Visits within Russia

18 september, 2009 14:17

Prime Minister Vladimir Putin spoke at the 8th International Investment Forum in Sochi

Prime Minister Vladimir Putin spoke at the 8th International Investment Forum in Sochi

Ladies and gentlemen,

I am happy to welcome all of the international investment forum participants here in Sochi.

We met here last September, shortly before the global financial and economic crisis broke out - just before the lightning struck, if you will. Alarming signs continued to grow in the global economy. Finally we experienced a dramatic and unprecedented global meltdown.
Separate problems facing different nations grew into global financial turmoil right before our eyes, emerging as a full fledged financial and economic downturn. Many analysts now say that the world has never seen anything like it before, and it is difficult to disagree with them. As we can see, globalisation is not all for the good - there can be an alarming side to it too.

Politicians and business leaders now have a feeling that the downward trends are gradually being reversed. Despite lingering uncertainty, there is increasing reason for such moderate optimism. The leading economies' contraction has slowed or stopped in some cases, while in the euro zone, some larger economies are already showing growth.

This also holds true for Russia, where industrial growth and growth in GDP have resumed after an eight-month recession. Starting in June 2009, the Russian economy has been gaining 0.5% per month on average. As I said, this minor growth began in June and continued through July, August and into September - therefore, it can be called a stable trend at this point.

Even our cautious and probably excessively conservative forecasts suggest that upward trends will continue to prevail in the national economy.

At the same time it would be a serious mistake to believe that the worst is over. It would be even more unwise to just move along relying too much on a fair wind from the global economy.

It is extremely important now to continue working on the systemic issues which generated the crisis. We need to draw important lessons from it.

Russia has thoroughly experienced what happens during a recession when an economy is poorly diversified, with a weak financial system, poorly developed infrastructure, low labour productivity, inefficient use of resources and ineffective corporate governance.

Therefore, along with further implementation of tried and true anti-crisis policies along with a few new methods we have planned, at least new for Russia, although maybe successfully tested by other countries, the Government will begin working on a major exit strategy - a set of policies to modernise the economy and ensure post-crisis development.

So I would like to draw your attention today to one of the key problems, stimulating investment in development.

Russia's economy still has a deficiency of investment. Whole sectors require an overhaul of their infrastructure and technology.

To remain competitive, Russia's industries need to dramatically increase energy efficiency and labour productivity, cut costs and introduce more innovation.

On the other hand, it is obvious that the times of cheap and easy loans are over. We are in for strong competition for development resources. A country which offers investors better terms and conditions and growth prospects will benefit in the end. We in Russia will try to create an investor-friendly environment.

Government investment can and must play an important role as well. Despite falling budget revenues, we continued to finance development projects through 2009. Federal allocations for the transport infrastructure will reach 560 billion roubles this year, including 312 billion for road repairs. Another 500 billion roubles have been spent to stimulate the construction industry and to deal with housing problems.

Our natural monopolies have also continued implementing their investment programmes with a total budget of 2 trillion roubles, also with government support. In some cases we directly channel federal resources into these companies' equity capital.

The Government will certainly continue supporting large investment projects on a national scale. Still, I would like to emphasize that government investment is an important bailout policy, but certainly not the only one available.

It is important to use businesses' own potential and initiative. Many administrative barriers have been removed over the past few months, and redundant supervision and control procedures and functions have been cancelled. We have also tightened anti-monopoly regulation and increased the guarantees for private competition. We will certainly continue pursuing these policies.

We are meeting in Sochi which will host the Winter Olympics in 2014. The construction boom the city is experiencing these days has vividly illustrated how far behind some of our economic sectors were. For example, the majority of standards used in previous construction projects have been used since Soviet times.

Yesterday my colleagues and I were discussing the cost of some of the construction projects. It turns out that they are surprisingly more expensive than similar projects, say, in Western Europe. But we have been doing everything in accordance with the law. So - why? Because our projects are regulated by obsolete norms, standards and rules, and there is no one to blame. We will certainly intensify our work on removing the barriers which still remain and hamper investment projects.

Apart from removing administrative barriers, we have cut taxes significantly. As you must know, Russia has the lowest income tax rate today, 13%, and also the lowest corporate tax rate in both the G8 and BRIC - 20%.

The crisis has also shown that the problem of insufficient investment cannot be resolved without a well-developed domestic financial market.

Therefore, we are planning measures aimed at improving the banking sector's and stock market's operation, including the introduction of flexible but better-protected savings instruments. These policies are important to make the so-called "long money" available in this country.

Next, we are open to foreign investment. Last year we adopted a law regulating the procedure allowing foreign capital to gain control of companies in strategic sectors.

