Dmitry Medvedev chairs the first meeting of the Government Commission on the Socioeconomic Development of the Russian Far East
Dmitry Medvedev’s introductory remarks
Report by Minister for the Development of the Russian Far East Alexander Galushka
Before the meeting began, an agreement between the State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank) and Elgaugol Company was signed in the presence of Dmitry Medvedev.
Dmitry Medvedev’s introductory remarks:
Meeting of the Government Commission on the Socioeconomic Development of the Russian Far East
I would like to make some introductory remarks before we start the meeting of our Government Commission on the Socioeconomic Development of the Russian Far East.
Visit to the Far Eastern Federal District
First, I would like to explain why I consider the work of this commission to be very important, and why I have decided to head it personally. I would like to remind you that the Prime Minister heads only two such commissions – the commission on the Far East and the commission on the socioeconomic development of the North Caucasus Federal District. This is linked with the scale of tasks facing our country in terms of the development of this extremely complicated region. I will be quite frank and say that all approaches and all models used by us in previous years to make fundamental changes to the development pattern of the Far East have not been wholly successful, and so far have not yielded the results we expected, nor have they produced the desired economic effect. As responsible people, we must state this out loud. Yes, we have programmes, we increase funding in case of problems and troubles, including this year’s flash flood, we concentrate our efforts, we allocate substantial funding, and we are accomplishing this extremely difficult, hard but, on the whole, limited task. Doubtless, we will build housing, we will help people, and we will reinstate and revive the social sector. All this will work. But this does not accomplish the main development task. And how should we address this issue? Well, you and I must finally clarify this issue and act in accordance with specific plans which we must set. Of course, there will be no miracle, and tomorrow we will not have much more money than we plan today, but, nevertheless, we must set the right priorities and set in motion development mechanisms and development institutions.
I would like to say once again that the Government Commission on the Socioeconomic Development of the Russian Far East does not address current territorial administration issues. Our task is to set priorities and set in motion mechanisms. I say once again, these mechanisms do not yet function the way they are supposed to. This is the first thing.
Second, I would like all the ministers of our Government, the CEOs of companies with state capital and the heads of specialised agencies to include regular visits to the Russian Far East in their respective timeframes. I will not conceal the fact that, some time ago, I conducted the same work with regard to the North Caucasus. And, on the whole, I believe that the situation there seems to be quite favourable in terms of efforts to monitor the situation by the Government and major state companies, because all ministers and departmental chiefs regularly visit that region and various territories, and they keep an eye on regional developments. Here, our task is even more difficult because the Far East is tremendous, but you must visit this region, you must organise various events, and you must see how your instructions are fulfilled.
What should we do today? My colleagues and I have talked a lot with the people affected by the disaster. The funding has been received, but it is very important that administrative mechanisms function accordingly. It is very important that people must understand their prospects.
As for the region’s strategic development model, various scenarios are possible. Each of these scenarios has its own advantages and obvious drawbacks. What are these scenarios? The first scenario prioritises local products, which should substitute imports. Although this scenario is attractive, it is obvious that this development scenario boils down to the absence of a concentrated and high-capacity market. To be honest, the Far Eastern Federal District has a rather small population, only 6.3 million, and its market accounts for less than 5% of the entire Russian market. This is the main problem in its development, and there does not seem any substantial internal driving force.
Second, the region could deliver its products to the entire Russian market. Sometimes, this is called deliveries to mainland Russia. This, too, is a good idea and the right option, but expenses are the main restriction here. Of course, we must change and reduce these expenses, and we must try to control them. But you and I realise that it will be impossible to make radical changes in the near future simply because these expenses and the country’s scale are enormous. This is nothing like freight traffic in Europe, or even in the United States.
Meeting of the Government Commission on the Socioeconomic Development of the Russian Far East
The development of export potential, exports to counties of the Asia Pacific region and the creation of new production facilities catering to this market is the third option. The Asia Pacific region has a population of four billion, or over 50% of the world’s population. Currently, this is the largest global market. The distance between Khabarovsk, Beijing, Tokyo and Seoul (I am talking about Khabarovsk only because we are staying in the Khabarovsk Territory now) is several times shorter than the distance between Khabarovsk and Moscow, and this certainly creates some advantages for this scenario. Naturally, no one is waiting to welcome us there with open arms, and we must become competitive, transparent and open.
