Modernizing maneuver

Александр Ивантер
первый заместитель главного редактора журнала «Эксперт»
20 августа 2012, 00:00

Today Russia has two obvious economic advantages over other countries: large markets and a low public debt. And it would be correct to exchange these advantages for attraction of western technologies

Photo by Svetlana Postoenko
Andrey Belousov, Minister of Economic Development is well informed of the anatomy of the post-crisis slowdown, reserves and acceleration instruments of the Russian economic development in the years to c

The crisis shook considerable strata of small and medium-sized businesses and made them improve their efficiency; there are examples of activation of performance of the largest Russian companies. However, all of these positive processes have not been translated yet into high growth rates of the national economy and fast income growth. On the contrary, the 2011 year GDP development is slightly better than the 2010 results while real income of Russian citizens is stagnating.

The Government of Putin leaving to become the Russian Federation President initiated a megaproject to fundamentally improve the investment climate in our country. The project is meaningful and even revolutionary in certain terms. Hopefully, it will be implemented. The megaproject called “The national business initiative to improve the investment climate in Russia” is developing inconspicuously. The initiative is implemented by the Agency for Strategic Initiatives (ASI). Today the National Business Initiative includes 22 projects proposed by businessmen and aimed at simplifying, cheapening and accelerating the business doing procedures effective in Russia. As projects progressed, it seemed that all of those innovations could lead to serious institutional changes in the Russian economy. Thus, measures proposed by the Agency included optimization of the customs and fiscal regulation systems, enlargement of access to government procurement within the Federal Contract System, elimination of discrimination when accessing property and land resources, and so forth (see the table).

The new cabinet of ministers formed after the presidential election has to solve a difficult problem of “reloading” the economic policy to accelerate the growth rates and solve some chronic problems of the Russian economy. Andrey Belousov, Minister of Economic Development, shared with the Expert his opinions on the anatomy of the post-crisis slowdown, reserves, and acceleration instruments, the foreign economic context of economic development in the years to come.

— Andrey Removich, to what extent is it true that a new growth model has been formed in the post-crisis Russian economy?

— 2011 was the first year of post-crisis development. Based on its results, we can estimate what consistent changes have happened in the Russian economy for the last few years. These are ambiguous changes.

On the one hand, the economy has become more balanced. Financial bubbles in consumption and business crediting have been practically reduced to zero. The deficit-free budget is a fact, although it owes a lot to high oil prices.

On the other hand, on the whole, we have remained in the pre-crisis export and raw material model deprived of its past possibilities and resources. This accounts for quite a serious growth slowdown. I would like to remind you that the GDP average annual growth rate was 7.5 percent in the pre-crisis period from 2005 till 2007. 0.3 percentage points accounted for inventories growth. According to the last year results, the GDP is estimated to have grown by 4.2 — 4.5 percent. About three percentage points out of them accounted for inventories replenishment. Therefore, if we eliminate the market factor of inventories accumulation, the GDP growth reached no more than 1.5 percent. As we can see, we lost about six percentage points of the GDP growth as compared to the pre-crisis period.

— One and a half percentage points of “net” growth adjusted for accuracy of macroeconomic measures practically means a stop. What are the causes of such a strong slowdown?

— First and foremost, growth of energy and raw material exports sharply declined and this is where, perhaps, the difference between the current situation and the pre-crisis one lies. In the pre-crisis period, the volume of exports grew in average by 6.7% annually, which resulted in 2.3 percentage points of contribution to the total GDP growth rates. Last year, exports expanded by about 2.5 percent; their contribution to the economic growth development is less than one percentage point. This situation will remain the same in the foreseeable future until 2014.

The following things happened. In 2011 and in the mid-run, oil exports will stabilize at the level of 240 — 245 million tons annually against 259 million tons in 2007. It can be explained by accelerated retirement of old deposits while new ones in Eastern Siberia are slowly put into operation. As oil extraction does not nearly grow (just by one percent a year), and domestic consumption of motor fuel is growing, exports of oil products tend to decline.

The situation with natural gas exports is slightly more pleasant; but even in this area the natural volumes are lower than those recorded in 2005 and 2006. Even though Russian gas consumption in Europe is estimated to grow, the situation will be quite unstable due to the growing competition of the spot market.

