Extended meeting of the Board of the Ministry of Economic Development, On the Results of the Ministry’s Performance in 2012 and Tasks for 2013
Dmitry Medvedev: Good afternoon, colleagues. With your permission, I will not dwell on the economic results of the year and on global and Russian economic- development trends. I shall proceed based on the fact that all those present here deal with these issues, that they are top-class experts, know the situation very well, and monitor this situation every day.
Nevertheless, you know that, in mid-April, international institutions, including the IMF, reduced the 2013 economic growth forecast down to 3.3%. The Ministry of Economic Development predicted even lower Russian economic growth – 2.4% of the country’s GDP – for this year.
Of course, this is the result of various economic factors, but, nevertheless, this raises serious cause for concern. We have discussed the situation in Sochi, at a meeting chaired by the President, as well as at other meetings, including Government meetings. Currently, we are drafting an economic-stimulus package in accordance with our potential. Apart from our executive agencies, this work involves members of the Russian Parliament, experts and representatives of the business community. As usual, numerous diametrically opposite viewpoints are being voiced. By the way, one US President once famously said: “Give me a one-handed economist. All my economists say, ‘on the one hand...on the other' ”.
Of course, we cannot stick to this scenario, and we will, nevertheless, continue to rely on various viewpoints, and this insures us against possible expenses and setbacks. But, in any case, adequate and effective answers must be found during the discussion.
Quite possibly, we will have to adjust some of our actions, but the direction of our development and our policy priorities, which are stipulated by the relevant Government documents, should not be subjected to major changes.
It has become obvious to everyone long ago that we need to convert to a new economic-development model, primarily through the more rapidly growing non-commodity sector of the economy and through the development of the national innovation system. We addressed these issues rather actively over the past few years. I cannot say that we have achieved colossal successes. But, in any case, it is obvious now that the Russian economy will lack any serious prospects in the next few years without such changes. Everyone agrees on this, and this is already quite good.
Implementing the tasks at hand will require all economic departments and agencies, including the Ministry, to take innovative approaches in macroeconomic forecasting and strategic planning and, of course, a system-wide approach to forming the investment climate, developing small- and medium-sized enterprises, and promoting the effectiveness of services provided by the state. It is particularly important to balance proposals by businesses and the department’s policies, meaning the department promotes the state interests (I hope that this is true in most cases), as well as our short-term and long-term goals.
I would now like to comment on several issues that I believe are key. I’m confident that the Minister will cover them in his report.
First, the investment climate. It’s a fairly challenging issue for our country, but we have nevertheless approved seven roadmaps for the most problematic areas of Government regulation under the National Entrepreneurial Initiative, and there are six more to come. We are focused on getting results that will improve the business environment and the feedback mechanism with entrepreneurs and experts, and monitoring the way the road map is implemented. I must say, at least the way I see it, we can do this. The entrepreneurs who participated in the development of the roadmaps recognise the usefulness of such work, albeit with some reservations, when the proposals are put forward by the business community rather that forced by the Ministry or even experts. This does not mean, however, that all ideas should automatically make it onto the roadmap, but the fact that we cut out the middleman is certainly a positive thing.
Regulatory impact assessment is another line of work that affects the business environment. It’s being widely used now. Entrepreneurs and experts refer to it. I hope that the quality of law-making now largely depends on it, although this tool is in its infancy. You can have different thoughts about the fact that more than a third of legal acts that go through the regulatory impact assessment contain excessive barriers and restrictions. It’s bad that they are there, but it’s good that we can see them. Of course, they lead to unreasonable budget spending and business risks. Once again, this work is supported by the business community, which means it has merit.
Beginning July 1, 2013, regulatory impact assessment should be conducted by legislators. I hope that in 2014 we will be able to apply the relevant procedures at the regional level, where we are also faced with a lot of issues. We will also promote an environmental and social impact assessment.
The next issue is about the attractiveness of the Russian jurisdiction for businesses, which also largely defines the investment climate. The State Duma is reviewing a number of amendments which provide for updating and liberalising the legislation on joint stock companies, in particular, the mechanism of redistributing corporate control upon the parties’ agreement and improving accountability mechanisms of overseeing companies and individuals, as well as affiliation relations.
This is a fairly ambitious project that is quite innovative in nature for our legislation. What makes it innovative? Just because they misspelled the word “escrow” in my speech and wrote “ecsrow” instead. This means that people have no understanding of what it means. Nevertheless, escrow agreements should find their way to our legislation.
In addition, a roadmap to streamline the incorporation of legal entities and sole proprietors is underway as part of our efforts to improve the corporate law. We are pursuing the same goal here, which is to move Russia up to the top twenty best jurisdictions in terms of easy business startups.
By the way, our progress in the rankings depends on the quality of our decisions and on the actual state of our economy. However – and I would like this audience to hear it – it also depends on our perseverance in promoting the positive changes that are taking place in the economy. Very often, we take them for granted and they become part of the routine, but these changes are there, and there are lots of them. It’s just that we tend to criticise ourselves more than talk about our achievements. What I’m saying is that the Ministry of Economic Development and the Ministry of Finance should promote our achievements in various areas more vigorously to make sure that our positions in the world rankings are adjusted accordingly. It's a difficult job, even a political one, but we must do it.
