Good morning,
I am glad to welcome everyone participating in the Russia 2010 forum who have gathered here. During the recent conference at the Academy of National Economy we discussed all the complexities that we face today as well as the outlook for the development of our country, and the world, in the next ten years. But most people participating in that conference were representatives of government and of the scientific and academic community while entrepreneurs, both foreign and Russian, were sorely missed.
I am aware that Ruben Vardanyan devotes a great deal of time to fostering links with international investors and it is something he does very well. However, today, when we talk about the investment climate in Russia, we do not distinguish between foreign and Russian capital. Russian investors face the same problems as foreigners who want to invest in Russia. They might face even more problems. When we talk about changing the investment climate in our country we are talking about creating an environment in which people and corporations both want to and are able to set up successful businesses in Russia. We are talking about an environment in which we can use political mechanisms and social institutions to reward those who achieve real results in their business.
Unfortunately, this is not the case in Russia. I agree that in Russia an actor, an artist, anyone who works in the arts or sciences is accorded public recognition once he reaches a certain level and achieves results in his profession. If a businessman gets results and benefits society, we are not yet in a position to reward him. This is one cause of the problems we face, problems we created during the decade when we built up a new system of economic relations. I will of course answer the questions Ruben asked, but first let me deal with several other questions.
I would like to think back to 2004 and remind you how we designed the political and economic agenda which was then translated into priority national projects and our plans to build a civilized and comfortable Russia by 2020. I would like you to know that we have not forgotten about these plans, even during 2009's most difficult days we kept them in mind. I would like to explain what we intend to do this year to change the situation with human capital. We are planning some measures aimed at changing the investment climate in connection with modernisation. I will also answer the questions you asked about the role of the state and so forth because that also relates to changing the investment climate in our country.
We saw some difficult times in 2009, but look at how we ended 2009 (my assessment may of course be biased because I was responsible for this work as a member of government and implemented the anti-crisis plan together with my colleagues). Even so, trying to set my personal position aside, relying instead on the opinion of those experts who both worked on and observed all the government's actions last year, I can say that our anti-crisis programme was more successful than that of many G20 governments. By yearend we had achieved the expected results in terms of implementing our plan. Indeed, inflation was at a better level than we had expected during the year and than we predicted at the beginning of 2009. For all the complexities and shortcomings and despite the dramatic slump of the Russian economy (nearly 8%) that we experienced last year, we believe that the situation is fairly stable because our anti-crisis activities focused on what was most important. That was not support for big corporations, as one might have thought looking at our plans, but social stability which would enable us to continue our modernisation agenda and our modernisation plan after the crisis.
Russia is a very complicated country. Any attempt to destabilise the social situation, society, would make it impossible to introduce economic change, to pass effective economic laws and enforce them. That is an important point because it differentiates Russia from many other states. Many governments can afford to largely ignore brief periods of social unrest. In Russia, however, such a situation is very dangerous, as we saw in the early 1990s. It prevents law-makers and government from implementing reforms. We were aware that 2009 would be difficult and that we had to make sure that we ended it in a state of social stability so that once the crisis was over, modernisation could be at the top of our agenda.
I reject the criticism that our anti-crisis plan was unsuccessful, that it was just as good or bad as that of other G20 countries. I think it has been a success. If you look at the economic figures and the experts' warnings in November-December 2008, you will see that we ended the year with better figures than we could have seen. When they tell us about the official economic development forecasts that the government published in late 2008 and early 2009, let me say that all these forecasts were very rough and approximate. Few people realised what would happen to the currency exchange rates, inflation and to the GDP. Those of us in government who were in charge of the economy had a vague sense that if a critical mass of money was spent on certain things we would prevent the economy falling more than 8%, we would contain inflation, and systemically important major enterprises would continue to work. In brief, these are the results of our work in 2009. I say this advisedly, not to impress you, but in order to understand how we saw the agenda for 2010 during 2009.
Before I speak about our agenda for 2010 let me remind you how we formulated the changes that we are witnessing today. You see, in politics, like in business, it is important to identify the trends that can move you forward. You represent the business community and you know your respective markets. If you come up with something new and you manage to translate it into new economic links, into a new product - on the financial market or in a technological process, you then gain a competitive edge on the market, you are in a position to earn more and develop your business.
