TRANSCRIPT: Medvedev at Twelfth International Investment Forum Sochi-2013

(Government.ru – Sochi, Krasnodar Territory – September 27, 2013)

The main focus of the forum is economic growth and quality of life, including foreign direct investment, comprehensive regional development and expansion of transport infrastructure through private investment. The participants also discussed social issues, including healthcare, participation of private medical organisations in the mandatory medical insurance system, social development policies for people with disabilities, and more.

Transcript:

Dmitry Medvedev speaks at the plenary meeting of the Twelfth International Investment Forum Sochi-2013

Dmitry Medvedev: Good afternoon, colleagues, ladies and gentlemen. Welcome to Sochi. This is the first time that our traditional investment forum is being held in the Imereti Valley, where the Winter Olympics will kick off five months from now. The working conditions here have definitely improved, even though the construction is still ongoing. I hope that this new platform will give a boost to our discussions about Russia’s economic development, economic development of its regions, and its future as a nation.

We have governors, business people and many Government members here today. We need to discuss economic growth and quality of life, the challenges facing our economy and our economic prospects. This forum has a busy agenda. We could not even fit all the presentations in one hour, so we are a bit late with our work, because regional heads have brought so many projects. Hopefully, we will benefit from them.

It’s clear that the Russian economy became a part of the global economy a long time ago. This means that the global financial crisis significantly affects our economic growth.

Many developed economies, primarily in Europe, are teetering on the brink of recession. No one has so far come up with a recipe for sustainable growth. Nothing is working to overcome the global economic problems. Let’s face it, these measures were often, to put it mildly, ill-considered and spontaneous. I’m not talking about Russia now. I’m referring to Cyprus, where they went so far as to expropriate their own people’s bank deposits.

Forecasts with regard to Russia varied widely, from cautious optimism during the period of post-crisis growth to the expert pessimism that we are seeing now. Macroeconomic projections and the initial Government plans for 2012-2013 were based on the expectation of economic recovery in the EU, especially as these countries account for about 50% of Russia’s foreign trade.

We forecasted GDP growth at over 3%. Based on this assumption, I identified the original seven Government policy priorities. They include budget planning based on a stringent budget rule, adopting all major government programmes, achieving social development goals which are set forth in the presidential executive orders and the Government Policy Priorities, conducting steady privatisation of excessive state assets, fully implementing the roadmaps of the National Business Initiative, revitalising public service reform and launching Open Government mechanisms. We started working in these seven areas and have made good progress. I described my take on our economy during and following the crisis in today’s article published in Vedomosti.

My point today is that the Russian economy’s structure and low commodity prices for all export items, except oil, are the key factors behind the economic slowdown in Russia. We should be straightforward about this. The economy has slowed also because the increase in output is largely due to the public sector alone. The state honours all its social commitments, increases the wages of public sector employees, takes part in the implementation of major investment projects, expands agricultural subsidies, especially when considering weather conditions, and grants subsidies to many other industries.

However, such a model, even though it may appear reliable, is likely to be a zero-growth proposition.

Reliance on public demand, budgetary methods of support and foreign markets can no longer be the only source of sustainable economic growth. We must recognise the fact that these sources have run their course. Therefore, we should be ready to take hard decisions. We have to find other sources of growth of our economy, primarily in the private sector. Of course, the state will continue to perform its basic functions. It cannot refuse help to those who need it. This should include regulatory help and help with timely decision-making. However, the state should abandon those areas where private business or nonprofit organisations are more effective. Businesses should be allowed to grow. They should not be restricted. This is a trivial matter, yet it is still relevant for our country.

We must streamline budgetary operating costs, stop wasting money on ineffective projects or weak institutions, and generally strive to make our Government compact, inexpensive, and as efficient as possible. This is a strategic priority.

We understand the difficulties associated with this work. We realise how much needs to be changed in the way the Government operates, in the structure of the economy, and in the ways people think and act. However, this is the only way to build a new competitive economy and promote economic and social prosperity.

The new economic model of the modern period should be based on the following principles. First, maximum entrepreneurial freedom, a healthy competitive environment and, of course, significant improvements in the business climate.

The second aim is to develop the entire innovative chain and encourage technological modernisation of every production line (I stress ­ every production line) and, as a result, of the entire economy.

The third aim is to achieve a fundamentally new level of governance and increase transparency and accountability to society.

