Transcript of the beginning of the meeting:

Vladimir Putin: Good afternoon, ladies and gentlemen. I am pleased to see you here again.

We have a tradition of sorts. In past years, we have been meeting with representatives of the leading German companies on a regular basis. Germany is one of our key partners in the area of trade and the economy. Our meetings take place either in Germany or in Russia. The year before last we met in Moscow. Last November we met in Berlin. This year we are meeting in Moscow again. As I’ve just said, Germany is one of our key trade and economic partners. I regret to inform you that Germany, which used to have the largest sales turnover with Russia, has now moved into second place. I believe that we will achieve good results by the end of the year and will probably return to the pre-crisis level, or even exceed it, approaching 70 billion. This is really quite an impressive sales turnover. We expect our mutual trade to reach 50-60 billion, or even 70 billion. Our sales turnover with China may reach 80 or even 90 billion. The People’s Republic of China has replaced Germany as Russia's number one sales partner.

I suggest the following format for this meeting. First, with the media present, I will speak about the current situation in Russia and our assessment of trade and economic relations with Germany. Then we will listen to one of our German colleagues. Afterwards, we will continue our discussion without the media and will openly talk about all the challenges facing the global economy – including Europe, Germany and Russia. We will talk about how to overcome all our difficulties and move forward, developing our ties.

This meeting is taking place amidst hard times, and it is very timely and topical.  Basically every country – the EU countries, the United States, the Japanese economy, which is one of the largest Asian economies, and other states – is dealing with serious problems. The Russian economy is quite stable now but this does not mean that everything is going smoothly here and we do not have any difficulties. All global economic processes are interconnected. Risks that are present in some markets inevitably have an impact on the overall situation. This is why well-coordinated collective efforts of all countries are needed to steer out of the crisis, and the roles of the Russian and German business communities are very important here. Entrepreneurs represent the very core of the economy. They are more sensitive to economic problems and are able to offer effective solutions, including those that could be discussed at interstate level.

I believe that consultations between Russia and the European Union (EU) on issues of current economic and financial policy were useful and will continue in the same vein. This country is ready to join (and has already joined) the efforts to overcome the effects of the crisis, including in the Eurozone. We are prepared to render practical aid, primarily through the IMF mechanisms. In fact, we are already doing this. These opportunities exist in Russia. Even in the period of global turbulence we are preserving the economic growth, stability of major macro economic indicators and serious financial reserves. In January-September 2011 our GDP increased by 4.2%. By the start of next year we are planning to fully overcome the crisis-related economic decline. In fact, we have already overcome it.

Our industrial production is developing rapidly – during the first three quarters of this year it has increased by 5.2%. After last year's drought (in fact, we experienced a drought not just last year, which was disastrous, but for two years in a row, and our farmers have had a difficult time) agriculture has done well and we expect it to grow by 14% by the end of the year.

There are positive trends in housing construction, indicating a steady growth after a two-year decline. As for the labour market – one of the most important indicators of economic performance as a whole – it has fully recovered to its pre-crisis level, and the current unemployment rate is the lowest in the past three years. The labour market is doing better than before the crisis. According to the International Labour Organisation (ILO) standards, in September of this year the unemployment rate reached its pre-crisis level of 6%, and I believe it is even less now. Ms Nabiullina, what is the rate?

Elvira Nabiullina: About 6%.

Vladimir Putin: About 6%, a little less than 6%.

Importantly, the Russian economy is not growing based on loans; the national debt is not large – about 10% of the GDP, and foreign debt accounts for a mere 2.5%. The rest, 7.5%, consist of domestic borrowings. This year we are planning to make our federal budget deficit-free. In the future we will pursue a balanced budget policy at home.

Considering that we are proceeding based on conservative estimates of hydrocarbon prices (next year the budget calculations will be based on lower oil prices), we expect a small deficit of 1.5% next year. But we planned a minor deficit this year as well, and as you see we are bringing it to zero. We are planning a small deficit of 1.5% next year, but we’ll see how international market trends develop.

Inflation rates are falling. In the Russian economy (and our economy is in a markedly transitional stage) inflation has always been high. As you recall, in the 1990s it even exceeded 30% and above, and we are consistently trying to bring it down. Targeting inflation is one of the main goals of our government. This year it will be the lowest in the recent history of Russia – about 7%. The United Kingdom is approaching 5%, which is fairly high for them. For Russia 7% is the lowest figure in recent history. But this is still high and we’ll continue our efforts to lower it. We want to reduce it to 3%-3.5% in the short-term or mid-term perspective. At any rate, we will be working towards this goal.

