Excerpts from Transcript of the Meeting of the State Council on Investment in the Regional Economy 2007-10-11 09:54:24 Ufa President Vladimir Putin (introductory remarks): Good afternoon, colleagues, This meeting’s agenda today covers a range of issues linked to bringing substantial and long-term investment into the Russian regions. What we are talking about in reality is investment in big innovative and infrastructure projects, investment that will create new jobs and help to improve the lives of millions of our citizens. In today’s conditions, it is through investment that we can considerably increase the gross domestic product and the gross regional product, and significantly replenish local budgets. For the majority of our regions this also represents a real opportunity to strengthen their competitive advantages, establish themselves in new economic niches and develop their innovative potential. This represents an opportunity to achieve a new quality and level of growth. We have noted on past occasions that the main conditions for launching genuinely ambitious investment projects are already in place overall. Over the first eight months of this year, for example, main capital investment has increased by almost a quarter, and there has been a 1.5-fold increase in foreign investment. Furthermore, the state has put in place investment policy mechanisms such as the Development bank, the Investment Fund and the Russian Venture Corporation. Their combined financial portfolio has seen its capital increase by 300 billion roubles over the course of this year alone. We could not even consider or do such a thing in previous years. Investment projects have become an important part of the programme to establish special economic zones and technology parks in Russia. At the same time, a number of economists think that the current increase in Russian and foreign investment is only a sort of compensation for past years when Russia’s development suffered from insufficient investment. Overall, there are still not enough big, long-term investment projects underway, especially in the regions. One of the reasons for this situation is the shortage of suitable sites ready to develop. Many promising investment proposals end up in jeopardy of not going ahead because of energy capacity shortages and the poor quality of roads and logistics, engineering and telecommunications. We need to make the investment flow into the economy, especially into infrastructure, a stable and ongoing trend, and this means that the authorities at both federal and local level must act to improve the investment climate and establish common and clear rules for investors. In this respect, I would like to draw your attention to a number of priority tasks. The first is to have clearly defined investment strategies, above all for each of the major economic regions. These strategies should take into account the plans for developing the natural monopolies and the plans of other investors. They should include common documents on regional planning in the transport, communications and energy sectors and also a number of other documents as set out in the Urban Planning Code of the Russian Federation. The Regional Development Ministry has an important part to play in this work. Its job is to coordinate work in this area between the regions themselves and the federal agencies. I expect the ministry and newly appointed minister to work as actively as possible. We have considerably changed and increased the ministry’s powers. If there is still something lacking, say so now. We expect to see effective work from you. Organising the development institutions’ effective work is a key task that we still need to address. The Development Bank will soon define the range of investment products it will propose, and also the corresponding price scale. In a lot of other countries, including countries with an economy in transition, China, for example, such institutions are working and producing good results. I think that the Development Bank could become a sort of incubator for major investment projects by providing them with support right from the preparation phase. Also on the agenda is optimisation of procedures for evaluating projects presented to the Investment Fund. Today, some of them require approval signatures from more than 20 different agencies, but evaluation procedures differ considerably from one ministry to another and are still not transparent for investors. The regions should be more active in undertaking concession projects based on public-private partnerships. Work on the ‘Western High-Speed Diameter’ highway project, for example, has already begun. Tenders have been announced for several other major projects. But getting all the necessary approvals for this kind of joint public-private effort to go ahead still takes a very long time. Is Valentina Ivanovna [St Petersburg Governor Matviyenko] here? Yes. She knows how much time has passed since we began discussing several projects of this kind in St Petersburg. It took up to a year-and-a-half to get all the necessary approvals, and that was with my direct involvement. And what would the situation be without this kind of hands-on involvement? But it is not only the regions that need to build up experience in public-private partnerships. As far as I know, the majority of federal ministries still have not drawn up public regulations for work on such projects. I ask you please to carry out this work as rapidly as possible. I call on Elvira Nabiullina, the Economic Development and Trade Minister. Here in Ufa, your native city, you should promise us to do everything as quickly as possible. Of course, it is important to ensure that state resources are spent effectively and that there is no misuse of state funds when we bring in private investors. This goes without saying. But we all know that the most effective means of implementing this or that project is to harness the combined efforts of the state and private business, and so we need to draw up a clear mechanism. The different regions also need to do their bit, of course. It is important today to work more actively on preparing sites for the construction of new production facilities. This requires comprehensive and rapid resolution of the issues of providing tracts of land and forest and ensuring that they have all the necessary engineering, communications and transport infrastructure. The regions’ job is to provide the investors with turnkey sites, sites that have all the necessary infrastructure in place. Many of the regions are already following this approach: Lipetsk, Belgorod and Tatarstan Regions, for example, and others. It has become very important to develop the social infrastructure too. Practice shows that the launch of major production projects leads in turn to the need to build new schools, kindergartens and roads. But the regional budgets do not always allocate money for these objectives, though they ought to, because it is in their interests to develop and implement these projects. But I do agree that the federal authorities should also pay attention to these problems and that projects of this kind could be funded on a co-financing basis with some of the money coming from the federal budget. This does not imply that the regions or local authorities will cede any of their powers. Federal targeted programmes should be adjusted in such a way as to ensure that the federal and regional