What can we propose here? Of course, this includes the creation and commercial manufacture of competitive products, which are in high demand not only in Russia, but, first and foremost abroad and, accordingly, the establishment of special zones for these production facilities.
D.Medvedev: "Foreign investment in infrastructure projects is an extremely important issue. We need to work more actively with international organisations, organisations which develop within the APEC format and other Asia Pacific forums. Of course, even organising major events here, including the APEC forum, improves the reputation of our country."
Second, we need to maintain sustained social development in order to improve professional human resources. And, of course, we must implement an effective immigration policy. This task is also very difficult. The attitude towards this issue is extremely guarded. We should not make our people nervous, but we must, nonetheless, offer viable models for the development of the Russian Far East, rather than those based on illusions that we would transport 20 million people from European Russia, or that we would increase the Far Eastern population in a few years. This is very difficult.
The investment climate and the need for a good business environment is the third aspect.
The economic and infrastructure isolation from the rest of Russia and reduced transport expenses, at least in accordance with specific parameters that we can afford, is the fourth aspect.
Foreign investment in infrastructure projects is an extremely important issue. We need to work more actively with international organisations, organisations which develop within the APEC format and other Asia Pacific forums. Of course, even organising major events here, including the APEC forum, improves the reputation of our country. No matter what people may say, the forum and the specific decisions adopted with regard to Vladivostok, have, of course, improved the overall situation. They have improved the situation, although not drastically.
As well as industrial facilities, we need to address trade issues and the development of intellectual potential in the Far East. This, too, is an extremely difficult issue, considering the limited human resources potential, but certain approaches have already been decided on. We are developing new educational institutions. Of course, I am talking about the Far Eastern Federal University and some other new models being used here. I hope that this, too, will make a contribution to the development of the Russian Far East.
I am setting all these goals before the new Government Commission. And I would like to stress once again that I will be most attentive in chairing our meetings. I believe that we will proceed from common approaches in our meetings. We will alternate our meetings in Far Eastern territories with meetings in Moscow, where we can deal with some of the urgent issues.
Let’s get down to discussing these issues. First, let’s give the floor to Yuri Trutnev, who will tell us about specific relief measures following large-scale flooding here. Mr Trutnev, please.
Yury Trutnev: Thank you, Mr Medvdev, colleagues. The Government Commission on Flood Relief in the Far East is carrying out work on coordinating the aid to local residents, restoring the infrastructure, repairing and building housing and social facilities. A total of 170,442 individuals have been affected, with 32,649 evacuated, in three mostly impacted entities of the Russian Federation – the Khabarovsk Territory, Amur Region and Jewish Autonomous Region. This is unprecedented in terms of the number of people affected by the flood. Some 235 towns, 12,643 residential houses, 19,883 gardens, and 402 socially important facilities have been flooded.
Yury Trutnev: "The lump-sum financial aid amounting to 10,000 roubles has been provided to 170,044 citizens, or 99.8% of those who filed an application. Compensations worth 100,000 roubles have been paid to 60,235 people, which is 99% of applicants. The remaining cases are, as a rule, connected with litigations on disputes over payments and compensations."
Naturally, people have a lot of questions, as we have seen at our meetings with the public. At the same time a significant part of problems have either been resolved or are being resolved at present.