State property management is another important issue. Entire industries in Russia operate without state participation, such as metallurgy, which is entirely run by private companies. At the same time, the public sector remains fairly vast, which, of course, doesn’t always make sense, even from the point of view of the state.
If a company manufactures products in a competitive sector of the economy, state participation in its management is not always appropriate, and is often bad for business for the simple reason that as an owner, the state will hinder the development of such companies; therefore, we should further reduce the unjustified presence of the state in the economy and the excessive amount of state property, especially since this is consistent with our goals of replenishing the state budget with proceeds from privatisation. Of course, this must be done in an intelligent way, not just for the sake of doing it, depending on market conditions. However, we can’t endlessly justify our refusal to privatise certain companies based on the imperfect economic situation. First, the economic situation is never going to be good enough, because it might always improve in a year or two. But if we follow this logic, we’ll never be able to privatise anything. I want the Ministry and the Federal Property Agency to keep this in mind. Let me reiterate, we should proceed with an eye on the economic situation, while also taking into account all other factors, including the need to replenish our budget with the proceeds from privatising state property.
With regard to the current management of state property, it is imperative that we continue to establish more transparent rules of conduct on the market for companies with state participation . They should not affect competition. Of course, they will still affect it, but their impact must be reduced. The federal property management policies are set forth in the state programme, which has been prepared by your Ministry. We are now left with implementing these proposals.
By the way, I would like to commend the way the Ministry of Economic Development has supported and put together a vast array of materials pertaining to 40 state programmes. I'm confident that their approval is another step toward a project-based management approach that is so much in demand today.
The third area that I would like to briefly touch upon today is Russia’s integration into the global economic space. The drawn-out process of Russia’s accession to the WTO ended last year. Many people in this audience were actively involved in this work, and I would once again like to thank you for this. Of course, we are now living in different conditions, with different opportunities and different challenges.
In addition, 2012 was the first year of full-fledged operation of the Common Economic Space. Far-reaching changes have taken place, where certain areas of economic authority were transferred to the supranational level. Of course, this has affected the authority of the Ministry of Economic Development. Now, we need to make the best use of the arising opportunities, promote the interests of our investors and exporters and expand our presence in promising regional markets. I recently spoke about this in the State Duma: we are lagging far behind other countries in supporting our exports and the quality of the state services that we provide to exporters. Promoting the export of our products and our technology is a critical component of your work, and a top priority for our foreign trade missions. Trade missions, by the way, should be goal-oriented. They shouldn’t just represent Russia, because otherwise a question arises whether we need them at all.
Our trade missions should respond promptly to requests from our companies and they should focus their work on regions where our companies have significant interests and where trade missions can contribute to promoting such interests. We agreed that in December the Government will receive proposals to improve the ways in which our trade missions operate.
In fact, the Ministry of Economic Development deals with a fairly broad range of issues, and if I tried to cover all of them now, I’d just be taking the words out of the Minister’s mouth. Therefore, in closing, I would like to stress one thing: today, we will have to provide an answer to a number of acute problems and difficult challenges faced by our economy and the global economy. Indeed, our problems aren’t always the same as the ones faced by the global economy, but we can’t afford to ignore them; therefore, we need to act in order to preserve this growth trend and move to a new phase of technology. This is where we should focus our efforts.
Once again, I’d like to thank the Ministry of Economic Development team and your colleagues in the regions for your professional and creative work. On a separate note, I’d like to thank you for taking part in putting together the Government Policy Priorities and the Forecast for Socio-Economic Development to 2030.
I wish you success in your work. Thank you.
Andrei Belousov (Minister of Economic Development): Thank you, Mr Medvedev, for setting goals and objectives and for your kind words about the Ministry. Goals have been set, and now I'll try to explain how we are going to achieve them.
Mr Medvedev, colleagues, before I begin my report, I’d like to thank our guests and all those who took the time today to join us and take part in the work of the board. This is important because today we will talk not only about the work of the Ministry, but also about the economic challenges and problems that we face. All of us, and especially our ministry, will have to address and resolve them.
In this connection I would like to give you a brief overview of our vision of the current situation and development trends and what we will need to do in order to achieve the goals set out in the May presidential directives and the Government’s policy priorities.
So, where do we stand now? We believe that we have entered a new, complex and a highly eventful phase, which is, I believe, the most difficult one in the entire post-Soviet history of our country, characterised by an unprecedented economic environment that is drastically different from that of the past decade. I'll try to explain it to you using numbers. The forthcoming phase is unprecedented in that within a very short period of time we will have to resolve many systemic problems in thesocial development area, defence, regional development and macroeconomics. First of all, we will need to resolve social problems that took years to form. It’s about repaying our social debt. We will increase salaries in the public sector, reform the pension system, relocate over 700,000 people from structurally unsafe buildings, resolve housing and utilities problems, eliminate waiting lists for kindergarten places and address many other social problems that cannot be put off any longer. To put a rouble value on these problems, we will need about 0.6% of GDP per year to resolve them.