In 2004, on the President's instructions, we formed a strong group of Russian and foreign experts and we spent a year working to identify future trends. It became absolutely clear that the most important thing for which there will be struggle in the most developed economies, and for Russia, as well, the most important factor in economic development is man and his abilities. It was brought home to us that human capital was becoming a factor of paramount importance. Not machines and technology, not the traditional economy, but man and his ability to adapt to rapidly changing economic phenomena and to offer something new.
This agenda was articulated by the President in 2005 and was then translated into concrete measures under the heading "priority national projects." If you recall these projects, three of them are definitely making a qualitative difference to human capital in our country. One is housing, that is, something fundamental to every family, to people's security. Another is a person's ability to gain an education and to provide a good education, be it general or professional, for his children. Yet another is the healthcare system and in general the health of the nation when people stop seeing it as just a system of social support. You remember the old Soviet term sobes, an acronym for "social security," but we understand that the education and healthcare systems must no longer be considered part of this sobes. We must move to a new high-quality system in a high tech economy. These should be the economy's best developed and most important sectors rather than being simply the sobes in the derogatory sense it has been used here in the past. We have made good progress on the national projects setting the pace and areas of activity that will make everyone in the country aware of the need for change in these areas. Gradually, starting from the municipal, regional and going right up to the federal level, we are all in the same boat, everyone will be involved in working to change all these systems.
Later, in 2008, the President made a speech setting the task of building a totally different country by 2020. In my own public speeches I often talk about this because I believe it is extremely important for the economists, sociologists and political scientists... It is very important to envisage the qualitatively new state you will live in in the future, and once you can envisage it, you are able to adjust your tactics in order to achieve it. When in February 2008, it was announced that Russia would be the most attractive country to live in and to do business, that it would be one of the strongest economies in the world, we assumed that we would have a very long way to go. This was not spin or the latest political slogan, we knew it would be an uphill struggle, but also that it would be in line with the political, economic, social and cultural changes elsewhere in the world. We were aware that we were poised for such changes. Not because everyone else had left us behind and we had to catch up, we knew there would be changes that would entirely alter the hierarchy and positions of various countries and societies. Russia will have a new opportunity in this changing system and in this race, and that chance should not be missed. This is what underlies our perception that by 2020 Russia will be a different country.
We were also aware that between 1993 and 2008 Russia came a long way, that today it is a totally different country building an entirely different economic and social system. Few other states, including the BRICs and other developing countries, can boast such sweeping spectacular change. Russia has demonstrated and achieved a certain level of development. We proceeded from the assumption that if the rate of change was kept up and if we worked consistently, in the 12 years to 2020 we could bring about real qualitative change in building systems that improve our human capital. Those changes would alter the way individuals feel, and changes to the law enforcement system would follow, people will feel more secure, and the economy will change beyond recognition. I would like to stress that by 2008 we had developed and formulated this plan to build a country with a new quality of life and new opportunities for the individual and business development.
Subsequently it became clear that in order to implement these plans we needed a new modernisation agenda which was set out by President Dmitry Medvedev. These are plans for modernisation and innovation. During 2009, the crisis year, the priorities for modernisation and innovation were identified. This is not to say that other areas will be neglected, we simply chose the most important areas where we could make progress. This is a powerful additional stimulus for qualitative change in the country. And this is what should result in dramatic changes in everyone's behaviour.
By modernisation we do not so much mean importing new technology or developing the ability to produce it ourselves (important though that is), as what I mentioned at the start, and what previous speakers have mentioned. The priority is to start making changes at an individual level: modernising one's own behaviour. When we talk about the quality of human capital and the way we all live, we mean that each of us should fasten our seat belts when driving, and not leave it to chance as we often do here in Russia, we should obey the traffic regulations and rules of decency that are deeply rooted in other nations and other cultures. It means many other things: you should take responsiblity for your health and that of those close to you to avoid imposing extra costs on the national health system, you should take responsibility for getting an education for yourself and your children and so on. We understand that all this is largely lacking in Russia, but it does not mean that we should not move in that direction.
The issues tackled by the Presidential Modernisation Commission should build a certain mode of behaviour little by little, and in doing so, should prove in the years to come that we are capable of transforming life in Russia.
Now for the main point, the work plan for 2010. No modernisation is possible unless we change the investment climate dramatically. The country's leaders: the President, the Prime Minister and the key ministers are very well aware of this. Without an uncompromising attitude we won't achieve rapid change for the better. We must accomplish it within a brief space of time. This work can be accomplished during 2010.
