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Official website of the President of Russia

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Russia Calling! Investment Forum

October 12, 2016

Vladimir Putin is taking part in the eighth Russia Calling! Investment Forum organised by VTB Capital. This year’s theme is Maintaining Responsibility, Expanding Opportunities.

Invitations to the forum’s plenary session have been sent to Russian Government members and heads of major international corporations and leading Russian companies, delegates from over 60 countries, including 550 investors from Russia, Europe, the United States, the Middle East and Africa.

VTB Capital Investment Forum is a leading platform for attracting portfolio and strategic investments to the Russian economy and for effective interaction between Russian businesses and international investors.

 * * *

President of Russia Vladimir Putin: Colleagues,

It really is a great pleasure to greet everyone taking part in the Russia Calling! forum. We know from past occasions and see again today that this forum brings together prominent businesspeople and leading business consultants in investment and banking. It attracts those who ‘make the weather’ on the financial markets and influence companies’ and organisations’ investment strategies.

Taking part in this panel session is a good opportunity for direct discussion of key economic issues and our plans for ensuring economic growth and improving our business climate. It is the chance to discuss in general the prospects for investment cooperation and work on the Russian market.

I note that we have achieved sustainable macroeconomic stabilisation over these last few years. The inflation rate is coming down now and was 6.4 percent a year at the start of October. I remind you that at the same moment in 2015, it was 15.7 percent, but is now 6.4 percent. This is clear progress.

We expect that the inflation rate will hit a new historic minimum by the end of this year and come down to below 6 percent. I remind you the lowest inflation rate in Russia’s recent history was in 2011, when it came down to 6.1 percent. Next year, we will come close to our declared target of 4 percent.

Our national currency, the ruble, has become considerably less volatile and the Central Bank’s international reserves are growing. They currently stand at around $400 billion. At the start of this year, they came to $368 billion and were up to $397.7 billion on September 30. The figure is floating and is now close to $400 billion.

One important sign of stabilisation is that the real sector of our economy is no longer falling and the import replacement policy is producing results. In some sectors, such as machinery and equipment, light industry, and timber processing, we are seeing modest but nonetheless quite confident growth.

For reference, I can tell you that production of machinery and equipment was up by 3.6 percent, textile production rose by 4 percent, chemicals production increased by 4.9 percent, and production of shoes and leather goods posted an increase of just over 9 percent. Russia’s agriculture sector continues performing well, up 3.4 percent over the first 8 months of this year. Foodstuffs production is up 2.4 percent.

The pickup in the economy can be seen in the banking sector too. The Central Bank is gradually lowering its key rate. Overall, we are seeing a trend for lending interest rates to come down. Rates are still quite high and lending to the real sector has not yet recovered in the sense it is not yet enough to cover lending needed for sustained economic growth.

The portfolio of loans to the real sector, which I would say is one of the problems we face today, actually dropped over January-September by 6.8 percent from 33.3 trillion rubles to 31 trillion rubles.

But nonetheless, the improvement in our macroeconomic conditions has encouraged new interest in the Russian market. This summer, for the first time in a long while we registered a balance of payments surplus on capital account. Net capital outflow decreased five-fold over the first three quarters of this year compared to 2015, down to $9.6 billion. I remind you that in 2015, the figure for the same period was more than $48 billion, and total net capital outflow in 2015 was $57.5 billion. Now it is $9.6 billion.

Another sign of the growing business interest in Russia is that the net flow of foreign direct investment into Russia’s non-financial sector increased 3.6-fold over the first three quarters of this year and came to $8.3 billion.

Stock market capitalisation is growing. The MICEX and RTS indices each added around 200 points. These are good trend indicators and reflect the level of confidence in Russia and the business community’s assessment of our country’s prospects. This assessment is very important to us, particularly now, when the stability we have achieved has not yet become steady long-term growth. At the same time, we are fully aware that economic growth does not happen automatically and that we need to work on creating the conditions for growth. In this respect, I want to say a few words about our economic agenda for the upcoming period.

First, we need to support the emerging trends for improved macroeconomic stability, including by continuing our efforts to achieve our inflation targets and continue a responsible budget policy. Speaking frankly, perhaps it is still a bit early in today’s situation, but the Government does have a dose of healthy optimism and I certainly support them in this too. The Government will examine the draft budget tomorrow.

We succeeded in balancing the 2017 budget with a 3-percent deficit. This is an acceptable level, even compared to the world’s leading economies. Of course, we are fully aware that this does represent a significant amount for our economy and we know that we must be very careful with this deficit during budget planning and execution. This is precisely the approach we will take. The Government was able to obtain this figure by optimising public expenditures and making them more effective.

Federal budget spending as a percentage of GDP will drop from 19.8 percent in 2016 to 18.5 percent in 2017 and 16.2 percent in 2019. Specialists, which include the majority of people here today, all realise that this not a simple task. But we think that the task has been formulated properly and we will proceed carefully along this path, taking care at the same time to respect our social commitments to the people of Russia.

Second, in the context of the current limitations, we must make maximum use of existing opportunities and reserves for economic growth. We have created many new instruments to encourage investment recently. These include the zones offering particular tax breaks, development institutions, and incentives of different types.

I propose discussing here today how effectively these mechanisms are working and what we can do to make them more effective, not increase their number, but improve their quality.

Third, we need to continue our efforts to remove barriers to private initiative. I am talking not just about administrative barriers making it hard to enter the market. We need to give particular attention to technical issues such as access to the best technology and a qualified workforce.