Second, we will have to carry out a large-scale modernisation of the armed forces: replace obsolete armaments and combat equipment, increase military pay, provide permanent and contract officers with service housing and, finally, streamline the number of servicemen in the army and the police. This will require spending another 1.5% of GDP per year.
Third, the comprehensive modernisation of healthcare, education and housing, bringing them into line with consumer needs, including Russia's middle class, which today is estimated at about 25% of the population, and may grow to 40%-50% by the late 2010s. For that, we’ll need about 1.7% of GDP per year.
Fourth, we’ll need to eliminate bottlenecks in the transport and energy infrastructure, which are not only stifling economic growth, but have become a major social problem. Another 1.8% of GDP is needed to resolve this problem.
Fifth, we need to accelerate the development of the Russian Far East and the Trans-Baikal Territory, southern Russia and Kaliningrad and the creation of new regional centres of economic growth. In order to resolve this problem, we’ll need around an additional 0.4% of GDP.
Finally, sixth, reducing dependence of the economy on oil and gas exports, particularly the balance of payments and the budget, and reducing the non-oil budget deficit, which rose sharply during the 2008-2009 crisis years and is now slightly under 10% of GDP, whereas a safe figure is about 3%-5% of GDP. Even if we set ourselves a more modest task of achieving a level of around 7% by 2018, we will need an average of 1.5% of GDP per year.
The total additional financing requirements to address the six above-mentioned system tasks amount to 7.5% of GDP on average per year. Let's think about this figure. At current economic growth rates of about 3% per year, it’ll take us two and a half years to come up with the amount of funds required to address these issues. Since only one-third of GDP growth is redistributed through the budget, this period should be tripled to 7-8 years. That is, with such sluggish growth rates, we will have enough economic resources to start addressing all these problems by the end of the decade at best and resolve them some time in the mid-2020s. However, Russia can’t afford to waste that much time, and our window of opportunity is only three to four years, five at most.
According to numerous experts, the global energy balance may start changing within the next five years, which could lead to a slump in global oil prices by an estimated 20% to 30% from the current $100 dollars per barrel to $70-$80 dollars per barrel. It is critical that Russia completes at least the basic reforms before this period.
Now let's give ourselves an honest answer: can we resolve these problems without a marked acceleration of economic growth and an increase in its effectiveness, without restructuring the economy, a technological breakthrough, institutional reforms or budget reshuffling? This is a rhetorical question. We’re talking about doubling growth rates from the current 2%-3% to 5-6%, and doubling labour productivity in a matter of 10 years. And here we run into, perhaps, our major challenge, whereby unlike during the first half of the 2000s, the existing economic model cannot sustain rapid economic growth. This can be proven with figures.
I will allow myself a brief historical digression. Initially, in 2002-2004, the oil-and-gas export model secured an average economic growth rate of 6.4% per year. Hydrocarbon exports increased at a double-digit rate annually and provided two-thirds, or about 4 percentage points of annual GDP growth.
However, by 2005, the accelerated hydrocarbon exports capacity had run its course. Although growth was up at about 7% in 2005-2008, it wasn't based on a physical increase in exports, but on an increase in global prices for hydrocarbons. Revenue from increasing oil prices translated into increased domestic demand, higher salaries and greater consumer demand, which provided about 85% of annual GDP growth. It was a period when wage growth outstripped labour productivity by a factor of two to three. The economy, which grew at a rate of 7% of GDP per year almost on a par with the Chinese economy, still gave rise to lending and consumption bubbles. The fact that the slump in the Russian economy during the 2009 crisis was deeper than in the developed countries is largely due to the unbalanced growth during the previous four years.
In 2010-2011, the economy was gradually recovering to its pre-crisis levels and grew at an annual rate of 4.4%, meaning that the growth rate was almost half of what it used to be. Investing in inventory became the key growth factor. Clearly, the potential of this growth is very limited. Even the recovery of global oil prices to near all-time highs of about $110-$115 per barrel failed to bring the economy back to its pre-crisis levels. On the contrary, from the middle of 2012, economic growth began to slow down and amounted to slightly more than 1% in the first quarter of 2013. For the year, we expect (with some degree of optimism) this number to be 2.4%. That is, after the end of the recovery period the economy is now growing at a rate of about 2% to 3%.
Hence the question: does the Russian economy have the reserves to accelerate growth? Many experts and the OECD believe that there are no such reserves. We think otherwise. We are not talking about a one-time effort to put a good face on things, but about a system-wide transition to fast growth at a rate of 5%-6% per year. We believe that the economy has such reserves and whether or not we will be able to use them largely depends on what we, including the Ministry of Economic Development, are going to do.
What specific reserves am I talking about? The first reserve is investment. Gross and national savings. Currently, Russia has one of the world’s greatest financial resources for investment at almost 30% of GDP, while investments in fixed capital account for only 20% of GDP, i.e. two-thirds of the gross national savings. The rest is taken out of the country. Our goal is to improve the business environment, cut interest rates, improve the attractiveness of the domestic financial market, and implement major infrastructure projects in order to attract investment in the amount of 25% of GDP by 2015 and eventually 30%, that is, engage the full potential of gross savings.
