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Excerpts from transcript of meeting with Delovaya Rossiya business forum

President of RussiaVladimir Putin: Good afternoon, friends.

I would like to begin by congratulating you on your professional holiday – Russian Entrepreneurs’ Day, founded in 2007, exactly 20 years after the adoption of the law on cooperatives.

This law gave Soviet citizens the right to form associations, to create their own profit-making enterprises and production facilities. Back then, this was a true breakthrough, both politically and economically.

Business associations make a significant contribution to strengthening the authority and influence of national businesses, and Delovaya Rossiya is undoubtedly a key organisation of this kind.

Today all these opportunities seem natural, which is additional evidence of the great changes that have occurred since then in the life of the country, the life of society and in the people’s mentality. Entrepreneurship has come to be considered one of the most important factors of Russia’s confident development.

Business associations make a significant contribution to strengthening the authority and influence of national businesses, and Delovaya Rossiya is undoubtedly a key organisation of this kind. It has some 7,000 members, mainly representatives of private companies in the non-resource sector.

We clearly need to ensure the influx of the largest possible number of self-motivated business-minded people to production companies, people who are ready to take on responsibility for both the work of their companies and their employees.

We clearly need to ensure the influx of the largest possible number of self-motivated business-minded people to production companies, people who are ready to take on responsibility for both the work of their companies and their employees. Society and the state are interested in the appearance of a large number of successful, promising companies. Their creation will become a worthy response to the challenges that are currently facing the Russian economy.

I would like to single out a few areas on our economic agenda where we need to continue our cooperation with the business community.

I would like to remind you that this year we will finalise the implementation of the National Business Initiative roadmaps. We have made significant progress in updating the legal base at the federal level and in creating more comfortable rules for doing business. Now we need to ensure the effective application of these legal norms in the regions and at municipal level.

Society and the state are interested in the appearance of a large number of successful, promising companies. Their creation will become a worthy response to the challenges that are currently facing the Russian economy.

For this purpose, we have launched an investment rating of the regions as an important instrument for detecting and disseminating the best practices. The rating is based on assessments made by businesspeople themselves. I would like to ask you to continue participating in this effort, including through the regional network of Delovaya Rossiya, which has branches in 77 regions of the Russian Federation.

Next. The economy is affected by both internal an external factors. The current economic situation is complicated. At the same time, as you all understand, a change in the ruble exchange rate enhances the competitiveness of Russian goods in terms of pricing, thereby opening up an opportunity to take over new niches both nationally and internationally.

The current economic situation is complicated. At the same time, as you all understand, a change in the ruble exchange rate enhances the competitiveness of Russian goods in terms of pricing, thereby opening up an opportunity to take over new niches both nationally and internationally.

However, friends, we need to understand that such opportunities may be limited in time and we must hurry to make good use of them to increase non-resource export and to intensively develop our own market.

Our partners in some countries will soon see the light, the sanctions will be lifted, and what shall we do? We will again have to react to that; otherwise, we may find ourselves in a complicated situation in terms of our relations with the WTO. Until that happens, we must take rapid action, as I said.

Our partners in some countries will soon see the light, the sanctions will be lifted, and what shall we do? We will again have to react to that; otherwise, we may find ourselves in a complicated situation in terms of our relations with the WTO. Until that happens, we must take rapid action.

The Government, the Ministries of Industry and Trade, of Agriculture and others are now working on this and are developing appropriate programmes. However, the efficiency of these measures will largely depend on the initiative and readiness of businesses themselves. I would like to ask Delovaya Rossiya and other associations to present specific proposals on what businesses need to get actively involved in import replacement and to significantly increase the export potential of non-resource companies.

As you may know, a number of resolutions are already being implemented. We are currently forming a single Russian Export Centre, which will focus on medium-sized businesses. The Agency for Strategic Initiatives is working jointly with the Russian Direct Investment Fund on the creation of an investment upgrade mechanism for medium-sized companies with a potential for growth and export expansion. We will hear a progress report at the Supervisory Board meeting of the Agency for Strategic Initiatives tomorrow.

A key area of our joint work is personnel training, the introduction of up to date professional standards and the development of a professional training system based on the demands of the industry, society, educational integration and our production policy.

The development of small and medium-sized businesses was the subject of a detailed discussion by the State Council in April, as you know. One of its decisions was to create a single organisation based on the Agency for Loan Guarantees and the Bank for Small and Medium Enterprises Support. As I have said, we are ready to consider other, additional measures to assist businesses, and we expect to hear specific proposals from the business community.