Let me begin with financial aid. Paying out benefits and compensations for the loss of property are almost finished. The lump-sum financial aid amounting to 10,000 roubles has been provided to 170,044 citizens, or 99.8% of those who filed an application. Compensations worth 100,000 roubles have been paid to 60,235 people, which is 99% of applicants. The remaining cases are, as a rule, connected with litigations on disputes over payments and compensations. Today, 2,368 people have been placed in temporary accommodation, which have been adapted for long-term residence, including during the winter periods. We have visited one of such places. It is absolutely clear that dormitories cannot provide the best living conditions, but nevertheless all the basic needs have been met, including heating, food supply, medical and psychological aid. One hundred percent of those affected have been examined by the deadline set by the President. Now we need to complete the documentation for all the decisions, and inform the people about them. 12,643 residential houses have been inspected. It was revealed that 4,903 houses need capital repairs, 1,975 cannot be restored, and the remaining 5,675 houses have been found suitable for living. The Finance Ministry and the Ministry of Regional Development have been asked to calculate the funds necessary to repair the damaged houses and build new ones by November 15.
Colleagues, I would also like to highlight the work of the commission which inspected the houses. We have had such cases when the commission took controversial decisions: they set high depreciation rates, 74% of damage and yet put such houses in the category that could be restored. I ask all the governors to treat such decisions very carefully, to meet with the commission’s chairmen and discuss it once again. Such controversial, borderline cases, to my mind, should be decided in favour of the residents.
The government commission decided to pay for up to 30% of the work in advance, so that it will be possible to start acquiring housing on the secondary market and prepare sites for new buildings. These funds in the amount of 4.576 billion roubles have already been allocated, and part of them has already reached the areas or will reach them in the next few days.
Yury Trutnev: "1,649 km of roads have been repaired, and traffic has been restores on all federal roads."
The next important area of work is the restoration of roads and transport infrastructure. 2,634 km of roads were flooded with 1,712 km damaged; 1,649 km of roads have been repaired, and traffic has been restores on all federal roads. 231 infrastructure facilities have been restored, including 62 bridges.
The flood had a major negative impact on the agriculture, particularly in the Amur Region. The Government decided to help restore the flooded fields, pay compensation to farms, and pay interest on loans and lease payments. These payments have not been made yet since the money has just been transferred. We asked the Minister of Agriculture to speed up the process several times. Unfortunately, we have fallen behind in this area.
Another important issue in farming is the rising incidence of the foot-and-mouth disease. Mr Medvedev, vaccination has been conducted six to eight times, yet the cattle continues to fall ill, loses productivity, we can’t get it in time. The commission proposed that the Investigative Committee should check the action of officials responsible for this work. Mr Medvedev, I will report to you personally on the results of the investigation.
Addressing complaints and requests from the public is one of the most important parts of our work these days. A hotline has been established by the presidential envoy’s office in the Far Eastern Federal District and the Ministry for the Development of the Far East. Obviously in this difficult situation, with 170,000 victims, people have many questions. We’ll try to do our best to help every person. Thank you very much.
Dmitry Medvedev: Thank you. To everyone involved in disaster relief efforts, I’d like to say the following. Colleagues, this is not just the responsibility of Deputy Prime Minister Trutnev and the Minister for the Development of the Far East. This is our common duty. This affected region is not even within the competence of the governors who literally searched basements for people and worked with rescue teams during the crisis. If you can’t work here send your deputies or other responsible officials to do the hard work. It’s the same as working in your office in Moscow but much harder because it’s fieldwork under tough conditions. We must go through with it.
Now I suggest we discuss the main issue on the commission’s agenda, which is proposing a new model for the social and economic development of the Far East and the institutions to be involved. I suggest we listen to Minister for the Development of the Far East Alexander Galushka and our experts. Alexander Ivlev, Coordinator for Foreign Investment of the Foreign Investment Advisory Board and member of the board at Ernst & Young, will speak on behalf of the experts.
Please, Mr Galushka (addressing Alexander Galushka).
Alexander Galushka: Thank you. Mr Medvedev, members of the commission, colleagues. Of course we have been largely involved in the clean-up efforts. But since the first day we have focused on proposals for a new model for the economic development of the Far East, a model that would be economically sound and realistic and ensure advanced economic growth for this macroeconomic region.
I would like to note that apparently, we keep in mind the earlier developments described in the respective federal targeted programme. They mainly concern improvement of the railway infrastructure. This is, of course, an important element of the new economic development model. However, it is obviously not limited to that. We have discussed the issue thoroughly with Russian experts, business people and foreign investors.
