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The President noted in particular the importance of joint projects with foreign investors in such sectors as biomedical technology, energy efficiency, space and nuclear industries.

Taking part in the meeting were 22 heads of US venture capital funds and Special Aide to the US President on national security Michael McFall. On the Russian side, the meeting was attended by First Deputy Chief of Staff of the Presidential Executive Office Vladislav Surkov, Economic Development Minister Elvira Nabiullina, and Head of the Presidential Experts Directorate Ilya Lomakin-Rumyantsev.

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President of Russia Dmitry Medvedev: Good afternoon, colleagues.

I would like to welcome all of you, heads and representatives of venture capital funds, to Moscow. Actually, we are not literally in Moscow now, but rather, at my home, which will hopefully encourage a more open discussion on the most sophisticated issues.

I invited you here to discuss an issue I’ve been promoting very actively as of late: the development of our nation’s innovation potential. In addition, I would like to talk about investments into high-tech businesses. I am not going to make descriptive generalisations as it is evident we are very much interested in such investments.

I would also like to thank the representatives of the American Business Association of Russian Professionals (AmBAR) who participated in organising this visit and meeting.

I’ll say a few words about the market situation. We are all aware of how things stand, including the venture capital market in Russia. Clearly, this market is underdeveloped. We observe an obvious trend toward growing domestic capital spending on scientific research and studies, but we do not have enough venture capital in our country. About 20 funds are operating in Russia with a total capital of some two billion dollars. If compared to the venture capital available in the US and many other countries, it is next to nothing. We would certainly like to encourage the development of this type of business in every way.

Today, the consumer markets, the financial services, and the information and communication technologies sectors are the definitive leaders in attracting capital; they are showing good progress, but it is extremely important for us to expand our range of opportunities for venture capital and develop joint projects in biomedical technologies, applied software, and the so-called pure technologies.

Another issue that is exceptionally essential for Russia is energy efficiency, because so far, we have unfortunately not been able to make our economy fully energy efficient which is a prime goal. No doubt, attention should be given to aerospace and nuclear industries. All of these areas are priorities for the Presidential Commission [for Modernisation and Technological Development of Russia’s Economy] which I had decided to chair in order for these efforts to be of a special significance. You may be aware that in Russia many processes only become successful when they are under patronage of a national leader, this is the way our social mentality has been for centuries. Maybe this is not very good, but for the moment, that’s how it is. Perhaps it may seem strange from an American perspective that the [Russian] President chairs such a commission, although your President is currently involved in everything, too, having reformed financial markets and reforming healthcare now. But this is something you know better and it’s not for me to tell you about that.

I am also trying to engage with various issues, and that is precisely why I chaired this commission. I believe it is important for us to focus on these [modernisation] matters now. I do not merely mean attracting private investments although they are certainly always most important, but also the co-financing of some costs by the government, tax breaks, subsidised loan interest rates, and other financial privileges that may be applied. This way, we can reduce the risks that exist in our market. We are aware of them, and these risks are assessed as fairly serious, but they can be mitigated through the preferential conditions that we are ready to apply in this situation. I therefore hope that our colleagues here will have a chance to review the projects we may offer. And of course I invite everyone to participate in these projects which will enjoy most favourable conditions.

I will not take time listing specific advantages of the Russian economy today. In addition to shortcomings, there are many benefits in it, even during the global financial crisis. We believe we were able to maintain macroeconomic stability and promote a fairly open investment environment. In my opinion, the taxation system that has been in place for almost eight years is quite well balanced. This does not imply it is ideal, it is a target of our constant criticism, but nevertheless, it works. And in my view, it is certainly not the worst system in the world, especially when it comes to income taxes, for example. As you know, the personal income tax in Russia is in fact one of the lowest in the world with a uniform flat tax rate applied regardless of income.

We are currently progressing in other areas too. We hope the liberalisation of the foreign exchange policy accomplished five years ago and lifting of restrictions on capital flow will further contribute to turning our country into a prospect financial centre. Thus, another very important goal is maintaining a sound level of investment cooperation and improving investment climate where we see certain problems. No doubt, this depends greatly, among other things, on the efficacy of the judicial system, the proper protection of property rights, and the application of advanced risks insurance mechanisms.

As far as our legislation is concerned, as someone with a legal outlook, I can say that in my view, our laws are quite reasonable. This is my evaluation not as President, but as someone who used to be a practicing attorney, a lawyer who structured business deals. It is a different issue that often this legislation may not be properly observed by business entities and may not be always interpreted accurately in judicial proceedings. Besides, there is a problem of court awards enforcement. All of these problems do exist, and I cannot avoid mentioning them at this meeting.

There is one more subject I would like to discuss with you. We have established a Russian innovation centre in Skolkovo. For the moment, it is still in the planning phase, but I hope that it will soon turn into a practical project. This centre should bring to life something unique for our nation: a system for testing innovative solutions, or, to be more specific, a system of selecting, testing, commercialising, and subsequently promoting innovative ideas. The innovation centre in Skolkovo will enjoy a special legal regime envisaging exceptions to administrative rules, a special tax regime, and a special customs regime; a respective draft law is now being prepared and in the very near future it should hopefully be submitted to the parliament.