As regards raw materials, exports of chemicals and metal is considerably slowing. Competition with several developing countries, including with the countries of Northern Africa and Middle East, China, and CIS countries, is getting tougher. Although the price situation on the markets is currently quite favorable, producers record growing costs due to increasing energy tariffs and ruble strengthening.

Therefore, exports of energy and raw materials have been transformed from the growth driver into a hindrance. The factor of global prices has quite a mobile nature while development of the physical volumes of exports shows either decline or stagnation within the entire range of energy and raw material products (except wood). And reasons behind this have a structural nature.

— And why does growing domestic demand fail to compensate exports decline?

— I believe that there are several reasons behind this phenomenon. First and foremost, this is because of collapse of the bubble in the consumption area. In the 2005 — 2007 pre-crisis period, retail trade turnover grew at an unbelievable pace: in average by 12.8% annually. In terms of the GDP growth, this accounted for about six percentage points. This consumption development was due to the fact that companies increased real salaries and wages by about 13% annually, although labor productivity rose twice as slower: by six percent per annum. This consumer madness heated up by growing consumer credits could not last forever, though. Crisis put an end to this. Both companies and banks became more careful. Last year, productivity rose by about 3.5% while real salaries and wages grew by 3.4%. As a result, even despite of the 30% growth of consumer crediting, the retail trade growth turnover totaled about 6.5-7%. Therefore, consumption grows at adequate paces and on a healthier basis, but these rates are considerably lower, twofold and more, than the pre-crisis ones. Obviously, this trend will continue in the mid-run as well: retail trade growth rates will be at least twice as lower as the pre-crisis ones. Accordingly, contribution of consumption demand to the GDP growth will fall from six to three percentage points, which was recorded in 2011.

Finally, we should consider investments into equity. In 2005 — 2007, they grew on average by almost 15% per annum. In 2011, growth rates declined twofold or so, approximately to seven percent, and this will happen in the years to come as well.

— What is the reason behind such slowdown?

— The standard reply is that it is due to a bad investment climate stepped up with the capital market instability. Well, this is true. But I would like to focus on one more circumstance having a structural nature. In Russia, development of private investments is strongly linked to companies’ profitability: due to the fact that banks rarely extend credits for a time period comparable with the time periods of payback on investment projects. Investments are normally made from own funds: either by issuing bonds or obtaining related credits abroad at a lower interest rate (if there are revenues in foreign currencies). So, after the crisis, return of industrial corporations sharply declined and has not recovered yet. On the whole, if the share of profit from all activities in the GDP totaled in average 23 percent prior to the crisis, in the post-crisis period, in 2010 and 2011, it was just 17 percent; in the future, the Ministry of Economic Development estimates that it will go on dropping. Accordingly, the debt load on companies’ income increased.

— How serious is the reduction in government investments?

— By the way, this is one of the popular myths that government investments have sharply declined. In the pre-crisis period, they accounted for about 3.7 percent of the GDP, but now they are estimated at 3.6 percent. The difference is insignificant.

— Let us summarize…

— The summary is as follows. As a result of a decline in growth of energy and raw material exports, we lose 1.5 percentage points of the annual GDP growth. Leveling of the real salaries and wages growth and labor productivity adds three more percentage points and dropping investment growth adds 1.5 percentage points. In total, we have about six percentage points of the GDP growth.

Import-substitution areas and conditions

— How does the Ministry of Economic Development predict that the GDP will continue to grow at a pace of four percent in the mid-run? Reserves may not increase indefinitely.

— The MED forecast shows that the economic growth rates will not increase as a result of acceleration of exports, consumption of households, and investments into equity. The total contribution to the GDP growth by these three components increases no more than by one percentage point, i.e. it fails to cover the unavoidable stabilization of reserves accumulation. Therefore, the annual GDP dynamics under other equal conditions may total about two percent, which is one and a half times lower than the anticipated growth of the global economy. And this means that Russia will be ousted from global markets.

According to the MED, import substitution may become the key growth driver. At present, the faster-than-anticipated growth of imports accounts for about four percentage points of the GDP growth, just as in the pre-crisis period. The MED estimates that, starting from this year, imports will sharply, about twofold, decline; and, in terms of several items, imports will be substituted by Russian goods on domestic markets. This will give us approximately two more percentage points of the GDP growth: in total, in average four percent per annum.

In my opinion, this is, unfortunately, an unreal scenario. Import substitution is hard to be achieved with markets being opened and, although weak, strengthening of the rubble, and, what is the most important, low growth rates.