Our trade balance is retaining a steady surplus – from January to September it amounted to $148 billion; domestic demand is growing and investment activity is intensifying. In the first nine months of this year direct foreign investment topped $31 billion – a 20% increase over the past year.

Needless to say, we are interested in the growth of capital. With this aim in view we are continuing to rid our legislation of red tape, to improve the business climate in the regions and to remove excessive formalities for those who invest in our strategic industries. Of particular value are, of course, investments in manufacturing industries and high-tech sectors, in raising the culture of production and creating new jobs for skilled workers.

For our part, we are going to continue supporting private business. Large infrastructure projects, including ones related to the construction of sea ports and the expansion of railroad networks, are launched on the basis of public-private partnerships. We have serious plans for the construction of motorways, and are set to double this construction over the next decade. With this in mind, we have established a special road fund, which will be formed with money from federal and regional treasury coffers.  Starting next year, we will increase the funding for road construction and expansion projects by nearly one-third. The relevant budget currently stands at 600 billion roubles, and we’ll increase it by 300 billion next year.

There’s been a considerable increase in power generation capacities, a trend that I find particularly positive. An additional 3.5-plus gigawatts was launched last year while this year the figure is expected to top 6 gigawatts. We’ve launched twice as much new power capacity this year, as compared with last year. And in 2012, we are planning to double this year’s figures. In any case, we’re certain to reach the 8 gigawatt mark next year, which will be record-high for Russia.

We are open to broader cooperation and to the consolidation of business ties with our partners. And we believe that the mutual benefits of our cooperation are apparent to everyone. Large-scale joint projects in industry, infrastructure and power engineering provide a good opportunity to make long-term investments, insuring finances against unfavourable fluctuations on the world markets and enabling us to gain a foothold on new emerging markets. To stimulate and solidify economic growth, we need to make the most of our “mutual trust” capital. We’ve accumulated a lot of this with our European partners, notably with members of the German business community. And rather than wasting it, we’ve been steadily building it up in recent years.

Allow me to cite a few figures on the development of bilateral trade and economic ties. In the first nine months of 2011, Russian-German trade grew by 44%, to $52 billion. These figures are comparable to the pre-crisis levels. As I said earlier, bilateral trade may reach 70 billion this year. Russia’s forthcoming accession to the World Trade Organisation will stimulate this even further. By the way, I’d like to thank our German counterparts for their unwavering support of Russia’s WTO bid. Our German partners have consistently supported us at every point along this road, which has taken us 18 years to traverse. In mid-December, the ministerial commission is set to issue a resolution consolidating Russia’s entry to the WTO.

I’d like to point out that the configuration of the Russian and the Eurasian markets is undergoing serious change. We managed to get the Russia-Kazakhstan-Belarus Customs Union up and running this year, and next year we’ll launch a more advanced form of reintegration between these three [post-Soviet] countries by establishing a common economic space. This means that business will be able to operate according to common rules and technical regulations, without any customs and administrative barriers within the Common Economic Space. Let me call your attention to that fact that we’ve arranged this alliance in accordance with the fundamental principles of the WTO. Our Belarussian and Kazakh counterparts have agreed to this, and so our work in that common economic zone will be comfortable, comprehensible and transparent to you as well.

Let me emphasise once again that our agreements related to these two alliances are based on WTO principles. In fact, a large new common market is emerging, which will include countries with a population of 160 million and with broad opportunities for entrepreneurship, including for joint Russian-German ventures. JVs that have already accumulated some experience in operating on the Russian market will find it quite easy to expand operations into Belarus and Kazakhstan.

Importantly, the mutual flow of capital between our countries keeps growing. In the first half of 2011, the Russian economy received some $5.6 billion in investments from Germany. The amount of German investment that has accrued in the Russian economy has reached $29 billion. These days, German businesses are involved in many of Russia’s economic sectors, including strategic ones, and they operate in almost all of the country’s regions. There are more than 4,000 (4,600, to be precise) enterprises with German involvement currently operating in 80 Russian regions.

Russian business activity in the German economy is much lower, though: there are just 620 companies with Russian capital in Germany at the moment. It is in the interest of both our countries to continue our efforts toward finding fresh ideas and launching innovative initiatives for the further diversification of our economic ties.

