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Meeting of Council for Strategic Development and Priority Projects

November 25, 2016, The Kremlin, Moscow

Vladimir Putin chaired a meeting of the Council for Strategic Development and Priority Projects to discuss support for non-resource exports and environmental development.

President of Russia Vladimir Putin: Good afternoon, colleagues.

Today we will look into measures to support non-resource exports and to improve the environmental situation in the country.

We need to form a comprehensive package of long-term mechanisms and instruments, which will actually create a new framework for the joint work of businesses, the state and public organisations in environmental efforts and exports.

I would like to say that these measures must be absolutely practical, and we must adopt them as soon as possible, without wasting time on preparation.

We must create an effective system of support for non-resource exports and environmental programmes and already see the first practical results by the end of 2017.

In this context, I ask the Government to focus on financing the initiatives we will discuss today, as well as all other priority projects, which we have discussed many times. I expect the Finance Minister to report on this issue during our meeting today.

Let us get down to our agenda. Over the past few years, some Russian industries have accumulated considerable export potential that has been untapped so far. I am referring to automobile and aircraft manufacturing, agricultural and rolling stock manufacturing, the so-called high added value industries. Their development can stimulate a number of related manufacturing companies in the light and heavy industries and transportation.

We must increase the sale of Russian industrial produce and promote the advance of Russian companies to foreign markets. To do this, we need a unified system of support for industrial exporters, which would be flexible and capable of adjusting to market requirements and simplifying the work of our companies in foreign markets.

I would like to say that at our meeting in Tula in September we spoke about civilian exports of our defence industry. Compared to the exports of weapons and military equipment, which amounted to some $14.5 billion in 2015, the share of civilian goods exported by defence companies is negligibly small or non-existent.

We said this in Tula, but I want to repeat it now: we must know that a day will come, and we can already see this day, when the Defence Ministry will stop placing such huge defence orders with companies.

These companies must make plans to continue using the industrial capacities they have developed and the equipment they have purchased for other purposes.

Following that meeting, the Industry and Trade Ministry was instructed to develop measures to increase civilian output by defence companies. The ministry should do this by December 1, and I would like you to tell us about your achievements and plans in this sphere now.

One more promising export area is agricultural produce. Russian food exports amounted to over $16.2 billion last year and are expected to reach around $17 billion this year. Please note that our military exports, which have not decreased, are estimated at $14.5 billion. We have discussed this with the Prime Minister. This achievement by the agricultural industry is certainly due to the Government’s efforts.

We need systemic solutions that will allow Russian farmers to increase production and exports and to have the necessary infrastructure and information. Of course, our farmers have done a great deal, but the Government must continue to provide assistance to them for the medium term as well.

There is one more issue that I would like to discuss while we are on the subject of exports. The experience of the world’s leading countries shows that small and medium-sized companies are gaining importance in international trade.

You know about the contribution of small and medium-sized enterprises in the leading economies, in the emerging economies and in Russia. Our SMEs contribute about 21 percent, whereas their contribution in other countries is estimated at as much as 85 or even 90 percent. So, there is still room for improvement for us.

At the same time, the marketing of produce by small and medium-sized companies is usually limited to local or regional markets. Their export opportunities, even if they produce competitive quality goods, are very limited.

We need to create a nationwide mechanism to help small and medium-sized companies search for and gain access to foreign markets. You may recall that we have 5.8 million small and medium-sized companies. I expect to hear practical and substantial ideas on this issue today.

Now, over to the second item on our agenda. Let us discuss ways to improve the environmental situation.

Russia has accumulated about 100 billion tonnes of household and industrial waste, which take up about four million hectares.

The wastewater treatment situation is difficult as well: only 13 percent of wastewater is subject to mandatory treatment, while the rest flows directly into various bodies of water.

Please bear in mind that 2017 has been declared the Year of the Environment in Russia. Obviously, we will not be able to resolve all the problems accumulated over decades in one year. However, it is quite possible and even imperative to create a mechanism for dealing with them and to start moving towards our goals.

The first thing to deal with is the accumulated waste; we need to eliminate the biggest deposits of debris that literally plague people's lives. It is equally important to draw up a map of landfills, especially illegal ones, and to involve the public, to make sure that everyone could easily report an illegal dump and request an investigation.

We must certainly create economic incentives for recycling waste, to ensure that waste processing is more profitable than burning or burying, or just dumping it.

I also propose we discuss comprehensive measures to clean up rivers and water reservoirs. Their condition has a direct impact on the quality of drinking water, and consequently, on people’s health.

In general, I think it important to make every effort to preserve nature where it is still in its pristine state, or to return it to that pristine state for future generations, to protect rare species and unique natural sites. I suggest considering practical steps in all these areas.

Finally, let us discuss another issue that has caused broad repercussions. I am referring to the treatment of stray animals, which are an integral part of urban ecosystems.

The lack of rules and regulations in this area is fraught with the deterioration of the sanitary situation, and in some extreme cases, it leads to cruel, inhumane treatment of animals. As far as I know, a relevant draft law is being debated in Parliament, but there has been little progress on it.

Let us talk about how to promote this initiative, how to formulate a civilised procedure for treating animals.

Mr Yelin, please.

Acting Minister of Economic Development Yevgeny Yelin: Mr President, colleagues,

The project proposals that we are submitting for your attention have been drafted by the Ministry of Economic Development in cooperation with the Ministry of Industry and Trade, the Ministry of Agriculture and the Russian Export Centre as part of the priority project on international cooperation and export.

The project proposals are aimed at increasing the rates of non-resource, non-energy exports by at least 7 percent a year. This means that by late 2018 expected growth will amount to 15 percent compared to today. After the second stage (in 2025) non-resource exports will almost double.

The second figure shows the growth in the number of domestic exporters. We believe that by creating comfortable, attractive conditions for their operations, we will promote an annual increase in the number of exporters by at least 10 percent.

