21 september 2012

The plenary session of the 11th International Investment Forum in Sochi


The 11th International Investment Forum Sochi-2012 will continue its tradition this year of discussing the most pressing issues of economic development. One of the main focuses of the Sochi-2012 forum is the competitiveness of the economy and its various sectors in a rapidly changing world.

Representatives of 40 countries and heads of European and Asian diplomatic missions will take part in its work. Out of the 60 Russian regional delegations that applied for participation, 37 will be led by regional governors.

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Dmitry Medvedev addressed a plenary session at the 11th International Investment Forum Sochi-2012. He also visited the International Investment Forum’s exhibit area, met with businessmen and took part in discussions as part of the International Investment Forum.

The following documents were signed in the presence of the Prime Minister:

– Memorandum between the Strategic Initiatives Agency and the Ministry of Communications and Mass Media on cooperation in implementing projects and initiatives;

– Agreement between Gazprom and Rosneft on cooperation in the joint use and building infrastructure facilities for developing shelf deposits;

– Memorandum on cooperation between Vnesheconombank (Bank for Development and Foreign Economic Affairs) and the Republic of Tatarstan on implementing the project to build the Innopolis territorially autonomous innovative centre;

– Agreement on implementing the investment project for the construction of a modern industrial oil processing enterprise and the formation of a technological research centre on its basis in the Gavrilov-Yamskoy municipal district of the Yaroslavl Region;

– Agreement on cooperation between the Republic of North Ossetia and the Karachayevo–Circassian Republic on socio-economic, scientific, technical and cultural cooperation;

– Supplementary agreement to the agreement on cooperation between the Krasnodar Territory Administration and LUKoil for 2008-2012.

– Anti-Corruption Charter of Russian Business.

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Dmitry Medvedev: It’s not cold here. Good afternoon everyone. We are almost on time, which is good.

To begin with, I’d like to say that I hope everyone who has come to this, the 11th  International Investment Forum in Sochi, has made the right choice. I saw the programme for it: the subjects for the roundtables and debates have been chosen carefully and have been clearly formulated. And the audience format holds the promise of fruitful discussions. The only encumbrance could be the stuffiness in here, but we are hardy people and will not be deterred by this. Unfortunately, I cannot attend all the discussions, but I will take part in two panel meetings. Although they have promised a change in the weather (the weather right now is wonderful), I hope that the forum participants will be able to spend a few nice September days in Sochi relaxing.

I will begin with an analysis of the situation in the global economy, which has not yet overcome all the consequences of the financial crisis. According to the International Monetary Fund, the global economy will grow by about 3.5% this year. There is the possibility of a second wave of crisis, especially in the eurozone. Serious debt problems, declining production, a growing budget deficit and unemployment are causing political problems everywhere. Therefore, politicians and economists have to review their approaches and develop a new post-crisis development strategy. This is what we have been doing.

To tell the truth, while attending all these G8, G20 and numerous other forums, which take up a lot of time but also give food for thought, I have become convinced that all of us – yes, all of us – including politicians, who are in this sense the most difficult to get moving, have seen that there is a deep interconnection between global economic processes and the situation in our countries, and that no one can remain isolated from others even on the smallest economic issue. This is probably the main lesson of the crisis. Everyone has become aware of this, and hence we should be more sensitive of one another and act jointly.

We are also facing certain problems – I am referring to Russia – related to the economic crisis. Russia is closely integrated into the global economy, which we can see everywhere, from the everyday level to the level of government decisions. Yesterday the Government discussed the budget for 2013 and for a three-year period. Working on it, drafting it proved to be much more difficult than we thought it would be, say, 7-8 months ago. And the budget is much more severe than we expected. There are also direct lessons from the crisis. One of them is that we have added the so-called strict budget rule to the federal budget, according to which the volume of budgetary spending commitments and long-term investment programmes in which the government is involved must not be linked to the current price of oil. As for surplus profits, or rental income, they will primarily be used to replenish reserves. It was a difficult decision, but now that we have taken it we will carry it through, irrespective of any opportunistic considerations or desires.