authorities concentrate their efforts on the most important areas and achieve results, otherwise the municipalities will not be able to do anything at all. The local authorities try to do one thing, the federal authorities invest in other projects, and undertakings can end up dragging on for years with projects eventually fizzling out altogether. I want to make it clear to you that we should not shift the responsibility for resolving social problems to investors. It is our responsibility to build schools, hospitals and so on. This is the regions’ responsibility, and where justified, the federal authorities should also take part in this work. If we place this responsibility on investors it will only serve to suppress investment activity and we would not achieve the results we hope for, and yet we can achieve good results. I would like to say a few words separately about another important issue, that of information support for our investment policy. We have noted on past occasions that the Russian economy’s successes and the general improvement in the investment climate are opening up new opportunities for investment in our country. We need to systematically and consistently inform potential investors of these opportunities. We need to inform both Russian and foreign investors. It is no secret that companies in a number of countries are scared off from investing in Russia, frightened away by tales of non-market methods of doing business and commercial risks, and often these kinds of stories are circulated, of course, as a competition tactic. This means the Government and the regional authorities need to improve the quality of their information efforts to promote Russia as an attractive place for investment. In many cases this is precisely the positive image we are lacking. In conclusion, I repeat once again that sustainable investment growth in the regions offers a real opportunity for developing their economic potential and resolving many social problems. I am sure that the Government and the regional authorities will take a professional and responsible approach to this issue. Thank you. <…> President Vladimir Putin (concluding remarks): In accordance with our established practice, a list of instructions for the ministries, agencies and the government will be drawn up, taking into account the comments made during the discussion today. The area we have been examining today is not an area where we need to rush in to save the situation as urgently as possible, after all, we can be satisfied with the results achieved in investment activity over these last years. To repeat a few figures, investment in main capital grew by 13.7 in 2006, and increased by 22.7 percent over the first 7 months of 2007 compared to the same period in 2006. By way of comparison, Elvira Nabiullina has given me the figures for different countries in Europe, and here we see that the leader is Germany with investment growth of 6.4 percent in 2006. The figures for the other countries are considerably lower. But we are talking about different volumes, not just percentage, in these countries. The volumes are not the same in developed economies. Foreign investment outside the financial sector is on the rise here. It came to $28.6 billion in 2006, and reached $24.6 billion for the first half of 2007, as I mentioned in my opening remarks. This is 1.5 times more than last year. This looks like a good result, but compared to other developing markets there is still a long way to go. Valentina Ivanovna [Matviyenko] was right to compare us to some of the Eastern European countries. You can see here on the graph. It is shameful to look at. Compare the size of the Russian economy and the size of Hungary’s economy – the figures are similar. Poland is overtaking us. So it is too soon for us to put on a proud look. Underdeveloped infrastructure, inability to combine regional and federal efforts by concentrating resources on key areas, abuses and corruption and inexperience in enforcing even the most fundamental laws and rules are all holding back our development and not giving us the chance to make swift and timely responses to events on world markets. Now we are also seeing concrete manifestations of well known problems, on the foodstuffs market, for example. Of course, Russia is becoming an integral part of the global economy, with all the pluses and minuses this involves. But what is happening with prices? What is happening on our agriculture market? We began investing hundreds of billions of roubles in agriculture and it would seem that this investment has achieved results. We have seen an increase in production. We had a record harvest this year, 78 million tons of grain, I think it was. Some regions even established a historical record this year. But food prices continue to rise. More consistent effort needs to be made at federal and regional level to develop market infrastructure. We need to do away with monopolies, unfair competition and speculation. I am not certain the government and the relevant ministries are really doing all they can to develop the necessary infrastructure. I hope that the Agriculture Ministry and the Economic Development and Trade Ministry will continue to work actively in this direction. It is time to give this area serious attention and react more rapidly to price fluctuations on the world market using the market instruments at the government’s disposal. We have enough instruments that we can use. If we are unable to do this in time, then it is the state’s responsibility, of course, our responsibility, to protect our people, above all people on low incomes, from the effects of these price rises, no matter what their cause – fluctuations on world markets or other reasons. We all know just which groups of our population are in most need of such support. Above all, it is our pensioners who need support. Before this meeting began, I went to some of the events celebrating the 450th anniversary of Bashkortostan joining Russia. One of the people taking part, with whom I was able to talk, was a woman clearly of pension age. She introduced herself as Pelageya Grigoryevna Shvetsova, and despite the festive atmosphere at the celebrations, she repeated several times the need to raise pensions. Indexation of pensions was carried out just recently. In terms of the law everything has been done properly, but the resulting increase was still very small. The plan for 2008 is as follows: pensions will increase as from April 1, with indexation for inflation at 7 percent, and the basic pension will increase by 14.6 percent as from August 1, 2008. This makes for a total increase of 285 roubles for the year. This is too little given the way prices have been rising of late. It is an unacceptably small amount. Neither Pelageya Grigroyevna nor our other pensioners will be happy with these efforts. I think it necessary to instruct the Government to revise the plans for pension increases and instead of raising pensions by a total of 285 roubles next year, raise the basic pension by at least 300 roubles as from December 1, 2007. This means that some categories of pensioners will see their basic pension increase by 350 roubles, and in some cases, above all for war veterans, of course, the increases will be more than 550 roubles. I ask you to look for funding sources and work together with the State Duma deputies to make the necessary amendments to the current laws. Thank you.