Indeed, two days ago the President of Russia held a meeting, and ahead of the meeting the Prime Minister gave instructions on the preparations for the meeting. So, the Minister of Economic Development, the Finance Minister and other cabinet ministers worked on these issues. We know exactly what can be done at the start of 2010. After preparing the agenda and comparing it with the results of opinion polls among Russian and foreign citizens, we saw that the opinion polls differed. At our request, two investment banks which have foreign staff and clients prepared a short list. The respondents were asked what was the stumbling block, the most serious obstacle to comfortable living in Russia. The Russian respondents also named what they felt was the biggest problem. Some problems named coincided but some were different.
We understand that the Russian administrative system is not very welcoming to foreigners when they apply for a visa, when they go through customs and passport control and even just walking in the city's streets people seldom smile. In our daily lives we understand the problems faced by the foreigners who cannot invite their relatives to visit them or send their children to good schools, or feel secure and so on. We are aware of all these problems. At the same time the Russians who should be feeling more protected because they are in their own country, are not free to use their money to start a business because they are not sure that the law enforcement and judiciary system would protect their legitimate rights if they are violated. That sense of security is lacking. It cannot be created overnight or even in a year. It calls for a sustained effort year after year, but most importantly, we must prove that systemic changes in all these areas are taking place.
The year 2010 will pass and you will gather for another Troika Dialog conference and note that during the year some things in Russia had deteriorated, some had remained the same, but also that on some issues the government and society had made progress. Yes, we see that the investment climate is changing for the better. If the climate is to change for the better there needs above all to be a broad public discussion and, as a result, we should see an emerging awareness that just as those who work in science and the arts get public recognition, so too we should recognise and respect those who have started their own business, those who have created new jobs and contributed to the national wealth. This awareness is still lacking in our country. If such a perception is to appear it is not enough for the government and the president to work on this, more importantly, the whole population needs to work on this. We are often unable to overcome our instincts and respect a successful person who has achieved something. We need to overcome this attitude and realise that a real businessman works at least as hard, and certainly faces more risks than anyone working in science or the arts. In this country a businessman often risks his life, his capital, everything. His work is often so demanding that, as you know, it even affects his family life because he cannot, like some bureaucrats, close his office at six and go home and watch television, he needs to work 24/7. People who are successful in business should also have this social recognition.
At the same time we should change our approach to migration policy this year. The changes will affect not only high-skilled workers, but also those who work on our construction sites, those who do work that Russians will not do. We need a civilized liberal migration policy that gives people a sense of dignity, not humiliation. Work permits, obtaining migrant status, all this should be commensurate with people's potential, including their financial potential, and the job they will do. Perhaps we will not manage to make decisions on the whole range of migration policy issues this year, but we will certainly be able to make some decisions and to show that the system will have changed by 2011. People will feel more comfortable. We can do it.
Incidentally, as part of our presidency of the CIS in 2010 we will make migration issues a high priority. I understand that most people attending this forum are representatives of foreign capital, but the working hands that joint ventures and subsidiaries of foreign companies need often come from Moldova, Ukraine and the Central Asian countries. In this respect Russia has a real edge over other countries. We can have access to skilled workers who speak Russian, are friendly towards Russians, and we should learn to respect their work. We will make this part of our work.
In 2010 administrative barriers to starting one's own business will be lowered. We worked on this last year. You know that there is a list of 13 types of activities which a businessman can start by just informing the authorities that he has started his business. We believe that the list can be expanded, we believe that the procedure itself can be significantly simplified in: construction, investment, building production capacity and investing in real estate. We have looked into how these procedures work in the regions. The situation varies. Where the regions are working actively to attract investors, for example in Tatarstan, there is enough trading space, there are shops that meet European standards, there are business centres and everything is booming. Permits to start construction are, first, transparent, and second, take a minimum number of days to obtain. There are, however, cities where it takes more than two years and a lot of approvals (say 150-200), not to mention the numerous bribes that you have to pay. This is the responsibility of the regions, it is within their powers to establish such rules, but we will challenge them on that. We can adopt a framework requirement for the laws and regulations of the regions and municipalities in order to improve the situation.
