President Vladimir Putin: Good afternoon dear colleagues.
You know that recently I met with the heads of Russia’s largest companies and we discussed various ways to diversify the economy by developing the processing sectors. And we often returned to one theme, a key one for us, namely diversifying the economy. It is obvious that one of the most important aspects of modern economic policy in general is directly linked with developing the economy’s high-tech sectors.
I shall repeat that, at present, the contribution the manufacturing industry makes to economic growth remains insignificant. And unfortunately the share of products with a high added value among Russian exports is still decreasing and only amounts to about ten percent. Despite the significant increase of imports of cars and equipment, technological reequipment is proceeding slowly.
It is true that literally in the past few days we took stock of our immediate prospects. It turns out that over the next four years investments in fixed capital in Russia should see an annual growth of about 40 billion dollars (when calculated in a dollar equivalent). As a whole, as a percent of our GDP this is slightly less than in western European countries. In western Europe this figure is about 33 to 34 percent of GDP and in Russia only about 20 percent –18 to 19. In certain Asian countries it is even higher than in Europe. In China for example it amounts to about 40 and some percent. But it is perhaps true that the quality of our investments into fixed capital is higher than that in several Asian countries, including China, for example. Because if we compare the money invested in fixed capital and the rates of economic growth, in Russia one rouble or one dollar invested has a larger effect.
In general, it will be quite good if we can keep such rates and this means that by 2010 we will have approximately increased these investments to two times what they were in the base year 2006. Analyses show that one of the main causes of today’s problems consists in the archaic structure and organisation of production. The majority of Russian factories still have a closed production cycle, as before.
Today we visited a pipeline company and I asked Dmitrii Aleksandrovich Pumpianskii [Chairman of the Board of Directors of TMK] what he thinks of the fact that, in practice, TMK makes the metal itself as well as the half-finished and finished products. He agrees that at TMK this reduces profits. In Russia what Dmitrii Aleksandrovich describes often occurs; in other cases companies have one or two practically exclusive suppliers.
As a whole, one can confidently say that industry oriented towards such approaches will constantly lag behind the leading economies of the world.
The experience of successful industrial countries demonstrates that we need a fundamentally new model for organising production, a model designed to create innovation and based on a competitive environment, including that of developers, suppliers and dealers. Russia needs a model of industrial development oriented towards interregional and global cooperation relations.
We have the preconditions necessary to launch such a model. First and foremost this includes the increasing domestic demand for industrial production.
In addition, domestic business that has already become stronger now has the opportunity to invest in the manufacturing of hi-tech industrial products.
It is also important that increased government support to education and science allowed to preserve fundamental technological and scientific schools, schools that should be focused on accomplishing necessary economic tasks.
And finally, a legal and institutional basis for innovative growth is being created.
You know that major holdings in aircraft manufacturing, microelectronics, and in the defence industry are being established. I hope that in the near future we will also be able to say the same thing about ship-building. And a large number of really large-scale breakthrough projects have also been prepared for implementation.
It is important that governmental development institutes have been formed in Russia, namely the Investment and Venture funds. The legislative base for organising special economic zones and technoparks, as well as for expanding concession agreements, has been established.
As the major shareholder of a significant part of industrial assets, the government should influence the creation of a new industrial environment more actively. This is a worthy task to be considered a priority.
First and foremost we must help ensure that holdings become truly modern business structures. And to do so it is necessary to finish restructuring their assets.
I shall emphasise that establishing holdings never was and cannot be considered an end in and of itself. Integration is justified only when it helps enterprises increase the profit margins of their production and expand their market presence. And therefore the heads of holdings should try to achieve precisely these fundamental goals.
It is certainly true that creating a normal competitive environment in industry is a long-term process. And holdings themselves should be interested in the creation of independent hi-tech suppliers, and they should conclude long-term mutually advantageous contracts with these suppliers. It is well-known that major corporations throughout the world create entire clusters of small and medium enterprises around themselves – innovative, service and dealer companies and firms.
This kind of industrial modernisation will necessarily create demand for goods and services from domestic research centres. As such, industry will really be integrated into the new economy and, as we often say today, the knowledge economy. And this is capable of making much bigger profits than simply the delivery of raw materials or the work on assembly lines.
In general we must oversee a systematic transition whereby industry adopts advanced information technology with respect to design, standards, quality control and product reception.
It is well-known that the government remains the owner or one of the major shareholders of a significant portion of industrial enterprises – I already mentioned this. And representatives of governmental agencies are included within the management teams and participate in production management.
Along with this, social problems that are caused exactly by ineffective factory management, curbing production and environmental problems, are sometimes a headache only for local authorities.
I must point out that a large number of regions do assume their responsibilities and try to compensate for systematic failures in industry wherever possible.
However, with regards to industrial restructuring it is first and foremost necessary to strengthen cooperation mechanisms between the federal and regional authorities, including by linking new industrial projects with the regions’ investment plans.
In addition, the government must carry out a coordinated policy to ensure the most rational distribution of production industries, taking into account the concrete advantages of each Russian region.
Both regional and local administrations must help establish new industrial companies, in particular by helping register land, in the process of giving out permits and authorisation (for example, for using energy networks and communal infrastructure), and also by helping prepare qualified personnel for professions that are in demand.
And finally, federal and regional development institutes should be used in a more coordinated way. As of yet their potential is far from being used in full. Giving a wider range of industrial companies access to their financial resources and expanding the range of projects these institutes finance, including attracting key foreign technologies and other intellectual assets, will increase productivity generally.
In conclusion, I would like to once again draw your attention to the fact that to ensure the success of the on-going process of modernising Russian industry it is necessary to develop comprehensive coordinated measures and to share responsibility between the centre and the regions.