Alexander Galushka: "The Far Eastern market is very small and accounts for less than 5% of the Russian GDP, which is less than $90 billion. It is almost impossible to achieve advanced growth in such a small market. European Russia is one of the world’s largest markets, but it’s too far away. It would not be logical to organise production in the Far East to supply goods to the European part."
Just yesterday we discussed this with the Russian-Chinese Business Council. We are going to work in the same manner by continuing the dialogue with all the interested and competent parties. I’ll add one more comment, which is that the entire range of solutions for the economic development of the Far East is made necessary by inert Soviet economic geography and other similar stereotypes.
We can single out three key issues, including the development market, market conditions and management. Mr Medvedev has already covered the market. Indeed, the experts reached the same conclusion, which is obvious and lies on the surface. But it’s important to focus and avoid falling back on ineffective models. The Far Eastern market is very small and accounts for less than 5% of the Russian GDP, which is less than $90 billion. It is almost impossible to achieve advanced growth in such a small market. European Russia is one of the world’s largest markets, but it’s too far away. It would not be logical to organise production in the Far East to supply goods to the European part. It’s important to remember that. At the same time, the Far East is in the middle of world economic development – I’m talking about the Asia-Pacific Region that has a total GDP of $50 trillion. This huge figure is over two-thirds of the global GDP.
The import rates are also important. The Asian Pacific countries already import$6 trillion worth of goods annually, including a $4.9 trillion worth of non-commodity imports a year. This is a huge market. The point is current imports into the Asia-Pacific Region – that will only be growing – could potentially include exports of production capacity in the Russian Far East. Even the preliminary calculations show that if 2% of the imports in the Asia-Pacific Region are provided by the Far East, it would at least double the gross regional product due to the obvious multiplier effect. Doubling the GRP is not only important in terms of quantity, it is also important that this achievement is the result of a reproduction model of dynamic advanced economic development. Even if we set an objective to gain at least 2% of this market within ten years, it would ensure annual economic growth of at least 6% for this macroregion. It is an economically sound and smart model for faster growth.
Successful economic development in this case requires favourable conditions for investment and for doing business in the Far East. The Asia-Pacific Region is an area of strong competition from countries and national jurisdictions along with competing conditions. Currently, Russia is implementing its economic policy and, obviously, is working towards becoming more competitive. The measures include the National Business Initiative project and the implementation of the standards for regional executive officials to build favourable investment climates. All these measures are not only aimed at supporting investment but also at creating a globally competitive investment climate. Naturally, it is important for our ministry to support the road maps of the National Business Initiative and the implementation of the regional standards. They create general conditions that improve Russia’s position in the world’s rankings of best investment environments.
Considering the experience of the Asian-Pacific countries, it is just as important to create special conditions in designated areas for faster growth. The parameters differ from country to country, but I’m talking about special economic areas, industrial parks, technology and agriculture parks. And we see that 60% of Chinese exports are produced in special economic areas. There are 441 special economic areas in China, 270 in the United States and 44 in Japan. The list could go on.
Notably, on October 18, Prime Minister of Japan Abe announced the start of a large-scale programme that will eventually make Japan the best country for doing business through the development of strategic economic areas. This was announced on October 18 and as soon as the end of November, the Japanese government plans to adopt a respective programme (for doing this it is necessary to make the respective changes to the laws).
We can see that the world is changing and that countries won’t stand still. They tend to use areas of advanced growth as their flagship tools for economic development.
We have analaysed the specific terms being offered by Asia Pacific economies at these special zones. Colleagues, I would like to show one slide, so as not to overburden you, because we have a large presentation. Here, we can see some factors which hold critical importance for making investment decisions and those regarding business operations. In all, I can say that there are 37 basic, key factors which are taken into account by investors during their decisions to localise investment and production in any specific special economic zone. But the following main conclusion is now obvious: Unfortunately, the special economic zones we are establishing are uncompetitive, and, if we compare them with similar facilities in Asia Pacific countries, we will see that they have an uncompetitive profile. There is nothing terrible in this, all of this can be corrected, but it is very important to clearly formulate and achieve this goal. In our opinion, we must fully understand the competitive profile of a special economic zone focused on exports to the Asia Pacific region. By using this competitive profile, we must first implement a number of pilot projects to establish these territories and to subsequently set up a nationwide chain of Far Eastern territories with faster-than-expected development rates, and which would focus on exports to the Asia Pacific region.
