Vladimir Putin’s speech

Good afternoon,

First of all, I’d like to congratulate you on your professional holiday – the Day of the Russian Entrepreneur.  I wish you all the best.

The theme of today’s forum is a non-oil and gas model of a social state. This is much better than the natural resources model of a non-social state. Today nobody can say that we have a non-social state but, regrettably, our economy is primarily driven by natural resources. We have a social model and this is obvious from the structure of our budget. We allocate a huge amount of money to resolve social issues, relying largely on the natural resources sector – the oil industry makes up 40% of our budget. But we cannot afford to continue like this. We must do a lot to fulfil the slogan of your forum: “the non-oil and gas model of a social state”. I am very pleased that the positions of the government and the business community on these issues coincide.

We are setting ourselves an ambitious goal – to make Russia one of the world’s top five economies in a decade and to increase the GDP per capita from a little over $19,000 today to $35,000 and a bit more. The living standards of our people, as well as the quality of education and healthcare must be comparable to those in the leading world economies.

It is clear to us that we cannot reach such objectives by using our traditional sources of growth and bleeding dry the natural resources model of development. In the early 2000s this model played, and still continues to play, a major role in our economic development. However, it was obvious even before the crisis that the prospects of this model are limited and are shrinking all the time.

Some 700 companies account for almost half of our budget revenues. All of us understand what is going on. We also recognise the high risks involved in this arrangement. It is impossible to build our strategic development on a few export-oriented industries. First, studies show that even with today’s high prices on our traditional export products, the export of unprocessed raw materials can no longer drive our growth. Second, an economy driven by natural resources puts us on one of the lowest positions in the world division of labour, and, most importantly, it does not allows us to enter a new stage in the development of our human resources and reach the standards of the 21^st century. All of us understand that people will not settle for this. They won’t reconcile themselves to this kind of lifestyle.

We cannot allow the fulfilment of our growing social commitments, the improvement of living standards and the struggle against poverty to depend directly on factors outside our control. These factors simply do not depend on us. I’m talking about the ups and downs of prices of raw materials on the world market. The way out is to drastically increase our resistance to all kinds of outside shocks. We must consolidate the economic foundation of our political sovereignty and make our economy technologically independent. This is why we are talking about the need for its qualitative growth and are placing our bets on the domestic market and modern production.

Look at what is happening now in some European countries that are stable even in the current circumstances. They take pride in their reliance on the domestic market. They are developing exports but the domestic market is their source of growth.

We must give priority to the development of all non-oil and gas sectors. I’d like to emphasise that I’m referring to the modern industry capable of producing the competitive products required in Russia (and primarily in Russia) and the rest of the world. This economy must be based on such basic market notions as profitability, demand and return on investment. Therefore, business, and in fact only business, can become the driving force of this project. The government can only help it by creating the right conditions. I’m talking primarily about our average production businesses, the new generation of modern entrepreneurs that are positioning themselves more and more confidently as the foundation of this country’s future development, linking their own future and the future of their children with this country. They achieve success not with the help of revenues from natural resources or through the successful sale and resale of assets, which is also, of course, good for the business community. But, first of all, they achieve success by opening cost-effective production facilities, introducing advanced technologies and constantly upgrading corporate management standards.

Yesterday, I addressed a meeting dedicated to launching the Strategic Initiatives Agency (I hope many of you have heard about it). At that meeting, we talked to such ambitious, and generally young, people who successfully promote projects. Not only do growing and successful companies vie with imported products on the domestic market, but they also strive to enter foreign markets. And they enter such markets. They gain a foothold in such markets, no matter how difficult this may be. We can find similar examples inside the traditional industries: innovation sectors, agriculture and the service sector. I am confident that Russia has everything necessary to facilitate an industrial production breakthrough. I repeat, human resources, active, enterprising and talented people are our main asset.

Despite all its current problems, Russia is a country with some of the highest education standards, as well as strong traditions of design, production and engineering schools. You, too, know an example that I have repeatedly mentioned. The latest Boeing airliner, developed by that successful company, was also made with the help of a Moscow-based centre employing almost exclusively Russian engineers, who contributed 40% of the intellectual labour. The new Russian industrialisation should create the demand for high-quality human resources, for new engineering and design centres, for the inventions of Russian scientists, for intellectual products of university and specialised science and, of course, those of academic science.