We are therefore extremely interested in using Skolkovo centre for promoting cooperation with foreign colleagues and foreign investors. Still, Skolkovo is not the only promising site as we have other technological clusters, innovation zones, and special economic zones. What was our motivation for launching Skolkovo project? It was not launched because we are unhappy with our previous experiences, but rather, because we want to set an example of advancing this field [of innovations] through the will of the government and support of the business, using Skolkovo as a test model. If we succeed, and I have no doubt that we will, because we put in a lot of efforts by many agencies, the President and the Cabinet, then this experience could be replicated in other places.

We hope that our universities will also make an input. I think that this is extremely essential, because for the moment the results of scientific research at universities are commercialised insufficiently. I spent many years as a university lecturer teaching at law department along with my attorney practices hence I know how important it is to implement projects like these at universities. This is another challenge that we must work through.

I have already mentioned that we are advancing with establishing an international financial centre, a process facilitated by the [global financial] crisis and the tough [monetary] policies pursued by many governments toward their national bankers. We invite everyone having difficult times in their home nations to move to the Russian Federation.

All I have outlined is only a fraction of the issues that we could address today.

I would like to sincerely thank you for coming to Russia and for being here today.

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Concerning the mood among American and foreign investors in general, which is often based on the negative experiences of their predecessors, this is certainly a problem and we have an interest in solving it. This is something we need to do ourselves. We simply need to provide better examples, create better practices. But some things depend on you too. If you think that the situation has changed then your words, your experience, your appeals, your contacts with your colleagues are the best thing of all here because business does not always believe what the state authorities say, whether here in Russia or in America. Businesspeople are practical people. They wait to see what will actually come out of government decisions, what results orders and laws will bring. But they do believe what they hear from their partners and colleagues in the business world. I understand them in this respect because if they hear someone talking about how difficult things are, any normal and pragmatic person in business would look at it from their own point of view, what it would mean for their own business. And so you too can play a part in this context.

On the need to establish a modern auditing system I agree with you completely. The only point I want to note is that the international auditing system has taken a battering of late and, unfortunately, this has had a big impact on the business environment in general. Where are the “big five”, the “big four” now? There’s nothing left. Instead, we see total disappointment and governments attempting individually to regulate auditing activities. I think this should be one of the big issues on the agenda for the G20 group of the world’s biggest economies. As far as I know, the G8 and G20 summits in Canada will discuss the audit issue. Our sherpas and economic advisers are currently drafting proposals in this area.

Russia has its own particular problems in this sphere, of course. If we build something we should build it on the basis of new practice rather than copying the system in place in the 1990s, and which has now been rejected by the international community.

I certainly agree with you on the need for a comfortable working environment. You are absolutely right, we have things to keep working on in this regard, it is true, because it can be quite complicated to come to Russia. There are problems involved in organising visits. But this does not mean that the situation is ideal in other countries. To be objective, when it comes to simplifying visa rules this is usually done on a reciprocal basis. It is hard to imagine a developed country taking unilateral steps in this area. So there is the issue of reciprocity in simplifying visa requirements, and then we also have to deal with our own bureaucracy, which does indeed get in the way. This is something we certainly need to sort out.

Actually, I want to inform you that just a week ago I signed a law making it easier to hire highly qualified foreign specialists. This law will soon take effect. I am not saying it will make things ideal, but it makes it easier to arrange longer-term stays and it specifically targets highly qualified specialists, as defined by annual salary. This is not some kind of super high figure we have set, but it is enough to separate those who come to Russia simply looking for any kind of job (and we have quite a large number of such people coming from the CIS and a few other countries), from the highly qualified specialists we are looking to attract.

On the subject of establishing a foreign investment agency to protect foreign investors’ rights, this is not a new idea, and I recall working on precisely this idea back in the 1990s, when I was living in St Petersburg. I have been considering it lately too. It is easy enough to set up an agency. We have had agencies established and then liquidated in the past. But the real question is what powers would it have? If we are talking about protection of investors’ rights, in a number of cases it is judicial protection that would be needed, or at least measures taken by the prosecutors, law enforcement and investigative measures, but such an agency would not have these kinds of powers. The most it could do would be to send a political impulse, which can also be a good thing, of course, because there should be a body that reports to the government and the country’s leadership on what is going on in this area in general. But the question is one of the real powers such a body would have, and so we would need to examine all of the arguments for and against.