We often repeat like a mantra these days that the notorious sanctions are having little impact. But they do have an impact. We feel this above all in restrictions on technology transfers. This causes losses for the Russian economy and for the global economy in general, because the Russian economy is without question an important part of the general global economy. Those who impose these sanctions are therefore ultimately harming themselves. But I think that we will find ways for coping with this situation too.

This concerns the workforce too. Yes, we have always been proud of the quality of our education and of our workers’ high qualifications, but we still have much to do to ensure that this meets global standards, and we have to even try to be a step ahead in some things. It is a key task for the Government to draft an exhaustive list of measures to take in this area and make necessary funding provisions.


Today Russia needs to achieve a new quality of economic growth and support concrete initiatives to create new jobs, spread new technology and raise labour productivity. This is our strategic task. We are ready for this work and will follow this road. We most certainly invite to join us all who are interested in partnership and cooperation with us.

Thank you very much for your attention. (Applause)

President and Chairman of the Board of VTB Bank Andrei Kostin: Thank you, Mr President.

Colleagues, you will now have the chance to put questions to the panel participants.

Mr President, if you permit, we received a number of written questions from the forum participants before the session began. Perhaps I could take one of these questions to get the discussion going.

The question is probably rather an everyday one: “Mr President, you have been travelling around Russia and meeting with business representatives for many years now. Comparing your most recent impressions with your observations from, say, 10 years ago, what are the biggest changes in entrepreneurs’ mood, problems and interests that you have noticed?”

Vladimir Putin: You know, people’s mood, confidence in their own ability, and confidence in the state authorities’ ability to resolve the issues facing the country are very important factors for economic stability and even for ensuring the needed pace of economic growth. It is very clear that people have more confidence today. But at the same time, this creates particular responsibilities for the authorities at all levels, the Government, the President, the State Duma deputies, and the regional authorities. We need to maintain this trend, support it and develop it further. I hope very much that we will succeed here.

Andrei Kostin: Colleagues, I ask the audience to put questions now to the panel participants. Can I ask you to please keep your questions brief and avoid lengthy commentary?

Thank you.

Question: Thank you, Mr President. Brett Diment, Aberdeen Asset Management. We’re one of the larger asset management companies in Europe, with 14

billion dollars under management. We have extensive investments in Russian ruble government bonds, US dollar government bonds issues by the Russian Federation and corporate bonds. Russia has had an extremely impressive macro-stabilisation over the past two years, after the shock of the lower oil price – and that is set to continue for the next three years with fixed nominal spending. And that’s quite a contrast to a lot of the countries we see, not just among Russia’s peers, but if you look in the UK or the US, there’s growing pressure to increase government spending. Is that a risk that we could potentially see in Russia over coming years?

Vladimir Putin: This is not a general trend in the world. The United States, Britain and several other countries might be pursuing this policy, but in other countries, in continental Europe, for example, we see that economic officials are making other choices and support consolidating budget spending and state spending in the broader sense in general. The truth is always somewhere in the middle, and we are trying to choose precisely this golden mean.

As you heard, I said in my opening remarks that we will limit spending that is not effective and will make state spending more effective in practically all areas. At the same time, we will raise the quality of management in the broad sense of the term. I think that if we concentrate on resolving the tasks before us through these means, we will be successful.

Andrei Kostin: Thank you.

Colleagues, who is next?

Question: Thank you, Mr President. I am from Metzler Asset Management from Germany. We have an Eastern European fund – half a billion dollars invested in Eastern Europe, with Russia being the largest part. So it is a very important country for us. My question will be on economic performance. Compared to 2015 and 2016, the level of oil price was broadly unchanged and the sanctions as well were broadly unchanged, but the economy has struggled to return to growth. What are, in your view, the limiting factors for that, and also what kind of structural reforms are needed to overcome the growth performance? Thank you.

Vladimir Putin: The most important thing for us now is to raise labour productivity. This is a key issue. Equipping the real sector of the economy and introducing new technology are related issues.

I want to repeat what I just said. We need to improve management quality. Poor management quality is one factor holding back growth. There are also a whole range of factors regarding economic diversification in general.

We have stated our priorities. They remain unchanged and we will continue to follow them. As I said, we hope very much for more active work from our banking institutions as far as investment activity is concerned. We will support and develop the instruments I have spoken about, the free zones, priority development areas, and breaks for various types of activity, including for small and medium-sized business, high-tech production facilities and so on.

Andrei Kostin: Thank you.

Who is next? Please, go ahead.

Question: Thank you for your thoughts, Mr President. My question relates to the role of the state controlled banks. Over the last two years, we witnessed a steady and substantial concentration of the Russian banking sector and domestic credit, centred on the state-controlled banks. Thanks to sanctions, they also face diminished competition from the global markets. Is this state of play desirable? Or should the government and the Bank of Russia should consider measures to deliberately increase the footprint of privately controlled institutions? Thank you.

Vladimir Putin: Russia’s consolidation of banking assets is no different in nature to the global trend in this area. Many decisions were taken in this sector after 2008, following the fluctuations on the global markets, decisions that concerned preventing monopolisation of markets and so on, but no one is actually implementing these decisions and consolidation of banking assets is taking place everywhere. Russia is no exception in this regard, because no effective market instruments to restrain this kind of consolidation have been found yet.

Indeed, we have four major banks with state participation: Sberbank, VTB – the host of today’s venue for our discussion – Gazprombank and Rosselkhozbank. They have controlling interest, that is, more than 51 percent of assets. This is so.

Let me repeat that the same thing is happening in the rest of the world. But I want to draw your attention to the fact that despite the efforts of the Bank of Russia (Central Bank) to rid the market of different quasi-banking structures by depriving them of licenses, Russia still has almost 600 banks. If we count other credit institutions, this number exceeds 600. I think the total is 648. In other words, we have enough banking institutions and the top ten are mostly banks with private capital. Yes, the afore-mentioned four banks are in the lead but we don’t see it as a big problem.