I suppose that expanded vocational education, primarily secondary and primary education, is a priority task facing the state and the business community. We must see to it that this kind of education meets the demands of modern production. We must renew the technical base for training specialists. It is not right to have future specialists trained with the help of equipment that became outmoded 20 or even 30 years ago. I would like to stress that all of us need to work to raise the prestige of industrial careers and to enhance the public significance of skilled labour. In my opinion, the creation of cost-effective, modern and well-paid jobs is a highly important social mission of the business community. In this regard, I would like to note that ways of facilitating the improvement of living standards and large-scale and long-term investment in the social sphere are pivotal items on our national agenda. At the same time, we must try not to increase the already heavy tax burden of the business community and the economy.

I understand that we are now working hard to reduce social taxes. This is a difficult objective linked with the well-known scale of calculations and the formation of pension rights. But I proceed from the premise that we must accomplish this objective. Right now, I’m not ready to mention the final parameters. But the government, the Presidential Executive Office and the president have reached consensus on this issue. We all believe that this has to be done. We need to make some calculations. No mistakes can be allowed in this sphere.

I can see trade union representatives sitting here, and they do not look happy. Accordingly, we must take into account the interests of all those involved in this difficult process, no matter what. And we will do this, we will travel this road, we will ask for your advice and the advice of trade unions. The law requires us to do this. I hope we will reach an acceptable and constructive solution that is suitable to every party. Most importantly, such a decision must facilitate the country’s development. The massive creation of high-quality, well-paid jobs could become a systemic solution in this sphere.

First, we expand the tax base. But, more importantly, we obtain additional resources for social development. High wages and decent jobs serve as an incentive for any person. They guarantee the well-being of families, make it possible to tackle significant problems and to build up attractive retirement plans.

Finally, poverty, social ills and problems recede where good jobs have been created. And when we speak of the need to boost labour productivity by 100% in the next ten years, we mean that this objective is linked with living standards and the social well-being of Russian citizens. Higher labour productivity means that the economy will get rid of ineffective, underpaid, substandard and un-prestigious jobs.

I believe that we must create up to 25 million modern, high-quality jobs in the next 10-15 years. I believe Russia can accomplish this rather difficult objective. Naturally, this must be done by modernising available production facilities and creating new platforms. The state, the business community, the regions and all of society must pool their efforts in order to accomplish this objective because this project is in the interests of the entire nation. And this will obviously embody the human resources of the new national industrialisation.

We must pave the way for thousands of new business ideas, companies and production facilities, so that new enterprises and production platforms grow quickly inside all non-oil and gas sectors. Consequently, we must do our best in order to enable everyone to bring to life his or her business and production dream here in Russia, so that it is profitable and comfortable to channel labour, efforts and investment into the new industrialisation.

Certainly, Russia needs modern technologies and development-oriented investment. Fixed capital investment is to reach at least 25% of the GDP in the short-term. This is not an impracticable task because such investment already totals 19.5% of the GDP. I would like to stress that this primarily means private Russian and foreign investment. We must use our many objective competitive advantages wisely. Russia has these advantages. Not only does Russia post high economic growth rates, but it also has a large domestic market with constantly growing and guaranteed demand.

Last week, I met with representatives of leading global investment funds, and I can confirm that they are interested in working in Russia. Such interest is growing, and I’m confident that it will continue to grow. Objectively, successful IPOs of leading major and medium-sized Russian companies speak to the domestic market’s attractive investment climate. Incidentally, medium-sized companies are also using IPOs to gain capital. This is happening in advanced sectors such as pharmaceuticals, engineering, the food industry, energy-efficient technologies and transport infrastructure.  

Doubtless, a good business climate is a key condition for attracting investment and launching new production facilities. We are aware of the existing difficulties, and we openly discuss them with the business community. I would like to thank Business Russia, Opora Russia, the Russian Union of Industrialists and Entrepreneurs, and the Chamber of Commerce and Industry, as well as other business organisations that have supported the idea of establishing the Russian Popular Front. I am confident that we will have additional opportunities to develop coordinated decisions in the interests of improving the business climate. And I am not referring to the federal level only, though there are also enough problems. I am referring to the regional and the municipal levels, which experience a host of problems. A host! We are aware of this, but we need to resolve them in a civilised manner, without any hurry. We need to create an environment that will protect businesses from excessive supervision by different authorities, and maintain order in those spheres and fields that are directly linked with public service. 

