Russia Calling! Investment Forum
I am happy to welcome the participants of the 9th Russia Calling! Investment Forum, which brought together over 2,000 guests fr om more than 60 countries this year, including major investors, heads of leading Russian and foreign companies, and prominent finance and investment professionals.
This means that the Russia Calling! Investment Forum has firmly established itself in the global business calendar and has gained solid respect. Its representative attendance has once again underscored the great interest that modern Russia and its potential evokes, and showed a mutual desire for dialogue and cooperation, which is a key condition for establishing and developing business ties, and finding promising investment destinations.
Russia offers excellent opportunities for cooperation, especially now that our economy has come out of stagnation, and its revival has become sustainable. Russia’s gross domestic product has been growing for twelve months in a row.
Colleagues, forgive me if I have to repeat something. This has probably been discussed already in some form, but I have to repeat some of these things and I will do it with pleasure.
Starting from the second quarter of this year, growth has exceeded two percent. Industrial production growth in January-September was 1.8 percent, with manufacturing industries confidently in the black – the automotive, pharmaceutical, chemical and food industries, and electrical equipment are in the lead.
It is important that the Russian economy is acquiring a new quality that was not there a year ago. But what new quality are we talking about?
First, I am referring to dynamics. The dynamics is based on increased domestic demand, on growing consumption and investment. So, starting from May 2017, retail trade has been growing by more than one percent, primarily due to the growth of real wages.
The increase in real wages in January-September was 2.5 percent. People feel this with a certain lag, but gradually this sphere is being revived, which is extremely important for the social sphere and for the economy.
According to preliminary estimates, investment in fixed assets of enterprises and organisations have grown by 4.2 percent over three quarters. This is twice as high as the GDP growth rate for the same period.
Such soaring rates lay the foundation for further growth. According to our Economic Development Ministry, GDP growth for January-September 2017 was 1.8 percent, as I said.
Second, we reached a record low inflation rate in the history of Russia. As of October 16, it was 2.7 percent in annual terms. This allows us to expect that by the end of the year inflation will be below the benchmark of 4 percent.
I know, of course, that some experts are concerned about such a low level of inflation, low for our economy, for the economy with such a structure. And some experts see in these dynamics a deflationary threat to the economy.
Here is what I would like to draw attention to. Almost all central banks, all regulators in all countries that do inflation targeting, show such excessive, at first glance, caution. I think it is to some extent justified, because there are still a lot of risks. There are still a lot of threats for an economy with a structure like ours that depends on the world's raw materials market.
Therefore, I fully understand and generally approve of the Central Bank’s policies, which are based on caution. But at the same time I want to emphasise that price stability, no one ever denies this, plays an important role both in terms of interest rates and in general for macroeconomic stability.
Here I think we are achieving good results, including thanks to a responsible budget policy and strict line of the Central Bank, as I said.
The federal budget’s dependence on the oil market is clearly decreasing. In 2014 oil and gas revenues accounted for more than half of the budget revenues (51.3 percent, to be more exact), while this year the figure amounts to about 39 percent. In the next three-year period, only one-third of the federal budget revenues will come from the oil and gas sector. At the same time, the total revenues of the federal budget will certainly grow.
The so-called non-oil and gas budget deficit is shrinking. At the same time, colleagues, we are well aware of the threats related to this non-oil and gas deficit, wh ere it comes from and what could be the consequences if it is left unattended. We realise this all too well.
Facing an economic crisis and a downturn (I will not go into what caused all this), it was our duty to focus on social justice, on the people, whose real incomes and wages took a nosedive.
Against this backdrop, scaling down social spending would have been irresponsible and unfair to the people. After all, Russia, just like any other country in the world, seeks social stability.
By the way, the economy and investors also need stability. There was also the need to heat up the economy, and we did just that, by taking targeted and structured measures. We can now see that these efforts yielded positive results.
This non-oil and gas deficit is expected to drop from the current 8.5 percent down to 5.9 percent of GDP in 2019, while the overall federal budget deficit will be below one percent. Let me reiterate that all this is expected to contribute to stabilising the macroeconomic situation, and this is already happening. We see that these efforts have not been made in vain.
We are seeing that the business community appreciates our efforts: confidence is on the rise and businesses, including foreign companies, are ready to invest in the Russian economy. This is another distinctive feature of the new stage in the development of the Russian economy which I have just talked about.
Foreign direct investment in non-financial industries totalled $23 billion over three quarters, having doubled compared to the same period last year, and reaching a four-year high.
Russia has been improving its current account balance on the back of capital inflow and the recovery in foreign trade. The country’s currency reserves increased by 13 percent year-to-date. The ruble has stabilised. For your reference, let me tell you that the international reserves held by the Russian Central Bank at the beginning of the year were equal to 377 billion, but as of October 13 they reached 427 billion.