The goal of the Bank of Russia – and I think all experts understand what I’m referring to – is to rid the banking system of inefficient and unreliable financial institutions. Needless to say, this should be done with caution in order to prevent damage to economic entities and individuals. Relevant compensation should be paid in time and in the amounts established by the law.

However, I think the Bank of Russia still made a mistake, at least in the past few years. It should have taken this decision earlier. This is the whole point. But better late than never. Still, let me repeat that it is necessary to act with great caution and pay particular attention to the interests of private individuals who are bank depositors, our citizens.

Where to go from here? I think we should concentrate on the quality of regulation and control rather than the number of banks.

Andrei Kostin: May I add a few words?

Vladimir Putin: Of course, you are the boss.

Andrei Kostin: No, you are the boss Mr President.

Mr President, this issue is very important for us because the Western press (just recently I received a query) keeps making the claim that a state bank is a bank chaired by the Kremlin or even you personally. As if you call up and give instructions. No matter how many times I tell them this is not right…

Vladimir Putin: This is a Government bank, so that would be Mr Medvedev.

Andrei Kostin: This is what I wanted to say. The IMF has just issued its report and the IMF obviously does not favour state banks. Commenting on this report Karl Habermeier (who led the IMF team that made it) said that although it is believed that in developing economies state banks act on instructions from the government, this is not the case in Russia. He wrote that in Russia state banks operate in an absolutely competitive and commercial environment and do not differ from private commercial banks in their activities.

So all those who are interested in this issue can consult the IMF website. Even the IMF acknowledges that by and large there is not much difference in the operation of these banks. I believe this topic has been built up into something it is not.

Vladimir Putin: I would like to add something about guidance, too. I think if we gave proper guidance on the operational management of state-owned banking institutions, bank lending for investment activities would be different.

For your information, investment lending from banks is only 8 percent; 50 percent of investment is provided by participants in economic activities, 18 percent comes from the federal budget, and only 8 percent is provided by banking institutions. Meanwhile, bank profits rose to 600 percent compared to last year.

However, let us assume that the last year’s number was very small and the increase made up 600 percent. But if we look at the capital base, which is quite big ‒ if I am mistaken, Ms Nabiullina [Central Bank Governor] will correct me ‒ about 9 trillion rubles plus assets, we can see that Russia’s banking system is alive and kicking.

According to the Bank of Russia, the minimum rate should be 8 percent, whereas the real rate is 12.5 percent. So we hope that the role of financial institutions, especially banking institutions, including those that are state-owned, in financing and lending to the Russian economy, to the real economic sector will grow without any administrative interference in their activities.

Andrei Kostin: I strongly believe that VTB Bank would operate even better if you gave guidance, Mr President.

Please, colleagues. The next question comes from CNBS. It always asks tricky questions. Maybe we should also hear one tricky question.

Question: Thank you very much, Mr President. I’m Rick Boucher, a former member of the United States Congress, and I’m currently a partner in the law firm Sidley Austin. I’m concerned about the apparently deteriorating quality of the relationship between the United States and Russia. It’s a leading issue in our presidential campaign. It’s in the news every day. And I think we all could agree that business is stronger both in Russia and the US when the relationship between our countries is stronger as well. So, I would be interested in your view of the nature of our bilateral relationship going forward, the steps that you think can be taken to make it stronger. And specifically, in the interest of removing the Ukraine-related sanctions, what barriers you see to the implementation of the Minsk Accords and when do you think the Minsk Accords will be fully implemented? Thank you.

Vladimir Putin: We are also concerned by the deterioration of Russian-US relations. That is not our choice. We have never sought this. On the contrary, we want to have friendly relations with a vast and great country and the world’s leading economy such as the US economy.

You just mentioned the crisis in Ukraine. However, we were not the ones who brought about a coup d’état in Ukraine. Was it us who did that? No. Our US partners make no particular secret of the fact that to a very large extent they were behind that, financing the radical opposition and bringing the situation to an unconstitutional change of government, even though everything could have been done differently. Former President Yanukovych met all the demands and was ready to hold early elections. Instead, a coup d’état was engineered. Why?

And when we had – to reiterate, had – to defend the Russian-speaking population in Donbass, when we had to respond to the desire of the people living in Crimea to return to the Russian Federation, a new spiral of an anti-Russian policy was immediately launched and sanctions were introduced.

You brought up the Minsk Agreements. But we are not the ones who are sabotaging the Minsk Agreements. I cannot help repeating: we cannot amend the Ukrainian Constitution for the current Kiev authorities, which is a key factor. We cannot implement the law on the special status of governance in Donbass that was adopted by the Verkhovna Rada either. It has not been implemented so far.

Although, it should have been done as soon as possible, according to the Minsk Agreements. I cannot sign the amnesty law adopted by the Rada; I just cannot do this for the Ukrainian President. They always refer to the fact that they cannot do it because of shootouts in the conflict zone in Donbass.

On September 9, the self-defenders of Donbass unilaterally, I would like to stress, said they would not respond to the Ukrainian Armed Forces’ shelling. So what? Some political actions were said to be taken immediately after that. But nothing is happening. No direct contacts have been established so far between the representatives of Donbass and the official Kiev authorities.

Therefore, if someone really wants the agreements to be implemented, they should influence all parties to the conflict, especially the Kiev authorities. What is stopping that? I cannot understand. There will be no progress without reaching political agreements. This is the first thing.