— Why?

— First and foremost, it is because import substitution requires huge investments. And they are possible only when markets expand and companies’ profit grows at a fast pace. In the second half of last year, imports growth slowed to a considerable extent, which happened following a forty-percent rise in the first half of the year. Where import substitution was possible without any considerable growth of capital investments, it has been mainly completed. Imports have been considerably ousted on food product markets. This process on non-food markets develops as a result of assembly production facilities being taken to the Russian territory. For example, car and household appliance production clusters in Lipetsk Region, Kaluga Region, and Tatarstan.

Huge opportunities for import substitution still exist in sectors such as transport and agricultural equipment engineering, equipment production. These sectors have a high investment component, requirements for human resources, a production and marketing culture.

For this reason, the fundamental divarication for the near future is as follows: either the GDP growth rates increase to five to six percent annually, or they decline to the near stagnation one to two percent.

People sometimes ask: is there anything wrong, if we grow at a low pace? Developed countries believe that two to three percent growth rates are quite normal and no one bothers. There are two reasons for which growth acceleration becomes imperative.

The first reason consists in the specifics of the development phase which we have currently achieved. The fact is that modernization of social services and national defense area is not completed. In addition, it is necessary to gradually eliminate the giant social gap that goes back to the 1990s. These problems can be solved in an environment of low economic growth rates only by redistributing resources from some sectors of the economy to other ones, which will give rise to social tensions and increase public savings. Furthermore, this will mean conservation of a high budget deficit and the fast public debt increase and, accordingly, loss of international competitiveness and investment appeal of the country.

— I believe that this alternative is somewhat exaggerated. Why don’t you consider a scenario of supporting a moderate budget deficit within, let’s say, two to three percent of the GDP and controllable growth of the public debt from today’s 10 to 25–30 percent of the GDP?

— My position is that the faster we reach the zero deficit, the better. A relatively safe limit of the public debt growth for Russia, in terms of its foreign investment appeal, is very low: around 15 percent of the GDP, i.e. twice as low as the figure you have mentioned.

— Is this something that can be calculated or, as the saying goes, is it based on feelings?

— It is based on feelings. Estimates of specific foreign investors, with whom we discuss the current situation and the Russian economic outlooks, are built around this figure. They believe that the public debt above 15 percent of the GDP fails to create a reserve of macroeconomic stability, which can compensate all our negative aspects of the investment climate, property rights protection, and so on.

I think that the basic collision today does not consist in whether to increase or not to increase the budget investment costs at the expense of its deficit increase or decrease, but in the current terrific inefficiency of budget expenses. This includes both inefficient performance of social service institutions and huge inefficient performance of public companies, which we have to cover with subsidies, contributions to the authorized capital, and other allocations from the budget.

Growth acceleration reserves

— How could it be accelerated after all?

— There are at least three reserves of the economic growth acceleration. The first one relates to considerable failure to profit from our exporting potential. At present, the entire Russian engineering exports, both military and non-military ones, total approximately 28 billion US dollars annually. More or less the same volume of potential supplies of engineering products is lost because it is not supported by export promoting institutions actively used by the leading countries. First and foremost, these are financial support institutions: guarantees and insurance of exports. The Export Credit and Investment Insurance Agency set up last year is an important step in this area.

Another large growth reserve is inappropriate use of internal savings for investment purposes. Today Russia’s national savings amount to about 30 percent of the GDP, and investments in equity total around 20 percent. The difference represents a regular leak of capital abroad. Reduction of this leak is a matter of the whole investment climate in the country.

— Do you think that it is primarily an institutional problem?

— Not only. Recently gained experience shows that the most important factor being an obstacle for investment activity is a lack of a social lift for entrepreneurs. People that started their own businesses, very often from zero, have achieved the level of medium-sized companies, sometimes entered foreign markets, but can see no long-term outlooks for operating in Russia. It is hard to resist corruption, bribes demanded by local authorities, volatile business rules, and unequal competition conditions. The truth and protection can be found nowhere. In addition, there is a lack of qualified staff. As a result, many entrepreneurs, in particular those of medium-sized companies, upon accumulating certain capital, try to take it out of the country and become a rentier abroad. This situation cannot be changed only by adopting the “right” laws.

