The meeting participants discussed proposals for improving the investment climate, including in customs and tax regulation, and a number of other areas.
Good afternoon, ladies and gentlemen,
We usually meet half way through the autumn at a session of the Foreign Investment Advisory Council (FIAC) in Russia to openly discuss the most pressing issues, the latest trends in global markets and your work in Russia. We also consider the steps that need to be taken to make our cooperation mutually beneficial and long term.
Next year will mark 25 years from the day our council was created. This is quite a long time and actually indicates the FIAC’s effectiveness and its great value both for the Government and, I hope, for business. We are interested in this communication and we always try to support it.
We see that many investors retain interest in our country, which is natural because our economy continues to grow despite the various limitations. This not only includes GDP growth, but also a wide range of economic indicators such as industrial output, freight turnover, fixed investment and exports.
Inflation remains low enough so that macroeconomic stability can be maintained. We value this. The Government’s foreign debt is decreasing. Financial reserves are going up, not down. And, for the first time in several years, we have drafted a budget with a surplus.
True, certain companies have left our market for reasons we are aware of, submitting to political pressure. Others, on the contrary, have become more willing to move more production facilities to Russia. They encourage their suppliers from other countries to do business in Russia and establish contacts with local businesses. All of this has a positive effect on the cost of their products.
The companies that are represented on our council continue to do business in various fields, from mining to the modernisation of the infrastructure. They invest in the development of modern technologies, new technologies, including green technologies; they are pursuing social and educational projects, for which I sincerely thank everyone. It really is very important to us.
This meeting is taking place at an unusual time for our country. A new stage of economic development has been launched in Russia. The main objectives were outlined in May’s presidential executive orders. We have adopted the Key Guidelines for the Government to 2024, a document which constitutes the key working plan for the Government for the next six years.
We plan to achieve the continuing development of the country and increase individual incomes and improve living standards. To do so, we need to transform the economy which is not an easy task. Here we rely primarily on innovation, digital technology, and creating high-tech industries and innovation-based infrastructure.
Despite the complicated foreign policy situation, we are interacting with foreign investors. Our economy remains generally open to capital, new projects, and innovation.
Our goal is to increase the inflow of investment in fixed assets to a level of 25% of gross domestic product per year. We have prepared a plan to get there which allows for the involvement of private capital in various projects. That is, not only Russian, but foreign private capital as well.
The plan, of course, is based on the results of our previous efforts to improve the investment climate. Russia has gone up in two ratings since our last meeting. These ratings relate to business. I’m talking about the Doing Business (World Bank rankings) and the Global Competitiveness Index (we were ranked 40th and 43rd, respectively, and are now ranked 35th and 38th, respectively). Clearly, this is not an ideal situation, but it is significantly better than what it was a few years ago. Most importantly, this is a trend, and we are headed in the right direction. We will continue to work on this, and we will continue these activities in conjunction with our partners.
We will continue our policy of creating stable and predictable tax terms. The tax burden level remains competitive among many jurisdictions, in any case, if compared with the OECD countries. Given higher profitability, this will give our economy certain advantages, we hope.
The government plans to streamline non-tax payments, because this is often the same thing for business (a corresponding law is being drafted), to reduce criminal procedural risks, and to complete the reform of oversight and supervision parameters. We will also continue to work on intergovernmental agreements on the avoidance of double taxation in order to not only provide traditional guarantees for the protection of investments and revenue, but to create additional incentives for reinvesting capital in our country as well.
We will include investors in major projects with state participation. Here, I would like to draw your attention to infrastructure development projects. We are going to expand the scope of the mechanisms of public-private partnerships and simplify the procedure for concluding concessions.
This new phase is not only in the economy. The changes have affected the Consultative Council itself and its working groups. I am sure they will make the work of the council more effective. The working groups were consolidated. Each of them now has its own fairly broad scope of duties. I hope this really helps the cause.
Innovative technology and the digital economy are one of the key areas of Russia's development in the coming years. The entire world is doing this, and we are following this social development trend. As is customary, I invite everyone here, who has the time and is willing, to visit the Open Innovations forum, which is currently taking place in the Skolkovo Innovation Centre. This forum has established itself as a useful discussion platform, which generates new projects, where leading experts get together, and quite bold ideas appear. Undoubtedly, your participation in the St Petersburg International Economic Forum can also be very useful. The next forum will be held on June 6–8, 2019. Usually, large delegations of foreign businessmen attend.
Once again, I would like to say that my colleagues in the Government and I are open to candid discussion.
Excerpts from the transcript:
Maxim Oreshkin: Today we held a regular meeting of the Foreign Investment Advisory Council (FIAC). This is the 32nd meeting being held at a very high level. A large number of global company executives (over 30) were in attendance. The total investment in Russia by these companies over these years is over $160 billion.
It is important to note, even in such a difficult global situation that includes trade wars, sanctions and tensions, that foreign companies, on one hand, are still devoted to investing in Russia, and on the other hand, that Russia still regards foreign companies – if they invest with due diligence and create jobs and increase gross domestic product – in the same way as Russian companies. In general, this positive trend is still present. Both the Russian Government and foreign investors look to the future optimistically and are planning new projects. In addition, in recent years the Russian economy has begun growing again and will continue to grow in the near future. At the same time the macroeconomic changes and structural reforms that have taken place in Russia are creating a more predictable and clear system that promotes investment, including for international companies, because stable macroeconomic indexes, such as the rouble exchange rate and inflation, allow Russia to be involved in global added value chains.