And now globally. You know, it is very difficult to hold dialogue with the current Administration. You are a former Congressman, I do not know whether the situation was always like this, but there is almost no dialogue. What does it look like? The Administration formulates what it wants and then insists on the implementation of its instructions. But this is a dictate, not a dialogue. And this applies to almost every issue. We are ready for dialogue, but dialogue is a search for compromise.

And now I will answer the main question. What should be done to normalise the situation? The parties should acts as partners and take into account each other’s interests. We are ready for this.

Question: Mr Kostin, thank you. President Putin, I’d just like to build on that question, if I might. Given the difficult week that Donald Trump has just experienced, are you now making preparations for working with President Hillary Clinton next year? A person who has described you as “calculating” and a “bully”. And can I ask you, could you directly address the claims that are being made of state-sponsored cyber spying and war crimes in Syria? I’d love to know how we deescalate this situation.

Vladimir Putin: What state espionage? Was this translated correctly? What is meant by state espionage?

Andrei Kostin: Hackers, I think.

Vladimir Putin: I see.

First. I have often said that the American people will make the choice that they consider necessary. In any event, we will work with any US leader, whoever that leader is and whoever the president is – that is, of course, if the US leader wants to work with our country.

A while back, about a decade ago, Russia was never mentioned, they said there was nothing to talk about with regard to Russia because it was a third-rate regional power that was of no interest. Today, the number one problem in the entire election campaign is Russia. It is the main talking point.

That is very welcome of course, but only partially. Why partially? Because all participants in this process are abusing anti-Russian rhetoric and spoiling our interstate relations. And this is bad both for our countries and for the entire international community. Let us not forget that globally, we bear a special responsibility as the two largest nuclear powers for maintaining international peace and security at the global level.

At the same time, you know, as a rule, we try not to talk about this, but they always whisper this to us in the course of every election campaign – this is happening not only now but was also the case in the previous election campaign. They keep whispering into our left ear and then into our right ear: Pay no attention to this, all of this will pass and we will be friends again. This is wrong. It is wrong to use Russia as a bargaining chip in internal political struggles and damage interstate relations. That is just not serious enough, to say the least. That is my first point.

Second, regarding the assumption that Russia is exerting pressure on someone, on other countries. Who is telling us this? Who is saying this? Our partners. The Administration is doing nothing but putting pressure on all countries. They are eavesdropping and tapping their allies and using this information. This is my response to the hacker attacks.

What are we witnessing? Some hackers published information about the unseemly conduct of Ms Clinton’s campaign headquarters – supporting one candidate for the party nomination at the expense of the other.

Hysterical accusations that this is in Russia’s interests were made. But there is nothing in Russia’s interests there. They freak out about it to distract the attention of the American people from the importance of what was published by the hackers. And the importance is that public opinion is being manipulated, but nobody talks about it. Everyone is talking about who did it, but is it so important who did it? What is important is the content of this information. That’s my answer.

Andrei Kostin: Thank you. Second section, please.

Question: Mr President, I represent Alstom. I have a question that all French people want to ask you. This is about your cancelled visit to Paris. You cancelled it because the President’s programme changed too often. We realise that Hollande’s position was determined by Russia’s veto on Syria in the UN Security Council. Don’t you think your response was too tough?

Second, what signal are you sending to investors? I’m asking this because French investors are used to good relations between Russia and France. As you understand, we want to keep this habit.

Vladimir Putin: Alstom is a very serious company.

I believe I have developed good chemistry with ordinary Russian citizens. I have been doing the job of president for a fairly long time but even I cannot say that I speak on behalf of every Russian citizen because I am not sure I know the mood of every individual.

But nonetheless Alstom is a large company and probably can speak on behalf of the entire French nation, or at least ask questions.

You have just said that our response to the French draft resolution in the UN Security Council was too tough. This is why our French partners and friends reacted like this. First, I must say that we treasure our relations with France and consider France one of our priority partners in Europe. This is how it has worked out historically and it is the same today.

Regarding this specific case. You know, we do not like airing this diplomatic laundry. It may looks nice, but sometimes the smell isn’t too nice. But if we have to respond, we have to, and I will answer. It is not our partners who should be offended by our veto of the French resolution. We should be offended. I will tell you why.

Our respected friend and colleague, the French foreign minister came to Moscow and presented the French resolution. To which our foreign minister said: “We will not vote against it if you take our amendments and considerations on this issue into account. We are deeply involved in this crisis, in these problems; we know the details.” To which his French counterpart said: “Yes, of course, nor do we want to be slapped with this kind of veto.” Our representative to the UN in New York was told the same. Lavrov laid out the Russian position and there is nothing excessive in it.

I can tell you frankly what this was all about. The French resolution blamed the situation entirely on the Syrian authorities and said nothing about the opposition – in this case I am not talking about terrorists – the opposition that should also bear some responsibility, and some tasks should also be put before it. That is my first point.

Second, we stated that we were willing to endorse the initiative of the UN Secretary-General’s special envoy Mr de Mistura regarding the militants’ withdrawal from Aleppo. The French side took a positive view of that. We expected further joint constructive work both with France and with other Security Council members.

So what happened next? The French foreign minister left Moscow for Washington and the following day he and Mr Kerry accused Russia of every sin imaginable; no one talked to us and discussed nothing with us, and they threw this resolution at the Security Council, clearly expecting our veto. Why?

Not for the resolution to be adopted – they submitted it knowing our position and without even discussing our proposals with us – but for it to be vetoed. Why? To escalate the situation and unleash anti-Russian hysteria in the controlled media, in fact deceiving their people and their citizens. I am referring now not only to France but also to many European countries and the United States. To all appearances, this is especially valuable in the context of an election campaign.