An attempt to change the situation has been made recently by involving businesses in improving the business environment. Firstly, I mean evaluation of the regulating impact of regulatory legal acts on business; secondly, creation, upon the order of Prime Minister Vladimir Putin, of the Strategic Imitative Agency (SIA) and commencement of development of the national business initiative for improving the investment climate.

— Where is fundamental novelty here?

— An attempt has been made for the first time to consistently improve the business climate by using brains and hands of entrepreneurs, who work in this climate every day, and not those of bureaucrats and unqualified experts as it used to be. The latter are likely to work here on an outsourcing basis. The SIA, Business Russia, and other business associations have launched a large-scale work to develop a standard for a favorable investment climate in the area. A number of pilot regions, such as Kaluga, Lipetsk, Ulyanovsk, Sverdlovsk Regions, and Tatarstan, are involved here. And this is just the beginning.

— What about the third acceleration reserve?

— The third large reserve consists in increasing labor productivity, eliminating a gap with developed countries. In terms of labor productivity, we lag behind the big seven about two times and a half, and in terms of energy efficiency we lag about three times.

At present, the GDP per capita in Russia, in terms of the buying capacity parity, totals slightly less than USD 20 thousand. By 2020, providing that we go on growing by four percent annually as the MED estimates, we will reach the figure of about USD 30 thousand of per capita income. This is today’s level of developed European countries. It is impossible to imagine that we can reach this level of income while lagging by more than twice in terms of labor productivity. We cannot increase consumption without improving efficiency. But this requires high growth rates; otherwise, unemployment growth is unavoidable. Estimates show that, in order to achieve the level of labor productivity by 2020 that will be comparable to the current level of western countries, we have to increase it at the pace of at least seven to eight percent per annum. And this means that even by taking into account the demographic slowdown of labor resources growth, the economic dynamics should be lower than five to six percent annually.

A gap in productivity may be eliminated through technological borrowings and improvement of quality of engineers and workers, their training in accordance with the needs of production. This task can be really achieved within ten to fifteen years, i.e. within one cycle of equipment renovation. But this requires institutions, appropriate incentives, and motivation of participants in this process, which are obviously insufficient today. And investments.

Today Russia has two obvious economic advantages over other countries: large markets and a low public debt, which provide conditions for macroeconomic stability.

And it would be correct to exchange these advantages for attraction of western technologies.

— Which economic sectors may drive labor productivity improvement?

— Over four crisis years and the subsequent recovery, companies in several industries increased labor productivity by 20 to 30 percent. This includes the automotive industry, electrical equipment production, wood processing, chemicals production, light industry, and food processing industry. Reserves exist in engineering sectors with possibilities of import substitution that I have mentioned above. It also includes production of building materials and housing development.


— The Rosstat disclosed the figure of consumer inflation for last year: 6.1 percent. This has been a record low figure for the last twenty years. How would you comment on that?

— The record low inflation is a fact, but not a reason for relaxing. This is mainly the result of sharp slowdown of the food price growth: from 12.9 to slightly more than 4 percent. Prices of non-food products even accelerated their growth as compared to the previous year: from 5 percent to about 6.5 percent, which is related to ruble weakening that was recorded last fall. The same situation can be seen in the area of paid services.

The price index inside the group of food products declined due to the fact that goods got considerably cheaper in terms of three items with respect to an abnormal high level of prices in 2010 characterized by bad crops. According to the MED, these products include fruits and vegetables that got cheaper by 24 percent, sugar: minus 25 percent, and cereals: minus 6 percent. If we do not take into account these three items, food product prices grew by about eight percent, and not by four percent. Therefore, the total index of consumer prices would surpass 7.5 percent. However, this is still much lower than figures recorded in the previous years.

In the long-run, the inflation reduction rate may be up to one percentage point per annum. In other words, Russia can reach the European inflation figures in the middle of this decade. I believe that these are reasonable benchmarks as faster inflation decline rates may be harmful for the economy.

Second wave of the global crisis

— The second wave of the global crisis is a popular topic today. To what extent can it hit Russia?

— In fact, we should emphasize two possible variants of the second wave. The tough variant means a large scale recession, primarily in the Euro zone. The soft variant means a debt crisis followed by the growth rates declining to zero.