To reach these goals we have determined three key areas of action. First, we must establish a system of support for exports in those industries that are already exporting and that have considerable potential for expansion. We are primarily referring to industrial production, of course.

We are planning to achieve priority growth by developing the four sectors you have already mentioned, Mr President: the automotive industry, aircraft and railway engineering and agricultural equipment manufacturing. Implementation of this programme will allow us to double the exports of priority industries in terms of value by the end of 2018, while by the end of 2025, we expect these exports to grow five-fold.

Why are we so confident in our ability to considerably increase exports in these particular industries?

First, the enormous markets of these industries offer a real opportunity to challenge competitors. The auto industry market alone exceeds two trillion dollars annually, whereas Russia’s entire exports do not exceed 0.1 percent of that. In other words, we have enormous potential for expansion.

The aircraft manufacturing market is $296 billion per year. Our modest participation in this area gives us every reason to believe that we have great prospects here.

Secondly, since we are absolutely competitive in these sectors as far as quality and production costs are concerned, the export potential will be determined by the ability to reduce some costs and offer better pricing.

What are these costs? Let me highlight the most important ones. Primarily, these are costs related to delivering goods to prospective markets, which is due to Russia’s geographical location. Secondly, the scale of production makes it impossible for Russian producers to lower prices to the same extent as our competitors. Thirdly, the costs of borrowing that we can offer our partners so far is higher compared to the competition. Lastly, the most sensitive costs have to do with bringing products to the market and are related to dealing with restrictive import duties.

Protectionist sentiment is currently on the rise. The key solution to this issue would be to enter into various preferential and non-preferential agreements that would balance the interests of the contracting parties in terms of market access. We already have positive experience with the free trade agreement between the Eurasian Economic Union and Vietnam. It will enable us to lower import duties on most categories of goods or reduce them to zero.

We have launched negotiations on a trade and economic cooperation agreement between the EAEU and China, preparations are underway for launching talks with Israel, and by the end of the year, similar projects are expected to be launched with Egypt, India and Iran.

However, simply signing an agreement is not enough. We need to learn to localise production abroad. It is for this reason that the infrastructure project in Egypt implemented by the Ministry of Industry and Trade is so important. I will not elaborate on this project, since the Minister of Industry and Trade will provide more details on it. Let me just highlight that the Government has earmarked 16.5 billion roubles in 2017 for the entire range of incentives.

The project’s second key area is unleashing the export potential of the agro-industry. We have set the objective to increase exports by at least 6.5 percent, in terms of value, annually. We believe a number of product categories to have great export potential, including meat, meat by-products, fat-and-oil products, grain and processed food, and food products.

Our main objective in this area is to form an agricultural production export support system that would provide access for Russian agricultural produce to foreign markets. First, we will focus on reformatting Rosselkhoznadzor, which, as you are aware, is successfully restricting access for imported products to our market. Now, we want to redirect it so that it starts opening foreign markets that may be of interest to us for priority products.

To address this issue, the programme provides for activities aimed at organising the work of the Ministry of Agriculture and Rosselkhoznadzor regarding certification inspections from importer countries, and upgrading export-oriented agricultural production safety software.

In addition, special promotion measures that account for the specifics of that industry will be introduced, including an integrated system for analysis of potential foreign markets, new marketing arrangements, development of regional sub-brands, and promoting agricultural produce in foreign markets as part of our signature agricultural activities. Exports of agricultural production will receive support in the amount of 0.7 billion roubles in 2017, since the main measures are of an institutional nature.

Significant export opportunities have opened up due to the emergence of innovation markets that are the result of the so-called fourth industrial revolution, aka, industrialisation 4.0. It has different names, and e-commerce is one such market. Therefore, e-commerce is the third element of the programme proposal.

The programme includes systems that will provide for exporting the output of small- and medium-sized businesses. Mr Manturov will provide more details on this. I will just say that the programme will provide access to the global online market for 300 companies before 2018 and at least 5,000 companies in 2018–2019.

Developing export support institutions is another important element of the project proposal that I would like to discuss. Primarily, the issue is about strengthening the Russian Export Centre as a key development institution. Our goal is to form, by 2017, a single centre for export coordination and support based on the Russian Export Centre, which will be involved in supporting at least $30 billion worth of Russian exports by the end of 2018 and at least $40 billion by the end of 2025. This means that support will be provided to about 7,500 exporters by late 2018 and at least 12,000 exporters by late 2025. These figures are comparable to the support provided by export agencies in developed countries.

We plan to achieve this result by, first, expanding financial support for exporters. In addition, we will create regional infrastructure for the Russian Export Centre. We will also increase the presence of the export centre in our priority countries, and of course, we will work to improve the regulatory environment. A total of 16.5 billion roubles is envisaged for the programme.

To implement all the purported projects, we will need 33.8 billion roubles in 2017. The amendments to the draft law on the federal budget for 2017 and the 2018–2019 planning period account for the proposals to fund related activities that are part of the priority area.

In closing, in addition to what has been said, we realise that this is not an exhaustive list of areas and sectors. Certain services, such as educational, tourism, and transport services, as well as IT services, have major export potential. We estimate at least 20–25 percent growth in the overall export of services by the end of 2018. These exports should double by the end of 2025. We are working through specific corresponding proposals. They will be presented to the council in due course.

Thank you for your attention.

Vladimir Putin: Thank you.

Mr Manturov, please.

Minister of Industry and Trade Denis Manturov: Mr President, colleagues,

In the area of International Cooperation and Export, the Ministry of Industry and Trade acts as a customer in programmes to enhance the export potential in high technology industries and international e-commerce. We intend to focus our efforts on these industries, but on top of that, in terms of the export support programme, we have set a number of other priorities regarding radio-electronics, medical equipment, equipment manufacturing for the oil and gas and energy sectors, and a number of other areas.