At the same time, the crisis has shown that even under the most trying economic conditions Russia did not sustain intolerable losses, even though its losses were considerable, and has now reached figures that can be seen as competitive advantages in relation to the current global economic situation. I will name just a few. Many of you are familiar with them, but I will spell them out anyway because they are important. Firstly, the GDP growth rate in Russia was 4.3% in 2011, one of the highest of the leading economies in the world; only India and China did better. Our sovereign debt is 5.8 trillion roubles, the lowest among the G8, G20 and BRICS countries. The entire external debt is 1.3 trillion roubles, and the volume of foreign exchange reserve exceeds 517 billion dollars. Russia ranks third in the world in this respect. Inflation has dropped by more than 50% over the past four years, and it has hit an all-time low in the past 20 years. And, of course, the Government still prioritises efforts to control inflation, although this is often rather hard to accomplish, especially in the context of the food market situation. On September 1, we posted a budget surplus of 529 billion roubles.

I would also like to say that we do not plan to increase the tax burden on the manufacturing sector. Today, we can only talk about such special taxes as excisable goods and the severance tax, whose maximum rates are dictated by economic logic. Industrial output soared by 3.1% over the past eight months. The most substantial growth was posted in such industries as metallurgy and the manufacture of transport vehicles and equipment. And, finally, the unemployment rate in July 2012 was 5.5%, which is much lower than pre-crisis rates.

Russia remains a major global market. The domestic market continues to expand, and this is a substantial competitive advantage. This is confirmed by rising wages and real incomes. On the whole, we don’t think that Russia faces that well-known and almost sacred national dilemma regarding the relative importance of financial consolidation and economic growth. At any rate, this issue is not pressing today. However, Russia currently ranks only eighth in terms of worldwide investment volumes. About $53 billion were invested in Russia throughout 2011. We have to bring such investment up to $60-70 billion and above, but we realise that another parameter indicative of the business environment in Russia must also change.

The latest Global Competitiveness Index (GCI) survey was published in early September. Of course, we are not very happy about this survey because Russia was ranked 67th. To be sure, the report mentions our strong points as well, including those macroeconomic parameters I’ve just mentioned. Add to this our impressive innovation potential and a high-quality system of higher education, which we are nevertheless trying to improve. The immature regulatory basis, sluggish competition on the goods and services markets, corruption, of course, and an ineffective administrative system are key problems hampering economic development. One finds it hard to disagree with this, although we are not standing idle. We are doing meaningful work to improve our legislation and the performance of government bodies. As for our actions in the innovation and investment spheres, one should note our recently created development institutions, which have achieved some impressive results. Of course, I would like to single out the Skolkovo Centre, which already has more than 600 registered participants, and the Russian Direct Investment Fund, which attracts four roubles’ worth of private investment per every rouble of federal investment.

I have emphasised improvements in the business environment while charting the Government’s priorities. I have repeatedly said, and I will say again, that it is possible to achieve an economic breakthrough only where entrepreneurship acts as one of the main sources of national development, and where entrepreneurial talent is perceived as a public asset. The rules for doing business in Russia should be able to compete effectively at the international level. Everyone wishing to take part in the formulation of such rules should be allowed to provide input. We have set a rather ambitious goal of raising Russia’s positions in influential business environment rankings, cracking first the top 40 countries and then the top 20.

I would like to discuss several fundamental issues. First of all, I had set forth several tasks at a meeting with Government members four months ago, in May. These tasks should be accomplished in the next six months. Two of these tasks are directly linked with our agenda. This involved roadmaps, which were compiled in line with the national business initiative and the Open Government system. I would like to tell you that the Government has approved the first four roadmaps, which are meant to simplify customs and tax regulation, to eliminate infrastructure restrictions and administrative barriers, to support high-tech exports and other initiatives. Right now, we should see to it that these roadmaps don’t remain on paper, and that they are effectively implemented.

I realise that the human factor plays a key role in this area, just like everywhere else. The people in charge must assume responsibility for the actual results of the work, and such responsibility should not be eroded. This objective should be accomplished with the help of another initiative under which the performance of officials is not assessed by the number of documents that have been adopted but by specific changes in business environment parameters. These specific parameters will make it possible to assess key aspects of entrepreneurial activity. The Government will approve a list of such parameters in the near future.

Second, the Open Government is also meant to oversee the activities of the executive branch. However, we mainly expect preventive measures, an expert discussion and an expert assessment of the Government’s initiatives and draft resolutions. Moreover, all ministries should rely on public councils in their work. To be honest, this is the new format of the Open Government’s work.