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On the sensitive matter of intellectual property and protection of copyrights and patents, this is a very important issue for us, of course. We have passed new intellectual property legislation. We changed our laws just a few years ago and we now have modern legislation, though people view it in different ways, of course. We have had our own debates here about joining the WTO, about intellectual property, about the need to take this or that measure. I note in this respect that I think Russia’s accession to the World Trade Organisation would substantially change the general atmosphere. We want this to happen and we hope that the US government, administration and business community will support this objective. As I have repeatedly said before, we are tired of sitting in the waiting room, trying to get into this organisation. Our accession process has been dragging on a lot longer than that of China, for example, although our economy is smaller than China’s, and in general we have quite open and clear rules. I just note this for your information. But coming back to intellectual property, we will continue to work on this as a separate matter because we realise that without establishing a full-fledged system ensuring protection of intellectual property it is practically impossible to achieve success in any kind of risk-related business, and indeed, in business in general.

Another point I wanted to react to is that you spoke of the need to spread good practice and positive examples in this area, and I agree that this is important, especially for our country, where businesspeople do not always have a positive image in the public mind. This is the consequence of history, unfortunately. After all, for more than 70 years we have no business to speak of really, no private business, in any case. There were only some small and insignificant elements of anything that could be called business. The whole economy was state-run, and this shaped a particular view of business.

I think this is a very negative thing, and I think we need to do everything we can to give business a positive image, to give those involved in business (no matter whether big or small, and no matter in which sector) a positive image as people working on the most important things: creating new jobs, contributing to the economy, and thus to the foundations of our society’s success and prosperity in general. We need to promote these kinds of examples in every way we can. This is a task not just for business but also for the media to a large extent, who can talk about these things. As I said, we have a long-established negative perception here of many of the processes involved in business, and the crisis has only made this worse, of course, given that people have lost their jobs, seen their wages fall, and other such negative developments. Hired workers usually blame their employers in such situations, and sometimes they are quite justified in doing so. But we must not let this undermine social trust, undermine the social contract that forms the foundation for any modern society’s development. In this respect it is our task, our joint task, to spread success stories and help to create a positive image of businesspeople in Russia, regardless of whether they are Russian or foreign entrepreneurs. 

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I agree completely that we need to attract young people in this kind of business, into innovation projects and venture projects.

For a start, young people think differently. You cited the examples of a whole number of big American and global brands created by young people aged from 18 to 23 or 24. They earned big money and launched these brands that have now become leading high technology brands. The question is how to go about this? You said that businesspeople and not politicians should be heroes, and overall you are right. But I saw some surveys recently that reveal that 90 percent of people in our country would like to be politicians because they think this is the shortest road to success in life. This is surprising. It was not the case in the past. It was not the case in the 1980s, or in the 1990s, when I gained my own experience in business, which you mentioned. For my part, I had two motivations. First of all, like any young man of around 23–24 I was very ambitious, and second, I did not have enough money, and so we, young people, set up our own companies in order to realise our ambitions and make money, and in part we succeeded.

The bigger problem is how to turn businesspeople into heroes. This is an issue for state policy on the one hand, and on the hand it requires businesspeople to look at their own conduct in society, set the best possible examples, because this is not always the case. But I think that this is indeed a very important issue.

On the subject of barriers and possibilities for investing in this or that sector, I think that what you are saying indicates misunderstanding of the situation to some extent. The problem is not about where the money goes. No one here, at least, not in the last 15–20 years, tries to tell business where to invest the money earned through this or that operation. What we are talking about is a different issue, namely that when we say that we want to work on innovation, invest in high technology and the new economy, like the way the United States has done, for example, we hear in reply “that’s all very good, of course, but we would rather put this money into oil and gas”. This is a real problem for Russia because our country has such rich natural resources, and so practically everyone wants to be in this business. 

The United States also has plenty of resources, but you have already long since gone through that period in your economic development, and now only books and films, some of which win Oscars, give us a glimpse of those times. But for us this is a real problem today. So, no one is telling businesspeople where to invest their money, saying that they need to put it into this or that particular sector, but we simply need for businesspeople to realise themselves it is worth taking the risk and putting their money into something new, into something that, although the risk of losses is there, really could lead to breakthrough results. This is about a way of thinking. If people are ready they will make risky investments, and if they are not ready they will earn in other ways, speculate on securities, go into other sectors, get into a more conservative area of business. Our job is, of course, to demonstrate and to showcase the best examples of how the business road can lead to real success in life for real individuals and for the country as a whole. In this respect I agree with you completely.

On the question of RUSNANO, it is a good organisation but I would not exaggerate its possibilities and influence. It is good that we have set it up, and I am very pleased to see it working on nanotechnology. The ultimate goal, however, is not just to have it up and running but to have it actually producing new technology and actively developing private business. 

I think that in the future these kinds of state-owned infrastructure companies should play only a minimal role. If the sector starts to live its own life there will be no need for these kinds of big infrastructure companies. They are only needed to manage big technical processes. We probably do need a state company to manage our gas industry, or to produce some major defence industry goods, but in this particular sector such organisations are not essential. I therefore think that once it has fulfilled its mission RUSNANO will ultimately hand over its powers to private companies or at least mixed public-private companies. I think this would be the ultimate fulfilment of its mission. But at the moment, I think the organisation is doing important work, and so I thank you for your assessment of its efforts.