TRANSCRIPT: [Medvedev:] Government report on its performance in 2016. (transcript continued)

Dmitri Medvedev file photo

( – April 19, 2017)

State Duma of the Federal Assembly, Moscow

Excerpts from the transcript:

Dmitry Medvedev:

Already in the fourth quarter of 2016, the economy showed a small increase of 0.3 percent. As of late 2016, we had a major slowdown in the decline of GDP compared to a fall of almost 3 percent in 2015. Such figures have become possible not because of improvements in the global economic situation which remains difficult for our country, both subjectively and objectively, but as a result of our joint work.

Inflation stands at 4.2 percent year on year. Two years ago, it was measured in double digits. The Central Bank is gradually lowering the key rate, which means that consumer and commercial loans are becoming more affordable. Mortgage rates are at a record low for our country. Hence, there are additional opportunities for investments. Our companies and banks have no problem servicing their external debts. There is no deficit on the foreign exchange market, no demand frenzy.

A short while ago, more than two thirds of our budget − taking into account the reserve fund spending − depended on oil and gas exports. The situation has changed, and budget revenues from other industries amount to more than half of our budget. Even though the price of oil and gas edged up last year, non-oil-and-gas proceeds accounted for almost 60 percent of the total federal budget revenue in the first quarter of this year. We manage to keep the budget deficit at an acceptable level. The reserve fund is the main source for covering the deficit. In theory, we were supposed to have run out of the money in this fund by the end of this year. However, this will not happen. We earned more than we planned, including through revenue mobilisation. We still have enough reserves. We are fine-tuning the budget payment system to improve its efficiency.

We formulated 10 priority areas: healthcare, education, mortgages and rental housing, housing and communal services and urban environment, international cooperation and exports, small-sized businesses and support for entrepreneurial initiatives, reform of control and supervisory activities, safe and good quality roads, monocities and ecology . The project approach is an excellent opportunity to introduce state-of-the-art management technologies at state level.

When forming the budget, one must proceed from three fundamental principles: firstly, money, should go to investing in a person; secondly, the implementation of infrastructure projects; thirdly, to ensure national security.

A few years ago, a decision was made on the stability of the tax system, and therefore we do not plan to raise taxes this year.

In fact, the freeze on tax increases has been in place for over three years. Most of the changes were adopted based on 2016 tax revenue, which was spent on improving tax collection and to attract additional revenue by expanding the tax base.

Tax returns in the first quarter of this year went up by almost one-third year-on-year. We managed to improve tax collection rates and this is a positive outcome. The simplified VAT refund procedure for major tax payers was updated. Some tax incentives were provided to small businesses. Specifically, we decided leave in place the unified tax on imputed income, the easiest and most popular tax schedule.

We continue to introduce tax relief measures for business. We transferred the administration of social contributions to the tax services. The Government introduced a three-year freeze on scheduled inspections of small businesses. Certain laws on business supervision and related criminal legislation were relaxed. For corporations with an annual revenue of at least 400 million roubles, there is immunity against certain anti-monopoly bans. Accounting requirements were simplified.

The total lending limit for small and medium-sized businesses almost doubled to 125 billion roubles last year.

These measures have produced the first effect. The number of small and medium-sized companies is growing. From August 2016 to March 2017, their number increased by 8.2 percent. In other words, the number of our small-sized businesses is not decreasing but growing overall, and their contribution to GDP is also increasing. It is now about 20 percent.

More and more interest in Russia is being shown by foreign investors. The Russian economy’s major advantages – and it does have its advantages – are its high profitability, rich resources and skilled labour. We can add to these low inflation rate and several other advantages we can offer as members of the Eurasian Economic Union. As a result, investments in the economy stabilised by the end of 2016. They will start growing this year.

We did not wait for the crisis to destroy our real economy companies and whole cities. As well as this, we didn’t listen to various experts and analysts who told us that the crisis would sweep everything away and that it was a positive thing which we must simply endure. However, we didn’t accept this. Instead of dismissing workers, we used a targeted support system to help the most vulnerable companies. We used government assistance tools to stimulate productivity, to introduce new technologies and increase competitiveness. And eventually we reached success in import substitution.