The second reserve is exports of non-oil-and-gas goods, including engineering products. With the current GDP at an exchange rate of $2 trillion and the output of engineering manufacturing at $173 billion, Russia’s exports of machinery stand at just $27 billion. This is a disgrace. This is as much as South Korea and Taiwan exported 20 years ago, and the Philippines 10 years ago. Today, Korea and Taiwan export 11 and 5.5 times more engineering products than Russia, respectively. It’s not that Russian-made equipment is of low quality, although occasionally it is, but primarily because there are no modern export-support mechanisms. To put this into perspective, China, whose manufacturing quality is definitely no better than Russia's, uses the industrial assembly system and aggressive promotion of its exports and is able to annually export 900 billion worth of engineering products. We believe that by creating an export support system Russia will be able to boost the value of its engineering exports to at least $60-65 billion, and to$120 billion by 2025.Our third reserve is increased labour productivity. The Organisation for Economic Cooperation and Development (OECD) estimates that Russia’s labour productivity levels are just 36% of US levels and 45% of those of the eurozone countries. The gap in the high-tech and mid-tech engineering sectors is ten-fold and even higher. At the same time, Russia has reached 60% of per-capita consumption volumes in the eurozone countries. In a sense, we are now consuming more than the efficiency of the Russian economy can deliver. We will not be able to maintain current consumption volumes unless this gap between consumption and labour productivity is reduced in the next few years. For their part, Russian companies have impressive potential for boosting their labour productivity, including through the use of advanced foreign technologies.
Most importantly, we lack motivation. We need more active competition and an improved business climate in order to boost motivation. We also need long-term investment loans. We must reduce interest rates first of all in order to accomplish this objective.
To make the transition to a new growth trajectory we have to speed up labour productivity growth to 7% per annum. We used to maintain these rates during the pre-crisis period, in 2006-2007, and we must reach them in the future.
Our fourth reserve of growth is the development of small and medium-sized businesses. This sector currently employs about 17 million people, including self-employed entrepreneurs,which is a quarter of those engaged in the national economy. Please note that about 18 million people also work in the black economy. So by creating the conditions for bringing individual entrepreneurs out of the black market, we will be able to increase the proportion of small businesses from the current 19% of GDP to 40-50% of GDP, which would meet the standards of the developed countries.
By using the above-mentioned reserves, it will become possible to achieve 6% growth in 2014-2016, and 7% annual growth in 2017-2020. These levels are in fact the limit given the technological and production potential of the Russian economy, but in principle they are achievable. I would like to stress that there is a qualitative and principled, rather than quantitative, difference between 3% and 5% growth. These are two different development modes and two different growth models. Structural modernisation of the Russian economy, which includes four main components, is the main “water-divide” between them. They are: institutional changes to ensure drastic improvements in the business climate, the development of competition, export support and the development of small businesses. It includes the redistribution of resources in favour of the healthcare and education sectors, and at the same time overhauling these sectors. And it means the implementation of large-scale projects in infrastructure sectors and more rapid technological development, including in the defence industry.
I would like to touch briefly on an issue that cannot be avoided, the issue of the use of part of the oil and gas revenues which have been accumulated by the National Welfare Fund and the Reserve Fund for financing investment in infrastructure projects. Let’s ask ourselves the following question: Why are we accumulating oil and gas revenues? When the Stabilisation Fund was established in its day, we had a fixed exchange rate for the rouble. The influx of petrodollars generated additional creation of money and triggered inflation, which is why the withdrawal of oil revenues from the economy maintained macroeconomic balance and curbed inflation. Currently, we maintain a floating or virtually floating exchange rate for the rouble, so this function doesn’t exist. The question therefore arises: Why should we accumulate oil and gas revenues? They say this is a safeguard against a new crisis. But this plan would only work if oil prices fall and then return to their previous levels two or three years later. But if oil prices stay low in the long term, at $70-80 a barrel, then we would simply squander our reserves during two or three years, and we would be left without any money and without any roads. Therefore we believe that it would make more sense to spend part of these resources on eliminating infrastructure bottlenecks and to save time, which is our main resource. By the way, I would like to note that this can be done without breaking the budget rules.
Our calculations show that we can boost GDP growth by 4 percentage points (p.p.) through consumption, provided that we implement a structural modernisation programme. Consumption would increase as a result of labour productivity and wages increasing. We can increase GDP growth by another 3 p.p.through more substantial investment and by 0.5-1 p.p. by boosting non-energy exports. With the increase in imports, these factors would help us reach GDP growth of 6-7%. Maybe this target is too high, but going back to the beginning of my speech, I would like to say that all of us, Russian society, face these objective tasks, and that we don’t have quite enough time to accomplish them. I would like to say that, just like during the first Five-Year Economic Plans, the following motto “Losing speed is equivalent to losing course,” is becoming topical once again.