I do not know whether or not this meets the interests of European countries, but serving the foreign policy interests and maybe even domestic policy interests of its allies, in this case the United States – is that the role that should be played by serious politics and serious countries that claim an independent foreign policy and the status of great powers? I am not sure about that.

We are willing to work with all our partners, including our French and European partners, on this very important and pressing problem. After all, we can see what is going on: Russia is being accused of absolutely every sin under the sun, of all crimes.

The airstrike on the humanitarian convoy. If anyone would know who attacked that convoy, it’s us. It was one of the terrorist organisations. And we know that the Americans know that, but prefer to take a different position and blame everything on Russia. This will do nothing to help. This is just what I spoke about recently. This kind of behaviour in the international arena is called pressure and blackmail. However, this has never worked and will never work with Russia. (Applause.)

Andrei Kostin: Thank you.

Colleagues, let me remind you that this is an economic forum so perhaps there could also be some economic questions.

Question (retranslated): Mr President, I’m from the Fosun Group, I’m the chief representative of our Moscow office. Fosun Group is one of the largest investment groups in China. We now have now $80 billion dollars in assets, and half of them are outside China. The first time we attended the VTB Russia Calling! forum was the year 2014. We have already invested hundreds of millions of US dollars. Now we have our rep office here and we have a local team, Fosun Eurasia, here as well. Sino-Russian relationship has got a lot of attention in the past two years. We see that a lot of effort has been made between Russia and other countries in South Asia and other Asia Pacific countries. What significant results have been achieved through these efforts so far? Which of these new directions in Russia’s external economic relationships will be the most significant in the long run? Thank you.

Vladimir Putin: By tradition, we have long been developing our relations with countries of the Asia Pacific region. In this context, our special strategic relations with the People’s Republic of China certainly play a special role. Country-wise, it is our largest trade and economic partner.

Yes, in recent years, our trade and economic ties with many countries of the region, including China, in the past couple of years, declined, but they are still considerable. Last year, our trade with China was worth $63.5 billion. But to reiterate, with some countries it declined while with others it grew a little, for example, with Vietnam. Our trade with Vietnam is visibly growing.

I would like to note that we have been especially pleased recently with the diversification of our relations with Asia Pacific countries – Japan, India, China and the Republic of Korea, among others. This includes machine building, space and the high-tech energy sector – I mean nuclear energy. It is especially important that these investment flows are moving both ways – to Russia and from Russia. A number of very large investment projects, especially in the nuclear power sector, are to a considerable extent financed from Russian sources.

What could we offer to address the tasks we are faced with and help further our relations? This is furthering relations between the Eurasian Economic Union and the countries you have mentioned, including China.

For example, we have signed a free trade zone agreement with Vietnam, and it has already come into effect. It is a fact. We have launched comprehensive talks on developing economic relations between China and the Eurasian Economic Union (EAEU), seeking to align China’s Silk Road Economic Belt initiative, which we consider to be very interesting and promising, with the EAEU. It is a very important and large-scale process.

Of course, we will continue working within the Shanghai Cooperation Organisation, especially considering that it is growing to an impressive scale. Actually, it will acquire a global scale after the accession of India and Pakistan. This is a highly optimistic trend in that our trade and economic relations with Asian and Latin American countries, which account for some 28 percent, tend to increase.

Andrei Kostin: Thank you. Colleagues, do you have more questions? Please, Sector 5.

Question: Thank you, Mr President. I hear a lot of discussion about hackers and a state visit being cancelled. But as the gentleman said, this is an economic forum. You also talk about Europe, America and Asia. But from what I understand, the resources are in Africa. The growth is in Africa. And we’ve been receiving a lot of lessons, too, on how we should run our businesses. So is Russia under your leadership willing to play a more active role in investment and partnership in the Central African countries? I’m the CEO of the Gabon National Oil Company, and we’ll be more than welcoming to Russian investment. I know it’s Russia Calling!, but there might also be Africa calling Russia – a voice you should hear in this room. Thank you!

Vladimir Putin: We have traditionally, historically good, trust-based relations with African countries, as you know. We had no relations with some countries in the past, but we had very close ties with other countries, ties that could be described as strategic partnership. Of course, we must revive them.

We see that many countries are becoming increasingly active in Africa. We would have undoubtedly acted likewise at the bilateral level, by taking all possible efforts. We will promote this within international organisations such as BRICS. You know that we have created financial instruments at this group, including those aimed at cooperation with African countries not only through the South African Republic, but also directly through ties with our African partners.

We are aware of opportunities in Africa. By the way, some Russian companies have started working in the mining and several other industries there. We cannot and will not do this as the Soviet Union did, that is exclusively out of political considerations. But we know that Africa’s potential is huge and should definitely tap into it on market principles and based on mutual interest. I will not enumerate all the projects that some of our companies have recently implemented in Africa, but we will certainly support their efforts there.

Question: Hi, this is Charlie Radcliffe from Berry Palmer & Lyle of the London insurance market. The seventh State Duma started its session last week and United Russia’s majority was as expected. What wasn’t foreseen was perhaps the largest majority ever. How do you interpret the election results?

Vladimir Putin: There were no surprises. We were right in our forecasts. (Laughter.) What I probably did not expect is that United Russia would receive so many votes, but the trend was obvious. It is based on many factors, as I have said, such as public trust in our domestic and foreign policies, as well as the consolidation of Russian society. It is a fact.

At the same time, public trust in the authorities in the broad meaning of this word, which is how we interpret the election results, is a huge moral responsibility. Considering the current economic challenges, we must preserve the health and stability of the Russian economy, which is our priority. But there must be no question about the implementation of our social obligations.

