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St Petersburg International Economic Forum



Published on 24 May 2014



by Office of the President of Russia

(WireNews)

St Petersburg, Russia

Vladimir Putin took part in the plenary session of the 18th St Petersburg International Economic Forum. The Forum is taking place this year under the theme of Sustaining Confidence in a World Undergoing Transformation.

The Forum, which has been an annual event since 1997, brings together heads of state and political leaders, Russian and foreign business leaders, members of the science and academic communities, the media and civil society representatives.

* * *

PRESIDENT OF RUSSIA VLADIMIR PUTIN: Ladies and gentlemen, I welcome you to the International Economic Forum in St Petersburg.

I am pleased to welcome here today our traditional old friends and new guests too, the heads of major Russian and foreign companies, representatives of leading international business associations, everyone who has long-term, strategic priorities with Russia and who shares the idea of partnership in the interest of global development.

We value highly this desire for cooperation and dialogue. We value your independent and responsible position that is free from short-term considerations of the moment.

Consistency and openness are always met with reciprocal steps and mutual trust. Trust is above all about finding compromises, mutually acceptable solutions, and working and acting together. This idea is the main theme of this year’s Forum – Sustaining Confidence in a World Undergoing Transformation.

The world is indeed changing very fast. We are witnessing colossal geopolitical, technological and structural shifts. The unipolar model of a world order failed, and this is clear to everyone today, even to those who still try to operate within the familiar reference system, try to maintain their monopoly, dictate their rules in politics, trade, and finance, and impose their cultural and behavioural standards.

The global economic upheavals of 2008 were a vivid example of the profound crisis in a development model built on unification and domination, or attempts to dominate in any case. This should serve as a serious lesson to make us see and understand the world in all its diversity and make a sober assessment of the new reality and full complexity of relations as they are emerging today.

But instead, we often come up against an unwillingness to listen to new global development leaders, take alternative points of view into account, and not just in word but in essence change the working principles of the key international financial institutions in accordance with the changing situation in the world. Reform of the IMF is at a standstill and the Doha round, which was supposed to set modern new and fair rules for world trade, is practically going nowhere. 

Ladies and gentlemen, this is an economic forum but there is no avoiding a few words on politics. Politics influences economic processes, and in this respect I note that inability to find compromises, unwillingness to take into account partners’ lawful interests, and blunt use of pressure only add to chaos and instability and create new risks for the international community’s continued development.  

Does anyone gain from disruption to regular cooperation between Russia and the European Union? Does anyone gain from the seeing our joint work on important issues for everyone such as nuclear safety, fighting terrorism, trans-border crime and drug trafficking, and other priority issues come to a standstill? Will this make the world any more stable and predictable? Probably not.

Surely it is clear that in today’s interdependent world economic sanctions used as an instrument of political pressure have a boomerang effect that ultimately has consequences for business and the economy in the countries that impose them.

I understand very well the concerns of foreign businesspeople who have invested billions of dollars in Russia, earned an excellent reputation here and are doing successful business in our country. I understand the representatives of engineering and machine-building companies for which Russian contracts have become a big growth source, or the European tourism industry, which to a large extent has been focusing on Russian consumers.

And now, for the sake of a failing political course, successful businesses have to suffer losses and relinquish to competitors this huge market and the positions they had built up?    

We cannot change the logic of global political and economic development. As I said, the world is multipolar. People want to decide their own futures and preserve their own cultural, historical and civilizational identity.

At the same time, the geo-economic map of the world is changing. New economic growth centres are emerging, new trade and investment routes are forming, new integration organisations are developing and strengthening, and there is greater demand for collective leadership that can draw up common decisions, not imposed by any one party, but decisions reached through consensus and agreement. 

The desire of many major economies and regional associations to expand interaction and establish new cooperation ties, including within BRICS, the G20 and the SCO, is also there for everyone to see.

Russia and its neighbours are implementing a large-scale Eurasian integration project. The focal event for the member states of the Customs Union and the Common Economic Space this year will certainly be the signing of the Treaty on the Creation of the Eurasian Economic Union in Astana on May 29.

The treaty will take force on January 1, 2015. The goal is to create a common market between three countries with a total population of over 170 million, with free movement of capital, goods, services and labour.

Conditions will be greatly improved for business, for joint investment and cooperation projects, and for a coordinated macroeconomic policy and operation in foreign markets.

Colleagues, ladies and gentlemen,

I am sure that our foreign partners will find it easier to work in our common market, in particular, because this integration model is based on WTO principles.