Now about the role of the state. Ruben Vardanyan has said that the role of the state is growing. Well, yes and no. If you look at what happened during nationalisation, or quasi-nationalisation (it was not classical nationalisation, but the state acquiring assets that faced bankruptcy), the situation in Russia is not critical. If you compare the huge financial injections the governments made in the banking systems in the USA and the European states and the property the governments acquired, what happened in Russia is dwarfed by comparison. We have indeed slowed down the pace of privatisation in recent years. But one cannot say that in 2009, the crisis year, the state got a lot of assets in exchange for financial support. That is not true. You know that the biggest problems connected with replacing loans were tackled in 2008, and that did not involve us acquiring assets, but Vneshekonombank financing loan agreements, that is, standing in for foreign creditors and issuing currency made available by the Bank of Russia. In the process collateral was transferred from the foreign lending institutions concerned to the Russian Federation. Not a single item of collateral has been claimed by the Russian Federation. Moreover, the banks under the management of the deposit insurance agency created to rehabilitate banks (ASV) are working on this and some banks are being prepared for open tenders following their restructuring. So, I reject the charge that the state plays a bigger role in property. However, we should significantly expand our privatisation programme in 2010. We have revisited the issue of privatisation and have approved plans for 2010 that are far more ambitious than in the previous two or three years. The conference held two days ago agreed that there should be a revision of which assets can pass into private hands.
We will also review the potential in the tax system. We can state that in 2009 the tax system has generally taken shape and we can no longer afford to cut taxes on business. I think we have a very good tax system in terms of its laws and rates. Tax administration could do with a lot of improvement, we will make those improvements, the Finance Ministry and the Federal Tax Service have plans on this. In addition, we are in a position to make decisions on particular tax regimes to support the enterprises created in special zones or in certain sectors.
We will also work to improve the judiciary system. We are aware that both Russian and foreign investors are very critical of the Russian courts. We expect the work undertaken by the President and his Executive Office to yield results this year. This is the President's domain, but as you know the courts are a huge and very conservative system, we are aware of the inherent problems within the system, but we see, for example, that arbitration courts are becoming more transparent. Many investors agree that the arbitration system is changing for the better.
Another effort we should mount this year, and I seek your cooperation on this, is to change our investment climate. If you look at the ratings awarded to Russia by the World Bank or other agencies, they are not always fair. Look at the latest ratings of African and Asian states and compare them to Russia's ratings: even foreign investors who have long been working here disagree with these assessments. We think we have neglected this area. It is not all that difficult: it means consistent work, day in and day out, to explain what is happening and will happen in Russia. Most importantly, we should demonstrate that the lives of ordinary Russians and investors are changing.
In conclusion I would like to say the following. The "short term view" referred to by Ruben Vardanyan is lengthening. You will see this if you look at how investors behaved five years ago and how they behave today, what projects Russian investors become involved in, the level of inflation in 2009 and the inflation forecast for this year. By the way, many investors, experts and members of the Bank of Russia and the Finance Ministry believe that 2010 could be unique in terms of combating inflation. It may see a turning point where we report better results and reach the base level of inflation that we set as a benchmark.
We have many shortcomings and we know what they are. Working in government we are not divorced from daily life, we all have families and friends. We are aware how difficult it is to live in these conditions. I can tell you that even at our level we face a lot of bureaucratic meddling and resistance in dealing with personal matters. We understand how difficult it is for the general public, without any official powers or connections, to solve their daily problems. The important thing for us is to prove to ourselves (the government) and to you that the situation is really changing. It has been changing throughout the past 15 years, and will continue to change in the period to 2020. We can do it. These plans are concrete and realistic. But we cannot do it without you because it is for business to implement these plans.
Many Russian and foreign investors have been confused by our explanations about joining the WTO. The creation of the Customs Union of Russia, Belarus and Kazakhstan does not supplant or revoke our plans to join the WTO. We have set up the Customs Union, and we are finalising our plans so that a common external customs border is established and a single customs code comes into effect from July 1. There are many technicalities to be sorted out, but we have the political will, the country's leadership has committed itself and the experts are working to implement these plans. Joining the WTO is still a priority for us, it is just that there are some difficulties. But they can be resolved. In this case we are relying on the support of our partners, and everybody knows who they are, and when that partner chooses to back us the process will be crowned with success. Our negotiating groups are working and we hope that if compromises on outstanding issues are found we will join the WTO. We have instructions from the country's leadership to find solutions on the political level because the experts have done all they could. We will work towards it, but not everything depends on us. We need the support of European and American business communities who should push their governments to back an early admission of Russia, Kazakhstan and Belarus to the WTO.