When setting these priorities, we had three main variables in mind. First, the availability of production capacity within a specific industry and the ability to compete on the global market. Second, the current state of these industries and our assessment of domestic and global demand for their products. The third variable was their multiplier effect for related sectors.

I would like to stress that it is our intention to make all the support measures envisaged in this programme available to defence industry facilities, just as you instructed us in Tula. We are moving in this direction in order to diversify production by defence industry contractors. This, in turn, will lead to an increase in the production of civilian and dual-use goods by some 5 percent per year.

Last year, defence industry producers exported 112 billion roubles worth of civilian goods, which accounts for 14 percent of their total output. Aircraft manufacturing accounts for one third of this amount. In this segment alone, by implementing a project to promote exports, we intend to at least triple exports by the end of 2018, including by beginning to sell goods that cover the whole product lifecycle and developing aftersales support.

This will be a key factor in ensuring Russia’s presence on foreign markets in the long run. With global competition on the rise, the “sell it and forget it” approach no longer works, and you cannot keep creating regulatory barriers. What is needed is a systematic approach that will include localisation, organizing joint competence centres and working along the perimeter of free trade areas in order to gain a foothold in the largest regional markets.

Here is an example. Due to the signed free trade area agreement with Vietnam, the first run of Renault cars made at Moscow’s Avtoframos Plant is already in a Vietnamese port. Starting next year our colleagues will deliver vehicle production runs not only to Vietnam but to all Southeast Asian countries with which Vietnam has free trade area agreements. It would seem that Renault is a foreign company but a decision was made to suspend all production of these Renault cars at plants around the world and to concentrate production in Moscow. Domestic content is at 70 percent, so this is a Russian Renault. We consider this approach to be a strategic direction in the development of non-resource exports.

The same applies to the creation of industrial zones on the territory of foreign states. To test this model, a decision was made and coordinated with you and the Egyptian President to allow the use an 80-hectare industrial zone in the eastern part of Port Said on the Suez Canal. They are willing to increase this zone to 2,000 hectares in the future. We are now working on an intergovernmental agreement and hope to complete it in the first quarter. Why? To gain additional preferences and guarantees for our manufacturers that will build assembly lines there.

We are planning to expand this practice to move further along key country hubs. Importantly, we are involving our colleagues from the Eurasian Economic Union (I recently agreed on this with the ministers of industry from Belarus and Kazakhstan, and the day before yesterday with the Armenian Economy Minister; I hope our Kyrgyz colleagues will also support us) to use their potential as well and to enter these markets together. This will allow us to fulfil our main tasks of cooperation with the EAEU countries.

As for international online commerce, development will allow us to involve small and medium-sized businesses in exports where the main emphasis is placed right now. The main goal is to ensure the entry of Russian suppliers onto the world’s largest e-commerce sites.

The following measures are envisaged in this respect. First, we must form a single base of Russian small and medium-sized producers. Second, we must create national virtual pavilions on global online venues. Third, it is necessary to upgrade regulations, primarily simplify tax and customs administration in this sphere. Implementation of these measures plus consultative support for business should take more than 5,000 small and medium companies to the global online market by late 2019.

Mr President, final endorsement of our proposals will allow us to reach the project’s top-level target indicator. I would like to ask you to support our programme approach that we have coordinated with all interested agencies.

Vladimir Putin: Very well, thank you.

Mr Fradkov, please.

Russian Export Centre CEO Petr Fradkov: Mr President, colleagues, thank you for giving me the floor.

Our main task is to create a competitive framework for supporting non-oil and gas exports. Within this priority area, this framework is intended to support existing exporters and promoting new ones. Major companies currently dominate Russian exports.

Our data show that Russian export volumes per exporter are five to seven times higher than that of our main competitors, while exporters account for a significantly smaller share of the total number of companies. With that in mind, we believe medium-sized companies have the greatest potential in terms of increasing export volumes and radically changing its structure.

The Russian Export Centre sees its purpose in helping SMEs gain a foothold on foreign markets by becoming one of the elements of this framework. Let me briefly highlight the three key functions of the Russian Export Centre.

Firstly, it is to act as a coordinator and oversee priority activities. I believe that our centre is already de-facto acting as an interagency cooperation platform, and represents the interests of Russian exporters. On the other hand, as a development institution specialising in export promotion we must focus on resolving specific issues related to promoting Russian exporters on foreign markets.

It has been mentioned that the awareness of Russian goods and exporters on foreign markets is low. For this reason, another important area is to build Russia’s image in foreign trade and proactively promote our exporters’ brands, including consumer goods. We have products and services to offer to foreign markets. It is not uncommon that Russian goods are ahead of their foreign competitors in terms of quality, but no one knows our products. It is for this reason that we will engage in systematic efforts to maintain a presence in foreign media and online. We also have a programme for taking part in exhibitions, fairs and targeted business missions.

The Russian Export Centre has already begun to establish a network of so-called trading houses abroad. We want to emphasise that we are focusing on the business community's practical demands and expect businesses' financial involvement in these trading houses, because only the business community can comprehensively develop the demand for export supplies and provide the required quality of products. Here we expect support from businesses and business alliances and associations. This, as we see it, will also facilitate solving issues related to promoting our products, lobbyism and the implementation of industrial zone projects.

Even today, we can see that the involvement of the regions in creating and developing an export environment has to be taken to a higher level. There has to be a specific goal and responsibility for the regions to focus on developing non-resource exports.

We see the Russian Export Centre's practical role in coordinating the work of specialised and regional organisations and standards for their activities. We have already started a pilot programme with the Ministry of Industry and Trade to retarget the ministry's local bodies to work in the export field and are decreasing work on such basic activities as, say, issuing export licenses. We are offering a system that implies receiving services, including state services, and mechanisms to support local exports. It is very important for us that every end-consumer has the opportunity to get access to the resources provided by the state.