We hope that, given the cooperation of our partners, we will complete the involvement of Armenia in this integration association soon. We are also working on the integration of Kyrgyzstan. We believe that there is a good outlook for cooperation between the Eurasian Economic Union and the EU. Until recently, our colleagues refused to deal with the Customs Union, arguing that the EU is ready to cooperate with each individual member state but not with their association. This is strange logic, because we are willing to work, and we are working with individual EU countries and with the EU as an association. I don’t understand why our approaches should be different.

I’m happy to see many businesspeople from Europe in this hall who are willing to work with Russia. I’d like to emphasise that we value this pragmatic and mature approach on the part of European business leaders.

Europe has traditionally been Russia’s major trade and economic partner. We sincerely hope that it will remain so in the future, with new opportunities emerging for business cooperation and the removal of obstacles to trade and investment.

This is why we are urging the EU and European countries to work consistently towards a new basic partnership and cooperation agreement between Russia and the EU. We believe that this document should include a large and maximally concrete chapter on trade and economic relations.

Of course, we should also strengthen stability and ensure predictability in such strategic sphere as energy security. Russia has always been proud of its reputation as Europe’s reliable energy supplier. Current gas supply risks, which we can see, cannot be blamed on Russia. Everyone here knows that the blame rests with the transit country, Ukraine, which is abusing its status as the transit country for Russian gas supplies to Europe.

This is a paradoxical situation. Ukraine says it recognises the provisions of the gas contract signed in 2009. By the way, that contract was signed by people who still hold the same positions in the Ukrainian government. After signing that contract, Ukraine honoured it for a few years, but now it has refused to pay and demands a discount that is not stipulated in the contract. They cite a difficult economic situation. We are aware of this. Moreover, we are acting like good partners, offering help. You know that last year we issued a huge loan to Ukraine, $3 billion, and also a discount for the first quarter of this year on the condition – I want to emphasise this – that Ukraine will repay all its debts and provide current payments.

Ukraine has not repaid its debts, which have grown, and has stopped making current payments, even with a discount. I say again – they aren't even paying the discount price.

So, the question is: Where is our money? How was the multibillion aid spent?

Since the conditions were not met, Gazprom reverted to the full-payment system as stipulated by the contract, so this is nothing new. We did everything according to the agreements reached when the aid and discounts were provided.

Yes, there are problems, but I believe that they are solvable. All we need is a constructive dialogue. This was my vision that I presented in my address to European leaders.

Unfortunately, we have not received a clear response so far. However, we expect an adequate and balanced reaction from our counterparts, which would line up with our common interests – the interests of Russia, Ukraine and European countries.

Businesspeople make up nearly 100 percent of the audience here. You know, I’m not talking about the debt (which has grown to $3.5 billion by now). But, in fact, we have provided Ukraine with almost 10 billion cubic metres of gas free of charge. This is our annual supply to Poland. How many of you would deliver the same amount of goods for the same amount of time for no money? It is ridiculous. There must be boundaries that we just can’t cross. I will repeat once again: I hope that we can reach an agreement on friendly terms as neighbours. They want discounts. We ask them to repay the debt at least for the discount period. But they refuse to repay even this amount. What are we supposed to do?

At the same time, we intend to expand the horizons of our development and open new promising markets. This concerns energy, investment, industrial collaboration and non-energy exports.

For Russia, as a Eurasian country, it is natural to be highly interested in the Asia-Pacific region. It is both a huge market and an important source of growth for Russia’s Far East and Eastern Siberia.

Just the other day, top-level talks between Russia and China ended. We kicked off a new stage of our comprehensive partnership and strategic collaboration. Our economic relations are also moving forward. In the course of my visit, we signed over 50 agreements concerning both our governments and businesses. Their total value is in the tens of billions of dollars.

By 2020, we plan to double our mutual sales turnover and reach $200 billion. Currently, in the country ranking, China is our top economic partner with a turnover of around $90 billion.

We intend to gradually increase the share of settlements in our national currencies, rubles and yuans, and to form integrated investment and banking institutions. Such a network would provide funding to major global projects in infrastructure, mineral deposit production and processing, machine and aircraft engineering, and knowledge-intensive production. We are also moving towards building a strategic Russian-Chinese energy alliance that would serve as the main framework for guaranteeing the energy security of the entire Asia-Pacific region.

We understand pretty well that this economic partnership could be a powerful incentive to the development of both countries. Taking into account the scale of the Russian and Chinese economies, this could also be a significant factor of global growth.