Ladies and gentlemen, that law was adopted largely as a result of consultations with our foreign partners, who said openly that we must tell them clearly where they can work, under what conditions and where they could expect limitations. We have done so.

Apart from these strategic sectors related, for example, to strategic mineral resources, there are no other limitations on foreign participation. There is no ban on operating in the strategic sectors either; we have introduced simple and clear procedures for all investors.

Of special importance to us are the investment projects that stipulate the transfer of modern technology to Russia. In other words, money may be secondary - even though money is important, too - to the knowledge and experience of leading global producers.

In this light I would like to draw tour attention to a number of key sectors where, we believe, investment is crucial.

First, I am thinking in terms of sectors involving the development of the transport and energy infrastructures, telecommunications, and digital television.

Preparations for the Winter Games in Sochi alone give interested investors vast possibilities in all of these areas.

In addition, we have several large and very important projects in other regions, such as the modernisation of Vladivostok for the upcoming APEC summit, preparation of Kazan for the World Student Games, and several other projects.

Next, the Russian Government is drafting a state energy efficiency programme. We have drafted a new Energy Strategy for a period until 2030.

In fact, we would like to develop a fundamentally new energy system that will be more reliable, effective and environmentally friendly.

By the way, it has been said more than once that the crisis should encourage a transition to new technology. In fact, we see this happening in the economy, with and without state assistance. I have seen this during my regular meetings with businessmen. Those who have considered retooling have made the first steps; many are spending on modernisation despite the crisis.

I recently visited the Tula Region and was pleased to see how well some companies are managed there, for example in the chemical sector. I may have forgotten the details, but I remember the general parameters. They have cut thermal energy consumption by 54%, electricity consumption by 37% and gas consumption by 24% and the industrial use of water by 90%.

Of course, it is the crisis that has prompted such saving technologies. The state has always helped, and will continue to help to implement such projects. You want to know how? By providing subsidies on loans, lowering import customs duties on technology, and so on.

Large joint projects in hydrocarbon production and transportation can also be regarded as a means of creating a common European energy space.

Of course, they can be implemented only with respect for each other's interests. Russian companies investing in energy projects abroad should have the same parameters as foreign investors in Russia.

In addition, we hope that the development of new deposits and the creation of new transport corridors will be accompanied by a gradual increase in the purchase of Russian-made industrial equipment, the quality of which should be gradually improved to keep pace with international standards.

We are also trying to promote cooperation with our foreign partners in those areas where Russia has traditionally led. I am referring to space exploration and nuclear power engineering. In particular, we are ready to implement joint projects with other countries.

I would like to use this occasion to mention some positive examples of our cooperation. You know that Canada's Magna and Russia's leading bank Sberbank have bought a controlling stake in Opel. I know that the new shareholders are aware of their social responsibilities and are prepared to contribute to preserving one of Europe's largest automakers, thereby giving a positive example of mutually beneficial cooperation in this important sector.

It should also be said that leading auto manufacturers have established several assembly plants in Russia. It's time to take the next step - to build auto component plants here. There are economic prerequisites for doing this.

Of course, our proposals on cooperation and mutually beneficial interaction concern not only the industries I have mentioned. Ultimately, it is for business to decide where investment would be more effective.

I am confident that Russia may become a leading global destination for investment. The crisis must not increase but rather cut the distance toward that objective.


The events of the past few months have shown that those who lose heart lose the battle. On the contrary, it is critically important to be able to take substantiated decisions and then to energetically implement them in searching for new avenues of development.

Counties and businesses are both facing this challenge. To be able to respond to it properly, we should join hands and work hard.

We appreciate that direct foreign investment in Russia grew in the first half of this year, which was a difficult time for us. The capital influx has not stopped; it amounted to $17 billion in the first half of the year.

The fact that you have come here, to Sochi, to discuss your business plans for the future shows that you are confident of the bright future of your projects and  your companies and of the prospects of working in Russia. You have the will to work, you believe in Russia and its huge potential.

I sincerely wish you success.

Thank you.

Transcript of the forum session attended by Vladimir Putin:

Rair Simonyan: We have already begun discussing the challenges facing Russia, the status of the global and the Russian economies, and what should be done to bring about economic recovery. As you know, I have two news items for you- one good and the other so-so.

Vladimir Putin: Tell me the good one and keep the other one to yourself.

Rair Simonyan: Here's the good news. As you know, foreign guests were the first to speak at the forum. They represent different areas of the financial industry, which was the hardest hit by the crisis. Strangely enough, they all sounded very optimistic, much better than I expected. Later German Gref took the floor.

Vladimir Putin: I have heard him speak many times. I was quite right when I asked you to keep the bad news to yourself.