Energy is traditionally among our strongest areas of cooperation. In this regard, I feel compelled to mention an event that is emblematic for our two countries, and for Europe at large. The first leg of the Nord Stream, a gas pipeline running across the Baltic seafloor, was launched a week ago. You are well aware of the amount of noise and debates this project has caused in Germany and in other countries. I can understand why there’s been a lot of noise in countries that live off transit, but I simply cannot figure out why there has been so much controversy in Germany. It's completely incomprehensible to me. This project is obviously consistent with the national interests of both Germany and Russia.

No one could foresee the Fukushima disaster in Japan. Nor could anyone predict that Germany would respond to this event by putting its nuclear power plants on hold. But just as we were embarking on the Nord Stream project, it was already clear that Europe needed a project of this kind. This has now become a pan-European project, that involves Russian, German, Dutch and French companies, and consumers across continental Europe as well as in the UK. The capacity of the first leg is 27.5 billion [cubic metres]. Once the second leg, which will have the same capacity, is launched next year, it will become possible to pump through as much as 55 billion cubic metres of natural gas. As for the second leg, half of the pipeline has already been laid along the seabed. This means we’ll be able to complete it on schedule, or maybe even ahead of schedule. This project will be another stride toward stabilising Europe’s energy market. I believe this is a common achievement of ours. Let me once again thank our German counterparts, who were there at the source of this ambitious project.

I consider it necessary to further expand the horizons of our energy partnership, especially bearing in mind Russia’s plans to upgrade its energy and fuel complex and Germany’s decision to move away from nuclear power engineering. New opportunities are emerging for cooperation in the creation of environmentally friendly power-generating facilities, such as vapor gas electricity plants. Russian companies are willing to establish close ties in this area – in industry, in construction and in the supply of raw material.

One other topical trend is (the orientation toward) higher energy efficiency and the use of renewable sources of energy. For Russia, this is also a priority, and here we can kill two birds with one stone. First of all, this has to do with environmental protection. Secondly, a real incentive is being created for the re-equipment of industry and of the housing and utilities sector on the basis of advanced technology. But when talking about renewable sources of energy, we should categorise environmental protection as a priority. I don’t think that humanity needs those kinds of renewable energy sources that are more destructive to the environment than hydrocarbons. We are hoping for fruitful cooperation with German companies, who are recognised as world leaders in the field of energy-saving technology.

Of course, the Russia-Germany economic partnership is not limited to energy. We cooperate intensively in mechanical engineering, transport, the automotive industry and in shipbuilding. In this regard, particularly noteworthy are the sizable investments made in the Russian economy by German heavyweights such as Siemens (1 billion euros) and Volkswagen (which, on November 4, launched a new assembly line in Russia’s Nizhny Novgorod, and the company’s plant in Kaluga turned out its 300,000^th automobile in October). I know that our German partners’ ambition is to raise their annual output to that number. Today, Volkswagen is the fastest growing brand in this country, while the Russian car market has scored the biggest increase in sales in Europe this year, and the prospects look good – the market is rather big. You probably know that during the last year more cars were sold in Russia than even in India, and there is a huge difference in the population. The capacity of the Russian market is far from depleted. This shows once again that the benefits granted to investors involved in industrial assembly are fully justified.

We have had many discussions during the process of Russia’s accession into the WTO, about how to organise this work in the future so as not to let down our investors and to fulfill all of our promises to them, on the one hand, while meeting WTO requirements in car assembly, on the other. We have reached a number of compromises, and Russia will shoulder part of the burden in order to honour its commitments to the investors. We are doing this in order to increase the technological level of the automobile industry and to saturate our market with modern competitive goods. 

In conclusion, I will touch on one more important issue. In the Foreign Investment Advisory Council (FIAC) we regularly meet with foreign business executives and together, we decide how we can improve the business climate in Russia. As a result, we have simplified the issue of work visas for highly qualified foreign specialists. More than 11,000 work permits have been issued under the new regulations. We must continue removing the barriers that get in the way of business. This fully applies to visa barriers between Russia and the EU. It is no secret that the need to obtain visas complicates business exchanges, especially for small and medium-sized companies. This is a problem for big enterprises as well. There have been cases when the signing of major contracts was ruined by formal mistakes made in a visa form, and entrepreneurs were blacklisted – conditionally, but still, they did make some formal mistakes.

I emphasise the visa issue in this audience because I know that many German entrepreneurs not only share this view, but they also consistently advocate a mutual easing of visa procedures (and such issues can only be resolved on a reciprocal basis) and the complete removal of visa barriers.

Thank you for your attention.

Please, go ahead. Thank you very much.       

