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President Vladimir Putin: Good afternoon, Ladies and Gentlemen,

It gives me great pleasure to welcome to St Petersburg prominent members of the scientific and business communities and our esteemed foreign guests. We are happy to see that you are giving the St Petersburg Economic Forum such attention. We are happy in that the very fact of your taking part in today’s event shows that your cooperation with Russia is developing well, and I am sure that we all have good prospects ahead for the future.

Many of the companies you represent have been working in our country for a long time now. There are plenty of reasons to view the Russian economy as offering many promising opportunities. As you know, our economy has been growing at a rate of around 7 percent a year and grew by 7.7 percent overall during the first four months of this year. We are all able to evaluate just what these figures mean. We know the importance of even modest growth of 2–3 percent in the European economies, or 3–3.3 percent in North America. These are already respectable figures. We know how fast the economies of China and other Asian countries are growing. In this context, we see our own efforts and results as positive, while being careful not to over-exaggerate our achievements.

At the same time, I would like to note that we have managed to maintain all of our principle macroeconomic indicators, despite the difficulties our country and our economy face. I will not go into the size of our gold and currency reserves just now. This is something we have often mentioned of late. Suffice to say that our gold and currency reserves are the third-biggest in the world today after China and Japan.

One of the issues we discussed during the G8 summit in Heiligendamm is that many developing markets are currently accumulating resources, while many developed economies face a growing deficit. Experts are still in the process of determining what kind of consequences this imbalance could lead to. There is currently no cause for concern, but there are questions that we need to answer. We are following a responsible policy, however, and we will continue to do so in the future.

We have always placed great importance on bringing investment into the Russian economy and we will continue to give this issue our every attention. Total investment is not high but it is growing all the time and is showing a steady increase. Total accumulated investment currently stands at around $150 billion. There is one piece of news that I was especially happy to hear, and that is, according to data from international economic organisations, that total accumulated Russian investment abroad now comes to around $138 billion, and Russia’s own estimates put it at not less than $140 billion. In other words, the investment process has now become a ‘two-way street’. This shows that the Russian economy is slowly but surely integrating into the global economy. This is taking place in a situation in which our country is not yet a member of the World Trade Organisation. But I want to tell you that we remain committed to the position we have stated in the past. We are committed to continuing the WTO accession process – on terms acceptable to our country – and our aim is to join the organisation.

I just had a meeting with some of our American colleagues and I noted that, as is our deep conviction, our partners from the world’s leading economies are just as interested in seeing Russia join the World Trade Organisation as we are. It is enough to look at the structure of our exports and imports, and added to this we now also have the government policy and decisions aimed at diversifying the Russian economy and we have mutual investment flows and the inevitable flow of technology and innovation that they generate. The window of time during which our main partners will have at least some kind of temporary advantage when Russia joins the WTO is becoming ever smaller, but as I said, we are ready to follow the accession process through to its conclusion and we hope for healthy support from our main economic partners working in Russia.

We are carrying out projects in the energy sector, in industry, in the retail and banking sectors, all with foreign participation. Unlike many countries, we are open to foreign investment in infrastructure. We often debate with our colleagues, especially with our European colleagues, over just how open our energy market really is. But those present here today, more than anyone, know how open Russia’s energy market is and know that it is far more open than markets in the world’s other big energy producers. Everything is state-owned in the OPEC countries, and even in Mexico, which is a country recognised as having a market economy, everything is state-owned. I just met with my colleague from our neighbour, Norway, with the Prime Minister [Jens Stoltenberg] – I don’t know if he is present here or not. They had two companies and then they merged them and the state has a clear preference in the energy sector there. So, Russia’s energy sector differs from that of the other main players in just one respect – it is more open. We have only two companies in which the state holds a controlling stake. Yes, they are both major players: Gazprom and Rosneft. The rest of the sector, all of the other companies, has been privatised. I see some familiar faces in the audience – representatives of major international energy companies working on the Russian market. I hope that the future will see you continue to work successfully in our country.

