Vladimir Putin speaks on the Russian economy to St Petersburg economic forum

Speech by the President of Russia Vladimir Putin on June 17, 2016 to the St Petersburg International Economic Forum, text published on the website of the President of Russia.Sub-headlines are by New Cold War.org. The speech can be viewed with English voiceover at the weblink.

Vladimir Putin:

Ladies and gentlemen, friends,

I am very glad to welcome all of you to the 20th St Petersburg International Economic Forum.

To start with, looking at this hall I cannot but recall how such forums began. I cannot but recall that it was initiated by the first mayor of this city, Anatoly Sobchak. Twenty years, or even more, have passed since then. It started as a regional forum although we organised it then as members of the city administration. Today it has turned into a major venue where people can meet, talk about problems and exchange opinions.

First of all, I would like to thank the heads of international organisations, leaders of states, respected political figures and business representatives who responded to our invitation.

The St Petersburg Forum has traditionally served as a venue for discussing strategic issues. Such conversation is all the more important now that the world is undergoing a serious transformation, when deep changes are affecting practically all areas of life.

I would like to take this opportunity to share with you my assessments and thoughts, to tell you how we view Russia in a changing world. And I would like to start with the systemic problems that are besetting the global economy and practically all countries.

Global economy

True, after the 2008–2009 crisis, we managed to partially balance our financial accounts, limit but not overcome the debt increase problem, and make cash flow more transparent and manageable.

However, the structural problems accumulated by the global economy still persist, and we have not yet put our economy on the growth trajectory.

Incidentally, current geopolitical tensions are related, to some extent, to economic uncertainty and the exhausting of the old sources of growth. There is a risk it may increase or even be artificially provoked. It is our common interest to find a creative and constructive way out of this situation.

The world’s leading economies are looking for sources of growth, and they are looking to capitalise on the enormous existing and growing potential of digital and industrial technologies, robotics, energy, biotechnology, medicine and other fields. Discoveries in these areas can lead to true technological revolutions, to an explosive growth of labour productivity. This is already happening and will happen inevitably; there is impending restructuring of entire industries, the devaluation of many facilities and assets. This will alter the demand for skills and competencies, and competition will escalate in both traditional and emerging markets.

In fact, even today we can see attempts to secure or even monopolise the benefits of next generation technologies. This, I think, is the motive behind the creation of restricted areas with regulatory barriers to reduce the cross-flow of breakthrough technologies to other regions of the world with fairly tight control over cooperation chains for maximum gain from technological advances. We have discussed this with our colleagues; some say it is possible. I think not. One can control the spread of certain technologies for a while, but in today’s world it would be next to impossible to keep them in a contained area, even a large area. Yet, these efforts could lead to basic sciences, now open to sharing of knowledge and information through joint projects, getting closed too, with separation barriers coming up.

However, the scale of technological, economic problems and the objective situation we are in – their scale and nature suggest that we can develop effectively only together, by building cooperation. We believe that such cooperation can be effectively built as part of a flexible and open integration environment that encourages competition in scientific research, a variety of technological solutions that allow the participating countries to fully employ their competence and their potential.

Eurasian Economic Union

In 2011, with Belarus and Kazakhstan, and relying on the dense network of cooperative relationships we inherited from the Soviet Union, we formed a common customs space, and then upgraded it to the Eurasian Economic Union (EAEU). The initiator of this project is here with us today, on this very panel. It is President of Kazakhstan Nursultan Nazarbayev.

We are deepening our integration gradually, and are removing obstacles to commerce and the movement of investment, technology and workforce. We are implementing an industrial and technological cooperation programme already, and are forming a common service market incrementally. Common energy, oil and gas and financial markets will emerge by 2025.

We are aware of the impressive prospects of cooperation between the EAEU and other countries and integration associations. Over 40 states and international organisations have expressed the desire to establish a free trade zone with the Eurasian Economic Union. Our partners and we think that the EAEU can become one of the centres of a greater emergent integration area. Among other benefits, we can address ambitious technological problems within its framework, promote technological progress and attract new members. We discussed this in Astana quite recently. Now we propose considering the prospects for more extensive Eurasian partnership involving the EAEU and countries with which we already have close partnership – China, India, Pakistan and Iran – and certainly our CIS partners, and other interested countries and associations.

To start, we might streamline and unify the regulation of departmental cooperation and investment, nontariff measures of technology and phytosanitary control, customs administration and protection of intellectual property. Further on, we should move gradually to the reduction and eventual abolition of tariff restrictions.

