Transcript of the meeting:

Igor Shuvalov: Ladies and gentlemen, members of the Federation Council, good afternoon. The topic for this Government Hour is especially important. It is good that we can discuss this issue together today, since the St Petersburg forum, one of the most important investment forums in this country, has just finished. I think this year's forum was one of the most interesting. Many foreign investors, experts and members of foreign governments were invited.

This year we discussed to what extent our partners accept our plans for modernisation, whether we are ready to work with our Russian and foreign partners to change the structure of the economy of the Russian Federation and, in general, what should be done so that investment in Russia takes on an entirely different meaning.

As you know, President Medvedev has recently said a lot about modernisation. A special commission has been set up, of which the president is the head, to identify priorities for modernisation and look at specific projects.

As of today, this commission has reviewed more than 38 projects and issued concrete instructions for their implementation. It has already decided that some other projects should be carried out. This is technical, precise work.

Of course, in connection with the efforts of the government of the Russian Federation, we realize that any modernisation and any plans for modernisation require capital. Modernisation requires huge amounts capital and access to latest technology. And so, in order to attract this capital, we must drastically change our attitude to investors.

We used to talk about our attitude to foreign investors, but the terminology has changed, and now we talk about both our own internal investors, that is, Russian investors, as well as foreign investors. The potential for Russian investment is enormous; many Russians have accumulated substantial capital. But we should also think of how to attract foreign companies, banks, investors and businesspeople so that they can effectively operate in the Russian Federation.

Investment climate is a very broad term with many aspects, and it certainly depends on a country's overall attractiveness to business and how free a country is to develop its own potential for entrepreneurship. We cannot boast of having provided these freedoms. We cannot say that Russia is sufficiently attractive for capital. But at the same time, we can say that in 10 to 15 years we have done much to create the institutions for monitoring investment and making it more stable.

At the same time, we are closely following the ratings of the Russian Federation put out by the World Bank and loan agencies, and we understand that our current position leaves much to be desired. We often find ourselves at the bottom of the first hundred. Our ratings in 2009 were sometimes below such countries as Ukraine, Belarus and other CIS partners.

How objective are those ratings? Ratings, as you know, are both objective and subjective, but we believe that in recent time the image of the Russian economy does not coincide with the current reality.

For all of its difficulties and constraints due to infrastructure, the Russian economy deserves a completely different place in these ratings, but we also understand that we must work to this end in the near future.

Why am I starting off with this? The circumstances surrounding business and investment are very heterogeneous. But now we've picked out the most painful issues for our work, the most painful or the most complicated issues, because we want Russian and foreign businesspeople to really feel in a year or two that the investment climate has changed for the better, and that there are more investment freedoms. And here we are witnessing a significant increase in dialogue between the government and the business community, and we are moving toward our goals.

We've chosen several goals for 2010 and 2011. I'd like to say a few words about them.

First, we need a simplified migration system. We need highly qualified specialists for modernisation, and we are also short of workers for construction projects and in the overall economy. We are often short of labour, both skilled labour and ordinary, unskilled labour.

With your support in the State Duma, we've decided to simplify migration rules for highly qualified specialists who are ready to work in Russia long-term, for three years or more. Now there will be special procedures for inviting such specialists to this country and for issuing residence permits to them. Both chambers of the Federal Assembly and the president have approved this draft law. Now it will be easy for such specialists to receive a multiple-entry working visa for Russia. The visa will be issued for a term of up to three years. Employers, the Federal Migration Service and consular offices will use a simple procedure for issuing such permits.

At the same time, we have kept in place restrictions for workers invited to Russia according to the quota system. This issue is controversial at present. Trade unions and defenders of the rights of Russian workers believe that we should not allow competition in the labour market, or rather unwarranted competition in the labour market, and that we should primarily take care of those who live in Russia and could get such jobs. Others argue that the element of competition should be preserved in order to motivate workers to build up their skills and prevent unjustified increases in their wages and salaries.

I have to admit that these are difficult questions. We have not yet arrived at any agreement. We are discussing these issues with Deputy Prime Minister Alexander Zhukov and Minister of Healthcare and Social Development Tatyana Golikova. I hope that in autumn we will manage to agree on extended freedoms in the labour market and will report on the appropriate conceptual approaches before this body and the State Duma, because it will be necessary to adopt a new federal law on this score as well.

