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President of Russia Dmitry Medvedev: Colleagues,
We are meeting at one of our country’s very symbolic places today: the Magnitogorsk Iron and Steelworks. Before we turn to the main item on the agenda of today’s meeting of the Commission for Modernisation and Technological Development of Russia’s Economy, I first want to discuss another issue that I think has strategic importance for our overall economic modernisation. I want to set out my proposals on priority measures for improving our country’s investment climate.
Achieving modernisation, which is the purpose of this Commission’s meeting, requires a major increase in investment. We need technology and we need money in amounts corresponding to Russia’s huge potential. We need the confidence and interest of Russian and foreign investors. But what do we see today? Unfortunately, we see that this confidence is lacking, to be honest about the situation. I already gave in the past my assessment of the investment climate in our country: it is very bad, very bad.
Business conditions for relatively small companies have not improved this year but have perhaps even worsened. This is for several reasons. As we all know, compulsory insurance payments were increased, electricity costs have gone up in most regions, and this had added to the price hikes for a number of other goods and products. Corruption continues to affect the general economic situation, maintaining a stranglehold on the entire economy, and this hold is still as strong as ever. The result is clear for all to see: money is fleeing our economy. Not as many people believe in the possibility of doing safe and successful business in Russia as we would like. Not so many businesspeople have this confidence. We cannot let this situation continue. I cannot let it continue, and nor can the Russian Federation Government.
Until we make our country attractive for business and private innovative initiatives, we will not achieve our main goal of improving the quality of life for our people. This is the goal of any state leader’s work, any government, ruling party, and regional and municipal public officer’s work. Only investment growth will enable us to build a new economy and give people the kind of creative and well-paid jobs that have been the focus of so much of our commission’s efforts. Only this will make our society richer and freer, reinforcing the material foundations of our country’s security and democratic development.
I will name the package of measures which could improve the situation. This is not an exhaustive list. We will take further steps in this direction of course, including decisions on dismissals, especially with regard to those who fail to realise that ensuring good conditions for honest entrepreneurs and investors is an unquestionable priority for any public servant. We will have no choice but to dismiss those who continue to erect various barriers and obstacles, give preference to their friends, or fail to take the required action on the basis of pretended state interests that have nothing in common with our people’s interests.
These are the steps I will take in the nearest future.
First, I agree that the burden of costs involved in the need to raise pensions and finance healthcare programmes is not distributed in the best way at the moment. There never is any ideal system in this respect. We approved the scheme in place now, but this does not mean that it is fixed for once and for good, and that other decisions cannot follow in the future. The 34-percent rate that was set could indeed be too great a burden for many types of business. I therefore give the Government until June 1 to draft proposals on possibilities for lowering the compulsory insurance payments as from January 1, 2012. This will require us at the very least to cut state procurement costs and adjust the social insurance payments scale.
As a target, it would be best to set the maximum rate at something close to the old rate, but this is evidently easier said than done. I have discussed this subject many times with the Government. I spoke about it yesterday too. All of the calculations first have to be made of course, taking into account the state budget’s current obligations, and only after this can a final decision be made.
The situation is far from ideal as far as state procurement goes too. The ministries are fully capable of carrying out their planned purchases at considerably less cost, around 15 percent less on average. In fact, I think that even greater effectiveness could be achieved. I hereby give the Government until May 15 to draw up coordinated proposals on this matter. Of course all decisions in this area must make provisions for carrying out all of our obligations to raise pensions, develop healthcare, and raise service pay for people in the armed forces and law enforcement agencies. I agree with my Government colleagues that it is very important at the same time to keep the budget deficit within acceptable limits, safe limits for our country’s macroeconomic stability. It is up to the Government to decide how to do this, especially taking into account the fact that this year will probably bring us some additional revenue.