Dr Eckhard Cordes, chairman of the Board of the Committee on Eastern European Economic Relations and head of Metro AG (via interpreter): Mr Putin, Minister Nabiullina and Minister Shmatko, ladies and gentlemen,

I would like to thank you very much for this conversation and for this meeting on behalf of the committee and representatives of the German business community in this hall. This has almost become a tradition. For us, our meetings with you represent the pinnacle of our current business year. We are once again holding our meeting in this house that was once built by the famous Russian industrialist Morozov. It has a unique architectural design… I recall that he decided to build this house during one of his foreign trips. This shows that entrepreneurs have always had an international mentality and have made their own contribution to mutual understanding among nations. There is symbolic value in the fact that in the past, this house accommodated the headquarters of your society of friendship with foreign countries.

I recall how at a meeting in Berlin a year ago you spoke about opportunities of streamlining the economic space from Lisbon to Vladivostok. Mr Putin, the German business community is actively supporting this goal.

You have already mentioned the commissioning of the Nord Stream and Russia’s forthcoming WTO accession. These are very important steps – great steps, even, but without your personal contribution we would not have been able to celebrate these successes, and with this in mind we’d like to express our gratitude to you once again.

Russia offers long-term prospects for foreign investors. We are ready to take an active role in the modernisation of your country, and we believe that the international community is injecting a lot of momentum into this process. Your accession to the WTO allows Russia and its European partners to expand their cooperation, and eventually to establish a free trade zone between Russia and the EU. We need long-term prospects such as these.

It is with great interest that we have learned about your idea to create a Eurasian Union, and we believe that this will become a very important bridge between Russia and Asian countries on the one hand, and the EU on the other. I think that in the future we will be able to create a common economic space between the EU and the Eurasian Union. We perceive Russia as an inextricable part of Europe, a reliable supplier of energy and an important investor, especially for Germany. Therefore, we welcome all initiatives, including Mr Shmatko’s recent proposal to this effect.

It goes without saying that Russia is also our partner in modernisation. The EU and Germany must take even more bold steps in developing their partnership with Russia – only in this way shall we be able to hold our own in global competition.

As for visas, I have nothing to add on this issue. I can only say that all those present are enthusiastic supporters of the advancement towards visa-free travel. We are gradually taking the necessary steps, in Germany as well, and these are important steps.

We must enhance our cooperation in raw materials. As for oil and gas supplies, we could not have dreamt of a better partner than Russia over the decades, and we would like this to continue. The Russian-German strategic working group in the economy and finance has already discussed possibilities for further advance in this direction. We are planning to establish a bilateral business platform which we will probably be able to discuss today. The Committee on Eastern European Economic Relations supports this initiative and we will enthusiastically promote it, along with other colleagues.

There is also the possibility of close cooperation in sports – both Russia and Germany are great sports nations. We’d like to contribute to the success of the Olympic Games in Sochi and are already taking practical steps towards this end. We would also like to help Russia as it hosts the FIFA World Cup in 2018. As for the development of infrastructure, transport and logistics, construction of sports facilities and tourist management, we will be pleased to send representative delegations to Russia in the next few months for talks in its profile ministries and departments.

We’ll present other ideas from the German business community to you during our conversation. They deal with the development of the car industry, tourism, machine-building, high technology and agriculture. Of course, we will talk about the challenges that are being faced by the business communities of Russia and Germany. Needless to say, German investors want to have more chances at tenders and contests in Russia and more support to small and medium-sized companies, as well as the further development of legislation in Russia, and the struggle against corruption and red tape. We consider these goals to be major priorities and we are pleased to note that they coincide with your goals. Of course, we have seen progress in this area in the last few years. Mr Prime Minister, we are very grateful to your efforts in this direction.

In conclusion, I’d like to wish you success in the upcoming presidential elections. Russian-German economic community is largely guided by the principles of development that you established during your first two presidential terms. Therefore, we were very pleased to learn that you have decided to run for the presidency in 2012. We will celebrate many important dates next year and I’d like to congratulate you on our future anniversary and invite you to visit Berlin next October.

There are pleasant events of another kind as well. Cross Years of Russia in Germany and Germany in Russia will take place in 2012. The Committee on Eastern European Economic Relations will take an active role in preparing and holding them. Many companies represented here are already funding these projects. I’d like to conclude my speech by saying that I hope we will see you again soon. We are open for further discussion; we are very happy and look forward to further intensive conversations with you. Thank you very much for your kind words.