October 21, 2013)

The FIAC discussed technical regulation issues, the lifting of administrative obstacles, improving customs legislation for investors, the development of the banking sector and financial markets in Russia, trade and the consumer sector, as well as innovations-based development.

Dmitry Medvedev’s introductory remarks

Transcript:

Dmitry Medvedev: Good afternoon ladies and gentlemen, colleagues.

It has become a good tradition to meet every third Monday in October for a session of the Foreign Investment Advisory Council, which includes representatives of the largest foreign investors working in Russia.

To begin with, I’d like to express my heartfelt gratitude for your contribution to improving the business climate in Russia and for your initiatives, especially because many measures have been implemented upon your initiative, based on your ideas and with the help of FIAC members. I am sure that today we will hear many new proposals. I am asking you to put forth your ideas and to formulate them directly and openly, since the goal of our meetings is to exchange opinions on all issues of mutual interest.

A few words about the current situation and life in the country. I know that many of you discussed this issue during the Moscow meeting of the World Economic Forum, where you expressed your opinions and estimates of the global economic situation. What I am going to say is simple: the situation in the Russian economy largely depends on global developments. Frankly speaking, this is what we were striving for some time ago. And now this has happened, or is happening, since the Russian economy is part of the global system. This has its advantages and apparent drawbacks. When the global economy slows down or enters a crisis period, this undoubtedly creates some problems for us too.

You know that the leading international organisations have recently reviewed their global economic outlooks. The IMF has downgraded its forecast for global GDP this year from 3.1% to 2.9%, the European Bank for Reconstruction and Development has lowered its estimate to 1.8%, and the World Bank from 2.4% to 2.2%. As you see, estimates differ but they all reflect the general view of current developments. Hence the decline in Russia’s economic growth looks more or less logical against that background, although this is not a reason to celebrate. In the first eight months of this year, Russian GDP grew by 1.5% (they probably announced this figure yesterday as well) compared to more than 4% in 2012. We expect the year-end GDP growth to reach around 2% at best, but, unfortunately, industrial growth is hovering around zero. One of the key factors is an external economic environment, taking into account the fact that our economy is export-oriented. However, other macroeconomic indicators are generally stable: we have a low unemployment level, a small ­ truly small as compared to other countries ­ national debt, a nearly balanced budget, a stable currency, and quite decent, even substantial, I would say, gold reserves. All this is good, but frankly, it is not enough for our long-term development and new living standards. We should move forward and implement a complex system of measures aimed at establishing a comfortable business environment, attracting investment, accelerating development and eliminating various problems, including infrastructure barriers. I would like to note that of great importance here is not just growth, but the quality of this growth, as well as the structure of the Russian economy and the ability to ensure modernisation. Maybe this is even more important than numbers.

I would like to point to several priority aspects. First of all, we will focus on reducing economic expenses. This is a difficult task, as previous years have showed, but the Government has decided to freeze tariff increases of natural monopolies for a year, and in the future, starting from 2015 and 2016, this rate will be limited by the inflation rate. I would like to stress, as this is important for all of us, including foreign investors, that this represents a long-term policy in spite of some inconvenience for the development of these infrastructure monopolies.

Secondly, we should create additional incentives for large-scale investment in the real economic sector and infrastructure development. For this, we will use our development institutions, such as the National Welfare Fund, the Investment Fund, and the Russian Direct Investment Fund, which, by the way, has allocated some $700 million for project funding and has attracted $2 billion, and now this fund has a package of projects with expected investment exceeding $12 billion. We also expect investors, foreign investors as well, to invest another 25-30 billion roubles. We are speaking about high-tech fields, such as healthcare, TV communications, energy saving technologies, and a number of other priority projects.

A decision has been made to allocate 450 billion roubles (around $15 billion) from the National Welfare Fund to implement three major infrastructure projects, including the construction of a high-speed main line between Moscow and Kazan, the construction of the Central Ring Road (as the situation around Moscow is really difficult, and the modernisation of the Trans-Siberian Railway. So, these are major infrastructure projects, we are going to implement, despite the slowdown in the economy.

