The forum’s main topics were fulfilling Russia’s export potential, implementing import-substitution programmes, developing its financial market and transforming its economic structure.
Dmitry Medvedev’s address at a plenary session:
Dmitry Medvedev speaking at the 14th International Investment Forum Sochi-2015
Even when relations between countries are going through a rough patch, business should be above politics, bringing countries and markets closer instead of separating them. In the end of the day, business-to-business contacts create much stronger ties than any kind of politics.
The year 2015 turned out to be very rich in events and
important for Russia. The global economy is also going through many things.
Growth rates around the world are still modest, falling slightly below expert
expectations in the United States. The EU economy has posted zero growth.
Although the threat of Greece’s withdrawal from the European Union has somewhat
subsided, this does not mean that the Greek issue has been solved. In addition,
Europe has yet to come up with a common policy regarding hundreds of thousands
of illegal migrants from the Middle East
and North Africa who are fleeing war and poverty. China has challenges of its
own related to the declining growth rates, slowing foreign trade and the value
of the renminbi.
All in all, all these factors taken together exert a downward pressure on stock indexes around the world and have led to the depreciation of a number of national currencies, proving once again how promptly the global economy is responding to issues in the developing markets. The Russian economy, just as in any other country, is both hostage to and beneficiary of globalisation. There is no way Russia can ignore, in splendid isolation, global trends, focusing exclusively on its own vision for the future.
Russia and the whole world are currently going through a rough patch. The price of oil has nosedived, the rouble has sharply depreciated, and in the last eighteen months the Russian economy has had to stand up to unprecedented sanctions pressure from the West. We live and work while facing harsh restrictions in terms of access to foreign capital markets. We can’t access technologies in many areas either.
However, while the price of oil is by definition hard to predict, we realised from the start what will be the cost of the political decisions we had made. We were fully aware of the fact that a number of countries, above all in the West, will seek to put economic and political pressure on us, so our choice to follow along this path was deliberate. Today, it is also clear that the reasons behind attempts to drag all conflicts of the past century into the 21st century run much deeper than it might seem, underpinned by attempts to restrain Russia’s involvement in the creation of a new world economic order. In an environment like this, with external pressure, global economic uncertainty and low oil prices, this crisis is not just ordinary turmoil. In fact, we are witnessing the emergence of a new reality. I’m talking about basic economic and social indicators that will determine the state of the global economy for the decades to come.
This is a serious and complex change, but it offers many development opportunities. We are working jointly with the expert community on an extended strategy of socioeconomic development, the so-called Strategy 2030, in order to use these opportunities to the best of our abilities. The new technological order is only in the making in the world, many new markets are rising, and it’s imperative that we join the process at this stage. Russia must discard the catch-up development model once and for all. A survival strategy is not enough, as in this case we’ll lag behind, and this time we won’t catch up with the more robust economies. We know that these are ambitious goals that are difficult to achieve, but goals must be ambitious, especially considering the structural deficiencies that developed in Russia over decades. So the Government is now focused on adjusting economic imbalances and, of course, on combating crisis elements.
Given the low oil prices, which are likely to remain low for a long time, we must reorient the economy from its reliance on raw materials to other growth points without delay. For the first time in years, our oil and gas revenue is below 50 percent of overall revenues. This is a result of the low mineral prices and a flexible exchange policy. But we must reinforce this trend.
We must not sit out the “oil ice age”, this pause in the growth of oil prices. Even when oil prices resume their growth, which is bound to happen due to the cyclical nature of this process, they must not be seen again as the main source of budgetary revenue. As before, we should invest the oil revenue in sovereign wealth funds. The new conditions are forcing the Government to review its attitude to many aspects of its work, instruments and regulatory methods, which can help us attain our goals.
I’d like to speak in more detail about four vital elements, namely investment activity, import substitution, the quality of state governance and the budgetary policy. These are the areas where we must focus our attention.
First, investment activity, especially in the real sector: stimulating investment activity is of exceptional importance. Money is a resource, just like oil or metals. So whoever wants to attract investors must offer appealing and beneficial terms.
It is clear that import substitution is among the priorities for the Government, but its possibilities and resources are not endless. Social programmes, the defence sector and other important areas all require attention and financial resources from the Government. For this reason, it is important to put private capital first. This way, the role of the Government would become clearer. Our aim is to remove barriers that prevent the market from benefiting from these funds.