We might proceed from a network of bilateral and multilateral trade agreements that envisage a varying pace, extent and level of interaction and the extent of market openness, depending on specific national economies’ readiness for teamwork, with understandings on joint research, educational and high-tech projects. All these agreements should be future-oriented and provide the basis for harmonious joint development resting on equal and effective cooperation.

Trade partnership in Eurasia, and the European Union

As early as June we, along with our Chinese colleagues, are planning to start official talks on the formation of comprehensive trade and economic partnership in Eurasia with the participation of the European Union states and China. I expect that this will become one of the first steps toward the formation of a major Eurasian partnership. We will certainly resume the discussion of this major project at the Eastern Economic Forum in Vladivostok in early September. Colleagues, I would like to take this opportunity to invite all of you to take part in it.

Friends, the project I have just mentioned – the "greater Eurasia” project – is, of course, open for Europe, and I am convinced that such cooperation may be mutually beneficial. Despite all of the well-known problems in our relations, the European Union remains Russia’s key trade and economic partner. It is our next-door neighbour and we are not indifferent to what is happening in the lives of our neighbours, European countries and the European economy.

The challenge of the technological revolution and structural changes are no less urgent for the EU than for Russia. I also understand our European partners when they talk about the complicated decisions for Europe that were made at the talks on the formation of the Trans-Atlantic partnership. Obviously, Europe has a vast potential and a stake on just one regional association clearly narrows its opportunities. Under the circumstances, it is difficult for Europe to maintain balance and preserve space for a gainful manoeuvre.

As the recent meetings with representatives of the German and French business circles have showed, European business is willing and ready to cooperate with this country. Politicians should meet businesses halfway by displaying wisdom, and a far-sighted and flexible approach. We must return trust to Russian-European relations and restore the level of our cooperation.

We remember how it all started. Russia did not initiate the current breakdown, disruption, problems and sanctions. All our actions have been exclusively reciprocal. But we don’t hold a grudge, as they say, and are ready to meet our European partners halfway. However, this can by no means be a one-way street.

Let me repeat that we are interested in Europeans joining the project for a major Eurasian partnership. In this context we welcome the initiative of the President of Kazakhstan on holding consultations between the Eurasian Economic Union and the EU. Yesterday we discussed this issue at the meeting with the President of the European Commission.

In addition, it would be possible to resume dialogue between experts at the technical level on a broad range of issues, such as trade, investment, technical regulation and customs administration. In this way we could create the groundwork for further cooperation and partnership.

Naturally, we consider it important to continue cooperation on major research projects, such as the ITER thermonuclear plant and the x-ray free electron laser, to name a few. Joint efforts will allow us to seriously increase the technological competitiveness of both Europe and Russia. It is enough to note that in 2015 Russia invested 1.2 billion Euros in high-tech joint projects with Europe.

Colleagues,

In formulating the strategy for Russia’s economic development, we certainly consider the current trends in the world and intend to make use of global technological changes, the formation of new markets and the opportunities of integration and cooperation to advance our own development.

Russian economy

Russia has managed to resolve the most urgent current problems in the economy. We hope growth will resume in the near future. We have maintained reserves and substantially reduced capital drain – by five times compared with the first quarter of 2016. Inflation is going down as well. It has fallen almost in half if we compare several months in 2014–2015 with the same period in 2015–2016. I believe that it is possible to bring inflation down to 4–5 percent as early as in the mid-term perspective.

In addition, it is necessary to gradually decrease the budget deficit and the dependence on revenues from hydrocarbons and other raw materials. This includes cutting our non-oil and gas deficit at least in half in the next 5 to 7 years.

I am sure that the Government and the Central Bank will continue their balanced and responsible efforts to ensure macroeconomic stability. Our goal is to achieve economic growth rates of no less than 4 per cent a year. Yes, of course, I remember what we were saying in previous years. Today, we are talking about far more modest targets. The objectives are not as high as were outlined only a few years ago, but, to reiterate, the situation has changed not only for Russia but for the entire global economy. The current slowdown is a global trend.

A key factor that predetermines the overall competitiveness of the economy, market dynamics, GDP growth and higher wages is labour productivity. We need higher labour productivity at large and medium-sized enterprises: in industry, in the construction and the transport sectors and in agriculture – no less than 5 per cent a year. This appears to be a challenging and even unattainable goal, if we look at what is happening here today. At the same time, the examples of numerous enterprises, as well as of entire manufacturing sectors, such as the aircraft industry, the chemical industry, pharmaceutics and agriculture, show that this goal is quite feasible and realistic.