Colleagues, I would now like to focus on the high-priority aspects of the Ministry’s work, which stem from all the above-mentioned statements. We have nine priorities in total. They can be tentatively merged into three sections, which are directly linked with faster growth, the fulfillment of the Ministry’s public functions and foreign economic functions. But I would like to start with what I consider to be the most important thing, and which is not often the focus of attention with regard to the Ministry. What I mean is the creation of a mechanism of strategic governance and management on the basis of state programmes.
Currently, the Government has no other instrument apart from state programmes to make it possible to redistribute financial resources and closely link this redistribution with target indicators, specific deadlines and departmental responsibility for achieving the goals which have been set. Otherwise structural modernisation and faster growth would remain an impossible dream. It is common knowledge that the Government has approved 40 state programmes, including 18 programmes specified by Presidential executive orders in May. These programmes should become an element of budget planning element this year and be integrated into the budget process. But we have to be honest and admit that the current programmes are not managerial instruments, and they cannot and probably should not serve as instruments for adopting and implementing managerial decisions.
Currently, the programmes specify target indicators and the required financial resources, but most of them lack any links between them in the form of specific activities that have to be carried out within set deadlines and with intermediate objectives.
This gap should be filled by the three-year plans for the implementation of state programmes, due to be drafted in accordance with Mr Medvedev's instruction by June 1, 2013. These are in fact detailed timeframes, which include specific goals, objectives, project tasks, deadlines, financial resources, as well as project managers responsible for intermediate results, or so-called landmarks. What’s very important is that they must be linked with the current three-year budget law that has been passed. The task of the Ministry is to ensure methodological and organisational support during the launch of this instrument and to monitor the implementation of state programmes on its basis. The Government should receive an effective instrument for implementing the above-mentioned structural modernisation, for monitoring efforts to achieve specific goals which have been set, and, if necessary, the opportunity to adjust planned actions and the allocation of resources.
Our second priority is the creation of a comfortable business environment. Here, I would like to single out six specific aspects of our activity, including three traditional aspects, although we are stepping up efforts on every aspect and each of them contains certain innovations.
First, we must develop the regulatory impact assessment institution, of which Mr Medvedev has already spoken. What’s important is that a new procedure for conducting regulatory impact assessment at an early stage of drafting specific acts will be introduced on July 1, 2013 and it will now apply to customs and tax law-making procedures.
Second, we must further improve the system of control and oversight functions in accordance with the relevant Presidential and Government instructions. First of all, we must conduct an inventory of everything we have to improve.
Third, we must improve the regulation of land relations, including within the framework of draft amendments to the Land Code being submitted to the State Duma. This entails mandatory auctions to sell and lease plots of land against applications by private individuals and legal entities; a ban on making plots of land available without auctions, with a closed list of exceptions; reducing the number of approvals needed when making land available, which would reduce the time for providing plots of land from three years to three months and some other changes that will improve the business climate.
Two more important areas (these projects are only being launched this year). One is the development of the institution of arbitration courts. In January this year, in accordance with an instruction by the Prime Minister and with the participation of the Russian Union of Industrialists and Entrepreneurs, an interdepartmental working group was set up to analyse bottlenecks in the regulation of arbitration courts and lay down guidelines for reforming them. The strategy of changes to the legislation in this area is almost ready.
Another area is improving the institution of evaluation. The quality of evaluation services takes on particular importance today in connection with the proposed introduction in 2014 of the tax on real estate on the basis of cadastral values determined by evaluators. At the same time, the work of evaluators has met with a lot of criticism. A detailed action plan has been developed that would increase the responsibility of evaluators for the results of their evaluations and for the conducting of audits; upgrade their qualifications; introduce pre-qualification requirements; develop a mechanism of self-regulation; an out-of-court dispute settlement mechanism, etc. But the central element, of course, is the implementation of the National Entrepreneurial Initiative, work which began last summer and is being actively pursued today. To remind you, there are seven approved roadmaps at present: regulations in the fields of customs administration, construction, access to power grids, registration of property rights, registration of enterprises, promoting competition and export support. The implementation statistics are as follows: of the 124 measures contained in the six roadmaps for which the deadlines have passed, 40 measures have been put into practice fully, taking into account the opinions of the business community. Another 39 measures are works-in-progress and will be completed soon. And 45 measures have not been implemented for various reasons.
The Ministry is coordinating the development, monitoring and assessment of the results of the roadmaps, in cooperation with the Strategic Initiatives Agency, with the working groups, with the relevant departments, business associations and regional administrations. I must say that this work is heavy-going, but it is moving forwards nevertheless, one important result being that the business community and the regions have become fully involved in it.
Let me cite one example. Under the current federal rules that regulate construction, Moscow has managed to reduce the number of administrative procedures for a model project, i.e. a logistical warehouse which is assessed by experts from the World Bank as part of the Doing Business rating, from 42 to 10, i.e. by a factor of four, and the time it takes to go through these procedures has been reduced from 344 days to 103 days, i.e. by a factor of three. That shows that there is still room for improvement.