As regards the tough variant, a recession, I believe its likelihood is not very high. Today the growth rate decline in the Euro zone countries is primarily related to three factors. The first one is reduction of budget deficits. The second one is pressure of financial regulators on banks so as to make them increase their capital and accurately disclose their risks. It slows and sometimes encourages reduction of the economy crediting by banks. And the third one is the US dollar weakening in 2011, which exacerbated the conditions of foreign commerce for European and Asian countries.

All of these factors do work, but I believe they are not enough to trigger a large scale recession in Europe. But it excludes no negative economic indicators in certain countries, for example, in the PIIGS.

— And what about the soft variant, a debt crisis? To what extent is it likely?

— This variant is possible because the key sources of the debt crisis have not been eliminated. The Euro model is not finished. Firstly, this is dissonance of the mechanisms of coordinating the budget and monetary policies, which is, perhaps, the basic factor of instability in the entire Euro system. The limiting factors laid in the Maastricht Pact had not been actually working for 17 years, because there had been no sanctions for their breach until last November. Secondly, this is a clear deficit of instruments of the supernational financial management. In fact, the Euro system has only one such body: the ECB, which is quite one-sided. Thirdly, we should not forget that the financial sector correction in 2008 and 2009 affected primarily the USA. It was not completed in Europe and this correction is underway now.

But I believe that likelihood of the debt crisis is less than 50 percent. European countries have at least two variants to solve the problem. The first one consists in issuing stability bonds, instruments of the market supernational debt secured by guarantees of the Euro zone countries for investors from the developing countries, i.e. transferring problems of some European countries to the supernational level. The second one consists in using the printing machine, open purchase of national debts by the European Central Bank. In 2012, the issue is estimated at about EUR 1.6 trillion, if we include the need for financing the sovereign debt of France and the PIIGS countries. And at least one third of this amount can be financed from credits of the European Financial Stability Fund (EFSF) and contributions of the European Union members to the IMF. In other words, this issue can be resolved. However, it requires political will and a political compromise. Will politicians of Germany, France, and other leading countries reach an agreement and who will be left in the basket — we will learn it in the near future.

We have remained in the pre-crisis export and raw material model deprived of its past possibilities and resources. Exports of energy and raw materials have been transformed from the growth driver into a hindrance exp_august_012.jpg Photo by Svetlana Postoenko
We have remained in the pre-crisis export and raw material model deprived of its past possibilities and resources. Exports of energy and raw materials have been transformed from the growth driver into a hindrance
Photo by Svetlana Postoenko

— To what extent is the soft variant dangerous for Russia?

— It is not as dangerous as unpleasant. First and foremost, it will result in outflow of capital. The available estimates show that in 2011 the net outflow of capital from the private sector surpassed USD 80 billion against USD 33.6 billion in 2010. This has been the record figure for the last few years, excluding the 2008 crisis year. USD 20 billion out of USD 50 billion outflow increase came from nonfinancial companies both in the legal form of direct and portfolio investments, increase in funds on accounts abroad, and in the illegal form (non-repayment of export revenues, false imports, etc.). The second component of the net capital outflow growth consists in sharp reduction in borrowings by banks on foreign markets and growth of their foreign assets. This stems from devaluation anticipations in the second half of the year.

The capital outflow came close to revenues of foreign currencies on the account of current transactions (2011 estimate: USD 95 — 100 billion). In this situation, if the oil prices drop in annual terms to USD 100 per barrel (and this is the price laid down in the 2012 budget) or imports grow by 11 percent as is estimated by the MED, the capital outflow will compensate the positive balance of the current transactions and the ruble exchange rate correction will become practically unavoidable. It may be good for the current product, but the ruble weakening will deteriorate conditions for both investments and consumption.

But this is not the main threat. The main threat comes from China and is related to the Chinese economic growth slowdown. Signs on hand: in November, China’s industrial production index was 12.4 percent, which is lower than the 2008 crisis year (12.9) and lower almost by a quarter than in 2010 (15.7).

— What does the threat consist in?

— It consists in a possible decline of oil prices. China accounts for more than half of the global oil consumption growth; for this reason, the Chinese economic growth decline, according to experts, will trigger an oil price fall.