We will develop legislation, tax regulators and technical standards to incentivise companies to raise labour productivity and introduce labour and energy saving technology. Enterprises that are ready and willing to achieve such goals should receive broad access to financial resources, including through development institution mechanisms such as Vnesheconombank and the Industry Development Fund.

With the growth of labour productivity, inefficient employment will inevitably shrink, which means we will need to substantially increase the labour market’s flexibility, to offer people new opportunities. We will be able to resolve this problem primarily by creating more jobs at small and medium-sized businesses. The number of people (what I am going to say is very important) employed at small and medium-sized businesses should grow from today’s 18 million by at least 1.4 million by 2020 and by more than 3 million by 2025. It will be difficult to increase support for small and medium-sized businesses, and still harder to consistently build a niche for its operation. But it needs to be done.

We have already taken an important step toward that end, which has generated some initial results. For example, large companies co-owned by the government have tangibly increased their orders from small and medium-sized businesses. By the end of the year – and this is, I think, an achievement by the Government – large companies will place 1 trillion rubles worth of orders with small and medium-sized businesses, a nearly nine-fold increase on last year.

High-tech industries could provide another niche for small and medium-sized businesses. It is important to create favourable conditions for small companies, start-ups entering the market with breakthrough products. Finally, there is yet another significant niche – services, the development of consumer services, essentially creating a comfortable, supportive environment for people living in the cities and towns of Russia.

In July, the Federal Corporation for the Development of Small and Medium Enterprises will launch a free online service – the Business Navigator – containing information on promising areas for starting a business, by region, as well as which products and services are in demand and what financial and property support options are available there. The government has already started dedicated work to promote exports and has created the Russian export hub.

Still, we need to go further, building on the results achieved. We need to put together a support system for export-oriented companies, which would embrace the entire value chain from R&D and export financing to helping companies with certification, marketing, maintenance arrangements and generally gaining a foothold in foreign markets.

I should add that our import replacement programme is also aimed at manufacturing goods that are competitive on the global market. And in this sense, I would also like to stress that import replacement is an important stage for expanding exports in sectors other than raw materials and finding a place for our companies in global manufacturing and technological alliances – and not in secondary roles, but as strong and effective partners.

Business crime and corruption in Russia

Friends, we will continue to further liberalise and improve the business climate. I know a great deal has been said about this at forum events today and yesterday. We will tackle systemic problems, of which we still have plenty. This includes improving transparency and balancing relations between government agencies and businesses. These relations should be built on understanding and mutual responsibility, meticulous observance and compliance with laws and respect for the interests of the state and society, and the unconditional value of the institution of private property.

It is essential to drastically reduce illegal criminal prosecutions. Furthermore, representatives of security and law enforcement agencies should be made personally liable for unjustified actions leading to the destruction of a business enterprise. I believe that this liability can be criminal.

I realise that this is a very sensitive issue. We cannot and should not bind our law enforcement agencies hand and foot. However, without a doubt, there is a need for balance here, for a firm barrier to any abuses of power. The leadership of the Prosecutor General’s Office, the Investigative Committee, the Interior Ministry and the Federal Security Service should continuously monitor the situation on the ground and, if necessary, take measures to improve legislation.

I ask the working group on law enforcement in entrepreneurial activity, which is headed by Chief of Staff of the Presidential Executive Office Sergei Ivanov, to focus on these issues as well. I should add that I have already submitted to parliament a package of draft laws prepared by the working group, designed to humanise the so-called economic statutes [of the Criminal Code]. That said, it is also important to guarantee businesses and all citizens the right to fair and impartial defence in court.

The Russian judicial community has done a good deal recently to improve the quality of the court system. The merging of the Supreme and the Higher Arbitration courts has played a positive role in ensuring the uniformity of law enforcement. I believe it is necessary to move further toward enhancing the responsibility of judges and making the judicial process more transparent.

A major role in creating a favourable business environment, without a doubt, belongs to Russian regions. I know that this was discussed at forum events in the morning, and the results of the annual national investment climate ratings were announced. I would like to join in congratulating the winners and remind you that these are Tatarstan and the Belgorod and Kaluga regions. I would also like to note the significant progress made by the Tula, Vladimir, Tyumen, Kirov, Lipetsk and Orel regions, and the city of Moscow.