Import substitution was an informed decision. It is not a goal by itself, a process for the sake of process, or an opportunity to preserve at any cost uncompetitive companies.

Products made in Russia should meet the highest consumer expectations on the domestic and global markets.

This is not about penetrating the existing global trade system and turning it upside down. We must form alliances when it would seem advisable to do so. What matters the most is that we develop technological know-how in Russia instead of simply assembling imported car kits.

Specifically, special investment contracts were introduced to this effect whereby investors are guaranteed fixed terms in exchange for the commitment to invest in increasing the share of localised manufacturing in a given enterprise.

The Industrial Development Fund offers loans at a 5-percent interest rate, and its programmes are quite popular.

We provided additional support to specific sectors, including car manufacturing, textiles, agricultural machine building and vehicle engineering, for a total of 106 billion roubles last year. This year, we allocated a similar amount of 108 billion roubles to this effect.

All this adds up to a balanced system of measures which made the real sector stronger and ready to grow.

Industrial output grew by 1.3 percent in 2016, and we expect to see 2-percent growth in 2017.

A number of sectors showed even higher growth rates. Specifically, I am talking about the pharmaceutical and medical industries. Domestic production of medicine surged almost 25 percent. In terms of essential medication, the self-sufficiency rate, i.e. the share of medicine produced domestically, reached 77 percent.

Concrete steps were developed to improve all cities across Russia, including the creation of parks, pedestrian areas, playgrounds, sports courts and cultural spaces. The Government instructed municipal entities to draft and carry out five-year comprehensive renovation programmes.

The Government is about to deliver on the task set by the President to relocate people from residential buildings that were recognised as being dilapidated and substandard as of 1 January 2012. This year, 200,000 people living in 3 million square metres of housing will be relocated as part of this effort.

More than 860,000 living in 13 million square metres of substandard housing have been relocated under this programme since 2008.

Last year, 176,000 people moved to new apartments. Overall, the target set for 2016 under this programme was exceeded by 5 percent.

In 14 regions, run-down residential buildings of this kind have already been demolished.

Some 80 million square metres of housing was built in 2016. Tens of thousands of people moved to new flats. Housing construction is largely growing thanks to a developed mortgage market. In 2016, the issuance of mortgages increased by 25 percent compared to 2015. This is largely thanks to the government programme of subsidising mortgages for the purchase of new housing.

Agriculture: It has been growing for the past few years, by an average of up to 4 percent a year and by nearly 5 percent in 2016. Last year we saw record achievements in agriculture. In 2016 we saw the largest grain harvest in 25 years. Fruit, vegetable and meat production continues to grow.

We allocate considerable funds to subsidise short-term loans. We have supported new investment projects, issued grants to small and medium businesses and created a new system of favourable lending facilities with an interest rate of up to 5 percent. We see demand for Russian-made agricultural equipment on the domestic and foreign markets. Our exports increased by over 5 percent last year.

Agricultural machine-building: It grew 150 percent last year, including thanks to the government system of discounts. The proportion of Russian-made equipment on the market has grown to over 50 percent. Only recently, only foreign harvesters and tractors were available for our agricultural producers, whereas now over half of this equipment is made in Russia. The share of imported machinery is very low, only 6 percent of the total. This goal can be also achieved in other industries.

Car manufacturing: We have achieved good results in some sectors despite general problems in the industry. For example, we have increased bus manufacturing by more than one third.

The infrastructure sectors have reported good results. The fuel and energy sector demonstrated confident growth and even records. These include, first, the production and export of oil from the deposits for which special terms were approved, second, coal production, and third, the export of natural gas. We continue to increase gas deliveries, Turkish Stream gas pipeline included. And fourth, very good results were reported for electricity production at nuclear power plants.

Last year we built or renovated 3,300 kilometres of roads, built seven and renovated 30 bridges, and the number of congested roads decreased by 25 percent.

Domestic flights: We are subsidising their development. As a result, 56.5 million people bought air tickets last year, which is 7 percent more than in 2015.

Last year, our railway companies transported over 1 billion passengers and 1.2 billion tonnes of cargo.

