27 june 2011
Deputy Prime Minister and Finance Minister Alexei Kudrin speaks at Renaissance Capital's 15th Annual Investor Conference
Transcript of Alexei Kudrin’s speech:
This conference reflects the high international interest in investing in Russia with the elections just around the corner, even though everyone is carefully calculating the political risks. Both the government and investors are focused on the investment climate and what should be done to ensure that investments are protected and investment income is predictable. We are working on this daily.
I am playing an unusual role today. I won’t be making a speech. There are so many important and interesting speakers here. I would simply like to wish the best of luck to this conference.
In the next few weeks, we will determine the most important components of our financial policy, and the key parameters of our budget and tax policy. Many of you know that heated debates on the corporate tax burden are presently underway, especially social security contributions.
The president chose a plan to reduce the social tax burden presented at the St Petersburg Economic Forum. I can definitely tell you now that the previous decision will be changed and the social security contributions will be lowered from the 34% set for this year. It’s good that the government corrects its mistakes.
At the same time, we have not yet found a systematic solution. We have to postpone it for two years. We will have to develop a broader approach to this, including a set of long-term policies to stabilise the pension system. Neither the 2008 decision, nor this year’s decision, has ultimately resolved the problem.
What’s most important is that we realise that there is no easy solution. Many countries are now faced with the same problem and they are handling it differently. Some are raising the retirement age, and others are restricting the indexation of pensions.
Countries will continue facing global market challenges, including their sovereign debts at least for the next few years, as long as their budgets run high deficits. We have emerged from the economic crisis almost unscathed despite a significant drop in the GDP, mainly caused by the economy’s focus on oil and gas. This sector still accounts for an overlarge share of the GDP.
Yet, we understand that, although the crisis is over and we can relax a bit, there are still many unresolved issues. Oil production will not grow in Russia for another decade. It will remain flat on the current level in physical terms. This happens because the old depleted oilfields in the west will be gradually replaced by new ones in the east, but there will be no growth. The fact that a sector that used to be the locomotive of the national economy will show no growth over ten years, suggests that we are facing another challenge – that of creating a developing environment for the other industries. We must diversify the economy. Growth in the other sectors must exceed the average and top 10%.
What key decisions can the government make to improve this situation? Russia remains a very large economy, which requires large investments in infrastructure. The government should define the boundary of what it is prepared to invest in public benefits, such as roads, infrastructure, and how much it expects private investors to contribute.
I think that, in the next decade, this would mean a shift towards private financing and private initiatives. The government will invest less in companies as it does in various industries now. In the past, it spent a lot on the aircraft, shipbuilding and the defence industries. Now, it is the pharmaceuticals industry. We have a ministry that is proposing greater investments in the auto industry, which is quite competitive as it is. Therefore, we should place an emphasis on private investments.
This decision will be a major step towards the government’s withdrawal from the economy. In the next three to five years, the government will divest controlling stakes in nearly all of the key companies it now controls. I am referring to the financial sector, and oil, telecommunications and transport companies, such as Sovcomflot, Aeroflot and others. In the next three years, we expect to attract investments by privatising the government’s stakes. I hope that this step will improve corporate governance, make these companies more transparent, and inject private investment into their development. We’ll be trying to secure every rouble of investment, more thoroughly and carefully than we are doing now.
I will not elaborate or mention the political problems we are still facing. I would like to wish you all success. The elections will come and go, but the necessary continuity in politics will remain, and a forward momentum will be added to economic reforms because the financial crisis has uncovered many important issues.
The investment situation is clear. It requires government support and an improved investment climate. Those who will come to power after the elections – political parties or the government that takes over in May 2012 – will take full responsibility for these issues. We will submit our proposals soon, mainly concerning the budget and tax policies, the international financial centre and the development of the national financial system. We will discuss all of this in the coming months.
Thank you very much. Good luck.