Speaking of small business involvement in export activity, we can see a lack of export competence. To solve this, we have started a so-called educational pilot project that provides detailed information and takes exporters in ”manual mode“ through all the stages of export activity.

In 2016, we worked with 13 pilot regions in cooperation with the regional governments. In 2017, we expect another 30 regions to join this programme. This initiative is about training entrepreneurs in the regions, and at a certain stage, we will start working with undergraduate students. I do not intend to elaborate on efforts to promote e-commerce, since much has already been said about that, so I will be brief.

In 2016, we set up a national pavilion under the Russia brand within a major online trading platform. We established a list of products that could be popular on that market. Within 45 days we saw a surge in interest towards Russian products, millions of queries, and the amount of purchases in the tens of thousands. We are also mindful of media content, and are working on this using online resources.

When it comes to helping companies promote exports, there is an issue with market analysis. Creating a centre for export analysis within our organisation could be a solution. It could provide information about foreign markets, potential for Russian exports, trade barriers and regulations.

We continue improving financial support measures. All the solutions in terms of export support lending and insurance are in place, including special programmes to subsidise interest rates in order to bring our resources and export offerings on par with international needs and levels.

There is another major request we are working on. Together with our colleagues from the Ministry of Economic Development and the Ministry of Industry and Trade, we have compiled a list of new government support measures that are fully in line with international practice. In a way, the Russian Export Centre is the Government’s agent in allocating these functions. This goes for subsidising various types of spending, stratification, logistics, homologation, offsetting costs for patent registration abroad and a number of other activities. By the end of the year, we will submit the Russian Export Centre’s strategy for consideration. It will be tailored to meet the parameters and priorities of this programme.

Thank you for your attention.

Vladimir Putin: Thank you.

Colleagues, who would like to say something on this issue? Chamber of Commerce and Industry, please.

President of the Chamber of Commerce and Industry Sergei Katyrin: Mr President, colleagues,

I would like to present several ideas that have been formulated by the business community.

Let us start with exports by small and medium-sized businesses. One of the biggest difficulties for them is to certify their products in foreign markets. Sometimes, if a consignment is small and the range of products is broad it is comparable with the sum of the deal claimed by this or that small company.

I believe the programme allocates 151 million rubles to support certification. However, these funds will be earmarked for the companies that request it. To resolve this issue consistently and to acquire labs that can issue certificates that will be recognized abroad (they will be issued to all who request them on Russian territory), Russia must join two organisations – the world association of Conformity Assessment Accreditation Bodies and the International Laboratory Accreditation Cooperation. This will allow us to have our own certification body that will be recognized in the West, which will help us promote our products abroad.

The second issue is holding exhibitions. This is one of the most important tools in promoting products. However, exhibitions are expensive for small and medium companies. We believe it would be very helpful to do two things. First, we should have a single coordinator for high-tech products. In principle, we have one – it is the Ministry of Industry and Trade, which plans a list of exhibitions with Russia’s participation for a year ahead.

And then, with the involvement of small and medium-sized companies that could be partially reimbursed for their participation (for the most part they are ready to invest their own funds into such participation), we determine a list of exhibitions and form a Russian division that could be represented not only by large corporations but also small and medium companies.

To make this calendar meet the interests of business it would be very helpful to have a coordinating body that would compile it with the participation of the business community, and not only producers but also those who deal with organising and holding exhibitions. The latter know better than anyone else which exhibitions are most productive and which ones are visited for the sake of tourism. It is important to understand what exhibitions can attract consumers on a large scale and not only in the host country but also in the region as a whole.

And the third point. Historically, since Soviet times the system of the chambers of commerce and industry performed a number of functions that the state delegated to them in foreign economic activities. They dealt with certificates of origin, ATA carnets, acknowledgement of force majeure events, international arbitral proceedings and a number of other functions that our chambers are still performing not only in the centre but also in all regions.

Today a number of governors are asking us to locate Russian Export Centre (REC) offices that are now established in the regions on the premises of the chambers of commerce and industry. Naturally, we are ready to work with the REC and are cooperating with it but the lack of statutory regulations on the system of chambers, other business associations and institutions for business support often becomes a stumbling block. I think we should improve the normative base in this area to allow the REC to use all available tools both in the centre and in the regions in the interests of the common cause.

Vladimir Putin: Yes, please, this can be done. It will be easier to work.

Mr Tkachev.

Agriculture Minister Alexander Tkachev: Thank you.

Mr President, ladies and gentlemen, thank you for commending the achievements of the agribusiness sector.

Indeed, that would not have been possible without the support that has been provided in recent years. Grain exports have reached 35–40 million tons. We have increased the number of countries to which we export grain from 60 to 100 (over the past two years) – in other words, we have effectively doubled the number. We sell grain practically all over the world, and at a good price and of high quality. Whereas with grain we are limited by quantity, with regard to beef, of course, we have great prospects, as was mentioned previously.

I would like to tell you that in the past year alone, we increased exports by 60 percent – that is, 150,000, and we started practically from zero. What countries? We have some interesting statistics, for example, on poultry and pork: Bahrain, Kazakhstan, Hong Kong, Italy, and Serbia; beef: the Arab Emirates and Vietnam. Talks are in progress and almost all of these markets will most likely open to us in 2017: China, Indonesia, Iran, Singapore, Japan, Saudi Arabia and Nigeria. As you know, Mr Shuvalov [first Deputy Prime Minister] is currently in Singapore and we are close to reaching an agreement on accessing other markets, including those in Asia, through Singapore. This is the way the world and the sales market is organised.

Our target is to boost beef exports to 1 million tons by 2020 – that is, in five years. Therefore, we will be able to make about $25 billion from grain and beef exports – that is, not $15 [billion] as now, but $10 [billion] more. The prospects are excellent.