According to the Ministry of Economic Development, the results achieved during the implementation of the roadmaps could raise Russia’s position in the rating by 20-30 points this year.
The third priority in this development block is the system of support for small and medium-sized businesses. The Ministry of Economic Development is continuing to implement the programme of support for small and medium-sized businesses on the basis of sharing the financial burden with the regions. The amount of funding is nearly 22 billion roubles a year, with the regions adding a further 10 billion roubles. About 40% of the money goes into the creation and development of the infrastructure and 60% is direct subsidies to businessmen. The recipients comprise up to 100,000 entrepreneurs a year in such areas as industry, services, science, education and agriculture. Last year saw the introduction of new support measures, such as interest rate subsidies on loans taken out to implement projects and compensation for the cost of buying equipment, as well as compensation for the costs incurred by the residents of private industrial parks to rent part of the park area and buy out property where their production is located. To improve the overall effect we must expand the range of instruments of support for small enterprises, above all by supporting lending activities. Another thing for which there is great demand is guarantee funds which were introduced during the crisis years and now exist in 79 regions of the Russian Federation. Their capitalisation is 36 billion roubles and they have raised 200 billion roubles worth of loans. I think this should be the focus of our efforts.
I have to touch upon the topic of insurance premiums for individual entrepreneurs. I think we and the relevant departments have committed if not an error, then certainly an inaccuracy concerning not the average level of payments but the failure to take into account the differentiation of incomes of individual entrepreneurs. We are closely following the reaction of the business community and together with the relevant State Duma committee we have proposed an improved formula for calculating insurance premiums: individual entrepreneurs who have a turnover of up to 300,000 roubles are to pay premiums in accordance with the previous formula on the basis of one minimum wage; those with a turnover in excess of 300,000 are to pay in addition 1% of the excess sum. This approach received the support of the President during his live Q&A session on April 25.
The fourth priority is support for industrial exports. We face the task of creating a fundamentally new system of export support aimed at promoting mass manufactured products in foreign markets. The current export support system is mainly oriented towards one-off projects, individual large-scale projects and not mass projects. This system includes three elements. First, insurance support. This is already in place and is being implemented by the export credit insurance agency. The second is granting tied loans to buyers of Russian products abroad, a mechanism being created by Vneshekonombank. And the third element which is directly within the Ministry’s area of responsibility is the infrastructure for promoting goods in foreign markets. I am referring to the system of trade missions.
Late last year we launched a detailed project aimed at a root-and-branch restructuring of the work of trade missions. It is called The Project to Form a New Image of Trade Missions of the Russian Federation. The project sets tough requirements for the trade missions concerning the promotion of Russian companies and regions abroad. The whole system is in fact geared towards this aim: organisational changes, recruitment of staff and assessment of the activities of the trade mission and the trade representative who heads it up. I am glad to report that during this short period agreements have already been signed with major Russian companies, including Rosatom, OAK, RZhD, Inter RAO, Mechel, Nornikel, Silovye Mashiny, Aeroflot, Russian Technologies, Rusal, AvtoVAZ, KamAZ, RusHydro, Uralkalyi and Uralkhim, 27 companies in all. Under these agreements 50 projects in 25 countries are being implemented. It is important to note that companies give marks for the performance of the trade mission based on these projects and every bad mark leads to serious reprimands and may even result in the sacking of the officials responsible. Also in the pipeline is similar work with the Russian regions – agreements have already been signed with 23 regions of the Russian Federation. Just today, after this meeting, we will be meeting with the regional representatives and the heads of trade missions to discuss how best to approach this work.
Finally, the fifth priority is directly linked with accelerating growth, and that is supporting technological innovation, above all support for technological platforms. They help to focus private and government resources on financing the most commercially promising kinds of research. The instrument of such support should be provided by a new federal targeted research and development programme which is about to be introduced, as well as preferential loans from the Russian Fund for Technological Development. We plan to bring the overall sum of financial resources that go into supporting technological platforms to 10 billion roubles next year. Another tool is support for innovative technology clusters – their list was approved in August 2012, and they were chosen on a competitive basis. There are clusters specialising in information, aerospace and medical technologies, on new materials, radiation technology and some other fields. This year 1.3 billion roubles have been allocated from the federal budget for cluster support, and we are planning additional financing including under the programme to support small businesses.
And finally, a major focus is ensuring the quality of innovative products on the market. This includes registration of intellectual property rights and oversight – the Federal Service for Intellectual Property (Rospatent) is working on this. And another component is improving the quality of certification procedures, shutting down illegal certification organisations. This is the work of the Federal Service for Accreditation. Both areas are rather new for the ministry, and a lot remains to be done here.
The next area of focus is the ministry’s execution of a number of public functions, especially creating the network of integrated government service centres (IGSC). These centres represent the service-oriented image of the state, or government with a human face. When an individual wants a federal service or a certificate, when he wants to register his property rights or pay taxes, he can do it conveniently and quickly, without any red tape, and at a centre within walking distance.
