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President of Russia Dmitry Medvedev: Good afternoon, friends,
Today we will look at the proposals for improving the efficiency of investment in Russia’s economy, the establishment of reasonable and equal conditions for business and encouraging entrepreneurship.
This subject is not new, to put it mildly, as we talk about it all the time, but considering that there has not been enough progress in this area, we must return to it once again.
Let me remind everyone that I issued specific instructions during the Commission’s meeting in Magnitogorsk last year. A few things have been done but on the whole there is still a great deal to be desired. Nevertheless, investment in fixed assets grew by over 6% in 2011. This was largely due to a favourable macroeconomic environment, state support for investors, increased opportunities for competition (this was especially tangible in some cases) and a growing volume of state and municipal contracts.
There is another figure I would like to cite, and I am not sure if it is going to make you happy or not: according to World Bank data, Russia is among 25 of the 183 most progressive countries in terms of improving its investment climate over the past six years. Clearly some progress has been made but I don’t think this result can satisfy any of you present here. Obviously, this result is not good enough for a state with such potential as the Russian Federation.
”Last year, we completed the talks on Russia’s accession to the WTO and established the Customs Union, and these factors should help our administrative machine work faster. This means that we have deliberately agreed to toughen the competition conditions and are opening new opportunities not only for Russian but also for foreign businesses.“
Business remains a complicated and risky undertaking in Russia, and that is true not only with regard to private businesses, small businesses or, conversely, large businesses, but it is true even of the businesses initiated by us – I mean the projects carried out under the auspices of the Modernisation Commission.
One example is the construction of the science and industry complex to filter blood plasma in Dubna. It is clear that the lives of tens or perhaps even hundreds of thousands of people depend on its establishment. Unfortunately, despite the fact that it has been designated as a priority, the Commission is monitoring it and the project is under the President’s control – yet, as I have been briefed, the equipment installation has not even started, the facility has not been connected to electricity, heat and communications, and a customs office has not been set up. Meanwhile, it is simply impossible to take advantage of the benefits that have been granted and to set up a production line without paying the customs duties and VAT.
I stress again, I am talking about a company that is under the Commission’s direct tutelage. This is very unfortunate.
We must look into all of this, and I charge the Commission’s working group leaders to monitor the progress made by these projects in all areas, to investigate the reasons for the delays, to find our who is responsible for them and ensure the projects’ implementation by the deadlines.
Last year, we completed the talks on Russia’s accession to the WTO and established the Customs Union, and these factors should help our administrative machine work faster. This means that we have deliberately agreed to toughen the competition conditions and are opening new opportunities not only for Russian but also for foreign businesses. That makes the loss of Russian companies’ competitiveness because of our administrative machine all the more unacceptable.
”The customs’ job is not limited to collecting money for the state budget. The customs are not just a barrier but must be an integral mechanism for providing assistance and support to the country’s business community.“
Let me remind you that last year we introduced the office of Presidential Investment Ombudsmen in the federal districts. They have been working for several months and have analysed the main challenges faced by investors in the regions, and I think these challenges are clear to everyone. They include the complexity of procedures related to obtaining the approval documentation for investment projects, ungrounded refusals to allocate land, or in cases that don’t involve land, unjustified refusals to extend the lease on the premises, as well as problems with communications and connecting the engineering equipment. Basically, the set of problems remains the same.
There is another issue that investors mention time and time again: systematic difficulties with the customs. Perhaps, we should discuss it separately. The customs’ job is not limited to collecting money for the state budget. The customs are not just a barrier but must be an integral mechanism for providing assistance and support to the country’s business community. So we need to define the key areas of the Commission’s efforts to improve the investment climate. The aim of today's meeting is to discuss the issues I have mentioned and those you will raise, and to formulate and draft the right instructions.
A few more points I would like to make. First, we need some fundamental decisions on the tariff policy for natural monopolies, and these decisions must apply to the medium and long term. At the legislative level, we already have regulations in place that have halved the connection fee to infrastructure networks. In addition, the unjustifiably high profits of the sales organisations have been cut, and the contractual terms for being connected to services have been regulated. However, this applies only to electricity. Clearly, similar approaches with relevant adjustments should be extended to other monopolies, but this has not been done yet. Apparently, they have better lobbying opportunities than electricity providers.
Second. The customs administration system must be reformed. Unfortunately, the electronic declaration is still not working and most documents have to be submitted in paper form. There has been information that the customs offices were closed in several cases without any reason or prior warning. As a result, the cost of customs and warehousing services is increasing, and the clearance rate is extremely low, as everyone knows.
”We must determine the basic tax rates and charges in the medium term. Only such predictability can serve as a clear advantage for investors looking to put money into our economy. I stress, predictable basic tax rates are a key priority.“
We need a clear procedure for the establishment, reorganisation and liquidation of customs checkpoints, and we need a more systemic assessment of the customs authorities’ performance as a whole. Regarding the electronic processing of documents, we have been told more than once that the system is up and running but unfortunately, only a very small proportion of the system is in fact working.
Third, the development of the national stock and financial markets, increasing the stock market’s liquidity, encouraging Russian companies to return from zones with a favourable tax regime by offering appropriate conditions in our country.
In addition, we must determine the basic tax rates and charges in the medium term. Only such predictability can serve as a clear advantage for investors looking to put money into our economy. I stress, predictable basic tax rates are a key priority.
Finally, we must make changes to the system for monitoring industrial safety. The work of the Federal Service for Supervision of Environment, Technology and Nuclear Management (Rostekhnadzor) can serve as an indicator of the investment climate. In any case, many representatives of the business community have said that unfortunately, Rostekhnadzor has been squeezing them even harder than tax inspectors did in the past. We should avoid excessive control while at the same time ensuring facilities’ safety, including those under construction and those that have already been commissioned.
The last point I would like to stress is that there is to be unconditional and comprehensive computerisation of all services and procedures used by businesses. It is vital to implement government mechanisms at all levels to assess the cost of these services and their impact. This effort should involve business associations, employers’ associations and other public organisations. Incidentally, this is one of the areas that should be the responsibility of the open government.
Let’s get down to work.