A key area of our joint work is personnel training, the introduction of up to date professional standards and the development of a professional training system based on the demands of the industry, society, educational integration and our production policy. I would like to thank Delovaya Rossiya for its active participation in promoting workers’ professional competitions and in organising the Worldskills championships.

Relations between business and the authorities should clearly be based on a common cause approach, proceeding from an equal and interested dialogue. I am certain that both the state and the business community will benefit from such a substantive partnership.

Friends,

I believe your expert opinions, your conclusions and proposals on all the issues that were discussed at various sections of the Forum, are all very important. This, as I believe, is exactly what we will discuss now, including relations between business and the authorities. These should clearly be based on a common cause approach, proceeding from an equal and interested dialogue. I am certain that both the state and the business community will benefit from such a substantive partnership.

I am ready to hear your proposals formulated during the Forum. After our discussion, we will hold additional consultations and draft corresponding instructions for the Government wherever necessary.

Thank you very much for your attention.

<…>

To make this discussion more lively, I would like to respond to some things. Then our colleagues could continue and we will get back to this, otherwise too many things will pile up.

Import replacement is not a remedy for all ills, and we do not intend to replace all imports – this would be senseless and foolish. However, wherever we can restore our own competence, or create one anew within the so-called new economy, we should absolutely do it.

I would like to say a few things along the lines of our discussion, about what the People’s Republic of China has done. We know it well: at the first stage they used their natural competitive edge, and continue to do so – I am referring to cheap labour. Today I believe about 20 million people come to the labour market every year. Twenty million – imagine that. This is one thing.

The other thing China secured at the first stage of their reforms is a flow of investment into the country, mainly foreign investment, as well as technologies. We should not forget this or brush it aside. I will now get to import replacement in this connection as well.

Import replacement is not a remedy for all ills, and we do not intend to replace all imports – this would be senseless and foolish. However, wherever we can restore our own competence, or create one anew within the so-called new economy, we should absolutely do it.

We need to make use of this, but not, as I have said, to fence ourselves off [from the rest of the world], but to create an impetus for our own development. This is my first comment.

The adaptation of our goods to foreign markets is very important and the state should lend a hand here. However, it is equally important for businesses to create their own departments that, as our colleague has said, would collect intelligence, find technologies, reach agreements and bring those technologies here.

Now over to the adaptation of our goods to foreign markets. This is very important and the state should lend a hand here. However, it is equally important for businesses to create their own departments that, as our colleague has said, would collect intelligence, find technologies, reach agreements and bring those technologies here.

This is actually how you can create a system that would help us with technology transfer. However, here we could also consider such positive and interesting foreign know-how as the creation of a special centre. Here it is clearly important for us, I have to agree, to stabilise the know-how that comes to this country.

The acquisition of intellectual rights and licences and the creation of research centres to develop new technologies is clearly a positive thing. We must move the centres here, create competencies, the way they are doing at some automobile industry facilities. We should not simply bring in products, but localise paints, which is also very important and is also a high technology process. However that is not enough either. We should move the competency centres here.

I am certain you can reach agreement on this with your partners. They are well aware of what any economy in the world is interested in, and there is no selfishness on our part here.

I am certain that you appreciate the importance of ensuring quality for the consumer. In this connection I find it hard to agree with you that we should completely exclude companies with state ownership [from tenders], and this is not about the Constitution. The thing is that everyone should be equal. We simply need to create the same conditions for small and medium-sized businesses, so that state companies do not dominate.

Now about the advantages that our partners, say, in Asia have and the advantages we have. It was also mentioned here. Our historical achievements, the high level of scientific research, good education system, despite all the discussions underway on the issue, along with a large market of 146 million people – all this forms our competitive edge. Add to this our partners’ interest. We should simply look at this from their point of view, considering their interests. By combining our interests, we can bring the technologies we need and conduct such transfers.

It was mentioned that the defence industry benefited significantly from import replacement. This is true. Their labour productivity has grown 20 times. This is incredible, and we did not envisage this when we spoke of the need to increase productivity. When we were planning to invest almost 3 trillion rubles in additional equipment for defence industry facilities, we never expected to see this growth. However, we have achieved it, and not all the trillions have yet been invested.