Now let’s think about the factors investors take into account before making a decision. What do they consider very important and what do they see as an obstacle to business? By and large, the choice of country for investment depends on three factors. Investors must see the business environment as profitable, comfortable and safe. What do we mean by profitable? The profit depends on mandatory payments, taxation, insurance premiums, energy and transportation fees and, last but not the least, loan interest rates.

It is no secret that production costs have been growing fast in the last few years for most Russian companies and have now reached an almost critical level. That is why we have decided to freeze them [utilities tariffs] for a year (not an easy decision, to be honest) and to restrict their growth in the future to the previous year’s inflation rate. We hope that companies’ investment plans will not be seriously affected. We have made this decision to help industrial and agricultural companies restore their profitability, encourage labour productivity growth and make their products more competitive. This measure will create new opportunities for businesses and we hope they will make the most of this new resource.

The shortage of cheap and long money is equally important. The Government and the megaregulator that has been recently established as part of the Central Bank are drafting measures to protect pension funds and increase returns on their investment. We must develop long-term insurance. The Government hopes that this autumn the State Duma will review a package of laws designed to encourage long-term retail investors and develop the financial sector. One of our priorities is to turn Moscow into an international financial centre.

Small and medium-sized business is the hardest hit by the lack of cheap and long money. We are establishing a Federal Guarantee Fund to make loans more affordable for SMBs and expand direct financial support.

Despite the existing problems, we’ll continue supporting small companies, mostly those that deal with production and innovations, as well as start-ups of such projects. The new budget allocates 70 billion roubles for these purposes.

I suggest we discuss one more idea: providing tax breaks for new small companies in certain sectors, primarily production. This measure has been used in different countries. We do realise that it may lead to tax evasion, so we are still discussing this in the Government. I think that if we decide to introduce such tax breaks, we will put in proper control mechanisms to minimise the risks. Importantly, the power to introduce tax breaks should lie with regional and local authorities. I suggest we discuss this idea at our forum, all the more so since it concerns all regions without exception.

Measures are being implemented in other areas. We have lifted restrictions on the participation of foreign nationals and development institutions in the authorised capital of the small and medium-sized companies. I also hope that the public procurement system will become more open to small business. As of January 1, 2014, at least 15% of government contracts should be given to small businesses and socially-orientated non-profit organisations. Similar approaches should be established for procurement by infrastructure monopolies and companies with majority state participation.

Now for the second item I mentioned. What does “comfortable” mean? Comfortable, in the language of the investor, means stability, transparency in management and the same rules and procedures across for everyone. It is well known that investment is slowed down not only by a lack of beneficial gain, but also by a fear and distrust of authorities, a lack of confidence in the stability of the political system and, of course, business conditions in the regions ­ and sometimes simply a reluctance or inability to support business initiatives. In order to help managers on site competently organise their work with potential investors, one year ago, it was decided to develop a regional investment standard. It is based on the 15 best regional practices. We have regions that work very well, quite openly and competently with investors. We have such regions in our country, but there are also regions with problems. The standard’s core consists of the top 15 of these regional practices.

Today, the appropriate standard is functioning in most constituent entities of Russia, and I hope that specific results will be evaluated on its basis ­ the number of completed projects, the number of new jobs and increases in tax revenue. The opinion of the regional business community will certainly also be considered. The Agency for Strategic Initiatives is required to conduct this work and report regularly to the Government.

In addition to the investment standards, we are currently developing and refining a special standard of competition at the initiative of the business community. We will implement this is well.

And the third item I mentioned is security ­ business security and, of course, the protection of entrepreneurs’ rights. I have repeatedly said that we need to get rid of the bias against entrepreneurship. I want to emphasise that unfortunately, these specific attitudes to business in our country are deeply ingrained at various levels. This applies to officials, judges, and law enforcement officials. But around the world, private initiative is the foundation of development.

Remember that in 2012, the business ombudsman institute was established, other protective institutions are functioning, and there is an internet portal on which complaints against the authorities can be aired. It is important that this work is not limited to the federal Government, and regional business advocates are active today in 65 constituent entities of the Russian Federation. Probably, they should ideally be set up in all of our territories. In any case, a secure business is a business that can be protected by legal measures, and which can be protected, I emphasise, in Russian courts ­ not foreign ones, but Russian ones. Therefore, improving the administration of justice and abandoning the notion of privileged protection only for public interests and public ownership is a vital component of the business climate.