Russia is not the only country to suffer from investors’ poor appetite. Unfortunately it is true that the interest rate in Russia is quite high, which makes it harder to take out a loan. However, if Western experience is any guide, with low interest rates investment often remains at the same level or increases only slightly. Business apathy of this kind is to a large extent due to global economic uncertainty. In Russia, this is not just about economic risks, but also a number of other aspects – political, legal, and psychological – when what matters are trust and protection of private undertakings. Our response to the external economic pressure should consist of not just maintaining economic freedoms by expanding them to a maximum extent as a foundation of the modern economic growth model.
We have recently established a number of institutions and mechanisms for attracting private investment into the economy. First, the Government promotes public-private partnerships and concessions by enacting legislation to this effect. We are currently working on adding public-private initiatives to government and regional programmes. Laws have been adopted enabling businesses to expand their footprint in programmes aimed at creating and upgrading the social sector, housing and utilities, transport, communications and the energy sector.
The Industry Development Fund is up and running and provides pre-investment project funding. So far, 35 projects have been approved for a total amount of 12.5 billion roubles. The fund will operate as a one-stop-shop in providing government support to industrial enterprises.
Subsidies are being allocated from the federal budget to cover R&D costs and part of interest rate payments.
The Government has streamlined a number of procedures and has made financial instruments available to a wider range of investors. This has led to higher confidence in Russian assets. For example, in July Russia has been recognised as one of the most attractive BRICS countries for investors, and in the World Economic Forum’s Global Competitiveness Report, released this week, Russia moved up eight positions to 45th place, which means that there are improvements, an upward, rather than downward, trend.
By the end 2015 we are expected to implement roadmaps of the National Entrepreneurial Initiative. Overall, business regulations will be improved in 11 areas that the business community had selected as the most troubled ones. Now we must think about carrying on with this effort.
We have established a corporation to promote the development of small and medium-size enterprises (SME). It is expected to serve as a single entry point for participating in programmes for SMEs, while also managing funding and borrowings to support such companies. Today, I appointed Alexander Braverman to lead this corporation.
The fourth antimonopoly package has been adopted. About this antimonopoly package. The novelties here include a more precise definition of mala fide competition. They also simplify the bidding procedure for the use of state property (it will be converted to electronic format), and lay the foundations for establishing collegial bodies as part of the Antimonopoly Service, which will provide explanations on the application of competition law and deal with complaints from businesses about the decisions and orders of local antitrust authorities. Amendments have been drafted to the Federal Law on Protection of Competition to eliminate excessive antimonopoly control of companies that do not have significant market share. These amendments will cut the list of reasons for unscheduled inspections of small businesses.
Improvement of the investment climate is one of the key performance indicators for regional leaders.
The federal Government has shared with the regions certain powers required to shape the local business climate. In Russia, unfortunately, clear-cut rules do not guarantee effective state management, which is largely determined by the leader who enforces these rules.
In early September, we approved a standard for competition development in the regions, in addition to the region’s investment attractiveness, which is another standard aimed at encouraging competition. A national rating should help evaluate this work.
We have introduced a lot of tools that provide access to investment in specific regions, such as special economic zones, industrial and technology parks. Major investors – both Russian and foreign, including well-known international brands – are working there both in conventional and innovative industries.
It is obvious that each region needs to discover its own model, its own individual success formula, be it Kaliningrad or the North Caucasus, Crimea, the Arctic or the Far East. Now we have developed a success formula for the Far East – it is now referred to as a priority development area. We provide significant incentives there, such as a simplified procedure for launching new production facilities, administrative support and preferential tax treatment.
Nine priority development areas (PDAs) have been established in the Far East with nearly 21 billion roubles allocated by the Government for that purpose.
The PDA privileges will initially be extended to single-industry towns.
We are currently discussing the feasibility of adopting a different way of balancing the two approaches to interacting with the regions – the territorial principle and the by-industry approach. We are considering including special sections with specific activities and targets for individual regions in government and industry programmes; we are also thinking about federal programmes to be linked to investment plans, including those worked out by companies co-owned by the state. For now, we are only considering this for the Caucasus and the Far East.