Rair Simonyan: He said that although financiers were looking to the future with optimism, there are some real structural problems in the global economy that are difficult to resolve. If they persist, the world economy will remain unstable, regardless of whether a recovery has begun and how fast the economy will grow. This means that at any moment both individual markets and economies can develop in unexpected ways.

I think we are at an interesting moment. I'd like our optimists here to comment on it. Mr Gref described the real situation - all countries suffer from unprecedented budget deficits, enormous national debts, and global trade imbalances. These are systemic problems. Therefore, I have a question for the foreign participants. You are for the most part from the United States, but nevertheless how will the countries you represent and the global economy cope with these structural problems? What will your countries be like if these problems are overcome, and what will change in the structure of the economy as such? This is one question.

The second question is also prompted by Mr Gref, although we first discussed it at the previous forum, at the energy meeting. We are, of course, lucky that prices on energy resources are not as low as they could be. And so why is there a problem? At that meeting, heads of major oil companies and leading experts said that unfortunately it is practically impossible to predict oil prices for tomorrow or for the day after tomorrow, because prices for raw materials and energy resources have become divorced from their fundamental determining factors.

Therefore, they can go up or down at any time and with amazing speed, all the more so in markets with lots of speculative capital. I would like to ask you to answer this question very briefly (the more concise the better). How much are prices on energy resources and raw materials separated from their fundamental determining factors? Will they be more closely linked with these factors if we see economic growth, and how could this affect the price? I would like you to give me two brief answers to these two questions. Whom should be start with?

Jeff Immelt heads the world's biggest industrial company, General Electric. His company works in different industries and countries, and he understands what I am talking about.

Jeffrey Immelt (as translated): I would say the following in answer to the first question: the crisis should be examined globally. We know that the system will be reset, including in financial services. This industry will be restructured the most. New demands will appear, and globalisation will increase. The process is underway already, and it will go on.

Two more questions arise: what sort of growth will we see in the developed countries-the United States, Japan, Europe? And will growth slow because of the deficit and unemployment? This might happen-I am not an economist by education. The markets might slow down in the future. Something else is interesting, as far as the crisis is concerned. There is a certain division of consumption and, in the final analysis, the economy is moving towards success. I recently visited Brazil. It has a dynamic economy. The situation remains good in Southeast Asia, the Middle East and Africa. I really think the foundations of the developed market might provide an opportunity for further growth. This growth will send raw material prices up-even if they grow more slowly than before, if we are to believe that those countries can develop in the developed world. I do not know how high those prices will rise. Anyway, resource prices will stay high so long as there are resources for development in India and China. I am not a good businessman, but I would continue to invest in the resource markets and in emerging markets.

Rair Simonyan: So Mr Gref has not shattered your optimism? Do you have anything to add, John? Are you still an optimist, and do you think that structural problems will not affect global economic growth rates in particular countries, but will be overcome?

John Mack, chairman of the board of the Investment Bank Morgan Stanley (as translated): On the whole, I have a very optimistic view of the situation. We should remember what happened a year ago, when there were great concerns because the capital market had closed up. It was impossible to increase capital, cash and liquidity, and it was impossible to sell bonds. People were seized by real fear. With the exception of the real estate market, other markets were still open, whether in the IPO market in China or on the increase of billions of capital by certain companies in America. If we're talking about bonds, the market is coming back and gaining momentum. As I have said, there is invested capital, and there are savings in the world market. If we look back at what happened a year ago, the financial market lacked sufficient leverage for credit, lacked foresight, and was on the brink of collapse. So we should be careful. Regulators should create a system of risk management. But if we look back at the crisis and see how the governments of the whole world pooled their efforts and prevented a global depression, that allows me to look to the future with optimism. We are grateful to investors in Brazil, China, Russia, Africa and Southeast Asia.

I am certain that there will be capital division. Money should be channelled from the developed countries to provide the opportunity for GDPs to grow. Such growth is small now. It was 2%, but has already reached 9% in some countries. We must give other countries the chance to develop their potential to escape absolute recession. I am an optimist-but we should take market risks into consideration as we move forward.

David Bonderman, president of the Texas Pacific Group (as translated): I don't look at the situation that way. As I see it, what happened and is happening to companies was made worse by a number of processes. I mean a traditional recession. There were certain mishaps, and they were not traditional. For instance, there was growth in the BRIC countries and in new countries, capital division, and changes during a sectoral decrease in growth rates in the United States and growth in industries in the BRIC countries, particularly in China. In the post-war period the American GDP saw growth rates of 50%. Growth slowed to 21-22%, and the decrease continues. The combination of considerably tough cyclical depressions and the division of the directions of capital flows testifies to a situation in the financial market approaching chaos, to put it mildly. As for our investment company, we are enthusiastic about continued growth in the BRIC countries and other developing economies that are part of common economic zones, such as the eurozone, and the United States. Growth rates will increase as before. And here, as far as the regulatory process is concerned, we should recognise the situation and make relevant decisions.