The President has set the task – to provide one-stop-shop government services to at least 90% of the population in 2015. Currently 24.6% of the population can obtain these services. To reach this objective, we need to double the number of IGSCs in 2013 and 2014, and reach 2,887 centres by the end of 2015 up from the 603 centres existing in early 2013. Work in this area has been organised jointly with relevant departments and Russian regions. Today we have a clear understanding of how many and what kinds of centres we should create in each region, as well as the timeframe and the cost. Regional schemes of location of integrated government service centres have been approved and responsible persons have been appointed. So far we are working under the approved schedule and we are even a little ahead of it.
Simultaneously we have organised work on assessing the quality of government services. I want to thank the Federal Service for State Registration, Cadastre and Cartography which is conducting a pilot project in this area. An individual applying for a service at the Federal Service for State Registration, Cadastre and Cartography through an appointment or an IGSC is sent a free SMS asking him to rate on a five-point scale how long it took for the service to be provided, the waiting period, convenience, politeness of the staff and accessibility of information. This system was launched in late March, but we have some preliminary results. We will go over them and make conclusions on the operation of regional directorates. By the way, the average rating is about a four, which we think is a good result.
Next, the efficiency of budget spending should be increased. A new bill on government contracts was adopted three weeks ago and will come into force on January 1, 2014. Actually, we’re creating a comprehensive new system for managing government acquisitions, one that will include the entire cycle from planning through result analysis. We’re closing the loopholes in Federal Law No 94 that allowed dishonest companies to win contracts by manipulating prices, including through dumping. A system of public inspection will be introduced. But for this new law to work effectively we’ll have to get more than fifty bylaws adopted before the year’s end.
Higher government investment efficiency is another objective to work toward. We’re talking here about the introduction of compulsory public pricing and technology audits for all major investment projects involving public funds. A related government draft resolution is about to be signed into law.
Then, there’s the private-public partnership alternative to promote between the state and the business community. A federal draft law on the fundamentals of these partnerships got through the State Duma in its first reading Friday, and we should work further to get it enacted, along with the related by-laws. Also, we should create a monitoring system to review the mechanism in the regions.
A third priority in the public functions group is increasing the efficiency of public property management. Earlier, Mr Medvedev highlighted the importance of that work and gave us a general summary. I’d like to point out that the Federal Agency for State Property Management has started an ambitious reform programme to put the state property management system in order as well as to eliminate abuse and ensure that state assets are used or privatised with maximum efficiency and return. First, this requires an up to date inventory of state assets, defining the purposes, setting key standards for use, and organising monitoring. Secondly, it’s about making the most of privatisation and acquisition transactions, with sales open to the public and with the assets on offer seen as business operations rather than just property, as is often the case today. Thirdly, there is a need to reconfigure our agency’s own organisation including the regional offices. A plan has been drawn up already and is being introduced to get the agency restaffed. This work is complex and time-consuming, but I’m sure we’ll follow through on it.
Now a few words on privatisation. A number of deals with major corporation ownership were closed last year, that were worth a total of 217 billion roubles. The largest of these includes shares in Sberbank, Apatit, SG-trans, and two mercantile ports (Murmansk and Vanino). This year, the selloff of large public assets could come to an estimated 320 billion roubles. The assets up for sale will include stock in TGK-5, Sibir airline, Mosenergostroi, the Arkhangelsk trawler fleet, Sovkomflot, Rusnano, Alrosa, the VTB foreign trade bank, and in Inter RAO, as well as a 5% stake in Rosneft. Supplementary offers could bring the total to 970 billion roubles. But this is probably a best-case scenario because the market appears unlikely to be able to digest the nearly 1 trillion roubles’ worth of assets.
Finally, the third group of ministry priorities has to do with its foreign economic activity. Three areas of activity can be singled out here. One is promoting Russia’s foreign economic interests in other parts of the world. We should make the most of the country’s WTO membership. With that objective in mind, the ministry is developing a mechanism to enhance the performance of intergovernmental commission boards. This is basically about their commitment to produce tangible results to consolidate Russian companies’ positions in foreign countries, as well as a greater role of business councils in the development and implementation of bilateral negotiation agendas.
One other priority we’re facing is the use of foreign economic tools in the advancement of domestic markets. We are paying special attention to adapting the domestic economy to WTO standards. As a reminder, this plan was developed in cooperation with the business community. An ad hoc group set up for that purpose brought together officials from related sector agencies and Members of Parliament.
Forming an integration agenda is our third priority in this area. Noteworthy is the ministry’s work to provide content for the economic agendas of Russia’s current G20 presidency and next year’s G8 presidency, as well as accession to the Organisation for Economic Cooperation and Development. Here, we’re coordinating the efforts of the other agencies involved.
Special mention should be made of efforts to promote integration within the CIS. The presidents of Russia, Belarus and Kazakhstan have set themselves the task of preparing a treaty on the Eurasian Economic Union by 2014. While working on it with our Kazakh and Belarusian counterparts, we’ll have to rectify our past errors in building a common customs zone. The accord’s main goal will be to identify the common steps to be taken toward further integration, not just ensuring the four open areas (goods and services, capital and workforce), but also starting the implementation of common economic and industrial policies in real life. In doing that, we should not lose sight of the other CIS member states. Relying on the newly-enacted free trade treaty, we should work to harmonise our regulations in the services sector, government contracts, and in technology control.