And now a few words about what we plan to implement in order to further encourage investment activity. First of all, there will be much more vigorous use of resources of the National Welfare Fund, the Investment Fund, the Russian Direct Investment Fund and other development institutions to implement major infrastructure and regional projects for the development of various industries and our territories. As you know, we plan to allocate 450 billion roubles from the National Welfare Fund for the modernisation of the Trans-Siberian Railway, the construction of the Central Ring Road in the Moscow Region and the Moscow-Kazan high-speed railway line. These and other projects, which are to appear upon the accumulation of resources and economic development, should directly influence the development of our territories, the growth rate, and of course, we have to very carefully monitor their execution. We need to take advantage of all opportunities for public-private partnerships. I remind you that the draft law on public-private partnerships has passed its first reading in the State Duma. The Government is working with its colleagues from the parliament to adopt this bill immediately. Such laws should also appear in the regions, so I appeal to the leaders of the constituent entities present here, the regional leaders ­ I think it is in your interest to ensure passage of such a bill immediately.

There is yet another very complicated issue that we have to answer for ourselves when developing a new model of the Russian economy. This is both an easy and a difficult question: who will work on implementing our plans, who will carry them out? Any project, even the most successful one, may turn out to be a failure if it lacks qualified personnel and up-to-date technologies. It is a person and his or her talents, intellectual abilities and the desire to be not only a specialist but a person who develops him or herself, that should become Russia’s main value. This is certainly a major key to our economy’s innovative development.

Sure, this development depends on many highly specific issues which require different approaches. I believe that to support the scientific and innovation sector, duties can be abolished for scientific equipment and material imported for holding research. Also, the number of budget grants and subsidies for this purpose should be increased, the legal environment should be improved for commercialisation of new technologies and businesses that are ready to invest in innovative production. Of course, we will continue to support business incubators, technology parks, tech cities and innovation centres such as Skolkovo and others, and attract the best foreign teachers to work there, as well as the best scientists, both Russian and foreign. It is very important for such scientific centres, tech cities and incubators to involve our businesses, including small and medium-sized ones. I would like to note that several days ago, the Government adopted a decision that simplifies the procedure of recognising diplomas and issuing work permits for graduates of the world’s leading universities, and we consider this to be very important.

I don’t think I am going to frighten anyone here, but it is obvious we have difficult times ahead, and I believe that during this period we are living through we should tap into our considerable advantages. In comparison to European countries, we have a low unemployment level, and we have to avoid the policy of retaining population employment at all costs. This is certainly a very sensitive issue which is related to cutting inefficient jobs, and such decisions require prudent actions and providing opportunities for advanced training and mastering new professions. It is obvious that someone ­ and this may include a considerable number of citizens ­ may have to change their jobs, and even their profession and place of residence, but it has to be done. This is the way we are going to develop a more modern economic model. Available labour resources in the budget sector have to be used more efficiently, and qualified workers should be encouraged to retire at an older age. Special attention should be paid to our single-industry towns and to supporting reorganisation of principal enterprises in such towns which have many issues, and we know this.

Colleagues, friends, I would like once more to mention what I wrote about in the article today and said here: the time of easy decisions is gone. The economic challenges we are facing today cannot be underestimated. We have a difficult period ahead of us, and under such difficult and even crisis conditions we have to continue heading towards a post-industrial economy and an “intelligent state” that proclaims the individual its main value. We have to enter a sustainable development path while retaining the achievements of recent years in reducing poverty and supporting the least protected citizens and territories facing difficulties. But the state I am speaking about cannot be developed by the Government alone. Individuals ­ and individuals that are socially conscious ­ are the state’s integral partners in this highly difficult work. Each and every citizen should be aware of this responsibility regardless of his or her social status. This quality should be possessed by a worker, a first year student, an academician or a businessman, and, of course, an official. Authorities should change as well ­ they have to be in constant dialogue with active participants of public life, and this is the reason the mechanisms of the so called Open Government, the mechanisms of free informational communication, are developing.

Of course, all that I have mentioned will be useless unless it is implemented across Russia, not only in Moscow. Russia’s power is the power of its regions. We all here are equally aware of this, and all of you know this like no one else. Working like this together, we have to take a qualitative step forward, implement our plans in these difficult conditions, and emerge with honour from this challenging situation, which is occurring in the world and in our economy ­ thus creating a strong and modern Russia, with high living standards. This is what we are all working towards. Thank you very much!