We are facing many strategic challenges today. Besides simply consolidating the positive trends we must infuse additional dynamics to the Russian economy and make it more efficient.
Let me emphasise again that we cannot settle for current economic growth rates. The indicators must be higher than world averages. At this point, several organisational restrictions prevent us from reaching this goal. To overcome them we must use new sources of growth.
First, we must increase labour productivity by modernising production and launching new industrial facilities that are based on the latest technology.
To achieve this, we will continue to improve the business climate in Russia, encourage competition and create more attractive conditions for investment, thus making it more profitable.
Of course, we will concentrate on upgrading the quality of vocational training and the skills of Russian specialists that are already valued at the international level.
As you know, I regularly meet with Russian and foreign business representatives. One problem they mention is the shortage of qualified personnel, and we consistently work to overcome this.
I am pleased to note that Russia won the team scoring in skilled labour jobs at the WorldSkills competition in Abu Dhabi recently.
It is not even so important that we took first place. We only joined this competition in 2012, competing for the first time in 2013 when we only took 41st place, or last.
But now we are first. So, the dynamics and the rate of qualitative changes are very good. Just like our junior team won the JuniorSkills championship that was held on the global level for the first time.
The growth and realisation of the Russian economy’s export potential is the second source of growth. Lately, much has been accomplished in this area. The exports not related to raw materials are increasing. This figure has grown by 18.6 percent to $77 billion over the first eight months of this year. This represents 35 percent of Russia's total exports.
Engineering shows good results. The supply of civilian machinery and equipment to international buyers increased by 16.9 percent to $10.8 billion over eight months of this year.
Also notable is an increase in exports of Russian machinery and equipment to the EU countries by 15 percent to $2.1 billion. As you know, Europe is a highly competitive and saturated market, which is traditionally hard to enter.
The agro-industrial complex is also adopting a new development model. It is becoming the largest non-resource exporter in our country. Exports of food and agricultural raw materials increased by 19.6 percent to $11.9 billion in January-August. This covers the January-August period. Autumn is in full swing. The harvesting campaign has just been completed. We still have a lot to accomplish.
To put this in perspective, as of the end of 2016, (I have already mentioned these figures, but perhaps not everyone heard it, and they are interesting), the exports of food and agricultural goods grew by 4.9 percent to a total of $17.1 billion. We sold weapons worth of $15.3 billion in 2016. Exports of agricultural goods exceeded that of weapons.
In order to stimulate non-oil and gas exports further, we will continue to remove infrastructure administrative barriers, improve the efficiency of instruments to support exporters, meaning the exports insurance and credit system, assistance in product certification and protection of our producers' rights as they enter foreign markets.
I am aware of the fact that the funds we are investing in these areas are not sufficient. Of course, we will increase all these support elements as our budget opportunities continue to grow as well.
Integration processes in Eurasia open up major prospects for our exporters and, in general, for building up cooperation and investment ties. Business and trade relations with key countries in Asia, the Middle East, and other regions of the world are developing in line with this logic.
Another possible source of growth for the Russian economy is higher efficiency of education, healthcare, the social sphere and governance. I am referring to digitalisation, the widespread introduction of information technology.
I am confident that the development of the digital economy and the launch of new business models will make Russian companies more competitive and diversify the economy in general, give a fresh impetus to the industries and markets based on breakthrough technological solutions, and raise living standards in Russia.
Ladies and gentlemen, in recent years, Russia pursued a conservative and cautious budgetary and monetary policy. This approach has justified itself, ensured the necessary stability in the economy, in public finances and banking, and laid the foundation for positive long-term development.
Now, relying on the results achieved, we must certainly move on, while also bearing in mind all the problems hindering economic growth. We can see them clearly, and we know what to do about them.
We need to find a balance between maintaining stability and more actively supporting new growth factors in the Russian economy. To do this, it is important to concentrate resources and invest in infrastructure, healthcare and education.
I am not telling you anything new, of course, this is an axiom that experts and specialists around the world confirm unanimously. Russia is no exception in this sense – we are perfectly realistic about it and know what we need to do.
Undoubtedly, first of all, we need to invest in the development of the so-called human capital. It is also necessary to significantly expand the banking system’s lending capacity, primarily to the real economy.
Russia’s continued confident development and growth of investment and the success of business undertakings directly depend on the effective, verified implementation of these steps.
Friends and colleagues, we are open to cooperation and partnership. I hope this cooperation will be successful both for Russia and for our foreign partners, for Russian and foreign companies.
I know that you still have a lot of interesting work ahead. Thank you for inviting me to speak here.
Thank you and good luck.