But it is impossible to anticipate price reduction in 2012 lower than USD 80–90 per barrel, because Arab countries made their budgets taking into account this level after the Arab Spring events based on higher social obligations. Therefore, USD 80–90 per barrel is an important level of oil price maintenance. This is not fatal, of course, but the Russian budget will have tangible problems. Decrease of the oil price by USD 1 will reduce revenues to budgets by nearly RUB 60 billion. Accordingly, price reduction from USD 110 to USD 90 will result in deduction of RUB 1.2 trillion from the budget revenues, which constitutes about two percent of the GDP, and this is quite sensitive. In addition, there are problems with payment balance mentioned above. For this reason, although it may sound trivial, we have to make a deficit-free budget based on oil prices of USD 80–90 per barrel. I do not think that we will be able to reach this level of economic growth without any damage earlier than by 2015–2016. 

Training has already been held

— Seven or so years ago, the Ministry of Economic Development told Expert about the initiated administrative reforms. It was about initiatives of public officials regarding the most massive procedures individuals and businesses are faced with. Public officials started to prepare them, established regulations made them more efficient (it was about registration of legal entities, issue of passports, registration of motor vehicles and property titles). However, the initiative got suspended at that phase.  Similar things you oversee in the Government are now consolidated by the Agency for Strategic Initiatives upon Putin’s request. What is the difference between the then bureaucratic innovations and the present ones? Will they result in anything more important this time?

— In fact, we have had several attempts to fundamentally improve the investment climate in the country for the last decade. These attempts resulted in partial improvements and even certain consistent progress. However, despite all those efforts, the investment climate continued to get worse, at least, with respect to other countries. Thus, according to estimates of various organizations building ratings of the investment appeal in different countries, including the most famous rating of the World Bank (Doing Business), other countries, in particular, our closest neighbors and members of the Common Economic Space, are ahead of us in the terms of the business climate improvement. As a result, Russia’s position in the ratings clearly tends to decrease. This, in turn, affects possibilities of attracting foreign capital and risk assessment.

The Government has made three serious attempts to improve the business environment for the last three years resulting in real progress. This concerned primarily licensing and control. But no consistent improvement of the business climate resulted. However, last December, this initiative was declared at the congress of the Business Russia. Prime Minister Vladimir Putin set an objective to develop a national business initiative by businesses and to present it not simply as proposals, but as roadmaps equipped with target indicators and specific timeframes, persons in charge, and so on. This initiative then included a requirement to get oriented toward international ratings so that improvements could be not just formal, but could really change feelings of businesses. The task was as follows: Russia should move from the 120th position up to the 20th position of the Doing Business rating.

— Was it not a response to protests organized by the opposition?

— It has been maturing since long ago. Well before those events. This was a logical step after improvement of the business control and licensing terms.

— What are the specifics of the aforesaid national business initiative?

— In my opinion, the first fundamental feature consists in changing the balance of businesses and federal executive authorities when developing such initiatives. Prior to that, all the attempts were as follows: authorities came up with an idea and businesses acted as consultants. In this case, the situation became quite the opposite. Now businesses develop ideas and authorities act as consultants and experts. 

Another feature is the format of work. Initiatives are developed as roadmaps. The methodological support is provided by Boston Consulting Group. Work is done on three types of platforms. The first type includes working groups (or project teams). All of them are headed by representatives of businesses.

Crowdsourcing is the second type (crowdsourcing is a technically built process of obtaining the necessary ideas or contents by asking large groups of people for assistance, normally, the online community — Expert). Witology is another company known on the market, which helps perform these activities as regards crowdsourcing. Finally, public hearings are the third type of platforms. They will start to be held in the last week of April.

The third feature of this megaproject consists in supporting all of these activities by a motivation mechanism. Vladimir Putin ordered to develop a system of assessment indicators (KPI indicators) of top-ranking officials, heads of federal executive authorities, which would reflect implementation of these efforts to improve the business climate. This is what the Ministry of Economic Development is in charge of now. A public official will be assessed according to the quantitative indicators. For example, the speed at which a truck passes through a customs control point or reduction of the number of documents to be submitted so as to obtain a construction permit. No such things could be seen before.

Finally, the fourth key feature. Businesses in the format of the existing working groups will have to monitor efforts made according to these roadmaps. They will not monitor the adopted decrees, laws, creation of organization structures, but whether changes are made at the local level.

— Is such monitoring efficient?