By decision of the Government, a 50 percent discount for railway tickets was in effect for school students around the year. In all, 2.3 million students took advantage.

Our defence companies were the first to be hit by the sanctions and pressure. This is why they were also the first to launch the import substitution programme. The country’s defence capability depended on this. As a result, our defence sector increased production by over 10 percent.

Labour productivity is up 13 percent for the year. State defence procurement was fulfilled at a record 99 percent in 2016, which is unprecedented. In terms of nuclear weapons, the number is 100 percent.

We rank second on the global armaments market. Our military exports exceeded $15 billion. New contracts have been signed, and the order books totaled $50 bn as of late 2016.

With regard to the aviation industry, 30 civil and 109 military aircraft, and 22 civil and 186 military helicopters were built in 2016. Our civilian aviation equipment is still behind the Air Force in terms of numbers, but we will work to level out this ratio.

The first civilian cosmodrome, Vostochny, opened in 2016. The Soyuz rocket was launched from there. Two more launches are scheduled for this year. The second launching pad for the Angara heavy-duty rocket is being built.

Six warships were commissioned in 2016, two submarines and [four] surface ships. Completed civil orders include the Polaris icebreaker which runs both on diesel and liquefied natural gas, and the icebreaker Novorossiysk, which is the third in a series of the most powerful diesel-electric icebreakers. The development of an atomic lead icebreaker with a capacity of 120 MW is underway. The world’s most powerful all-purpose next-generation atomic icebreaker Arktika and non-nuclear Alexander Sannikov and Viktor Chernomyrdin icebreakers were launched as well.

Overall, we can talk about the revival of our nuclear icebreaker fleet, the only one in the world. This is important for the viability of the Northern Sea Route and for developing the Arctic.

Consistent development of the country’s territories is a serious task for any large country. Russia is no exception, so we proceed based on two principles: first, we help the regions identify proper development guidelines and coordinate their investment plans, and, second, we increase the responsibility of the regional authorities and have them focus on concrete results.

We are adjusting state programmes and investment programmes for public companies as we link them with promising projects. Businesses and the state must work together.

We continue to develop the project financing mechanism.

Improving the investment climate is the number one issue for the regional authorities as well.

We have preserved our financial support system for the regions. It has become more motivation oriented. The regions have obligations that they take on when receiving assistance.

The Government continues to help the regions. The subsidies to level out the budget sufficiency have been increased by 100 billion roubles and the same amount has been provided for subsidies to co-finance expenditure commitments.

A special programme has been launched for single-industry towns. Seventeen priority development areas have been established. Thousands of jobs were created last year outside backbone employers.

In 2016, the population loss in the Russian Far East decreased by 33 percent. This macro-region has reported industrial production growth for the past few years. The number of priority development areas there has increased to 15. New construction projects have been launched, and a system of infrastructure support for large investment projects has been introduced.

The Far Eastern hectare programme was presented less than one year ago. However, 11,000 hectares already have owners. We have received 82,000 applications. This means that people are interested in and are willing to move to the Far East. Our other decisions have proved effective, including on the Vladivostok free port, subsidising air flights and developing transportation corridors.

We faced no less challenging tasks in the Crimea. The past year and the year before that were a transition period. The Crimea was dealing with the consequences of the [Ukrainian] blockade and integrating into the Russian legal and economic space. This work is not over yet, but the situation has changed dramatically. This includes the dependence of the Crimean and Simferopol budgets on the federal one. The connection of the Crimean energy system to the national energy system of Russia was a signal event. The last part of the energy bridge was launched last year, and a trunk gas pipeline opened in December. This is a big step towards Crimea’s energy security.

We continue to build the Kerch Bridge and modernise federal routes running to it from the Krasnodar Territory. In the meantime, the connection is provided by a ferry line. It keeps increasing its operation. It has increased passenger transportation by one third to 6 million people. The number of tourists travelling to the Crimea has also increased, to 5.5 million in 2016, or twice as many as in 2014.

The figures I have cited show that we have chosen the correct path. These figures are the result of our daily work, and the economic and external challenges will not stop us from working towards our goals.

[featured image is file photo from another occasion]