Second, I instruct the Prosecutor General, starting in May, perhaps (a draft law can be drawn up quickly), to introduce a special procedure for examining complaints about state agencies’ actions or inaction that contain allegations of corruption. This procedure should involve not just verifying the information, which is already one of the Prosecutor General’s Office’s duties, but also make it a duty to publish the results of these checks if the original information came from a public source, in other words, if the check was made at the request of a concerned party. Publication should be made using the information source, including the media, that the party making the request used. This can include newspapers, radio, television, blogs, and other types of mass communications.
If the checks confirm the information’s veracity, the guilty parties must bear liability of course, in accordance with the law. If the number of complaints about a particular agency does not fall within a certain timeframe the agency’s executives will have to take personal responsibility for their employees’ actions, and the draft law should include this in its provisions.
Third, entrepreneurs and investors constantly repeat that the authorities make it hard to do stable business because state agencies take unpredictable decisions and action. They often say, and to me too, ‘You should decide for once and for all what exactly you want, and why contradictory decisions get taken that paralyse earlier decisions’. I agree that this is a real problem in many situations, although we already have in place a procedure requiring many documents to first go through an expert evaluation at the Economic Development Ministry. Furthermore, the Federal Antimonopoly Service has the right to give instructions that must be carried out. But this is still not enough.
The Economic Development Ministry will therefore get new powers to propose that the Justice Ministry take action to repeal state agency regulations that unjustifiably obstruct business and investment activity. The Justice Ministry for its part will then have the duty to demand that the agencies immediately repeal the anti-business regulations in question. This provision will be included in the law On the Government and other statutes, and will apply to all federal agencies without exception. The Government is already examining as it happens a draft law making it possible to lay complaints about the quality of service provided by this or that state agency, and introducing strict liability for civil servants who fail to perform their duties properly. I hope that this draft law will be examined rapidly and submitted no later than the second half of this year. This procedure has to start working.
Furthermore, agencies’ regulations and instructions should be the subject of preliminary discussions with business and professional associations. This is already the case for some documents, but by no means all. The results of these discussions should be published and taken into account in approving the relevant legal acts, and also during their examination in the Economic Development Ministry.
I hereby instruct the Presidential Executive Office to draft a presidential executive order on this issue. These provisions should also be introduced at the regional and local government levels.
Fourth, starting in May, each federal district will get a special investment ombudsman, whose job will be to assist companies in carrying out private investment projects, above all, helping them in their dealings with the executive authorities. You all know that there are regions where it takes around three months to get all the necessary approvals from the moment the investor files an application. These are lucky regions with happy investors.
The ombudsman’s job will be to make sure that these time frames are the norm throughout the whole country, and not as things were until recently in the capital and major regions, where it could take two years to get investment documents approved. This will also make it clear which regional and local officials and which federal agencies are effective, and which are not. Dismissal decisions will have to be made accordingly, based on these results.
Fifth, there are three things we need to do to stop state companies from exerting too great an influence on the investment climate. First, we should finally set and make public a timetable for privatising large government shareholdings over the next three years. Second, we must end the practice of having government ministers responsible for regulation in particular sectors sitting on the boards of directors of companies operating in a competitive environment. Third, we are to introduce the procedure of having major state companies make advance publication of information on their planned purchases, including the estimated price of the respective lots, and information on the contracts already made.
As for privatisation, this year we have to sell the state stakes in major banks and infrastructure companies, as we have already outlined. We are to get leading Russian and foreign investment banks involved in structuring these deals. The Federal Agency for Management of Federal Property must drastically improve its performance, i.e. the quality of managing state assets. I am not satisfied with the Agency’s performance in government assets management at present; its shortcomings became apparent too the day before yesterday during the videoconference on examination of how particular state assets are being managed.
On the subject of boards of directors, the Government should come up with the initiatives of passing decisions at shareholders’ meetings to replace ministers and deputy prime ministers with independent directors on the boards of the major state companies. This should be done by mid-year.