As you know, thanks to national projects and support, we have increased production of pork and poultry and reduced the deficit by 90 percent. However, there are voices saying, “Enough. Let’s stop and move into other priority areas in agriculture.”

Here is an example. In Germany, there are over 40 million pigs (we have 25 million). In other words, they raise half of that for export. They bring hard currency to the country – to them, this is like oil, gas and so on. Denmark: a population of 5 million – 20 million pigs (we have 25 million), because 90 percent is exported. This is an inflow of hard currency. This is development. This is why we must not stop, no matter what. We should also support pig farming and increase the number to 50 million.

Just now, at a meeting with Prime Minister Medvedev, Mr Manturov and I said that we need to manufacture our own equipment. I would like to tell you that about 80 percent of a pig-breeding complex is imported components and materials: equipment, pumps, linings, rubber items, and so on. In other words, there is huge potential for industry. All of this can be manufactured in a nearby town. Then there are dairies, breweries, meat-processing plants, grain-processing facilities, wineries – all of this equipment is imported. Therefore, of course, there is huge potential.

I would like to recall that at the meeting in Tver, we addressed the impediments to the development of pig farming, to the meat production sector in general and to the investment climate – of course, a very bad veterinary situation. The incidence of disease has increased by dozens of times across the country. And of course, wild boar is our main problem.

Incidentally, we have found a consensus with the Natural Resources and Environment Ministry and are working along these lines, but of course, subsidiary farming has expanded dramatically and it is developing without due veterinary oversight. I would like to note that if we do not address this, all foreign markets would be off limits to us.

China says, “Until you eradicate the African plague we will not work with you.” This is a vast market. All countries are fighting for it. The whole world is working with China and making money. I would like to inform all those present that we are launching large-scale efforts in keeping with your instructions. These measures may not be popular but we must enforce order.

Vladimir Putin: No, do not get me involved too much in shooting wild boar. Do it on your own and coordinate your efforts with the Ministry of Natural Resources and Environment. And of course, action must be taken to deal with the matter.

Please.

Deputy Prime Minister Arkady Dvorkovich: For all my boundless love of agriculture, I will change the subject. Just a few points.

First. There is talk of supporting primarily non-resource exports, but sometimes, from our standpoint and from the standpoint of many of our colleagues, a great deal of various non- resource items are imported as primary resources. With regard to agriculture, grain is considered a resource export item. I am afraid that eventually, meat will also be considered a resource export item. Fertilizer is considered to be an resource export item even though it is a high-tech product. As it turned out recently, pipes are a primary resource, an resource export item, and this impacts the entire system of support measures, access to support tools, the VAT reimbursement procedure and many other issues. Within the next few weeks, we need to straighten out what falls within the definition of resource export and what will be considered non-resource export, which would be entitled to the complete array of support mechanisms.

Another subject is work abroad. In addition to the work of trade missions and the localisation of particular production facilities, it is important to understand that modern goods and technologies require a servicing network. This is a very important issue, which involves considerable costs. This is where we are also losing – what is more, on high-tech products. Special attention should be given to this. Today, it has not received the due attention it deserves. Therefore, I believe it is very important.

The third is the regulation system. In addition to establishing our own production facilities, which have the potential for export, we have good opportunities for the localisation of production now based abroad because there are certain advantages in that. First, of course, in terms of prices and quality standards. However, we often put higher demands on these facilities than other countries do, the ones to which we are going to export. Sometimes this is absolutely irrational. On the contrary, we should ease requirements and minimise them in order to boost exports.

Finally, the fourth, the location of export-oriented production facilities. Even though we would very much like to support all existing enterprises that for various reasons have ended up in different parts of the country (this was the way the production system was organised in the Soviet Union), today it is economically beneficial to locate production facilities that were originally export oriented in ports or in closer proximity to them. It is essential to gear our support to locating new production facilities near port infrastructure to minimize the costs, including budget funds, of supporting exports, so that goods can be delivered by rail or road – near ports. This is not to say that others should not be supported, but it is essential to follow a rational approach.

Vladimir Putin: Terminals can also be near railways that can be used for exports.

Arkady Dvorkovich: At least relatively near. Because today, when we ship [products] 4,000 km or more from central parts of the country to Europe or the Far East, it turns out that not even the railway can always cope. Then we have to support Russian Railways so they can recoup their losses, and the costs of doing business for companies increase. This is essential everywhere, in selecting new projects to be supported, to consider whether they are export oriented or whether they have potential for the domestic market, which will make it possible to recoup these losses.

Thank you.

Vladimir Putin: Mr Repik please.

President of Delovaya Rossiya national public organisation Alexei Repik: Mr President, Delovaya Rossiya has become involved in the strategic sector. Generally, I believe that the creation of public business councils in priority areas is a very good feedback tool for the business community.

I would like to draw your attention to the following. It is very important that in a number of sectors, especially in highly competitive sectors, centre stage is taken not by financial support for exporters but by systematic measures to improve the business environment, including the regulatory environment for exporters. On the whole, we have learned to make adjustments to improve the business environment. This is evidenced by what can be described as our record breakthroughs in Doing Business.

World Bank rankings do not quite reflect exporters’ needs, so I consider it very important that the Russian Export Centre, along with the Agency for Strategic Initiatives, Delovaya Rossiya and the Federal Customs Service, have signed an agreement on screening the operations of non-resource exporters to identify problem areas, underwater reefs.

I believe it is quite feasible, based on this analysis, to ensure that a decision by a Russian company to export becomes simple, routine and does not necessarily require the complex export competences that Mr Fradkov spoke about, and generally, that the decision to enter a new market should not be more difficult than the decision to set up an operation in a nearby region or town. Then we will establish best international practices. I believe we have every reason to count on that.

Vladimir Putin: Thank you.

Yes please.