It is a difficult task, but we can fulfil it by acting responsibly and, as I have said, by gradually improving our governance standards and accurately choosing our economic, defence, security and social priorities. In my opinion, this is exactly how the Government has been tackling the tasks facing the country. We will do our utmost to live up to the trust placed in us.

Andrei Kostin: Thank you.

Mr President, I beg your pardon, but Mr Pegorier, who, as you said, is speaking on behalf of the French people, asked to make a clarification. He wanted to ask what message he can take to French investors.

Vladimir Putin: You know, nothing has changed in our relations with France and the French people, or with French investors.

The matter here is that my press secretary said that we cancelled [the visit to France] so as to be in a stronger position, it seems. But in reality, we did not cancel this visit. All that happened was that the French officials made it clear that this was not the best time for the cultural centre’s official opening and for discussing all these humanitarian issues. They suggested postponing these plans to a later date, and we agreed with this idea.

We never tried to impose this visit in the first place. I said many times to our partners that if this is not the best time, we can postpone it. It was the French who kept saying that there was no problem and the visit should go ahead. We were ready to go with that. And then they said that no, this was not the best time. Alright, so let’s postpone it then. But this has not changed anything in our relations with France, the French people and French business.

I hope that nothing serious will happen in our relations with the French authorities and with our partners at the political level. I have very good personal relations with President Hollande and I value these relations. I hope that this will help us to overcome any current difficulties.

Andrei Kostin: Thank you.

Are there any more questions?

Reply: Do we still have time?

Vladimir Putin: Time? There’s never enough time, but if you still have questions…let’s try to take the last few.

Alexander Branis: Thank you.

Alexander Branis.

Hello, Mr President.

I want to get away from international politics and come back to local matters, in particular, reform of state-owned enterprises and raising management quality, subjects you have spoken about. We see that many Russian state-owned companies have been very successful, Rosneft, Alrosa, and Aeroflot, for example. Our portfolio now contains a record share of investment in state-owned companies – 40 percent, because we see big opportunities ahead for these companies. We see that you and the Government continue to attract qualified managers. You have done so in the past and continue now, to Russian Railways, RusHydro, and VEB, for example.

In this respect, I have a question regarding one of the gas companies. You know, I compared the financial results for the first half of the year with the results from 11 years ago, in 2005. What is interesting about this comparison? It shows that gas prices and export volumes sold abroad were practically the same in 2005 and in 2016.

Gazprom has worked well with the regulator. In Russia, they sell gas at a cost four times more expensive in rubles than they did back then, but in dollars, despite the ruble’s devaluation, this is 1.5 times higher.

Andrei Kostin: Could you make your question shorter?

Vladimir Putin: This is not a question but a whole speech, but we are listening with attention. What you say is interesting.

Alexander Branis: Thank you. I have already got to the middle of my question and will come to the question itself soon.

Sadly, operating profit is 40 percent lower than it was 11 years ago. This is due to the fact that costs have increased rapidly. Perhaps this is not the biggest problem though. The biggest problem is that we sometimes get the impression that the company works not for its shareholders, not for the consumers or for the state, but for the subcontractors, who build various facilities for them.

Over these 11 years, they have invested $200 billion. This is a big amount of money. It has gone into expanding pipelines and developing new fields. This is not counting the $80 billion spent simply on maintaining capacity. We see that no more than 60–65 percent of all of this capacity is actually being used now.

In this context, I wanted to ask you to share your thoughts on these results of Gazprom’s activity and the strategy it has pursued over these years.

Thank you very much.

Vladimir Putin: This is really a very serious matter as it concerns the effectiveness of a company in which the state has a stake. These are not state-owned enterprises, but companies in which the state either has a controlling or other stake. They are joint-stock companies, however, companies with a significant share of private capital, including foreign capital.

They have to work on the market, and this concerns the banking sector too, without signals and management from the state authorities. This is the way things work in practice. It is primarily for the expert community and the state representatives on the company boards to evaluate the effectiveness of their work and the expediency of their investments when the market is down as concerns infrastructure expansion and production.

I want to inform you that I plan to meet with officials from our biggest companies with state participation, and I will ask the Government and the Presidential Executive Office to prepare the relevant information and an analysis of what has been done over this time, including this year. We will then assess the effectiveness of the different companies with state participation.

As for development strategy, rather than saying that the company is working for its subcontractors, we should be asking ourselves if it is making the right choices by expanding gas production and infrastructure facilities now, when the market is down, or whether it would do better to wait.

I was in Turkey just recently. I spoke there and said that after the fall in oil prices, investment in production has dropped to its lowest level in the last 70 years. This is a big danger for global energy. In this sense, our companies’ activity, which takes the line that the downward price trend will end sooner or later, looks justified in my view. But we need to examine the figures to see just how much this is indeed the case.

As you know, in Turkey, we reached an agreement with our Turkish partners on building a new pipeline system. This is being done not simply to build a pipeline and bury it in the Black Sea, but as an additional access route to a promising part of the European market. Our European partners have an interest in this and they tell us this directly. We have assured sales markets, in other words. Otherwise it would make no sense to undertake these projects.

There is also the construction of the Power of Siberia project, for example. Yes, this calls for big investments, but it will take us to the huge and growing Chinese market. China’s growth rates have slowed down a little, but it still has the highest growth rates in the world. The Chinese economy is growing and we know that it needs energy resources. This is work for the future, for the long term. If we are running too far ahead somewhere, adjustments can be made, but I do not see evidence of this for now.

Please, go ahead.

Anastasia Levashova: Thank you, Mr President.