However, as regards the migration policy we still have a long way to go in terms of both adopting regulatory acts and enforcing them. The experts with whom we have held preliminary consultations and whom we asked for their opinion on what is happening in the Russian Federation tell us that on the whole the attitude to foreigners is rather unfriendly. This is manifested not only when somebody who wants to live and work in the Russian Federation files for a work permit with a consulate or embassy abroad, but also on their arrival in the Russian Federation, when they go through customs and passport control and all the way down the line. It shows that the Russian Federation does not provide a friendly environment for the professionals we need to carry out modernisation.

Our entire system - both social and government - is not conducive to attracting these people and is fairly tough. People complain that they are unable to invite their relatives even on a guest visa, they have to clear many hurdles in order to invite their friends to visit Russia as tourists, that all the procedures are mired in red tape, which hardly contributes to people feeling that they are citizens of the common European continent, so that European families can freely come to Russia and visit various Russian cities.

The second area is administrative barriers to investment projects. We assume that there are many people who would like to build up this or that project. They may be industrial or commercial projects in retail services, social amenities, you name it. Well, any projects for which one must obtain a permit in this country... involves a very complicated procedure.

We have carried out surveys across Russia to find the best and the worst performing regions. I can report to you that at the very best, it may take about six to eight months from the moment the investor applies for a permit until all the necessary approvals are issued. At worst... there are regions where it takes two and a half years and sometimes up to three years. This is despite the fact that we have federal legislation that is the same in every region, we have the Urban Development Code and we have civil legislation. But you can imagine the huge gaps in municipal and regional legislations and how complicated these administrative procedures can be.

In order to build a social or commercial facility one has to pass through all these "circles of Hell" in order to be issued a permit three years later. This is not the kind of investment climate we want to see in Russia. It is as if we do not need large amounts of capital investments because the procedures do not favour this.

And yet we know that the murkiest situation is connected with extortion, with the distribution of land and with obtaining construction permits. These are interconnected things. Cumbersome procedures are involved in getting a permit to build, getting land and making sure that bureaucrats grow rich. This is the resource that they cherish most of all.

That is why this year we will work according to plan. The plan has been submitted to the Prime Minister at a special meeting with him. That plan includes legislative measures, including amendments to the Urban Development Code, and administrative measures.

It has also been decided that a meeting of the Regional Development Commission headed by Vladimir Putin will discuss the issue and review the best practices in such constituent entities as the Rostov Region, for example. From the data available to the government, the Rostov Region has been one of the first to make these procedures transparent and comparatively quick. There are regions, however, where all this takes a long time and where things are not transparent enough. We will consider both the best and the worst practices at the Commission meeting. Relevant directives will be issued to the heads of regions so that in the foreseeable future, within six to twelve months, these administrative procedures are streamlined and brought up to the best standards.

We assume that if there are regions that have already achieved the desired results, there is no need to invent anything new; their new practices should simply be adapted and those who cannot achieve similar results should be asked why their procedures are so opaque and time-consuming.

Our target is to get the majority of Russian regions to at least ensure that the standard deadlines that we will set are met, if they cannot unify all the administrative regulations concerning capital investments and the start of construction. With the regions that manage to exceed the targets, if today the target is six to eight months and they manage to cut that time significantly, then of course we will constantly publicise this and we will try, for example, to introduce various grants and measures and financial stimuli for such Russian regions.

Next point. We have very complicated procedures for companies to get connected to power grids and other utilities infrastructure. You know that it is not enough to draw up a project and obtain the necessary approvals and come to an agreement with the bureaucrats, it is also necessary to connect it to the gas supply and electricity supply and the utilities network, to water supply, sewerage and so on. All this is a complicated and very costly process.

We have also prepared some plans for work with the constituent entities of the Russian Federation and natural monopolies and infrastructure monopolies such as the Federal Network Company, the Interregional Distribution Grid Company, Gazprom and others to make sure that investors enjoy absolutely transparent and clear-cut rights that give them access to such infrastructure.

We have been receiving a lot of complaints from investors over customs administration. Indeed, the largest number of complaints have to do with customs administration. However, I must say that the complaints we have received from foreign investors are different from those that come in from Russian investors. And to be fair, it must be said that customs authorities have already done a lot of work to improve administration and to make their work more transparent.

What are the remaining problems? The problems are that a whole infrastructure has been created which makes it possible to avoid paying all the customs duties and to use a special infrastructure that makes it possible to custom clear flows of goods by semi-legal methods. This means that those who do not go through this infrastructure are at a disadvantage because they have to pay the full amount of customs duty, which naturally makes them less competitive in the market. We should keep this in mind when we deal with complaints. If an entrepreneur or a person importing goods is discriminated against or faces unreasonable charges, this is one situation. But not infrequently we deal with a very different kind of complaint: they don't want to pay the full duties but they want to pay the same amount as the semi-legal infrastructure.