Naturally, this economic-development model will require the creation of adequate development institutions. Today, we are actively working over this issue, and we have a very clear idea of development functions. We have established the relevant fund, a Vnesheconombank subsidiary, with a current capitalisation of 15 billion roubles. We consider it very important that the model of this fund’s operation generate five to ten roubles’ worth of external private investment per every rouble of the fund’s investment. In effect, this fund is supposed to accumulate the assets of other funds and to focus, at first, on infrastructure, on cooperation with international infrastructure funds and on supporting investment projects. By increasing the fund’s capitalisation to 100 billion roubles, and this is what we suggest, the total volume of infrastructure development assets will reach at least 1.5 trillion roubles through the multiplier effect I mentioned. But, most importantly, we need to convert to a new model of this fund’s operation.
Besides, when we talk about export orientation and prioritizing the attraction of direct investment, it would be appropriate to single out these functions as part of a special agency, which would attract investment and support exports using special methods. Cooperating with an investor always means that you must be client-oriented. You must always use an individual approach, which calls for the required competence and specialisation.
Moreover, it would be appropriate to utilise professional development functions with regard to the creation of special economic zones, industrial technology parks and agro parks. And we realise that the Russian Far East faces major human resources shortages. Actually, this problem will become very acute in the context of dynamic economic development. And, of course, we need a comprehensive picture of the development of human resources and human capital in the Russian Far East. This comprehensive picture should not be limited to the Far East, but it should relate to the whole of Russia and neighbouring countries.
Naturally, the implementation of this development model, in addition to the new development functions and new development institutions, will require us to specify the authority of the Ministry for the Development of the Russian Far East (Minvostokrazvitia). We formulated the relevant proposals, and we discussed them last week at a meeting with Deputy Prime Ministers Dmitry Kozak and Yury Trutnev. And, on the whole, we have reached a consensus, more or less. Today, the protocol of the Commission’s decisions lists these specified powers of the Minvostokrazvitia, and we would like to ask you to support them. Thank you.
Dmitry Medvedev: Thank you! Now, Mr Ivlev, take the floor.
Alexander Ivlev (Member of the Board of Directors of Ernst & Young (CIS) B.V., Coordinator for Interaction with Foreign Investors at the Foreign Investment Advisory Council in Russia): Thank you, Mr Medvedev, members of the commission! Mr Galushka has quite clearly summarised the situation and made proposals for the development of the region. In turn, I would like to add something about the international prospects for the development of the Russian Far East.
The advisory council is working on a report titled, On the Influence of Direct Foreign Investment on the Social and Economic Development of the Far East. Taking into account that Mr Galushka has already said a great deal about the preparation of the document, I would like to quote some investors who already work in the region, evaluating their prospects.
Representatives of large foreign holdings point out that in spite of the fact that their companies develop business in many areas in other countries, from mineral resources extraction to services rendering, they only open basic production facilities in the Far East. They say that the underdeveloped infrastructure is an obstacle in the development of new activities. It is worth mentioning that companies from developed countries are actively attracting the local workforce, while companies from developing countries bring their own, cheaper workforce, which lowers the positive impact on the economy.
Potential investors in the processing industry face various limitations – the low population density and the remote location from the European part of Russia make the domestic market quite small, while transport expenditures are extremely high. The activities of processing companies will only be feasible if their products are exported. However, the problem at hand is that the export capabilities of many regions of the Far East are limited due to a lack of transport and logistics infrastructure and a qualified workforce. All experts agree that the major potential partners for the Far East are the countries of the Asia-Pacific Region – in particular, the Republic of Korea, China and Japan, or large transnational corporations operating primarily in mineral resources development. European and North American investors are less likely to be potential investors in the region. Asian companies, unlike investors from other countries, tend to concentrate production in the Far East, especially in the southern regions. For example, there is a large processing complex in the border regions of China, but not in Russia.