Import substitution is an essential element of structural reform. It is competitive Russian businesses that make the economy more balanced and more resilient to crises. To coordinate the import substitution work, a Government commission has been established, which I head.
The return of Russian goods to our market is the first step here. Our far-reaching objective is, of course, to ensure the output of competitive domestic products, so that they would be marketed both in Russia and beyond.
The import substitution policy does not imply Russia’s isolation or building some artificial barriers; it is aimed at making Russian non-commodity products competitive on global markets. Therefore, to boost exports, we have established the Russian export hub, which provides one-stop-shop government support for exporters. Russia’s Eximbank has started off a programme to subsidise interest rates on export credits. EXIAR has been allowed to fully cover certain export-oriented projects.
We will continue helping local manufacturers next year. Import substitution has grown from a political issue into specific investment projects in just over a year.
Companies that participate in import substitution projects receive federal subsidies to replenish working capital. A project financing programme has been launched, with 31 projects selected with a total funding of nearly 285 billion roubles. We have also recapitalised Russian banks by 1 trillion roubles, so that they would be able to finance our industries.
The changing rate of the rouble, our so-called countersanctions have given Russian companies certain advantages. They include the reduction of rouble denominated costs and a certain optimisation of the competitive field. As a result, we have begun to export more non-ferrous metals, fertiliser, oil products and aircraft.
However, this cost gain, which literally descended on our companies from the skies, will not last forever – two or three years at the most. After all, an economic crisis is the best possible auditor for inefficient companies.
There is no question about total import substitution. The complete disappearance of imported goods from our markets might be giving an extra chance to Russian manufacturers, but we cannot create a sterile environment for them. Here, we will continue to be guided by common sense and public interest. Our goods and our products that substitute imports should not be more expensive than their foreign analogues and of course they should be of comparable quality.
Dmitry Medvedev speaking at the 14th International Investment Forum Sochi-2015
First of all, we need to change the quality of state oversight. We have a huge number of supervisory and control agencies. They are not only beyond our means but they are simply an impediment. We have already taken the first steps towards optimisation. There are a number of directives, both from the President and the Government. There are a number of decisions, among others, on merging a number of agencies, including the Federal Antimonopoly Service and the Tariffs Service.
The state’s economic activity should be qualitatively different. Apart from the fact that the state in our country represents government institutions, it is also a major economic player. By virtue of its dominant position today, the state should serve as a national model of effectiveness. The situation here is far from ideal.
Together with companies, the Government has adopted long-term development programmes with certain mechanisms of chief executives’ personal responsibility, as well as investment programmes that are reviewed by the Government’s Expert Council and after their approval, are subject to an independent technological and price auditing procedure.
Unified treasuries have been established at all important companies and major state companies to ensure a more effective use of financial resources. The number of non-core assets is also being gradually reduced.
We must improve the work of government authorities. There are three key requirements. First, they must be size effective, and we have been working towards this end by reducing the number of officials. We will most likely take additional decisions on this issue soon. Second, they must be efficient, which calls for reviewing the system of setting goals for ministries and agencies and assessing their performance. And third, the operation of government authorities must be transparent, which brings us to the special role of public control.
At this time, the budgetary policy can only become more austere. This is the underlying principle of the budget for next year, which we have almost finished drafting.
International commitments, defence and security, agriculture and, of course, social obligations are protected budget items.
As for the rest, we must streamline expenditures by slashing ineffective spending. We have reduced spending in a number of spheres by 10 percent or more.
We will allocate investment resources only to vital infrastructure projects.
Balancing the budget is a standing requirement. Deficit must not exceed three percent, and inflation must not be above the target figures.
The goal of our budgetary policy is not just to cut spending per se, but to ensure macroeconomic stability. This alone will enable us to honour our pledge to business not to increase taxes.
Attention to regional and local budgets must be increased. Like the federal authorities, the regional governments have approved and are implementing antirecession plans, cutting ineffective spending and cancelling government acquisitions that are not of priority significance. In order to reduce the regions’ debts, we are substituting expensive market loans with cheaper budgetary loans. This year, we have increased the volume of these loans to 310 billion roubles, or double the planned figure.
Scientist Alexander Graham Bell used to say “When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.” There is a door into a new reality, and the quality of this new reality depends on us and us alone, on how all of us work.