As far as state procurement goes, our state-owned companies spend much more as a rule than do their foreign competitors on acquiring goods, works and services. I am well aware of this fact firsthand. Unfortunately, it is often hard to put this down to anything but corruption. Our largest companies such as Transneft, Gazprom, Russian Railways, and others where government holds majority stakes must cut annual procurement costs by at least 10 percent over the next three years in terms of cost per unit of production, and this should be made one of the main criteria for assessing top managers’ performance. All who are not up to this task will have to quit their jobs.
Sixth, minority shareholders in public companies must be granted access to information on these companies’ performance, and offered mechanisms for advancing their effectiveness which meet best world standards and best practices. This requires more specific legal provisions on minority shareholders’ rights and adjustments to the existing supervisory and regulatory practices in this area, as well as changes to the operation procedures in government-controlled companies. After all, if information is being withheld from these minority shareholders it can only mean that the companies have something to hide, except for cases when information requests are linked to blatant attempts by shareholders to abuse their rights, which also happens.
But whatever the case, any breach of minority shareholders’ rights should be seen as evidence of ineffective management. This is a job for the recently reorganised regulation and financial market supervisory body.
Seventh, the Russian direct investment fund should be set up by mid-summer. Its main purpose is to attract direct foreign investment. The fund will be a co-investor for foreign investment funds and large companies launching investment projects of importance for Russia’s economy. The state should not take part in managing this fund and will guarantee selling its stake in these companies in 7 to 8 years’ time, perhaps a little more. The fund will be managed by a team comprising the best professionals on the investment market. As we agreed, the fund will be set up by Vnesheconombank with initial capital of at least $2 billion, which will be raised to a guaranteed $10 billion as the fund puts its project portfolio together.
The fund’s share participation in all projects should be between 10 and 25 percent. The managing team will be charged with ensuring new investment inflow at least five times bigger in volume than the fund itself. This is an ambitious task of course, but I think that given the scale of our economy this is realistic.
Eighth, the Government must submit a draft law to the parliament that would narrow the scope of competence of the commission which oversees transactions in so-called strategic sectors of the Russian economy accomplished by entities that are under control of foreign companies or individuals. The first step should involve determining the obvious exceptions from the general rules. First and foremost, this concerns transactions between entities that are already de facto controlled by Russian nationals or Russian companies, as well as transactions involving international financial organisations. The deadline for submitting this draft law is May 15 of this year.
Ninth, we must drastically improve the quality of the most common services consumed by the investment community. I am referring first and foremost to customs, the quality of service at airports, registration procedures, visa issuance procedures, work permit procedures, and postal services. I receive an enormous number of complaints about all of these issues, from both individuals and businesses, including through electronic media. And, no less importantly, I also receive complaints about the performance of the most active supervisory bodies: fire-protection, technological control and health and disease control departments.
I am hereby instructing the Government and the Presidential Executive Office to appoint from among the deputy prime ministers special supervisors for these issues within two weeks. And in six months, after they sort everything out, they will have to report on what they accomplished, if there is anything to report. In the event that there is no visible progress in these areas, they should file suggestions on changing the corresponding heads of supervisory and monitoring agencies. The outcomes of the work must be evaluated subject to the opinions of people who use those services, as well as those who are subjected to inspections. Present among us are those who conduct inspections, as well as those who are supervised.
Tenth and last for now, beginning in May of this year, mobile reception offices of the President of the Russian Federation will be in place. Special staff within the Presidential Executive Office must be appointed and sent to all regions to receive information from individuals and company representatives, complaints from people about the actions or inaction by authorities, and react to this information accordingly. I emphasise that these will be local representatives of the Presidential Executive Office. If required, federal, regional and local officials may be involved, and I believe unbiased review of complaints will be guaranteed by the independence of the representatives so appointed from the local authorities.
I suppose that the ten points I have just outlined are only the beginning. I am fully aware that all of this will be difficult to implement, but it is to be done, hence the efforts will be continued. I will take reports on the results achieved, and based on those reports, I will make the respective decisions. I also expect these measures to get support from the public and the business community.