President of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin: Mr President,

We are in close contact with the Russian Export Centre, the Ministry of Trade and Industry and the Ministry of Economic Development, and I would like to thank these agencies and personally Mr Fradkov for the fact that we are jointly developing a range of models and technologies. In particular, we are willing to continue work on the “one-stop service” and other projects. I would like to bring a few issues to your attention.

It is a very good thing that the concept of non-resource exports includes services, and indeed the export of education, healthcare and IT services, in my view, is a very important and very promising area. In this context, it is essential to evaluate our capabilities. However, in some areas, for example, e-trade, which has received much prominence, I believe that the targets that have been set are not ambitious enough. It seems that a little over 700 million rubles have been earmarked for three years and 2 million transactions are expected to be made in three years under this technology. It may be recalled that Alibaba (Jack Ma met with you, Mr President, on several occasions) – they conduct 140,000 transactions per minute. We should simply determine whether we can use only our own platforms or also enter international trading floors. However, without a doubt, the prospects here can be far greater.

I would like to take this opportunity to support Mr Dvorkovich’s position. Indeed, many of our RUIE members believe the concept of non-resource exports should be expanded. Mr Dvorkovich enumerated the products that are high-tech but by tradition are classified as raw materials exports. It would be advisable to take a closer look at this list. I believe that would not just be in the interest of statistics. We would improve this indicator quickly, but essentially, that would help support high-tech production projects. Thank you.

Vladimir Putin: Thank you.

Firstly, today is Mr Shokhin’s birthday – 65, and we wish you many happy returns. (Applause.) Thank you very much.

Secondly, regarding e-trade, we are working on this. Corresponding instructions have been issued to the relevant agencies and the government as a whole. However, we need to organise it so that these e-systems and trading floors do not use us but we use them or at any rate, so that we build a national system that will have good prospects for development and cooperation with our colleagues but within the scope, volume and capacity that is in the interest of Russian consumers and the development of Russian industry. Nevertheless, we will definitely seek your opinion, as well as the opinion of other associations, to take optimal decisions.

Mr Kalinin, please.

President of OPORA Russia National Public Organisation for Small and Medium-Sized Business Alexander Kalinin: Thank you.

Mr President, colleagues,

OPORA Russia conducts the Business Success national contest in association with the Accounts Chamber and the Agency for Strategic Initiatives. We have recorded that micro business interest in export has been growing exponentially in the past two years. By adopting this programme we should at least avoid disappointing people, and at best we should help them become successful business people.

First, speaking about the programme, we believe it is very appropriate that a new form of government support is emerging: compensation for business associations, business missions, since markets are located fairly far away. The fact that currently some programmes have 120 million funding whereas this programme will have 2.7 billion, will allow us to take people abroad and prepare such business missions with better quality, all the more so that the programme contemplates a fifty-fifty principle or somewhere around that. This means we allocate our own money as well, but upon completion we get compensation from the government, and we certainly welcome this.

The next point I would like to make is that we would like to have this programme aligned with improving cross border checkpoints by the Federal Agency for the Development of State Border Infrastructure. You held a respective meeting in Orenburg, and the border checkpoint there will definitely be improved. Yet there is a fairly large number of such border checkpoints, and they are meant first of all for micro business. If we review them and align these programmes, this will sharply improve the logistics, especially for micro business.

Vladimir Putin: Let us have our decision today reflect this, this is absolutely right.

Alexander Kalinin: Thank you.

One more point: tourism is also an export. We have a number of regions that we have included in the tourism programme apart from Moscow, St Petersburg and Sochi, but those regions have a short tourist season, for example, Khibiny or Southern Ural.

If flights during the tourist season were additionally reimbursed, many foreign tourists would choose to spend their holidays not just in Moscow or St Petersburg, they could be happy to fly to a number of wonderful regions of our country. But when the domestic airfare is so high, tourists naturally decide against taking flights within the country. As a result, we fail to attract additional funds to the regions.

Vladimir Putin: You should first discuss the subsidies with the Finance Ministry.

Alexander Kalinin: There is another issue concerning the Far East. In fact, the export issue is crucial to the region’s future. It is essential to begin work on this programme based on public-private partnership, setting up a logistics centre for foodstuffs.

Business cannot do that alone, whereas if we design this on public-private principles in 2017, this would inspire a lot of people dealing with crops, aquaculture and so on. They will be exporting to China, Korea and other countries.

Vladimir Putin: That’s a very good idea. We must take note of it by all means.

Look, we are currently seeing growing agricultural exports and we are proud of and grateful to our farmers for their work. The growth is significant. But what is it based on? It is based on growing production. Only recently, just a few years ago, when we harvested 65, 70, then 71 million tonnes, we used to say: this is so good, we can even build up some reserves. Then we had 95, 100 million, and this year will bring in 117. We have obtained the world’s largest export potential of 25 million tonnes thanks to growing production.

We have been discussing today the issues of support, in essence, it is about hi-tech exports, industrial exports. But to create hi-tech export potential we need to manufacture enough of such products for domestic consumption. Just recently I had a meeting with Mr Kudrin. He shared his observations from the past few years.

The production volumes of hi-tech goods is growing very slowly in our country, and one of the reasons is that there are great many bureaucratic hurdles in manufacturing such goods. Unfortunately, the economy is still not responsive to high technologies.

Mr Kudrin, will you please say a few words about it.

Deputy Chairman of the Presidential Economic Council Alexei Kudrin: Mr President, colleagues,

We are discussing very important projects today. I support these projects. I think one of the key issues is the export support project. Speaking about the results, we should treat them as pilot projects. The potential of the projects listed today amounts to increasing the manufacturing of products discussed here by $20 billion by 2025, both industrial products in four sectors, and agricultural produce.

But in order to ensure sustainable development and economic growth of 4 percent per year, even if we do it gradually over five to six years, we need to have non-resource, non-energy exports growing by around 6.8 percent a year for a long period. This means that we have to nearly double the volume of non-resource, non-energy exports from $116 billion to $230 billion.