Ladies and gentlemen, even going through the list of the Ministry’s priorities shows how extensive our duties are. The entire political system in this country largely depends on our efficiency. We must be aware of it, especially at the turning points of history. Now, to all appearances, we are going through just such a time.
There are presently 1,750 employees at the central ministry staff though we may employ 2,045 according to schedule. All in all, the ministry network employs more than 120,000 people if we take into account all the subordinate agencies. This is an enormous number but the Ministry’s sphere of responsibility is also vast. The Ministry of Economic Development accounted for 13.4% of supervisory tasks and instructions set by the President and the Government while the Ministry of Finance had 8.4% and the Ministry of Regional Development only 6.6%.
As for salaries, the situation is quite different. The ministry’s average monthly salary is 82,000 roubles, or 69,000 roubles if we exclude top officials above the department manager level. It ranks eighth in Russia for salaries, coming after the Ministry of Finance and the Ministry of Regional Development. I don’t think that is fair, especially considering our huge workload: our average workday is 9 hours and 54 minutes long, and over 10 hours in some departments. We try to address social issues, with primary attention for the personnel’s housing , and give grants to employees in need. Nevertheless, we reaslise that the Ministry’s performance rests largely on the employees’ dedication and even self-sacrifice.
By way of conclusion, I want to thank all the employees of our central offices and branches for their professionalism and dedication.
Prime Minister Dmitry Medvedev has the floor.
Dmitry Medvedev: Colleagues, if you don’t mind I will leave the discussion of salaries for later. Mr Belousov chose the right conclusion for his speech but I would like to begin with certain basic matters he has touched upon.
First, I would like to say that, despite OECD’s indisputable reputation, I wholly agree with the Minister and the Ministry of Economic Development that our economy still possesses the growth potential. The objectives we have set are certainly optimistic but that is how it should be: it’s impossible to work for pessimistic goals. Second, I agree that these are attainable goals. The main question is how to organise our work.
I would also like to comment on what has been said here. I cannot but agree that some export indicators are very disappointing and even embarrassing. We really need a modern system to promote exports. At present our perfectly competitive commodities are ousted from the markets where they had been purchased for a long time or deserve to find their buyers. That’s just because we are not working the way we should.
At any rate, if we tackle this system, we should bear in mind that we should by no means offer free rides. I analysed a number of industries and saw that excessive benefits give rise to indolence. Then, we tell them to stop passing outdated products for innovations to swindle more benefits out of the government. I will not mention any names here but I am aware that this is a critical issue in our industry, defence industry and a number of other sectors. So I think we should establish a relevant system and improve its guarantees, but the industrialists and officials who are creating the system must realise that there will be no free benefits. Everyone must work properly.
As for spending a part of the National Welfare Fund for certain goals, I think that when the Minister says that some money should be allocated without breaking the budget rule and that they know how to do it… Colleagues, if you know how to do it without violating the budget rule, I will have no objections. Make your proposals and let’s work on this.
As for the business climate, I have been thinking about it for a long time. I think that, to an extent, we have become hostages to certain international political trends of the past few years. True, our investment climate leaves ample room for improvement to put it mildly. You know that we have many problems. In a sense, however, this climate is not as black as it is painted.
We see that many of our partners, including the BRICS countries, are in a situation that is no better than Russia’s in many respects although their ratings are much better. This is not a reason to take offence and start complaining about the old prejudice against Russia, negative political processes, and suchlike. We should just work harder, be more active as we promote our investment image and explain our benefits. Naturally, I am not addressing only ministry officials working in Russia. This is a subtle job, and people employed abroad should also take part. Such promotion should rest on personal contacts as well. This is a matter we must address.
I agree that warranty funds used to support small and medium-sized businesses have earned a good reputation, and we should develop them, especially in the short term.
I feel – this is my personal opinion – that we have at last found the right direction to develop state services. I mean the integrated government service centres network that forms the public image of the authorities. All the centres I have visited, whether with new or adapted premises, have organised their work well. We intend to expand this network nationwide. If we do, we will have a modern administration. We must not be stingy about its funding, and new centres must open. The public will appreciate it, I am sure, because the centres’ services are quite different from what we had previously, and we all have an idea, vague or clear as the case may be, of the kind and quality of necessary services.
As for salaries, I have heard that your ministry is worse-off than the Finance Ministry despite its vast and versatile duties. I think we should put an end to this injustice, following relevant proposals.
Last but not least, some of our colleagues have said that they don’t want to recur to half measures, and have proposed to establish a united Ministry of the Economy and Finance. That would be like shutting one eye, as the US President put it. President Putin and I did not approve the idea, as you know, and I think we were right. People need both eyes or they will be deprived of stereoscopic vision.
I wish you every success. Now, let us present awards to the most deserving of you.
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After the meeting Prime Minister Dmitry Medvedev awarded state decorations to employees of the Ministry of Economic Development.