Some foreign businesspeople expressed an interest in attracting state funds to their projects to protect themselves from political risks, and this means that work must be accomplished in this area. Most experts believe that of all of the factors that form the business climate in the region, the most influential are the lack of infrastructure and the harsh weather conditions in some regions. They believe that these factors are crucial, overshadowing all others, unfortunately.
Before the advisory council’s meeting last Monday, we met with its task force, and one of the companies said that it had expressed an interest in working in the region. They have already successfully invested in western regions of Russia (they opened a production facility in Moscow), but when they held talks regarding the Far East on the opening of a production facility they found it unreasonable and did not receive the necessary support. I think that such situations need to be analysed and worked out.
According to a report by foreign companies, they see a positive trend in the development of export-oriented production. This model is good for the region, and it includes establishing the export infrastructure, directly supporting companies with an export potential, and creating special economic areas and areas with the tax-free import of goods for processing, or exports. Again, as foreign business leaders stated, we should take care of investors from the Asia-Pacific Region.
Logistics plays an important role in the region’s development. Creating the infrastructure for export and cargo transit in the Asia-Pacific Region is crucial. There is a very positive example of how this was done in Canada. They established a logistics hub, which also serves as a production and storage centre. It was established in the Saskatchewan Province almost in the centre of Canada and was initiated by the Canadian Government at the federal level. The objective that the Government faced was to fulfil the potential of the Asia-Pacific trade route in the country by increasing cargo flows from the west coast where goods from China, Japan, Taiwan and other Asian countries were delivered, to the east coast and the United States. The state financed the construction of the necessary engineering and transport infrastructure, including railways and car roads, and monitored the hub’s development. As a result, the Global Transportation Hub project has become Canada’s largest logistics facility. For six years since its establishment in 2007, the volume of cargo shipment in the region has increased ten-fold, from 50,000 to 500,000 tonnes, and each dollar provided by the Government has attracted $15 in private investment. We should probably follow this example in relation to the Far East.
As for development institutions, when speaking with foreign investors, we have heard many times about things like regional development agencies. To date, there are over 130 such agencies in Europe. They interact with investors, tell them about the benefits of investing in their region, and guide investment projects, and we think that it makes sense to consider establishing such an agency in the Far East.
Thank you.
Dmitry Medvedev: Thank you.
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Following the meeting of the Government Commission on the Socioeconomic Development of the Far East, Yury Trutnev, Russian Deputy Prime Minister and Presidential Envoy to the Far Eastern Federal District, answered journalists’ questions.
Question: What decisions have been made? Which instruction will be given?
Yury Trutnev: The main topic of today’s meeting was a new vision for the development model of the Far East. This vision is primarily involves creating an export-oriented economy in the regions of the Far East.
What tools are be used to achieve this? First, we plan to create a competitive special economic zone. An analysis of special economic zones has been done. We should acknowledge that our special economic zones are not competitive and they lag behind our neighbours’ special economic zones in a number of indicators. For that reason they’re unlikely to attract investments. As such, we should create a new legal form. We have to set up a new kind of special economic zone that meets the world’s best standards in terms of taxation, transport costs, administrative barriers – all the major characteristics. This is number one.
Second, it is quite clear that we need tools to develop the Far East, to move forward and set up a new kind of economy. To get these tools, the Ministry for the Development of the Russian Far East (Minvostokrazvitia) should be re-formatted. Currently it is a shell ministry which basically lacks real functions. This was discussed today, and the Prime Minister has issued an instruction to prepare the transfer of some functions of other ministries to this ministry regarding issues related to the development of the Far East. These functions include, first of all, those of the Ministry for Regional Development pertaining to the Far East, functions of the Ministry of Economic Development regarding special economic zones, the setting up of special economic zones, and also a number of functions related to implementation of federal targeted programmes in the Far Eastern Federal District.