Let me stress that during my visit to China we agreed on natural gas supplies from Russia for an impressive $400 billion. We calculated the gas price according to a standard formula that is based on the market price of oil and petrochemicals.

Two newly discovered gas fields, Kovykta and Chayanda in eastern Russia, will provide resource potential for these supplies. The confirmed extractable reserves of each of these fields are 1.5 trillion cubic metres of gas, which is 3 trillion in total. We agreed on supplies for 30 years but, in fact, there is enough gas for 50 years. We will also be able to improve the provision of gas supply in Russia, of course.

It is not final, but over four to six years Russia will invest some $55 billion. We will build helium-processing plants and plants for the chemical utilisation of natural gas. We will also build new infrastructure – not only gas, but also road and energy facilities. We plan to create thousands of modern, technology-intensive jobs. Colleagues, I would like to stress that this will be the largest construction project in the world – no exaggeration. China, on its part, plans to invest $20-$22 billion in their infrastructure.

The mining and metals industry – such as pipe production – will also receive a new impetus as will the domestic provision of gas supply, which is very important to us. It is a chain. Pipes are required for building gas facilities. Pipe production will support the metals industry, while metal production serves as a stimulus for miners.

The next stage would be our collaborative work on the western corridor of supplies with Chinese partners. These are supplies from the reserves of Western Siberia. As a result, we will have an opportunity to connect eastern and western gas infrastructure.

In the country ranking, China, along with Germany, is becoming a major consumer of Russia’s natural gas. Once the western corridor project is realised, China will surely become our number one consumer. I know that one of our Chinese colleagues’ motives is environmental improvement in big cities. We know well that using gas in big cities is environmentally much more beneficial.

Ladies and gentlemen,

Russia is changing. The quality of life is improving. Things are getting better, from social issues to healthcare and education. Just now, at a meeting with leaders of global businesses, we discussed some of the problems. Our colleagues pointed out that in the modern world, things like education and healthcare are important aspects of productivity and efficiency. I will remind you that experts and business analysts that assessed the long-term prospects of our economy, including our labour market, argued not long ago that the negative demographic trends in Russia would only get worse, resulting in serious problems. So what have we achieved?

Despite existing challenges, we have the figures to prove that Russia managed to overcome this problem, to make progress in resolving this historical challenge and ultimately to find a way out of the demographic trap, as experts called it.

Last year, for the first time since 1991, there was natural population growth in Russia. The increase is small so far, but we can see a positive trend. For the first time, the average life expectancy in our country reached 71 years. True, it is not the best figure in Europe, but it is a positive development.

Mortality is gradually decreasing, including cardiovascular mortality. I’d like to stress that we currently have the lowest maternal mortality rate in the entire history of our country, including the entire Soviet period and modern Russia.

We have reached a qualitatively new level on many living standards – for example, average income. These demographic and social development changes were achieved in a very short period, while many other countries take decades.

We know that there are still many unresolved issues. The economic situation, for example, is ambiguous.

Of course, we can show results. I’ll give you a few examples. Last year, over 70 million square metres of housing were built in Russia, which is the highest figure for the past two decades. The construction industry, as we all know, is the driving force in any economy.

And the Russian construction industry continues to demonstrate pretty good results. As of the end of February 2014, some 8.7 million square metres of housing were commissioned, which is 33% higher year-on-year.

Growth in the consumer market has been good, up 3.2% since the beginning of the year.

Many industries, including non-energy ones, have attracted sizable investments. For example, last year, investment in vehicle production grew by 26.6%, while machinery and equipment production received 21.6% more investments, and electrical equipment - 17.2% more investments.

In 2013, Russia received almost $64 billion in direct investments, or almost $80 billion if we count the Rosneft and TNK-BP deal, which speaks for itself. It is the best result over the past five years. Foreign rankings place Russia in the third place in the world in terms of direct foreign investment. The role of the Russian Direct Investment Fund in building strategic alliances with foreign investors should not go unnoticed.

Also, I would like to mention the growing volume and better quality and structure of Russian exports. For instance, last year, exports of Russia-produced machinery to the EU grew by over 20%. The absolute figure is still modest, but we can see a positive trend.

At the same time, economic growth slowed in Russia on the back of both external and, to be honest, domestic factors such as systemic imbalances, the build-up of economic inefficiencies and lopsided economic development.

This slowdown, with growth rates below global GDP growth, is a very serious issue for Russia. We must certainly confront this challenge.

We have outlined this course of action, this strategy, and some of these measures are already being implemented. Today, I will also announce a number of additional initiatives.