— We already have a model which proved to be efficient. It is about creation of a working group in charge of the trade law implementation. The working group is headed by First Vice-Premier Victor Zubkov; it also consists of representatives of trade networks, suppliers, deputies, representatives of the federal executive authorities that are in charge of this area. The law is quite complicated. This is a conflict area where interests of various business groups and federal executive authorities are in conflict. Therefore, a working group was set up to prepare the trade law and then to monitor throughout the year (it still operates) the way it is implemented. It has instruments to make relevant amendments to the law. This working group proved to be quite an efficient tool. The trade law was seriously amended. The last series of amendments is being prepared at the moment.

— Whose representatives prevail in this working group? Those of Businesses?

— I think that business representatives formally do.

— How do they adopt decisions? By voting?

— By consensus. Inside the group, they discuss and give their opinions in favor of or against.

— Are special opinions recorded anywhere?

— Everything is recorded in the minutes. Finally, a constructive decision is adopted. Working groups meet every month and those meetings are quite efficient.

— To what extent will this process be public?

— This will not be just a public case. Everything will be made online and in front of cameras. Meetings of the working groups are now held before cameras and their results are posted in the Internet.

— All of this is fine, but, in my opinion, this process lacks sufficient transparency.

— I agree with you. We are going to improve transparency of this process. We had just to achieve a crucial weight and achieve at least the basic consensus between the participants. And although the process develops with difficulty, real breakthrough has been reached in certain areas.

— What does this crucial weight consist of now?

— Five initiatives. One of them is currently implemented. A report on results will be issued in April. It is related to the standards of the business climate improvement in the regions. And four initiatives are at the phase of development of roadmaps. We believe that heads of working groups will report on that at the meeting of the Supervisory Council of the Agency for Strategic Initiatives held under the auspices of Putin on May 03.

Cards are cast

— Could you describe in detail these four last initiatives?

— The first initiative is associated with improvement of customs administration (it is headed by Vitaliy Survillo, Vice-President of Business Russia). The second one consists in improving the business climate in the construction sector (it is headed by Leonid Kozinets, Chairman of Barkley Board of Directors and one of the RUIE (Russian Union of Industrialists and Entrepreneurs) managers). The third initiative is about facilitating connection of networks to the power infrastructure (it is headed by Sergey Mironosetskiy, General Director of the Siberian Generating Company); the fourth initiative supports access to foreign markets and exports (it is headed by Petr Fradkov, Manager of the Agency for insurance of export credits and investments).

The most impressive results were, perhaps, achieved in the process of preparing the “Customs Administration Improvement” roadmap. Even representatives of businesses dealing with these matters since long ago say that this is the first such important progress in relations with the customs authorities. In this case, considerable progress was made by the Federal Customs Service.

The roadmap project includes about sixty measures to be taken in the five main areas: reducing the customs control time when issue of products is declared; preparing electronic declaration technologies for implementation; improving the customs control forms and methods: its simplification, development of an institution of customs representatives; changing forms of issuing security, sureties of companies, insurance mechanisms to a considerable extent.

We hold the 160th position in the rating of the World Bank according to the customs regulation. Upon implementation of the basic portion of this roadmap, we have to move up to the 79th position by 2015. And we are supposed to achieve the 19th position by 2020. For example, the time period for submitting documents to go through all the customs procedures is now 36 days; but it should be reduced to 15 days by 2015 (see the table).

The second initiative is “Improvement of the business climate in the construction sector”. It is difficult to find a business sector where the business climate would be so subtly negative. The working group consisting of the key representatives of businesses and the Ministry of Regional Development has carried out huge work to make the positions closer. There are several areas here as well and some of them could be called revolutionary. Firstly, it is proposed to form territorial planning documents everywhere. Municipalities will be interested in appearance of such documents. This is a real administrative barrier when the territories of municipal districts or cities are blank spaces. Although relevant orders were given long ago, land plots have not been included in the cadaster, or no rules of land use and development relating to them have been developed for many years. 

Another very important area is inclusion of non-used lands in the economic turnover through privatization or lease. Reducing the time period for issuing construction permits is another area. In many cases, it is proposed to switch from the permissible procedure to the informative one. 

Considerable barriers in the construction sector emerge at the phase of putting construction projects into operation. One of the areas of this roadmap consists in fundamentally reducing the time of putting projects into operation.