Of course we will combat this practice; it should not be tolerated. We will now try to rectify that situation using the Customs Code of the Customs Union, which has been ratified and signed by the Russian President, and using the draft law now pending before the State Duma, the Law On Customs Regulation.

As you know, the Customs Union is being launched on July 1. A single Customs Code will be effective within the Customs Union on the common customs territory. Let me tell you frankly that we do not yet know the format of the Customs Union, whether it will include the customs territories of three countries, including Belarus, or just Russia and Kazakhstan in a bilateral format. Nevertheless, the legal framework will be the same: the Customs Code of the Customs Union, and in the Russian Federation the Law On Customs Regulation.

These laws (the international treaty and our national law) greatly simplify and harmonise many customs procedures. We have studied the experience in Kazakhstan and Belarus in areas where our partners have made progress, and we sometimes looked at the experience of the European Union and we have tried to draw on the most modern elements in the practices of the customs bodies, in framing our own customs legislation.

Of course we do not expect all the administration to change overnight, and we cannot expect all these "grey" schemes to disappear and businesses to stop complaining about the actions of the customs agencies as of July 1. Nevertheless we think that now we have an opportunity, within the Customs Union, and by adopting relevant international and domestic legislation, to make great improvements. We hope that the situation will change significantly in one and a half to two years' time.

I think the government will make a detailed report on the Law On Customs Regulation when it is debated by the Federation Council. We hope that the draft law will pass the second reading at the State Duma soon and then will go to the Federation Council.

As for tax policy measures, the President of the Russian Federation spoke about them in detail in his address at the St Petersburg Economic Forum, Vladimir Putin spoke about it when he addressed the State Duma, and the Minister of Economic Development Elvira Nabiullina and the Finance Minister Alexei Kudrin have been speaking about it in detail.

We believe the measures that are currently on the table concerning attracting investments, including the 14% tax, the social tax scale, the additional opportunities connected with the profit tax, the innovations aimed at encouraging the use of energy efficient equipment and putting energy efficient equipment on balance books and other measures will enable us to change the structure of the economy on the one hand, and will provide a financial stimulus for the entrepreneurs engaged in modernisation, on the other hand.

There have been many complaints and proposals connected with the fact that the bureaucratic system in the Russian Federation is not geared to supporting foreign and Russian investors and that they meet with great difficulties in their entrepreneurial activities.

Only some regions have authorised officials appointed by governors with whom one can lodge a complaint about the actions of various officials or seek to resolve a complicated situation that is emerging in the market.

We have put in place a uniform procedure at the federal level. There is the Foreign Investment Advisory Council, which currently operates under the Ministry of Economic Development. The Ministry has a special department (headed by Sergei Belyakov) which prepares materials on all the complaints. The materials that can be routinely considered at the Ministry of Economic Development are considered and compromise solutions are offered to parties to disputes or to the regional executive bodies if we feel that something is unfair and needs to be changed. If the dispute is very serious, it is put before the commission which I have been heading following the Prime Minister's decision. I consider such disputes. These disputes involve both Russian businesspeople abroad, when they meet with some problems, and foreign investors in the Russian Federation. We examine these disputes and propose various solutions. And I can tell you that some companies, such as IKEA, Procter & Gamble and others have had disputes resolved in their favour after Russian officials stepped in.

In general, we believe that such a mechanism must exist everywhere, in every region of the Russian Federation and in every large municipal entity. The country has many cities with a population of more than 250,000 that can already attract investments, so mechanisms should be put in place that protect the rights of foreign and Russian investors and enable investors to seek redress.

On the whole, the situation is changing, but it is changing too slowly. I can tell you this: we proceed on the understanding in our work that unless we quickly change our attitude to business and come to treat it as people who create - of course they create together with their employees, they create together with the people whom the trade unions protect - but they are the most advanced body of people who create a new quality of life and new economic values. Unless we change the attitude of society to business and come to regard business leaders as the people called upon to create the new, as people who are primarily responsible for modernisation, there will be no serious modernisation. And of course it is not the government but business that is responsible for modernisation; the government of course is responsible for laying down fair rules of the game and for punishing those who break these rules. So this is a challenge for the federal government, the regional governments and undoubtedly the legislators that can only be met together.

As I said, several important laws are in the pipeline. We will submit them to you. I am ready, together with my colleagues, to defend these laws. Thank you.