This, incidentally, affects our actions to develop external markets. We rate second after the United States, as I recently said, in the export of special equipment and armaments, and we maintain this position with confidence – over $15 billion. These are all high technology products. I am certain that if this happens in other industries, the effect will be the same.

Regarding certification. Here the Government is taking the necessary measures and we will continue our efforts.

Finally, about quality. I am certain that you appreciate the importance of ensuring quality for the consumer. In this connection I find it hard to agree with you that we should completely exclude companies with state ownership [from tenders], and this is not about the Constitution. The thing is that everyone should be equal. We simply need to create the same conditions for small and medium-sized businesses, so that state companies do not dominate. This is one thing.

The other is the question whether we should completely exclude foreigners and take advantage of the situation our partners and competition from, say, European countries or the United States actually created for us by imposing their sanctions. Here, too, we need to be careful.

Can we do this? Yes, we can. However, should we remove competition from the home market? I don’t think so. Local manufacturers already have a price advantage. We have passed a resolution whereby if a local product is even 15 percent more expensive, it can still be selected at bidding. Should we completely exclude foreigners? I don’t know, this is a very dangerous issue.

Ford in his time developed mass automobile production not only by perfecting assembly line production, but by combining the price of his products and their quality, and this proved to be a success. This is the golden rule of business and we should never forget it.

<…>

We had a very important discussion concerning businesses and the government. It is a sensitive issue and it has practical significance. Of course, the government should not cut itself off from business – on the contrary, it should cooperate with it; that is why we are meeting today and discussing this topic. And it is normal when business community representatives maintain good relations with public authority and are on good terms – this is absolutely normal. We simply cannot allow for businesses to have behind-the-scenes influence on decisions public authorities make, especially in their favour, in specific areas or on specific issues – that is corruption, and it cannot be allowed.

Businesses should certainly influence the decisions made by public authorities, but this should be done the way we are doing it today: publicly. This should be transparent, clear, and understandable to every citizen. And ultimately, that is the only way we can ensure that we jointly come up with solutions that will benefit the economy, and thus, the nation overall. This is highly important.

This is also true of what you said concerning personnel exchanges. Of course, it’s normal when a person has worked in the government and then builds a life for himself, or goes into science like, for example, Mr Kudrin. (Laughter.) Why are you laughing? What’s funny? He is the dean of faculty at St Petersburg University.

Or somebody moves to the Government Cabinet from the business sector. The important thing here – especially when people leave the corporate world to go into the government – is for their personal business to end there. This is actually quite difficult, rather complicated. They may formally transfer the business to somebody else, but in reality, they continue managing it, which means they use their official position – no matter what, they will still use it. We need to develop mechanisms for protecting public interests from such things. The same us true for the authorities: if they are going into business on the eve of certain changes, they should not create fall-back positions, using your current political influence. This is a practical matter.

With regard to the work by the Anti-Monopoly Service: our anti-monopoly legislation has become stricter recently, but is still not as strict as that of certain other nations which, for many, many years, have stipulated criminal liability for violating antitrust legislation. And even today, we can see that certain nations with a developed market economy have much harsher sanctions than Russia. But perhaps they are once again seeing an epidemic of checks and inspections, I don’t know. I promise you, we will certainly discuss this with the heads of the Anti-Monopoly Service.

You mentioned this figure: 36% of cases launched by the Anti-Monopoly Service concern small and medium-sized businesses, but what monopoly or market domination can they really have? I’ll return to what I said in the beginning: if there is an affiliation with any municipal or regional leaders, a medium-sized business may then begin to dominate the market. So in and of itself, the size of the business does not mean it is exempt. But I agree that we need to look into it. If you feel that there is excessive activity there, we will look into it. I will certainly talk with Anti-Monopoly Service leadership about this, although they have a highly professional team. I understand that its work always elicits frustration, but ultimately, the people who work there are very qualified.

With regard to Central Bank rates: I will not comment on this, I just want to stress that the Central Bank of the Russian Federation is an independent financial management agency, in accordance with the law. Its main task is anti-inflation fight, but it also handles other tasks. And it’s only right that the Central Bank is that much dedicated to its expertise. I think that we must give the Central Bank the opportunity to work in this mode, independently.

A Central Bank in just about any nation in the world follows a very conservative policy. I will not talk about what could have been done more quickly or without rushing, but in any case, the Central Bank’s policy is absolutely adequate given the current financial situation. The rate is being reduced, we see that trend. We see and understand what is happening with the exchange rate. I know that the export-focused industries in particular are carefully monitoring this, even with some alarm. Some people like higher rates, while others prefer lower rates. The Central Bank cannot and should not allow excessive speculation by players gambling on rising or falling national currency exchange rates. In principle, that is what they do, and I hope that this measured policy will continue.