Having said that, we will need to bring it up to approximately $400–450 million in 20 years. Only then, with all of the factors combined, will we have sufficiently stable economic growth. Therefore, a big part of our export task lies outside of the sectors mentioned earlier but will be facilitated by other types of goods and services, which will also be developing since this project has general regulatory measures, i.e. reduction of export barriers – access to finances, credit support, warranty cover. In this regard, this project stipulates these measures, but we must understand that the most exports will not be in these sectors but in other sectors. And we must give an impetus for them.

Unfortunately, over the past seven years, we have been losing our positions in non-resource and non-energy exports. We reached a peak in 2012–2013, and then, due to a number of circumstances, we lost approximately $30 billion worth of exports. Now we must strive to gain momentum and build up our potential.

There was a good experience, I must say. In the beginning of the 2000s, the non-energy, non-resource growth amounted to about 20 percent a year. We experienced growth in energy and resources as well, and it seemed to give a boost to the rest of the economy due to a number of circumstances, modernisation and creating better conditions.

Therefore, we have such experience. The task is to make sure this growth is stable. Hi-tech products make just 6 percent of all of our export products, worth about $19 billion last year. This is what we say about hi-tech products. We have non-resource goods of low, a medium and high degree of processing, and their share is bigger of course, but hi-tech products are worth around $19 billion at present. This will be the most competitive sector, which we must substantially expand in the near future. In this regard, our biggest challenge is to create conditions for this sector.

Vladimir Putin: Thank you.

Let’s summarise all of this today. I ask Mr Belousov [Presidential Aide] to draft this and we will move forward. The faster we execute the plans which we spoke of today, the more success will we attain in one of our most important goals: diversifying Russia’s economy and changing its structure.

Let us move on to the second issue. Please, Mr Donskoy.

Minister of Natural Resources and Environment Sergei Donskoy: Mr President, colleagues,

As it has already been said, one of the most painful environmental problems in Russia is the rise in waste generation. The figures have already been mentioned, so I will move on to ways of solving this problem.

(Then the Minister dwelled on the implementation of the Law No. 458, which introduced a new regulation system in waste treatment, in particular, the formation of a transparent mechanism of collecting, transporting and disposing of municipal solid waste in each region.)

A provision of the law on the responsibility of manufacturers and importers for the utilisation of goods after their loss of consumer properties is already in effect. Such an obligation has been set for only eight categories of goods. In 2017, we plan to collect more than 6 billion rubles to the budget owing to an environmental fee. These funds will be, first and foremost, used to subsidise municipal solid waste treatment programmes for the regions that switched to the new system.

Eventually, this environmental fee will give us substantial funds to subsidise regional programmes for treating municipal solid waste. It is also necessary to consolidate the efforts of environmental supervision authorities, regions, local authorities, citizens and NGOs in cracking down on illegal landfills. To this end, we plan to launch in 2017 a public information system to monitor unauthorised landfills and the actions of officials at all levels to eliminate them.

What is important is that each application filed with the system and confirmed must result in specific actions. Baikal and a number of other regions are already piloting the system. And it is obvious that apart from emerging illegal landfills, there are longstanding problems as well: ownerless former industrial sites with hazardous waste, and grounds, landfills in residential areas which negatively affect the lives of more than 17 million citizens of our country.

In 2017–2019, we plan to carry out work to get rid of more than 20 facilities of accumulated environmental damage in 20 pilot regions. Also, during 2017, we plan to make an inventory and form a register of such facilities, and divide them up in terms of their impact in order to start working with the more hazardous ones. Implementing the proposed set of measures will improve the environmental conditions for 27 million people and will allow for restoring and introducing more than 1,500 hectares of contaminated land into business.

The second task which I would like to talk about as well is preserving wildlands.

Vladimir Putin: Excuse me, do you mean introducing it into agricultural business?

Sergei Donskoy: Bringing it into economic use.

Vladimir Putin: How much?

Sergei Donskoy: Over 1,500 hectares of contaminated land.

The second task which I would like to speak about is the conservation of wildlands and the rare animal species inhabiting them. We believe that it is important to create opportunities for people to see what we are preserving.

Vladimir Putin: Wild boars will soon become an endangered species.

Sergei Donskoy: We have already agreed with the Ministry of Agriculture on measures for our work in this area.

 Vladimir Putin: Please elaborate.

Sergei Donskoy: When we had a meeting with you, we agreed that there would be a minimum number of wild boars on territories where pigs will be bred. We also agreed that on territories bordering countries with a relatively high level of African swine fever virus, we will set up a quarantine zone, with no wild boars at all. Overall, as it has been already mentioned, the focus will be on veterinary activities.

Vladimir Putin: Good.

Sergei Donskoy: In the modern world, national parks are actively involved in the development of eco-tourism. Our national parks and nature reserves are located on an area of over 62 million hectares and can potentially receive over 20 million people per year. However, the existing infrastructure allows them to host about two million people, and only on 12 percent of these territories. Potentially, these are territories for developing small and medium-sized businesses, attracting private investment, and creating new jobs – all of this makes for developing wide support of nature conservation ideas in society.

Developing educational tourism on the specially protected natural areas will require, first of all, infrastructure. I am speaking about ecological trails, visitor centres and ranger stations. We are aware that the Government's funding is not enough, and we propose developing and introducing a mechanism for attracting private financing in 2017, including on the basis of concession agreements and other mechanisms of public and private partnership.

Introducing such mechanisms will allows us to implement in 2018 pilot projects on the specially protected territories – the Baikal natural area, the Altai Mountains and the Caucasus. As a result, the number of Russians visiting national parks and nature reserves on these territories alone will reach up to five million people.