Anastasia Levashova from Blackfriars Fund, London.

I wanted to come back to the issue of economic sanctions. This is a key issue, after all, for the investment climate and for the economy. The sanctions were initially tied to the Ukraine crisis and implementation of the Minsk Agreements. They have not succeeded in fully isolating the Russian economy, but they have nonetheless made their impact felt.

Now there are calls for sanctions linked to Syria. How much sense would this make, in your view? How long will these sanctions last in the current form, and what place do they have on your agenda?

Vladimir Putin: We made our position known long ago and I think it is very clear and is confirmed not only by our own experts but by international experts too, people in Europe and North America. Our position is that any restrictions in the economy taken for political motivations are harmful to everyone.

As for isolation, they do not have the engine power and petrol enough to bypass all our borders. What kind of isolation can we speak of for a country like Russia? This is simply not possible.

What is this about? It is an instrument of pressure. We think that this is very harmful. We should take not the road of pressure and blackmail, but the road of finding compromises. I have said on countless occasions that we are ready to look for compromises. We would like very much for our partners to take this approach with us.

The main thing to keep in mind here though, the principle that we ourselves must remember, above all, is that if we were ever to give in to blackmail of this sort, we would ultimately lose out economically too because we would end up becoming someone’s economic appendage. Russia will never allow this to happen because it would never survive this.

Question: Hello. Niall Paul from TT International. The question I would like to ask is around infrastructure priorities for Russian investment. Like many governments, Russia has highlighted infrastructure as an area to de-bottleneck growth. What are the one or two priority areas for this investment and how can it be facilitated?

Vladimir Putin: Investment here, in the Russian economy?

Response: Yes, in the Russian economy.

Vladimir Putin: The high-tech sectors would be the main area, complete with technology transfers and human resources training.

Question: Mr President, thank you very much for your detailed presentation and your direct responses. My name is Claire Husson-Citanna, I’m a fixed income portfolio manager for Wellington Investment Management. I’m here with two of my colleagues thanks to VTB. Our firm provides global investment solutions for institutional investors in more than 55 countries with about 970 billion in global assets under management. My question actually concerns those outbound infrastructure FDIs. As you pointed out, there are new international and financial institutions, such as BRICS or the Asian Investment Bank of China, that the emerging markets have established. So from your perspective are these new international financial institutions competing alternatives to the Bretton Woods institutions or are they an organic enhancement of the existing international financial architecture? And where do you see Russia in international development financing in five years from now?

Vladimir Putin: There is always room for healthy economic competition on the market, but this should not be competition of the sort that destroys or replaces something. Rather, it should be about creating new institutions that fit organically into the already existing and functioning international financial and investment systems, which work quite successfully, though not without glitches.

We know and debate often the question of how the IMF should develop and whether international financial institutions can act in the interests of someone’s political ambitions or follow someone’s orders in violation of its own rules, which would undermine trust in these institutions. But these are minor questions really.

Overall, the new financial organisations have a mission to become an organic part of what has already been created and to work in specific areas, above all in areas that will ensure the economic interests and growth of the countries participating in these groups, in particular the BRICS group.

For your information, let me stress that maintaining the current growth and development rates alone, the BRICS countries need from around $800 billion to $1.2 trillion. The current institutions are not in a position to cope with demand of this level.

The new institutions are being created above all to address these needs. This does not mean that they will focus only on their own interests in work between countries. We could, for example, within the BRICS system, plan to work with our colleagues on the African continent and so on.

Question: Good afternoon, Mr President. I’m Michael Renaud from Capital in Iowa. Thank you for the opportunity to speak to you today. I’d like to go back to the economy again, and specifically SOEs and efficiency. Thee years ago you launched a programme for the long-term development of the state-owned enterprises. The question is: how are they doing, how can you monitor that, and how can you as the government ensure efficiency? And to joke a bit, would, like Mr Trump, you just announce that people are fired? How can you actually get that efficiency going? And I’m joking about that. Thank you.

Vladimir Putin: Hold on a moment, can you repeat your question? I want to make sure I understand. Could you repeat the main part of your question, please?

Question: The question was, how do you ensure efficiency in the programme for the long-term growth of the state-owned enterprises in Russia, which you announced in 2013? And the question is how are the SOEs doing, how do you measure that, and how do you ensure efficiency, especially without more active participation of the private sector?

Vladimir Putin: First of all, the private sector does participate and is set to play an even bigger part. One of the tasks facing our big companies with state participation is to distribute orders related to their main activities among small businesses and private companies. We have made considerable progress in this area over the last year. The number of orders that big Russian corporations are placing with small and medium-sized businesses has grown substantially. This is an important factor for the Russian economy’s internal growth.

As for how we will go about improving their work, there is an instrument here that is no different from what other countries around the world use – participation of state representatives on the management boards. But here, as in the case with Gazprom, for example, we never intervene directly in the companies’ day-to-day management and we give them the chance and the right to work as equals with all other market players.

Question (retranslated): Mr President, I represent a Chinese high-tech company.

Listening to the many questions, we realise that there are many people around the world who, sadly, do not respect or support the Voice of Russia and do not understand its position. At the same time, as a Chinese company, we support and sponsor Voice of Russia’s television programme. The matter now is that at the St Petersburg International Economic Forum, we announced that we plan to invest from $500 million to $1 billion in the Russian economy next year, in online movie theatres and video content components.

Unfortunately, we have heard of late that there is a tendency to limit foreign capital in this market segment. My question is about your position regarding creating opportunities for Russian-Chinese cultural exchanges as opposed to Anglo-Saxon culture. We can be of help. We see great potential and success for Russian cartoons and films, for example, Ekipazh (Flight Crew) and other films were successful on the Chinese market. We would like to see such opportunities for working here in Russia.