Science and education

What stands out here? Judging by the results, a core group of leaders has already emerged, who are invariably at the top of rankings. The natural question is: Where are the others? I ask the Government, in conjunction with business communities, to consider additional mechanisms to reward the best regional administrative teams. On the other hand, we will take serious measures, including dismissals, with regard to regional leaders who do not understand that business support is a major resource for regional and national development. I would like my colleagues in the regions, above all, regional leaders to hear me. We will seriously analyse what is happening in this sphere in each Russian region and discuss the issue in depth in the autumn.

Ladies and gentlemen, I have already talked about Russia’s participation in cooperative scientific research projects, in particular with European countries. It is essential to add that we have a core advantages in physics, mathematics and chemistry. As you know, recently we honoured scientists who won the National Award, who have made brilliant breakthroughs in biology, genetics and medicine. Russian microbiologists have developed, for example, an effective vaccine against Ebola. National companies are going to bring an entire line of unmanned vehicles to the market and are working on energy distribution and storage, and digital sea navigation systems. We have practically put in place a technological development management system. What does this entail and what would I like to say in this context?

First. The recently formed Technology Development Agency will help apply current research to real manufacturing and set up joint ventures with foreign partners.

Second. Another mechanism will be in use starting in 2019. Major manufacturers will be made legally bound to use the most advanced technologies meeting the highest environmental standards. Hopefully, this will give a serious boost to industrial modernisation. Many neighbouring countries introduced such requirements long ago. We have had to put off these changes due to problems in the real economic sectors, but we can’t keep postponing it any more. Our business colleagues know this and must be prepared.

And finally, third. The National Technology Initiative covers projects of the future based on technologies that will create fundamentally new markets in a decade or two. I would like to ask the Government to promptly remove administrative, legislative and other obstacles blocking the development of future markets. It is essential to back up technological development with financial resources. Therefore, the key task facing the overhauled Vnesheconombank will be to support long-term projects, attractive projects in this high-tech sector.

We clearly understand that it is people who create and use technologies. Talented researchers, qualified engineers and workers play a crucial role in making the national economy competitive. Therefore education is something we should pay particular attention to in the next few years.

We are witnessing revived interest on the part of young people in engineering and natural sciences. Russia already holds a leading position in the world in the number of students training to become engineers. Professional training standards in engineering are improving. Universities and colleges are consolidating ties with the real economy, both state and private sectors, and the demand for future professionals is therefore growing.

We have to continue to upgrade the material resources of universities and colleges, improve teachers’ qualifications, work to improve university and college curricula in line with modern updated professional standards and use the expertise we received when working with the WorldSkills international movement.

Beginning with school and extracurricular programmes, we create conditions to enable children throughout the country to work on technical and scientific projects, learning to work creatively in a team from childhood. These skills are essential to a modern specialist in practically any sphere.

Colleagues, obviously the issues that we are facing call for new approaches toward development management, and here we are determined to make active use of the project principle. A presidential council for strategic development and priority projects will be created in the near future. It will be headed by your humble servant, while the council presidium will be led by Prime Minister Dmitry Medvedev.

The council will deal with key projects aimed at effecting structural changes in the economy and the social sphere, and increasing growth rates. I have spoken about some of these projects today: raising labour productivity, the business climate, support for small and medium-sized business, and export support, among others.

These projects are comprehensive. They span various economic sectors and social spheres, go far beyond the competence of one agency and require the active participation of regions and municipalities. At the same time a project related segment will be singled out in socially oriented state programmes, such as healthcare, education and housing, with clearly designated targets that we plan to achieve by 2020 and by 2025, and what measures need to be taken to achieve these results.

By the middle of the next decade the world will obviously be a different place. To overlook, to ignore on-going processes means to fall by the wayside of development. To maintain leadership positions [we] should work to make these changes happen.

This is the 20th time St Petersburg welcomes the forum guests. During these years Russia has made great progress, showing its ability to meet the challenges of the times and in certain respect remain ahead of the curve, while preserving its identity and spiritual roots, which I consider to be extremely important. We are confidently looking ahead, linking our future and our success to [our] openness to the world and wide-ranging cooperation in the interest of development.

Dear colleagues, friends, ladies and gentlemen, I am sure that you share this approach, and we certainly appreciate this and invite you to work together with us.

Thank you.

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