The fifth area consists in changing the system of technical regulation in construction. At present, we have several organizations generating regulatory acts that are binding upon contractors and developers. And these acts are often in conflict with each other. It happens that people learn of these acts post factum when construction works have already started. All of these activities relating to governing of all the regulations are proposed to be placed within the responsibilities of one institution. It does not mean that the Federal Service for Oversight of Consumer Protection and Welfare and the Federal Agency for Technical Regulation and Metrology should be eliminated. But their regulations and orders ought to take effect in a specific area only after they have been approved by the institution that is generally in charge of the legislative regulation of the construction sector. This should concern both civil and industrial construction.

And the sixth area consists in developing housing demand, developing the lease and mortgage market.

The third initiative is “Improvement of access to the power infrastructure”. It is a touchy topic as well. If the roadmap is implemented at this initiative, the time of connection to the energy networks will be reduced from 281 to 45 days by 2015, and to 40 days by 2020. The map structure has eight areas: improving the legislative framework regulating technical connection; improving the legal mechanism of free power redistribution; reducing tariffs of technical connection; improving the regulation tools; implementing the common benchmarking, and four other areas relating to regulation of network organizations. A consensus was quickly reached with the Ministry of Energy as well. I would say that the map is practically ready.

Finally, the fourth initiative that is now developed is a special one. This is a package of all activities aimed at supporting Russian companies entering foreign markets and export markets. We proposed to launch this initiative in the near future. The topic is ultra-relevant for our businesses and pertains to the fact that the Agency for Exports Insurance started to work last year. This Agency should prepare a range of products for financial support of exports that are unified and accessible for massive and typical businesses. The system of business support has been focused on large scale unique projects so far, whether it regards exports of our civil aviation equipment or construction of nuclear power units abroad. And now it is about a fundamentally new construction. Creation of the Agency will help make the next step: create a center of competences relating to large scale support to exports.

Three competences are considered: development of financial services, accumulation and analysis of information on foreign markets and consumers, creation of a system for identifying any barriers on the markets of foreign countries, and assistance provided to exporters in overcoming them.

Some areas will get out of control

— But all of these changes have to be transformed into something more material than recommendations in the form of a roadmap.

— We suppose that documents will be completed within several weeks and will be then submitted for consideration to the Supervisory Board of the ASI so as to submit them to the President for approval in the form of an order. After that, they will take effect as a regulatory act.

— Some of the measures within the framework of these roadmaps are likely to lead to budget expenses: in case of land, cadaster-related costs will be incurred; in case of the electronic document flow at the customs offices, costs associated with new software and other things will have to be incurred. But the budget has already been adopted. Or could it be corrected?

— Costs that will have to be incurred are not so high after all. But relevant assessment should be undoubtedly made. In principle, you are right, but we are now at the beginning of the budget cycle. The budget process for 2013 — 2015 started on April 18. The first Government meeting dedicated to this issue was held.

— In other words, you plan to start spending money for the aforementioned purposes in 2013, do you?

— Yes, we do. And the federal executive authorities have to assess the costs to be incurred and duly submit their proposals to the Ministry of Finance. But no fabulous sums will be needed.

— I cannot agree with you. For example, cadastral registration and territorial planning are very expensive.

— Well, these procedures have been nearly completed. On the whole, the country has about twenty percent of land plots that have not been registered yet.

— Is there any opposition to such initiatives when they are discussed or implemented? Do you feel it?

— I would not say that there is no opposition or sabotage; there is rather a certain conflict of interest and overcoming of conservatism. Such things do exist. But the results are quite unexpected. We managed to solve several problems very quickly that seemed to be unsolvable before.

— Will the first person be willing to promote these initiatives?

— Firstly, there will be willingness to do it. Furthermore, we hope that monitoring by businesses will be efficient. Our control system is based on legislative acts. For example, an act is issued and followed by implementation of an order. But nobody tracks to what extent the initial idea is reflected in this regulatory act and whether it led to any changes. It also occurred that the situation got even worse. I gave you an example of the trade law: we will create a similar tracking mechanism for new business initiatives.

— Russia’s medium-sized businesses believe that regulation of tariffs of natural monopolies is one of the key problems of the investment climate deterioration. The gas, electricity, and fuel prices are already higher than the relevant prices in the USA. Do you think it is possible to correct this situation within the framework of business initiatives?

— This is a different area. It is fully placed within the competence of the Government. The entire regulation process is relatively functioning. Tariffs of natural monopolies are regulated to a certain extent. It is senseless asking businesses to give advice on this matter, because the result will be quite predictable.