Third, it is obvious that a modern economy cannot be built without modern legislation. Effective legislation and regulatory documents are the basic element and a driving force of a competitive economy’s development. We wish to focus on this issue now that Russia has joined the World Trade Organisation (WTO).

Fourth, the local investment climate and the environment for doing business often vary greatly across Russian regions, so initially the Sochi forum was planned as a regional conference and, therefore, the regional dimension is an important issue to discuss here. But we need to analyse the possibility of expanding the authority of regional governments to regulate business activity, which means giving regional governments powers to overrule the local branches of federal agencies.

Staying competitive requires more and more effort in the modern world. I would like to discuss some important components of quality of life, which are the environment, healthcare and education. An individual needs to live in a comfortably environment, at any rate a more comfortable than in this room, and definitely one that encourages people to fulfil their potential. I am actually referring to modern infrastructure, which includes transport, social, entertainment and sports facilities, which should be made available in rural areas as well as in big cities. We are working to reorganise the national healthcare system and will continue doing so. In 2011-2012, 629 billion roubles were allocated for regional programmes to modernise healthcare. Demographics have started to improve, with the death rate and disability rate decreasing significantly. As for programmes to modernise general education, the government provided 121 billion roubles for this purpose for 2011-2013, with an understanding that regional governments will provide matching funds. Most of the funding will be used to raise teachers’ salaries, which should reach the regional average this year. Local schools have begun adopting federal education standards aimed at improving the quality of teaching and at helping to introduce new teaching techniques such as inclusive and distance learning programmes for children with disabilities.

One of the Government’s priority goals here is to have at least five Russian universities in the world’s top 100. This is a very important goal because it involves making Russian education more open, attractive and internationally competitive. Over the past six years, we have put together a chain of leading universities, which includes two national and ten federal universities. We are also developing research universities and other types of universities as part of strategic development programmes financed or co-financed by the federal government.

We certainly need to continue supporting scientific research projects, young scientists and innovative businesses. More than 1,600 innovative companies are already operating at university centres. All these projects lay the foundation of a creative environment that spawns new promising ideas and unique technologies.

I am not going to talk long, because I don’t want you get too tired sitting in this not terribly comfortable room; I will just say that many important discussions still lie ahead. We will talk about developing infrastructure, cities, universities, and various industries, from food production to social networking and innovative media. I am confident that the participants in this forum, who represent Russian regions as well as foreign countries, will be able to find common ground here because trust is probably the most important factor behind global and national development – this is an objective fact evidenced by the latest economic crisis. I am referring to trust and confidence between partners, between the government and businesses, in society and at home.

The desired result can only be achieved if people trust each other. This is true both of teamwork and family relationships. As Dr Adizes (Dr Ichak Adizes, Adizes Institute, USA) rightly noted here, the reason why we get married in the first place may also be the reason for divorce. There is wisdom in these words, but fortunately, it doesn’t apply to this team. Thank you.

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Sergei Guriyev (Rector of the New Economic School): Thank you for your interesting speech, Mr Medvedev. I agree that it is a bit too warm in here, so feel free to take off your jackets if it’s more comfortable that way.

I would like to ask you a very brief question. You have concluded your speech by discussing the importance of trust. I agree that trust is very important in both business and family relationships. So one of the important issues is confidence in the country’s leaders, in the programmes they adopt and in their efforts to improve the business climate. You have just mentioned roadmaps and the key efficiency indicators of those roadmaps. There are many people here who have helped write those roadmaps and develop these indicators. When do you think the Government will start actually using these indicators, instead of just discussing them, including for personnel decisions? We keep saying that Russia plans to reach 50th place in terms of the ease of doing business by 2015. Do we really have to wait for 2015 to decide if we have reached that level? Or will some decisions be made sooner, say in a year or two? What is the current process for discussing these roadmaps in the Government and what are the planning horizons for them?

Dmitry Medvedev: I was under the impression that these roadmaps are already working. But this may not be so, and this is a valuable piece of news you just gave me.

Sergei Guriyev: They have just been adopted.