We want to encourage foreign investors to take part in a large-scale programme to modernise the Russian electricity sector. Our goal is to increase generating capacity more than 1.5-fold over the next decade. This is in essence a major national project similar in scale to those carried out during the Soviet years. I am afraid to get the exact figures wrong, but, taking nuclear power production for example, around 30 generating units were built during the entire Soviet period. We plan to build 26 units over the next ten years. This is an ambitious and large-scale project involving billions of dollars in investment. This is a serious undertaking and we hope for profitable cooperation with our partners.

In order to create clear and transparent conditions for investors in the electricity sector, we have drawn up a clear timetable for liberalising the electricity market. Within less than three years, all energy in Russia will be sold under market conditions.

I want to add straightaway that the one exception here is household energy consumption. We believe that this is a justified exception because, taking into account the level of people’s incomes in Russia, we need to implement economic reform in such a way as not to negatively affect people’s living standards. We are all aware of the importance of people’s purchasing power as a factor in economic life and we want to boost and not undermine purchasing power.

We have begun work to bring about recovery in two high-technology industries – aircraft manufacturing and shipbuilding. To conclude the energy theme, I can tell you that all of our plans in the electricity sector are based on government decisions regarding our primary energy resource – gas production and gas itself. Discussions have already been completed and the government has already approved a resolution setting out a clear timetable for raising natural gas prices in the Russian Federation to European levels. Domestic gas consumers will pay a price calculated according to the same formula used for calculating the gas prices our foreign partners pay. Of course, given that there are no export duties or transport costs to add, the price will still come out cheaper, but it will be calculated on a completely clear and transparent market basis. On the sideline, I would just like to add that, given that gas prices will still work out cheaper in Russia, it would be more profitable to locate production facilities in our country.

We are working on the economic revival of two high-tech industries – aircraft manufacturing and shipbuilding. I think that part of the shares in the holdings created in these sectors will be put into free circulation eventually and will become an attractive investment.

In discussions with our partners on our efforts to develop our manufacturing sector, in this case aircraft manufacturing and shipbuilding, we hear a note of caution in our partners’ words, a fear that this could signal the return to state monopoly in these sectors, or to a move by Russia towards state capitalism. I want to assure you that there is no cause for such concern, and this for several reasons. We are not nationalising anything. All we are doing is to bring under one roof assets that were already state-owned but were widely dispersed, working ineffectively and were not able to compete with our main partners in Europe and North America, and in the case of shipbuilding, in Asia too.

Our task is to gather these resources together, clean up and streamline these sectors, make them competitive, modern and technologically well-equipped and provide them with modern managers and specialists. Ultimately, part of the shares in the holdings we have formed will be circulated freely on the markets and will become an attractive investment, including for our foreign partners.

Russia passed a law this year that completely frees dividends received from strategic investment both inside Russia and abroad from taxation. We hope very much that foreign companies will make use of this exemption and establish their regional financial centres in Russia.

We hope that investment in Russia will also bring in its wake new technology and management culture. We are already seeing this process underway in the car-making sector and in other industries.

In our view, Russia’s future lies in developing innovation and the knowledge economy, and this is why we are constantly increasing funding for fundamental science. We are creating a tender-based model of state support for leading education, science and research centres. We are modernising the procurement system for applied research and for innovation-based infrastructure in general.

Russia’s intellectual and human resources potential and the reliable legal guarantees it offers create opportunities for leading international corporations to establish their research and development centres here. Some companies have already done so and have been working for many years here now with good results. Boeing, for example, opened a research and development centre in Moscow a long time ago now and it is working effectively. I do not remember the exact figures, but some say that up to 30 percent of the company’s intellectual product is produced here in Russia, and we are pleased to hear this. We welcome this kind of work and we hope it will continue. We are also gradually putting in place the conditions for our own companies to grow and develop, and we are paying greater attention to this work now. I just mentioned our work to establish new holdings based on state-owned assets in the aircraft manufacturing and shipbuilding industries.

I hope that today’s dialogue and meeting will help to broaden the horizons of our cooperation. Russia is open for carrying out forward-looking projects and initiatives. We are interested in finding reliable and decisive partners. We already have such partners and this makes me very happy. I would like to thank you all for accepting our proposal and coming to the St Petersburg Economic Forum.

Thank you for your attention.