Thirdly, I would like to speak about an important innovation concerning a new mechanism for us: public-private partnership. It is important in order to attract private investment in infrastructure projects. Such projects can be implemented only by combining the efforts and resources of the state and businesses. Perhaps in some countries this can be done using private investment only, but taking into account the size of our country, our path is somewhat more difficult. However, it is a proven method, as it establishes a dialogue between the Government and businesses, as well as develops common approaches and solutions. I would like to inform you that the State Duma is considering a draft law, On the Foundations of Public-Private Partnership, which was approved in the first reading and will be conclusively passed soon. Hopefully, it will create the right conditions for this kind of business, and will help distribute risks between private entrepreneurs and the state.

One more tool is concession agreements. This tool has been well-tested. However we will expand the sphere of such agreements and improve law enforcement. We plan to use the mechanism of deferred payments, so-called Tax Increment Financing, where the return of private investment in the infrastructure is covered by future tax payments concerned with the use of the created infrastructure. Hopefully, this will help to implement an extensive number of projects.

The key point is the business climate, not only in Moscow but also in the regions. A year ago a decision was taken to introduce a special regional standard, and it is currently functioning. In the short-term, we will introduce a regional standard on developing competition to make the situation on regional markets more transparent. Hopefully, this will improve the investment attractiveness of regions,, will make it possible for regions to take a more active role in selecting relevant projects and will stimulate investors’ interest in regions.

Ladies and gentlemen, colleagues, I’d like to underscore once again that the Government and I are open for dialogue and joint work on any issues. I would like to conclude my speech here. Now I want to hear from you. I believe that the atmosphere is very suitable for this. I invited everybody out to the country on purpose, this is my country residence. Hopefully, we will have a productive discussion and will be able to come up with some proposals. Now let’s hear from Mark Weinberger, coordinator of foreign participants at the Consultative Council for Foreign Investment in Russia, as the moderator of our meeting and Ernst & Young Global Chairman and CEO.

Mark Weinberger (moderator of the meeting, coordinator of foreign participants at the Consultative Council for Foreign Investment in Russia, Ernst & Young Global Chairman and CEO) (via interpreter): Thank you, Mr Prime Minister. Thank you for inviting me, for inviting us to this residence and for your opening remarks. We are glad to talk to you and other representatives of the Russian Government directly, in an open and honest manner, and to discuss the Russian investment climate.

Without doubt, this is a hard time for Russia. As you have said, Mr Prime Minister, the time of easy solutions has passed. You mentioned this in your article. Russia is at a crossroads. We all want Russia to follow the path of openness and reform, and we support this. We believe that the time of former solutions belongs to the past, we have discussed many things, it’s time to act rather than talk. Representing the business community of our council (the Consultative Council for Foreign Investment), we are working as part of this council, jointly with the Government, for the common goals. As you said, Mr Prime Minister, you endured the financial crisis not too badly ­ you have excellent gold and currency reserves and budget discipline. When the next Doing Business rating is published, we hope to see some Russian progress as compared to last year. Last year you climbed eight points. I know you have ambitious goals to climb much higher. These ratings reflect the results of the cooperation between the Russian Government and the international business community on improving the investment climate in Russia, but it is necessary to do much more. We all wish to accelerate the rate of change. Therefore we have gathered here to clarify and discuss key points, to work together to reach key points to improve the investment climate in Russia and to develop the Russian economy.

One issue of strategic importance is entrepreneurship. Unfortunately, Russian small and medium-sized businesses create only 15% of jobs, while such businesses in more efficient economies create 60%-70% of jobs. You should do more to develop small and medium-sized businesses, as well as innovations, which have been extensively discussed. Russia has a good history of developing new technology and introducing new ideas. However because of the shortage of commercialisation skills, many of these technologies and ideas have not been introduced and you are lagging behind developed nations. You occupy the 51st position in the innovation rating.  As for infrastructure, foreign investors realised for the first time in 2010 that there are barriers that should be lifted. The subject of infrastructure and regions is interconnected: to develop regions it is necessary to develop infrastructure.

And the last point: education. Russian education has won respect throughout the world. However it should be more motivated to serve the business community. Language skills are poor, unfortunately. Joint programmes, exchanges and work with foreign universities are needed. We will support research and advanced development at the Skolkovo innovation centre. You should cooperate with business schools globally to attract professionals and advanced practices to your country.

More to be posted soon…

[featured image is file photo from different occasion]