The decisions we have made are aimed at increasing the FIAC’s effectiveness. Together with our colleagues, we have decreased the number of groups. Now each group has a responsible state agency, in addition to the Ministry of Economic Development, to resolve and respond to the tasks at hand as quickly as possible.
We also add the business climate transformation mechanism to the FIAC, so issues will be addressed in the regular course of business, without having to wait for annual events. The annual events will primarily be used to review results and to take account of accomplishments during the previous year.
Today we have discussed an entire range of issues at the events. There were many issues related to industry and practice. This is very important, because addressing issues and separate regulation aspects in some areas in a practical way can help business find new opportunities and move forward.
We have talked about ways to improve the investment climate, including in customs regulations, tax regulations and several other areas.
Again, my colleagues and I will resolve all these issues as part of the business climate transformation mechanism.
This implies positive trends in relations despite the political issues. My colleagues and I, we are ready to continue to work together to promote the establishment of new businesses and the creation of new jobs here, which will lead to increased wages in Russia.
Alexander Ivlev (EY managing partner for the CIS): Indeed, talking to representatives of international business on the sidelines of our forum, and during the meetings of the Foreign Investment Advisory Council, it becomes obvious that companies are interested in doing business in Russia. In particular, we discussed the short-term plans of the companies that are FIAC members to open more than 40 projects in Russia with a total investment of 47 billion roubles.
Today, for example, Total opened its lubricants plant in one of the Russian regions. Mars is opening a facility in Rostov, Henkel in Tosno, and Cargill in the Volgograd Region. Many other FIAC members talked about their plans for the future.
Therefore, we can definitely say that international companies that have seriously invested in Russia and have not left the Russian market are restructuring their operations and developing new niches with new products.
Question: Mr Oreshkin, according to the Central Bank, in the first nine months of this year, foreign direct investment fell dramatically, to $2.4 billion from more than $20 billion in the first nine months of last year. At the same time, your last review said there was a pause in the growth of fixed investment in August. Do you think this pause can lead the entire economy into a recession?
Maxim Oreshkin: If we look at the global situation, we will see that global companies are now very cautious about investment because of the wave of trade wars underway between the United States and China, the United States and their neighbours in the Americas, the United States and Europe, and many other countries. This reserved attitude naturally extends to Russia, where it becomes further aggravated by this sanctions talk.
This is not just a question of foreign direct investment. This is a question, for example, of the volatility of investments in the Russian debt market. We can see that over the past few months, a large amount of money was exported from Russia. All of this together creates a nervous atmosphere and has a negative effect on the investment process. Because, as you know, investment loves silence, stability and long-term predictability.
It seems to me that this volatility is temporary. Such meetings as we are having today are in fact geared to relieving this tension and misunderstanding, and to openly discussing issues that concern both global trends and specific local problems. Therefore, the fact that we have this mechanism, especially in such a volatile global situation, is a very positive story. It helps smooth out misunderstandings that may have arisen, and certainly encourages companies. We heard from the speakers here today that they are ready to implement new projects. They are implementing some this year and are ready to launch new projects in the near future. Therefore, our task is to support this activity as much as possible. When we were building the global model of investment growth to 25 per cent of GDP, we certainly included a small increase in FDI. Now we will work together with our colleagues to make these forecasts a reality.
Question: Mr Oreshkin, could you tell us more about how you are going to increase the share of foreign capital in view of the goal to increase investments? Will you create any special terms for foreign investors? Perhaps, some of the existing restrictions will be lifted?
Maxim Oreshkin: Our work over a period of the past two to three years was aimed exactly at creating attractive conditions not only for foreign investors but for Russians as well. It would not be right to talk about special treatment of foreign investors. Our main goal is to treat all investors who invest in Russia equally, be it a foreign company or a Russian company. They will enjoy equal conditions and fair competition. This is our main goal. As always, the terms are based on a combination of factors. In macroeconomics they include a stable long-term perspective, without any sharp fluctuations, a real effective exchange rate, stable inflation (all these conditions are foreseeable). There are also taxes and non-tax levies, everything related to the business environment. This technical regulation is a very important component. There are industry-specific policies. This includes administrative procedures at the customs and logistics operations. This entire chain, each part of it may have either a positive or a negative impact on the dynamics of direct foreign investments.
Therefore, the main goal of the high-level meetings is for Russia to clearly state its attitude towards foreign investments from a political point of view. This attitude is absolutely positive. The next step is for us together with other ministries to make sure that all these components comply with the conditions required for achieving the investment results that we require.
Alexander Ivlev: I would like to add a few things. I have worked with the Foreign Investment Advisory Council since 1995 and can assure you that the council’s efficiency is improving every year. Today top managers of foreign companies noted that no other country in the world has this type of cooperation mechanism and dialogue between representatives of international companies and the state. Working groups get restructured, important matters are raised. We have a system to monitor the recommendations submitted to the Government by foreign companies. All these measures are successful.
We expect that this cooperation format will continue and that we will maintain the established dialogue for years to come.