Something has already been done in this field: the procedures for starting businesses and implementing investment projects have been simplified; the number of different inspections has been reduced; unlimited licenses as well as modern security systems and quality control systems (for goods and services) have been implemented; technical regulations and standards have been updated. We are steadily removing various administrative barriers. And it’s important that bureaucracy creates no new barriers in place of the ones that have been removed. We need to achieve this, since the barriers are springing up like mushrooms – one is removed, another one is erected. That’s the way our country is. We need an administrative culture alongside technological culture, we need to develop it, but this requires time and constant attention to these issues.

I would like to assure you that we will pay attention to these issues. We are removing these barriers successively, as I have already said. We will examine the issue of improving the so-called regulatory impact assessment system at the government meeting today. Businesses directly participated in developing the system. All the hidden barriers for businesses and investments contained in regulatory and departmental acts and resolutions will be sorted out. This is what this system provides for.  

We have created the Strategic Initiatives Agency, as I’ve mentioned, and its work is aimed at supporting and broadly promoting promising projects, improving the quality of state regulation and administrative procedures, and spreading the best regional practices for supporting entrepreneurship and business.

As you know, we intend to draw up a ranking of the most attractive regions from an investment standpoint every year. The ranking will be based on the number of jobs created, the number of new enterprises started, the amount of investments brought in. These objective figures ought to become one of the key criteria for assessing governors' performance. And I believe that we need to introduce such assessment criteria at the municipal level as well. Of course, such transparent public assessment of the regional authorities (and hence the municipal authorities) must serve as an important tool to develop the competitive environment and break up monopolies in local markets. For our part, we will continue implementing the programmes aimed at developing competition and creating equal conditions for starting businesses, since real competition results in higher quality.

Esteemed colleagues,

We are ready to provide support in all of your endeavours. I believe you are aware of our work, which is meant to limit the growth of duties on services of natural monopolies to the rate of inflation. This is quite a difficult task, and quite a sensitive one for many of the fields. But this will definitely help to reduce all of your infrastructure expenditures. The state is ready and willing to support the innovation activity of enterprises and, among other things, to co-finance the expenses of research and development companies. For instance, as you are aware, we allocate funds via companies on a 50/50 basis as part of joint projects with universities. The company invests another 50% and makes an order to use this intellectual product manufactured at the universities and higher schools. We will use the capabilities of the government and development institutions to promote Russia’s high-technology exports. In turn, the launch of the national contract system must form clear procedures for placing state orders, turn them into the tool for supporting competitive, high-quality Russian products.

Of course, we intend to finance innovative and infrastructure development projects directly from the federal budget, and we hope this will have a multiplier effect, stimulate the development of related enterprises and expand the area for private initiatives. The automobile industry is a good example, as you are well aware. Not only did the broad support of the automobile industry help save it, but it also resulted in the creation of networks of small and medium-sized enterprises around these giants.  In fact, dozens of modern jobs are being created by the medium-sized companies around major enterprises.

I would like to highlight the following in conclusion: we are greatly interested in the growth and development of entrepreneurship so that every experienced and ambitious person can start his own business. Incidentally, many of you are aware, though maybe some aren’t: during the economic downturn we allocated federal resources for setting up businesses as an anti-crisis measure. And I would like to reiterate myself, though I’ve already spoken about it publicly: I didn’t think it would work, frankly. If a person was laid off, would he care about starting his own business? It turned out that he would. Thousands of new small enterprises have been created, which means that our people have the potential, and they are entering this sphere and succeeding there. This fact shows that entrepreneurship can be developed in Russia. Thousands of enterprises were built from the ground up during the downturn.

I wish success to all the new entrepreneurs and those present here (and some of them are quite successful and advanced). I hope that we – the entrepreneurial community, trade unions, and the government regulating this activity – will always find the best ways to develop the country, as we used to.

Thank you for your attention.

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Vladimir Putin’s concluding remarks:

To conclude, I would like to say that I hope your work will continue and will be of interest. The last speaker called the governors ‘innovative’, which is a very suitable word. ‘An innovative governor.’ I’ve never heard such a phrase before. I wish we had innovative municipalities, innovative governors, innovative businessmen, and even an innovative government. That is the key to success! Thank you for today’s discussion.