And finally, in addition to giving the ministry special powers, we think it necessary to create new development institutions aiming at attracting investments and participation in investment projects. Today we have such a institution, the Far East Development Fund, but it is ineffective in its current form both in terms of its structure and the amount of money it has. We have to change both.
Next, we need a developer, that is to say, a company that will prepare the ground for investors with infrastructure, technology parks – setting up the elements of a special economic zone.
These were the major decisions. Besides that, the role of large companies in the development of the Far East was also discussed, and the Prime Minister issued an instruction to convene a special meeting on this issue under his guidance.
We also took a deeper look into the energy-related issues, which are an impediment to growth in most regions of the Far East. They have very high tariffs here, and connecting to the grid is a big problem, as often there is insufficient power capacity.
Finally, the last issue we touched on is countering corruption, since it is quite evident that we shouldn’t expect investment as long as civil servants extort businesses. We are not going to duplicate the work of law enforcement, but we are going to monitor investment projects and we will kick out officials who obstruct them.
Question: Mr Trutnev, how will the VEB daughter company be transformed? In terms of recapitalisation, in terms of organisational structure – will it be transferred to the Minvostokrazvitia?
Yury Trutnev: We are currently considering two possible options – it might be a joint-stock company, or a non-profit organisation. We are going to weigh the positive and negative aspects of both options and make our choice, after which we will propose a model to the leaders of the country and, accordingly, suggest recapitalisation. We know that we are not going to be able to achieve what we want by relying on government funding. We have to make sure that invested money multiplies, that there is leverage to attract 5, 8 or 10 roubles of foreign or domestic investments for each rouble contributed by the government.
Question: Will it separate from VEB?
Yury Trutnev: This was not decided today. This issue wasn’t considered by the Prime Minister or President. But if you want my opinion, I think it should operate outside VEB because it is a separate issue.
Question: And regarding the developer, as you called it…If I’m understanding correctly that this might be tan agency for attracting investment to the region? This idea has been expressed before, but it is not clear if the agency will be set up…
Question: Or is the East development corporation?
Question: And why then do we need a fund for that? Won’t they be doing the same thing?
Yury Trutnev: No, they won’t, because the task of the fund is to give money to projects, whereas the developer’s task is to prepare the ground. Totally different. And this is approximately the way it is in Kaluga. We are not proposing anything new. These practices have been tested globally and in Russia at the leading growth areas. Just like in Kaluga: a budget loan is taken, an organisation is selected, the organisation prepares the site, ensures its infrastructure is in place, sells development plots, returns the money and moves on to the next site. Nothing extraordinarily new.
Question: Have you decided on when such an agency may be set up?
Yury Trutnev: When I spoke about the deadlines today … First of all, before we take the first step on attracting investment, we have a long way to go. The Minvostokrazvitia needs to be given the necessary authority, we have to set up development institutions, we have to create a legal form for special economic zones that will make them attractive. And we have to start preparing those real sites. There is a lot of work, and we can’t drag it out. If we extend the process, then the attention on the problems of the Far East development that currently exists, the focus of the ministries (thanks, in part, to today’s meeting of the Commission) and, let’s be frank, the flooding, our common misfortune, which has also heightened the attention federal bodies... We should not lose all that, and this is why I am giving this ministry half a year to complete this work. We can do it in half a year. Then we’ll deal with practical issues rather than issues like changing the organisational structure and getting legislative support.
Question: The same as RDIF (Russian Direct Investment Fund ) and EXIAR (Export Insurance Agency of Russia)? Because the fund you are referring to looks a little bit like the RDIF, and the Export Support and Investment Attraction Agency looks like EXIAR …
Yury Trutnev: Nothing will be synchronised in any way. We are not targeting investment activity in the country as a whole. No one has ever said such functions should not be competitive. We are simply trying to do better. That’s my first point.
Second, we are trying to work on the territory of the Far East. This is normal, healthy competition, there is nothing bad about it. If half a dozen more funds are set up in Russia, they will be able to attract investments and launch new enterprises – hurray for that! As you know, there are giant funds in the world that deal in general with global issues. We also have to move in that direction. Nobody says that once we have set up one investment fund, discussion closed, everything is fine with us. Nothing of the kind.