The gist and logic of our actions are to facilitate major breakthroughs in the national economy.

What is this all about?

The structure of exports must be completely and swiftly overhauled. Our goal is to ensure that annual growth of non-oil and gas exports exceeds 6 percent. To get there, we will introduce new tools for supporting Russia’s non-energy companies on global markets.

At the same time, we will be proactive in promoting import substitution in accordance with WTO rules and our commitments within the framework of the Eurasian Economic Union, which is currently being created. It goes without saying that we will promote import substitution only in promising segments where we can and should be competitive.

The next element is facilitating investment, above all in technological and industrial upgrades.

We intend to focus on modernising professional training and promoting quality growth on the labour market. By 2020, highly skilled workers should account for at least one third of the country’s workforce.

The National Council for Professional Qualifications has been established with input from Russian businesses. In the next two years, this council is expected to devise over 800 new professional standards in line with the needs of the present-day economy. Of this total, 400 standards are expected to be approved in 2014, which is a major effort. I would like to reiterate my call to our business colleagues not to slow down. These standards will be used to prepare new professional training programmes and qualification requirements.

Professional standards will be mandatory for state agencies and state-owned companies. The Government has already drafted amendments to the Labour Code to this effect and is expected to submit them to the State Duma by June 1, 2014.

We will soon hold a special meeting with Government Cabinet members to discuss the important issue of improving labour mobility so that people can move to another place to take up a job, including help with renting an apartment.

This is a matter of principle, and without addressing it we will hardly see any state-of-the-art production facilities emerge in the near future in new industrial zones and promising regions.

Now I’d like to speak in more detail about our measures to improve the business climate and encourage investment. We’ve already made substantial progress in simplifying the registration of property and companies as well as customs and taxation procedures. The Government has established an exhaustive list of permits for construction and considerably reduced the number of approvals. Although there are still many problems in this area, and those involved in construction know all about it, progress has still been made.

All in all, the roadmaps on the National Business Initiative (NBI) provided for the elaboration of about 160 draft laws aimed at improving Russia’s business climate. The plan was for these drafts to be adopted before 2018.

Then we adjusted the schedule and set the task of completing this work before the end of 2015, although I think even this substantial change is plainly inadequate. An investor shouldn’t have to wait and needs the best business conditions now, not sometime in the future. Given the need for higher growth, I believe it is necessary to submit to the State Duma the whole package before the year expires, and I will ask MPs to review them as soon as possible.

Improvement of the business climate directly depends on the regions and municipalities where investors take their projects. The introduction of regional business standards has already improved law-enforcement practice and largely changed the motivation of regional management teams by orienting them towards dialogue with business.

Now we’ll take yet another step forward by launching national ratings of the investment climate in the regions. In effect, this is a mechanism for assessing the NBI’s implementation and standards in every region based on the opinion of the entrepreneurs working there. But national ratings are not just an evaluation system; they should become an effective instrument for making systemic changes at both the federal and regional level and for promoting the best managerial practices.

The results of the first pilot ratings in which 21 regions took part have just been released to the public (I think you know this already). I’d like to congratulate the winners – the Kaluga, Ulyanovsk and Kostroma regions, the Republic of Tatarstan and the Krasnoyarsk Territory.

Starting next year, all regions will take part in these ratings, which will give us an overall picture of the business climate at the regional level.

At the same time, I think it is necessary to develop measures to encourage the regions to improve the investment climate, and I’d like to ask the Government to offer relevant proposals.

Friends,

The experience of our leading regions shows that competent work with investors and support for industrial and high-tech projects has allowed them not only to ensure high growth rates but also to substantially upgrade their production base and enhance labour productivity. In the last few years our carmakers, food industry and metallurgy have been considerably modernised.

Large amounts are currently being invested to re-equip the defence industry, which is producing not only military hardware but also a big range of civilian products. We do understand that even major projects won’t lead to consistently high growth rates. Russia needs a genuine technological revolution, serious technological modernisation. We must carry out the largest technological upgrade of our enterprises in the past half century.

What are we going to do to make this happen? First, we’ll expand access to cheap investment resources. This is easier said than done, but it is still one of our main goals. To achieve this we’ll actively introduce the mechanism of project financing, first of all in industry. It will allow us to grant investors long-term loans on easy and flexible terms. The final cost of such loans should not be above the inflation rate plus one percent. The Government and the Central Bank know about this and have received instructions. They should submit relevant proposals in the next few days.

All legal acts required to launch project financing should be adopted before the end of this year.