Thank you very much.

Vladimir Putin: Regarding Anglo-Saxon, Russian or Chinese culture… yes, of course this is something we can discuss, but we are all part of global culture. It is not possible to imagine global culture without China’s great culture and its thousands of years of history. The Chinese people’s achievements laid the foundations for whole layers of global culture. Even if some do not realise this, but it is the case.

Of course, each people and culture have their own great uniqueness. Humanity’s future, without question, lies in exchanging these different cultures’ achievements and mutually complementing each other. We place great importance on this, including with regard to our Chinese friends. We are neighbours. We cannot choose our neighbours and this is a good thing. Over these last decades, we have developed quite unique relations of trust and mutual support.

As for the specific market segment you mentioned, we will certainly support the efforts of our partners – Chinese, European, and American – but keeping in mind this idea of uniqueness that enables us to preserve our national cultural identity. We do have to make efforts of one kind or another to support our own producers and our national content. But we must be careful, of course, in the way we do this.

We particularly welcome our potential investors’ financial activities if it will involve national content. This is something very important to us. Let’s then discuss all of these matters in a practical light. We are ready to find the most liberal and acceptable decisions for our partners.

Question: Thank you very much for this opportunity. Mr President, I’m Garry Barnes from PGGM Investments. I’ll keep this question brief and economic-orientate. I’d like to ask a question with regards to the privatisation programme of the government and in particular Bashneft. Some of us in the investment community were somewhat surprised by the fact that the government decided to defer the divestment of the government stake. And then also, in fact, Rosneft was allowed to bid on the stake. Was this a surprise to you too and what are your thoughts on this?

Vladimir Putin: You know, this might sound strange, but I myself was somewhat surprised by the Government’s position. This is the Russian Federation Government’s position though, above all, the position taken by its financial and economic officials. It is dictated by the following considerations.

First, Rosneft, as I already said, like many other big companies with state participation, is not a state-owned company, strictly speaking. It is a company in which the state holds a controlling stake, but in which foreign investors also hold a considerable stake, in particular, British Petroleum.

Second, Rosneft made the highest bid. I know the offer now. I don’t know, should I give the figure? I can? It is 330 billion rubles. This is a bit higher than the valuation made by independent international experts. In other words, they are offering more than the market price.

Next. Why is Rosneft able to do this and do the state representatives in the company not consider this decision detrimental for their company itself? The reason for this is that Bashneft’s acquisition and the subsequent sale of a large stake – 19.5 percent – in Rosneft itself will produce a synergy effect. In other words, the value of this 19.5-percent stake in Rosneft will increase considerably. Rosneft will thus be able to not only recoup the costs of the small premium it gives the state in acquiring Bashneft, but will be able to sell its own stake at a good price.

The next circumstance is that the Rosneft stake’s sale will take place through the company Rosneftegaz and, in accordance with all the rules and laws, the money from this company will come directly into the national budget, which, from the Finance Ministry’s point of view, is very good for budget planning.

Finally, and perhaps most important, we are not ending the privatisation process here. We are saying that this considerable 19.5-percent stake in Rosneft should be privatised, and private investors and perhaps even foreign investors can take part. Is this not privatisation? It is, but it is carefully conducted privatisation that pursues a synergy effect and maximum advantage in terms of the budget’s interests.

We are not indifferent to the position of Bashkortostan, our partner, the federal government’s partner, which holds a significant stake. The Republic of Bashkortostan has appealed directly to us with a request to maintain their influence in the company’s management with this stake. The proposed structure makes this possible. It was a combination of all of these factors that motivated the Government to make the decision it did.

We know the proposals other companies have made and we will support their efforts. These companies include LUKOIL and others. They work effectively and are eminently worthy to acquire a stake in Bashneft. But I think it rather improbable that they would be able to acquire Bashneft and a 19.5-percent in Rosneft, especially at what is quite a high price.

We will support all of our companies, if not in this particular deal, then in other areas, and give them the conditions they need to work effectively on the Russian and international markets and raise their capitalisation, including by granting them licenses to expand their activities.

Andrei Kostin: Mr President, VTB Bank was a consultant for the Government on this deal. We share this view in full and think it is absolutely right.

Vladimir Putin: There we go then.

Andrei Kostin: Companies must have equal rights, no matter whether they have state participation or not. We all work in the same legal framework and in this sense, whoever offers the highest price is the one who wins the bid.

Question: Elena Lovén, portfolio manager for Swedbank Robur.

Our total investment in Russia and Eastern Europe now comes to around 1 billion euros.

My question concerns Russia’s energy policy. We have heard a lot about this today. I just want to clarify, in terms of Russia’s role on the hydrocarbons market and as a global player in terms of production and resources. Mr President, what is in Russia’s best interests now, to increase production, leave it at the current level, or perhaps lower it, given that the oil price paradigm has changed?

Vladimir Putin: It is in the interests of the Russian economy and energy sector, and indeed of the global economy, to freeze production at the current level. By and large, we could even consider a reduction, but there is not any real need for this. If the OPEC countries can agree among themselves on freezing production levels, we will join them in this decision.

The only problem right now is with agreements between particular countries, between Iran and Saudi Arabia – there is no secret here. Their positions have become much closer. The matter under discussion is Iran’s pre-crisis production level, which was 4,2 million.

The figure proposed now is 3.9 million, not a significant drop, a decrease of 300,000 – practically nothing. I do not see any problems in the way of reaching a final agreement on freezing production at the current level.

Thank you very much for your attention.

October 12, 2016