Dmitry Medvedev: I know that, but they should be effective immediately. You have actually asked more than one question. First of all, the roadmaps are effective – they should be at least – but if there is any problem using them, I think that representatives of businesses and civil society need to say this to the Government in a frank and unambiguous manner, including through social media, other means of communication and the Open Government system.

Personnel policy is a complicated issue. I can tell you frankly that there is a problem with staffing certain government positions. Unfortunately this problem is not getting resolved as fast as I would like it to be. On the other hand, the Government proper consists of new people, and the Government Executive Office personnel has largely been replaced. Staff rotation is also underway in federal ministries. But the most important thing it to hire technology savvy, educated individuals, effective managers with modern thinking. These people need to be properly motivated and encouraged to join civil service. I think this is something that all government agencies need to focus on, including the Government, the State Duma, and the President. We need to offer attractive conditions rather than scare people off with various restrictions. Otherwise, we will have all sorts of misfits apply for these jobs instead of normal people.

Sergei Guriyev: Thank you. But, as these people’s boss, have you set a deadline of one, two or three years with regard to those efficiency indicators?

Dmitry Medvedev: As head of the Government, I certainly set various deadlines. The first one is one year.  As you’ll recall, I set a deadline of six months with regard to the seven main Government projects. We will start summarising the results shortly, evaluating our successes and failures over that period of time. This is the first horizon.

There are other horizons too. We have one-year cycles and we have this Government’s entire term of service.

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Closing remarks:

I’d like to add a few words to what my colleagues spoke about before. I’ll start with what Mr Guriyev said about ratings. This is very interesting. Ratings are very useful because they graphically illustrate our shortcomings and our aspirations. I’d like to say, personally, when I looked at the top twenty from different angles, I was struck by the feeling that not only would I not want to invest or work in some of them, I wouldn’t want to spend a single day or night in them. I won’t name names.

Now a few words about education, which was described by Mr Bürkner (Hans-Paul Bürkner, President & CEO of the  Boston Consulting Group) as a major factor of competitiveness and investment in human resources. This is absolutely critical for this country. Whenever we speak about our assets (as I did from this heated rostrum), we mention our good educational system.  It is really good. That said, we are cursing it mercilessly because it has become obsolete. I’m now making enormous efforts to streamline the system of university education in this country. This must be done with due account of the need to preserve education as a global factor of competitiveness.

I catch myself thinking that when I graduated from university, two-thirds of my mates did not have higher education and did not want to go to university. They enrolled in the Soviet system of vocational and technical education – so-called trade schools and this was enough for their self-fulfilment. But now it is necessary to have higher education (and this is acknowledged everywhere – in Russia, Europe or America). This is why our system should be built on the premise that 90%-95% of school graduates will go to university. However, we must upgrade these universities – this is an issue of the quality of education.

Mr Vigier (Laurent Vigier, Director of European and International Affairs, Caisse des Dépôts Group) has mentioned the project of the North Caucasus tourist cluster, which is fairly important for me and for our country. We are very happy that our friends and partners are dealing with that because it is a vital region for us and it is underfunded. In effect, I was one of the originators of this project and set it in motion. I will continue promoting it and not only because it is important for Russia but for a very simple reason – if we succeed with this project, we’ll achieve success with all others, and this is very important for us.

Mr Gref (German Gref) told us a good joke about a landlord and his unequivocal instructions. Russian entrepreneurs know what I’m talking about and I’ll explain it to the others later. But speaking about the future, it is of course possible to run the economy and put things in order in business with such methods, but this is not the main road. Our people understand unequivocal instructions every time in a certain way, but I’d like us to start a new life. What does this mean? Professor Adizes (Ichak Adizes) spoke about this. While listening to your speech I remembered the expression “united difference.” I believe that this “united difference” creates the conditions for global and domestic competitiveness. We are all different and this is a very good thing. It is time we realise this in full. I’m referring to the authorities, the business community, different political forces, United Russia and all other parties. Once we realise this, we will become truly competitive on a global scale. This is a strength, not a weakness. Let me emphasise this once again – we are strong because we are different, not because we were once taught to march in line.

And the last thing I want to say. Some time ago the leader of a large Asia-Pacific country (a very big one, with hundreds of millions of people) was asked what he considers the most important invention of the human race in the 20th century. He replied, “The air-conditioner.”

All the best! Thank you very much.


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