Second, it is essential to create convenient conditions for opening new businesses, those that start from scratch on new sites. These so-called greenfields will enjoy tax breaks based on their total capital investment. The math is simple – there are no shortfalls in budget revenues, since the enterprises do not yet exist, but when they mature and start working in real earnest, the tax base will expand and new jobs will appear.              

Third, the capitalisation of systemically important Russian banking and financial institutions will be increased, partly by converting subordinated loans into preferred shares. This will allow banks to grant more loans and reduce interest.

Fourth, the procedures for selecting investment projects and granting state guarantees will be substantially simplified and the time for relevant decision-making reduced.

Fifth, I’ve already spoken today about import substitution. I’m confident that by upgrading industry, building new enterprises and localising competitive production in Russia we’ll be able to considerably reduce imports of many goods and return our market to our national producers. I’d like to emphasise that we’ll do this without violating standards of international trade or imposing any restrictions or barriers. I’m referring to software, radio-electronic equipment, the textile industry and, of course, food industry.

I believe it’s necessary to promptly analyse opportunities for competitive import substitution in industry and agriculture. By next autumn, we will be able to see which goods can be purchased for government and public purposes solely or preferably from Russian producers and companies from the Customs Union member states. When I say “Russian producers” I also mean companies with foreign participation but operating in Russia and in compliance with Russian laws.

We will develop a whole set of measures to support domestic companies that can make competitive products. One of the measures is to establish a special fund for the development of Russian industry.

Sixth, we will develop a strategy to support companies that use the best available, environmentally friendly and safe technology. I also believe it is necessary to localise production of equipment in Russia based on the best existing technology. My task for the Government is to submit their proposals shortly.

Seventh, we must make sure that the outdated equipment and so-called “dirty” technologies are retired. We have to make it economically imprudent and unprofitable to use them.

In 2015, we will re-evaluate all production facilities. Also in 2015 and 2016, we will assess workplaces at industrial enterprises, transportation and communications companies. The purpose is to identify facilities that use outdated equipment, have dangerous or unsafe working conditions, or pose potential environmental hazards and risks. We will impose additional taxes on outdated production facilities. Even though this is a difficult and unpleasant measure, it has to be done. Another task for the Government is to develop resolutions on financial incentives for production upgrades by the end of the year.

We will also accelerate the introduction of modern environmental standards that will directly influence and motivate companies to adopt modern eco-friendly technology.

Eighth, all the measures aimed at providing a technological upgrade to the economy must be fully funded. I am requesting that the Government allocate the necessary resources when drafting the federal budget for 2015 and the 2016-2017 planning period. This work must start well in advance, even now, because we have already begun the budgeting process.

Next, infrastructure and, in particular, lifting infrastructure restrictions for regions and entire industries is our biggest priority. As you remember, at the previous forum we declared our intention to invest some of the money from the National Welfare Fund in infrastructure projects that also involve private investments and resources.

Reconstruction of the Baikal-Amur Mainline and the Trans-Siberian Railway will begin this summer as well as construction of the first leg of the Central Ring Road that will run through the Moscow Region and the newly incorporated areas of Moscow.

Both projects underwent a public technology and pricing audit that involved leading global experts. They will require massive investments and are potentially huge construction projects. Currently, the railway carries around 58 million tonnes of mineral resources a year from the major fields of the eastern range. Experts estimate that this amount will double once the capacities of the Baikal-Amur Mainline and the Trans-Siberian Railway have been enlarged. This project will receive around $16.5 billion.

The first section of the new ring road, the Central Ring Road around Moscow, will be around 50 kilometres long. The total length will be around 340 km. This project will cost some $9 billion.

We plan to significantly increase the scope of work in energy, railway, car and telecommunications infrastructure. Our immediate goal is to double the construction and upgrading of federal and regional motorways. I would like to remind the Government of the need to keep to this goal, which could require public-private partnership and extra-budgetary investments in infrastructure.

Our country has repeatedly demonstrated its ability to tackle large-scale projects. Successful initiatives have inspired the nation to work even harder. We are now united by an ambition to build a dynamic, prosperous and wealthy country that is respected in the world and open to an equal and constructive dialogue.

The Russia that we dream of is being created right in front of our eyes. I believe that the civic energy and solidarity inspired by a shared goal will help us solve the tasks we’ve set for ourselves. We will surely accomplish what we have set out to do. We value partnership and sincere friendship. We are willing to collaborate and continue working together.

Thank you very much.

To be continued.


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Posted 2014-05-24 11:12:00