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Vladimir Dmitriev reported to the President that Vnesheconombank has developed a special programme to promote modernisation and innovation projects in 2010–2014. Vnesheconombank also signed a cooperation agreement with key Russian development institutes, which will encourage financing at all stages of the innovation cycle.

President Medvedev emphasised the importance of supporting small and medium-sized companies involved with innovation.

Mr Medvedev and Mr Dmitriev also discussed the issue of socioeconomic development in the North Caucasus, including VEB’s participation in projects aimed at the development of tourism and recreation cluster in the region.

The President noted that turning the North Caucasus into a centre for mountain tourism would provide millions of people with opportunities for recreation and would create 150,000 new jobs, which is highly important for this region.

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President of Russia Dmitry Medvedev: Mr Dmitriev, I met with heads of US venture capital funds just now, people involved in risky investment, running venture funds. They are ready to work in Russia implementing the projects we have. This is positive, but it is extremely important as well that our own financial organisations, our own banks and development institutions also get ready to invest in our economic modernisation, in high technology and innovation. How is your bank progressing in this work? 

Chairman of Vnesheconombank Vladimir Dmitriev: We are fully focused on shaping our efforts in line with the goals that have been set for national financial and industrial development institutions. In our new strategy for 2010–2014 we completely reassess our approach to modernisation and innovation projects, making them one of our strategic areas of activity. Around 15 percent of the projects in Vnesheconombank’s current loans portfolio are related to economic modernisation and innovation. To be honest, they are mostly more about modernisation and import substitution than about innovation…

Dmitry Medvedev: Innovation in the narrow sense?

Vladimir Dmitriev: Absolutely right. We hope, together with the other innovation-focused development institutions, to change the existing practice. In this respect, I want to report that a month or more ago we established a new framework for relations among financial and industrial development institutions. We signed a cooperation agreement in April. The agreement brings together nine institutions, including key development institutions such as Vnesheconombank, RUSNANO, the Russian Venture Company, the Small Scientific and Technical Businesses Support Fund, etc. We also have the [Federal] Agency for Youth, the Moscow Interbank Currency Exchange, and Opora Rossii [The Backbone of Russia, which is a national association of small and medium-sized businesses], in other words, all those more or less involved in supporting small and medium-sized businesses in the innovation sector.

We think this agreement is essential in terms of enabling us to establish a common data base, provide financing for every stage of the innovation cycle, and ensure the involvement of the financial institutions and of the industrial institutions and agencies, so as to create the kind of uninterrupted process from start to finish that will give us the innovation lift we need.

We have already begun building this data base. We are working closely at the bilateral level, including with RUSNANO. I sit on RUSNANO’S supervisory board. We have similar arrangements with other companies that have signed the agreement. In other words, we are physically present on their supervisory boards and we also ensure systemic cooperation at the lower level of operation. 

Dmitry Medvedev: It is good to see that all of the development institutions have reached a consolidated position. It is good that you have all agreed on working together.

Talking just before with the foreign investors, one thing that got me thinking was the need to establish support mechanisms for small and medium-sized innovation businesses. Big organisations always find money somewhere, whether through RUSNANO, as the specialised state development institution in this area, or through universal institutions such as Vnesheconombank. But it is very important to extend this financing work to small and medium-sized businesses too. This is, of course, a more complicated undertaking, and we realise that these are risky operations, for which suitable provisions will have to be made, with the Central Bank making the decisions on the relevant prudential requirements. But if we do not establish some kind of system in this area these businesses will never get access to the financing they need.

Vladimir Dmitriev: I can report on the results we have achieved together with our subsidiary, the Russian Bank for Development, which has launched a new programme targeting this particular area. The programme is called Financing for Innovation and Modernisation. What it involves is that the Russian Bank for Development will provide financial support of up to 150 million rubles to partner banks’ projects in the innovative SME sector. Loans will be for a period of at least 7 years. Most important of all the interest rate will be two thirds of the Central Bank refinancing rate. The Russian Bank for Development will essentially be working very close to simply covering its costs, without making any real profit out of the operation.

Dmitry Medvedev: This gives an interest rate of six percent. Is this the actual interest rate at which the loans will be accorded, or does it not yet include the margin that gets added in? 

Vladimir Dmitriev: This is the interest rate at which money will be lent to regional banks, but we will keep track of the situation to ensure that the interest rate for final borrowers is not more than around 10 percent.

Dmitry Medvedev: But that is the maximum. Anything above ten percent, and this kind of scheme loses its attractiveness.

Vladimir Dmitriev: We are launching this project and we think there will be demand for it. Another of the Russian Bank for Development’s initiatives is to establish a Direct Investment Fund, which will work directly on innovative SME projects, thus minimising risks and making these projects more attractive for the regional banks.

Dmitry Medvedev: You are talking about quite big projects here?

Vladimir Dmitriev: No, projects in the SME sector.

Dmitry Medvedev: Specifically in the SME sector?

Vladimir Dmitriev: Yes. In other words, banks are not always willing to invest if the project’s initiators are not investing too. In these cases, the Russian Bank for Development, acting as a shareholder or investor in the project, gives the regional banks an additional degree of protection, an additional guarantee.

Dmitry Medvedev: Good, this needs to continue.

Vladimir Dmitriev: One other thing, Mr President, if you will allow: knowing how important the issue of social and economic development in the North Caucasus has become, we have resumed the examination of projects that we had our sights on before the [financial] crisis began, in the context of the priority now placed on developing a tourism and recreation cluster in the North Caucasus.

We have already accumulated quite a lot of experience financing Olympic projects, and so we have decided to get involved in this new project, given that the plans for developing the North Caucasus are in some ways comparable, though on a different scale, to the work underway in Sochi for the Olympics, the work on transport and logistics infrastructure, building the Olympic sports facilities themselves, and all of the other areas which are part of such a large project.

Furthermore, together with one of the biggest engineering services providers, Canadian company SNC-Lavalin Inc., we have set up a joint venture, VEB-Engineering LLC. The idea is to make use of the expertise of our Canadian partners, who took part in building Olympic and sports facilities in Canada and other countries, to ensure the full project cycle, from design and planning to monitoring how funding is spent, and carrying out technical control and expert assessments, for the facilities we plan to build in the North Caucasus, in Karachayevo-Circassia, Adygea and Daghestan. We are once again examining the Arkhyz project in Karachayevo-Cirkassia. This is a big project that will require serious transport and energy infrastructure, and we are ready to undertake this work. 

Dmitry Medvedev: It is very good that you have decided to get back into this work, to return to these projects, because we will get nowhere without state support too in this area. We do indeed have big plans for a mountain sports and tourism cluster in the North Caucasus. I have been briefed on these plans and have approved them. So, given the political decisions that have been taken, you should indeed go ahead with this work.

The main thing is that this will not only make it possible to develop resorts at which millions of our people will be able to holiday, I hope. Our people like these kinds of holidays, but one does not have to go abroad for them – we offer conditions every bit as good, and in some cases even better. The main thing is to get the infrastructure into place. But even more important is that this will create around 150,000 new jobs, and for the North Caucasus this is absolutely vital.