Development of educational tourism at specially protected natural areas will have a multiplicative effect on tourism development in the corresponding regions. Implementation of the pilot projects will ensure the creation of additional jobs in tourism. For example, more than 37,000 people over four years will be recruited to work in that sphere at the Baikal natural area.

I cannot help dwelling on another environmental problem which has already been spoken about today – it is the state of our water bodies. As of today, 90 percent of wastewater getting into water bodies does not go through sufficient processing. As a result, for many years, contamination of water bodies in Russia, including the Volga, Don, Ural, has remained continuously high. Relatively clean rivers have been preserved in only those areas where a small part of the country’s population lives –Siberia and the Far East.

To solve this problem, treatment facilities have to be built and modernised. We need to greatly reduce the pollutants getting to water bodies, and ensure sanitation of reservoirs and adequate preparation of potable water. For this we need a substantial volume of state financing. We believe that such source of financing can be created by accumulating funds for these purposes in a special budget’s fund, in the amount equivalent to payments for discharging pollutants into water bodies. Mr President, I would ask you to charge us, jointly with the Ministry of Finance and the Ministry of Economic Development, with working through the possible creation of such a financial institute.

In conclusion, I would like to address a problem which has been spoken about many times and which has caused a public uproar for many years – this is the problem of homeless animals. It is cases of homeless animals’ abuse that stir up the public. There is growing discontent over the use of inhumane methods to regulate their number. One of the reasons for this situation is the absence of a unified state policy in Russia and a legal framework in this sphere.

The corresponding draft federal law on the responsible treatment of animals was adopted in its first reading in March 2011. Mr President, we believe that it is necessary to improve and adopt it, and also to ensure the development of relevant regulatory acts and standards to maintain and regulate the number of animals.

Thank you for your attention.

Vladimir Putin: Would anyone like to speak on this issue? Mr Ivanov, please.

Special Presidential Representative for Environmental Protection, Ecology and Transport Sergei Ivanov: Mr President,

To add to what Mr Donskoy has just said, I would like to note that only recently at your meeting with the Russian Popular Front, the issue of ecology was actively and emotionally touched upon by the meeting participants, who cited awful figures on the number of dump sites and accumulated waste.

According to the Russian Popular Front activists, there are 20,000 detected illegal landfills in Russia today, which is four times the number of certified dumping grounds.

Recently, I have seen one such landfill and had to hold several meetings. As you know, the construction of the third runway is underway at Sheremetyevo Airport. And during the construction work, we came across a dumping site. No waste is discarded there anymore, but this is accumulated environmental damage. To clean up this site, a total of 1.3 billion rubles are required.

We have found a way to come up with this money through joint efforts of the Moscow Government (as this is their land), the Ministry of Transport, and the Ministry of Natural Resources and Environment, without additional expenses from the budget. This is the example I am providing to show how much it costs to get rid of a large illegal landfill.

At the meeting with the Russian Popular Front, you mentioned that once you personally – and I remember this as well – had to prevent illegal dumping of waste near an airport, and I believe everyone is aware of the danger this illegal dumping could pose. By the way, St Petersburg's Pulkovo Airport still faces such danger, and we are eliminating it here at Sheremetyevo. This is a matter of safety.

The second issue related to waste – and I think it is one of the most acute environmental issues today – is construction of the new modern waste recycling plants that use the latest and best technologies. As far as I know, the Government has just adopted a decision to begin the construction of five such plants in 2017, the Year of the Environment. This will be implemented by Rostec within the constitutional framework, with four plants to be built in the Moscow Region, where we have the most pressing situation in Russia, as Moscow alone generates 20 million tonnes of solid household waste annually, and the fifth plant to be constructed in Tatarstan.

The third point I would like to mention is that we cannot do anything without the involvement of the public and concerned citizens, many of whom express their desire to improve their courtyards and their street, or to improve their village. Frankly, garbage can be found everywhere.

Recently I have met with members of the Russian School Students Movement. They have created an environmental organisation and established the Green Patrol, which will monitor the recovery of woodlands, especially city forest areas, which, as we mentioned, turned out to be beyond any legislative norms: anyone can destroy them for the purpose of constructing large shopping malls and centres in large cities, typically. We will protect these areas with the help of school students, who are ready to engage in this as well as restoring forests, planting shrubs and trees, and so on.

As regards wastewater, next week we are holding the second meeting of the organising committee of the Year of the Environment. The first issue on the agenda is, of course, waste, and the second one is the situation with wastewater. Along with what Mr Donskoy said, water quality is largely damaged by the discharge of household washing and cleaning products, which are becoming more and more widely used – and there is nothing bad about that fact.

However, the washing and cleaning products sold in Russia contain phosphates, which badly affect the quality of water resources because phosphate removal is not conducted at our sewage treatment facilities.

In the developed countries, washing and cleaning products have long been produced without phosphates. We can do this as well, and we will speak about it as this is one of the key issues related to water quality.

Vladimir Putin: Thank you.

Now Mr Siluanov will speak about the financing of priority projects.

Minister of Finance Anton Siluanov: Mr President, colleagues,

The budget allocations for the next year have been calculated with consideration of the certificates of priority projects. The 2017–2019 budget envisages budget allocations for implementing 10 priority projects. Amendments on redistribution of 104 billion rubles of the funds set aside for carrying out priority projects have been drawn up for the second reading, and the total allocations for these projects will total 178.8 billion rubles in 2017.

In the following years, the volume of funds will be calculated with consideration of the certificates of approved priority projects and progress in their implementation. The necessary funds have already been earmarked in the 2018–2019 budget. The total financial allocations in 2017 will be estimated considering each priority project, and in 2018–2019 they will be calculated based on project progress.

Vladimir Putin: Are there any questions for Mr Siluanov? Is that all?

Thank you very much. We will continue our work with consideration of the remarks and proposals made here today. Thank you.

November 25, 2016, The Kremlin, Moscow