Question: Will you please expand on the Far East Ministry. You said the Ministry is going to acquire a number of functions. What was the reaction of the Ministry of Regional Development?
Yury Trutnev: It was a good reaction.
Question: And what will they be doing now?
Yury Trutnev: They will deal with the rest of the Russian Federation. The Far East has a special ministry called the Ministry for the Development of the Russian Far East, and it is this ministry that will deal with the Far East. This is as it should be: there should be no duplication. Once we decided that the Far East has certain unique features, let’s say, that it cannot develop under the rules and legislation that govern the whole of Russia. And when a whole new ministry was set up to create these special conditions, it means the ministry should have complete authority and – this is crucial – complete responsibility, so that in due time there will be an accountable entity and so that no one can say it was the Ministry for the Regional Development that did a poor job on the programmes, or the mayor was not good at setting up the zones, but we did our best but failed. The responsibility should lie where the authority is – in one set of hands.
Question: Will the Ministry relocate to Khabarovsk? There was some talk that it will move to Vladivostok or somewhere else...
Yury Trutnev: The Ministry will be based in Khabarovsk. At any rate, no other options are on the table now. There is a proposal to set up one of the project offices in the Far East, but we have not even discussed which office exactly. As I have said, we expect that - as we see it now - a number of development institutions will operate under the Ministry. I can’t rule out that they will operate not just in Khabarovsk or Vladivostok but also in some other areas. It’s time we have to start addressing the issues of the whole of the Far East. I was in Anadyr the day before yesterday, in Khabarovsk yesterday and today I am in Komsomolsk-on-Amur – this is a typical schedule.
Question: Mr Medvedev said first we had the Caucasus and now we have the Far East, both of which need to be addressed somewhat separately. Many say the Caucasus should be better integrated into Russia, whereas here we see that the economy will be oriented towards the APEC countries. So we have opposite trends. Is there any apprehension that if the reforms succeed, the Far East will be less connected to Moscow than to such countries as Japan and China?
Yury Trutnev: I think this issue should be reviewed not just from the political but also the economic perspective. In terms of politics, the Far East has always been and will be an important part of the Russian Federation. In this sense, it is connected to the centre of Russia, to Moscow, by definition because we are one country with the same laws, the same Constitution, the same President, the same Government etc., it’s just a unified, single territory. But this has never meant that all economic ties should only be between the European part of Russia and the Far East, as manufacturing something in the Far East and shipping it to Moscow, Kaluga, Bryansk is way too far and, frankly speaking, bizarre when you consider that there are a lot of developing countries around here that actually need our products. We just have to learn to produce them with the quality they want – this is what was discussed at today’s meeting, basically. And by the way, when we speak about it, we often think it seems a bit utopian, that it will be hard for us to be competitive. Here, in Komsomolsk-on-Amur, the aviation plant clearly shows that not only can we compete, we can outdo other nations in manufacturing certain aircraft, for example.
Question: So far-eastern crabs have never been seen in Ryazan and never will be either, they will all go to Japan? Or fish? That means people in the European part of the country do not see it and will not see it?
Yury Trutnev: You see, when you think of the Far East, you think primarily about crabs and fish, but I am speaking about export-oriented manufacturing.
As for food products, we have to think about that, I suppose. I personally would be happy for all residents of the Russian Federation to have a chance to eat fresh fish, crabs and seafood from the Far East. But we are talking about somewhat different matters: we are saying “learn how to manufacture quality products,” we are saying “learn to process our timber, our natural resources”… We have a different level in mind, we are not talking about shipping crabs to Japan in the future as we used to. We will have to sort it all out separately: how they ship, what they ship, how the tolls are paid, whether the fishing is within the law. It has been reviewed several times but I will also consider this by all means – with respect to fish, timber, and electricity. We have to look carefully at how all these industries contribute to the interests of the Russian Federation. It’s also important that we develop export-oriented industry to promote the interests of the Russian Federation. If we do that, the Far East will yield surplus value, it will ultimately make people living here happier, and that is important.