Now, concerning priority development areas. This programme has just been launched, but overall, we can already say that it promises to be interesting and effective. Can we use these instruments to give an extra boost to sectors, including high-tech? We will need to think. You see, the name itself, priority development areas, means that special, preferential business conditions are created for those specific territories. Can we somehow extend this to a particular sector? I am simply not ready to answer that right now, although it would be nice to find instruments that would allow technology businesses in particular to develop more quickly.

A related topic is business and society. You know, this is a very important matter, and I believe that society’s attitude toward business will largely determine how the nation and the economy will develop. This is highly important.

You said that our young people are not very eager to go into business – only 3% do. You know, that’s not just in Russia. After all, you just mentioned India and developing markets. I will share my observations with you: when I was working in St Petersburg, I had good relations with many businesspeople, because I was responsible for the city’s foreign economy projects. And there was an entrepreneur from Western Europe that I thought didn’t have any children, because he was always on his own; but then it turned out he did. So I asked, “Listen, where are they? I don’t see them, I don’t hear them, they have never been here with you.” And he said: “My daughter is in the arts, and my son…” It turned out that he had an adult son. And so I said, “What about your son?” He said, “He is a computer engineer.” So I said, “But you have a big business!” I now understand that it wasn’t as big as it seemed to me at the time, but overall, it was sizable and rapidly developing. He said, “You know, he doesn’t want to be in the business.” I said, “Why not?” “Well, he goes to work, wakes up on time, goes there on time, leaves on time, has a decent salary. And he says to me, I see how you’re working – I don’t need a crazy life like that.” This was a fairly successful European business.

Incidentally, with regard to tradition and incentives. Yes, you said that money is an incentive, and I agree. But when a person moves deeper into the business, and I think that many in this room will agree with me, money stops playing such a critical, leading role. Well, I’ve earned my first million, my second million, a billion, so what’s next? I suppose you know this, that on average, the founders of large businesses, who create massive capital, that capital almost always changes ownership by the third or fourth generation. The descendants of the creator of that capital leave the business one way or another, for various reasons, or they are ousted; the brand often remains but the descendants do not. So in this regard, in order to leave it for your children, you must understand what you are leaving. If a person is not interested in the business, it will leave his hands, and it will be pointless.

And what is the main purpose then? I think it lies in self-realisation. Especially if we tie it to our Russian tradition, I agree with my colleague when he talks about moral incentives, when a person sees that he has created a really interesting, large business with his hands, his head, his intellect, his energy, and that it has the potential to remain for decades, or perhaps even centuries, that through his intellectual or organisational work, through his organising skills, he has created jobs, provided the families of his workers with fairly high and prestigious living standards, they have the opportunity to raise children, give them a good education, that is the input into Russia’s development. When a person recognises this quality, this purpose in himself – that, in my view, is the most important business incentive. And that is why such people certainly deserve state decorations and to have a year celebrated as the Year of the Russian Entrepreneurship. (Applause.)

We recalled here the good times and the not so good times; I began my speech with going back to Soviet times. Of course, we could also label next year as the Year of Russian Entrepreneurship, or we could do this in 2017. You see, there is a certain sacred meaning here. Let’s think about it.

<…>

With regard to competitions in blue-collar occupations, it is very important and we will support them. I want to thank you for giving your attention to this issue. This is really interesting, particularly if we look at the technologies used to hold these competitions; it’s the most modern equipment, it is simply interesting to watch, from agriculture to electronics. It’s fascinating.

Now, with regard to your concern – how many engineers we will bring in from abroad. Naturally, we cannot allow this. Of course, we need to raise the prestige of the engineering profession. Without it, it will be impossible to get anywhere. But today, as you know, they are already taking talented children to study abroad through various funds. They screen university applicants, sign contracts with them so they go there, and few of them return. We need to think over this, this initial step of preparation.

And naturally, the idea of creating a talent pool for technical university managers is a good one. I will ask Mr Fursenko, who is working as a Presidential Aide and is the former Education Minister, who knows this topic very well, to work with you and implement these suggestions.

I want to thank all of you for being so attentive in our discussion and wish you success.

Thank you very much.