Published 4-10-2012, 09:13
During Session 1, the speakers discussed the resources for the new model of economic growth. Kudrin highlighted the necessity of modernising existing institutes and, in particular, the importance of low and predictable inflation. Chubais outlined that Russia undoubtedly had the possibility to create an innovative economy. Rogozin sees a modernised military complex as an innovative centre. Moeller listed a range of constraints on investments in Russia with weaknesses in infrastructure, the labour force, the protection of intellectual property rights, corruption and state support. Gruzdev pointed to the necessity for there to be trust between the regional authorities and investors, while Volynets and Budargin suggested tighter business links with Russian neighbors.
Alexey Kudrin, Former Minister of Finance.
Russia needs to find new sources of growth. The coming years are likely to improve the quality of domestic institutions, which are in trouble now, partly as a result of high oil prices, towards best standards. During the past decade, fiscal expenditures and money supply have experienced a strong growth, but this has not led to institutions being modernised. Nowadays, the key growth driver is not money but low inflation and a floating exchange rate, that will underpin the creation of long-term money. There is no tradeoff between growth and inflation: low and stable inflation is a key for more long-term savings.
Concerning fiscal policy, Kudrin said that the adopted 'budget rule' was an important step, implying zero real growth in expenditures next year. However, the structure of fiscal outlay shows that they are not aimed at improving the quality of institutions (more than 80% goes on military spending), in Kudrin's view. Instead, budgetary money needs to be spent on education and developing state management.
Kudrin treated Russia's accession to the WTO as a favourable improvement since external trade has become more predictable. What is also needed? More labour market mobility and migration, as well as the decentralisation of power and financial system.
Kudrin said that Russia's conditions could be summed up by the phrase "from growth based on higher budget spending towards one driven by new quality of institutions."
Anatoly Chubais, CEO of Rosnano.
In answer to the question about whether "an innovative economy is possible in Russia,"his answer was, yes it is. He does not see any barrier that cannot be overcome. Good examples are South Korea, Finland and Israel, where innovative economies have already been built. Rosnano is involved in 100 projects with total investment of RUB 500bn, of which RUB 300bn is private investments. Chubais compared the performance of innovative companies which are really operating with the average Russian level, and stated that innovative companies have a higher share of R&D spending in revenues (4-5% vs. 1%), 5.5 times larger spending on employees' training; a greater share of employees with higher education, and significantly higher labour productivity.
What is needed for an innovative economy? Macroeconomic issues are the number one priority with a low inflation (Chubais mentioned that 6% is too high), besides such institutions as real competition, property rights, and the absence of corruption are also essential for developing innovations.
Dmitry Rogozin, Deputy Prime Minister.
Russia needs a modernised military complex as an innovative centre. A lot of the 1,353 companies in the military complex are in bad shape, with 45% of military production used for military needs, 22% for exports and 33% going on civil production. Rogozin expects the latter to increase to 50% and sees military spending becoming a new source of both growth and the country's reindustrialisation. In addition, the Deputy Prime Minister indicated that PPPs were important and might be used when production is targeting non-military markets. Meanwhile creating joint ventures with western partners would help to improve relations with these countries.
Dietrich Moeller, President and CEO Siemens Russia/Central Asia Siemens LLC.
Munich is having problems due to the global crisis. The company plans to invest EUR1bn in ten production facilities and create 4,000 high-technology jobs. Among others, it is looking at electric machinery and transport machinery, with some companies to concentrate on exports, at least towards former USSR countries.
The key constraints on investments are weaknesses in infrastructure, the labour force, the protection of intellectual property rights, corruption and state support. Among the resolutions to the current problems, Moeller named tax reform, administrative improvements and tariffs stability. Siemens is ready to invest more.
Vladimir Gruzdev, Governor of the Tula region.
Infrastructure (electricity facilities and roads in particular) is a crucial story for developing investment. Infrastructure can be created for specific business projects. Support from regional authorities and trust between the government and investors are crucial for the new growth model.
Artem Volynets, CEO En + Group.
There are opportunities for Russian companies to export to Asia; for example, Irkutskenergo can export peak electricity to China. Infrastructure including airports, hotels, qualified labour force, and long-term money are necessary to improve the investment environment. Companies that operate in the Russian Far East and Siberia need to target the Asian markets.
Oleg Budargin, Chairman of the Management Board FGC UES.
The 21st century is a century of inter-country electrical networks and consolidating them would have a good effect. The Russian network needs to be integrated with its neighbours into a Eurasian energy hub. Budargin said that the lack of modern and long-term stable regulation as an important problem.
During Q&A
Kudrin commented on the RUB 3tn government investment programme to modernise the military industry's production facilities. He argued that these investments would likely crowd out private investments. Moreover, the RUB 20tn military spending programme will lead to the creation of a big nonmarket sector of economy. After that, Rogozin said that these concerns have partly been addressed already. First of all, the government's investments are not diluting private ownership, as they are done through preferred shares, and in any case, there is no chance of updating the Russian army without substantial investment, as production facilities are largely out of date.
Maxim Oreshkin
VTB Capital
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