Rair Simonyan: Thank you. So you see, Mr Gref, you have not succeeded in affecting the Western businessmen. However, I agree with you more than with them that the situation will be far less stable and predictable than before the crisis.

Vladimir Putin: May I speak?

I would like to join the discussion and begin with the following note. As I see it, global problems have arisen for several reasons-there are many reasons, in fact: the traditional, classical signs of excess production in certain industries, for example, in the automotive industry, which suffers from an enormous oversupply all over the world. However, there are other reasons that we didn't previously know could trigger a crisis. The first is a global currency: the dollar. As we all know, the problem lies in a global contradiction between what the Federal Reserve System has been doing and the demands of the American and world economy, for which the FRS is the only centre of production for the money supply. The discrepancy between the money supply in the United States itself and the broader global economy is a problem we do not know how to eliminate. If the centre of production is in Washington, and it is printing money for the entire world and the entire global economy, and no one controls it, then this is a problem in itself. It seems to me that there is only one solution-to have a general understanding of the common rules of conduct or to have several global reserve currencies. I do not think that this would be bad to the American economy. On the contrary, it stands to benefit in the final analysis, because it will be the road to the stability you have mentioned. That's my first point.

Second, the so-called financial instruments that should bring flexibility to the financial, stock and raw material markets have certainly grown to resemble legalisation for speculative transactions. All those financial instruments have become disconnected with the real economy. Futures only distantly reflect what should be happening with energy prices, and derivatives of derivatives do not reflect anything at all. All this also increases ambiguity. And so if we are to speak about enhancing the state's role, it lies not in saturating the economy with money, though we cannot avoid this entirely, but in bringing discipline to financial instruments.

It doesn't matter whether we manage to do this within the framework of the G8 or the G20, or even the G30. If the world community comes to an agreement on the common rules of the game, we can expect elements of stability to reappear.

Now for the problems that countries face, such as budget deficit, national debt, and trade imbalances. Most of the blame falls on the United States, as we know, but I should not single them out, because all countries have their problems. Russia, for one, has high inflation which we have not yet managed to correct to the necessary extent. Inflation is also the Achilles' heel of our approach to the crisis.

We had huge influx of capital in the years before the crisis-the net inflow of private foreign capital in 2007 reached $81 billion, in addition to petrodollars, etc. Whatever respect I have for the Central Bank, I have to acknowledge that it has not fully managed to remove the extra money supply from the market. Second, I also acknowledge that the Government could not withstand the temptation of spending money. This was very difficult to do for political reasons. We had a lot of money, but even more problems involving the development of infrastructure and social welfare to deal with.

Everything was necessary. Give money here, give money there, give, give, give! And we gave and gave and gave, and we had high inflation. High inflation means high Central Bank refinancing rates. Interest rates were high, and so there were no sources for development and everyone rushed to Western markets to borrow.

And no good came out of this situation, because when the crisis began and sources of Western financing closed to our financial agencies, the vital influx of capital into the manufacturing sector also vanished. The situation required Government intervention.

One of our advantages was our vast reserves, including the gold and currency reserve and the Government reserves. But at any rate, I want to say that all countries have something in common and share problems that cannot be simply forgotten.

Last but not least, I want to say a few words about our prospects for the future. As I have said, oversupply is one of the worst problems in the current global economy. This fact is easy to verify-there are objective studies. A huge commodity stock lies idle in depots. These commodities cannot find the consumers. It will take time to sell them.

The entire stock will surely be sold in time, though it is hard to say how long the sale will take. Then there will be a strong incentive for further growth. This, without a doubt, will happen.

Without a doubt the world economy will grow. That is certain, though future growth rates are uncertain, as is the time when growth will resume. The same is true of raw material prices, including those for vital, present-day Russian exports such as hydrocarbons, oil and gas, petrochemical products, chemical goods and metals.

It is hard to predict future prices and how long future prices will be stable. Some people think improvement will never come. They are wrong-just look at reports on fluctuations in world prices over long periods of time. Such fluctuations have been monitored for many decades, and their findings are perfectly explicit, although it might be hard to apply current factors to trends in the world raw material markets. The picture is extremely unclear.

However, one of the duties of the Russian Government, just as of other governments, is to make such predictions, and so we are making them. Our predictions are conservative, but we are sure things will in fact be much better than what we predict.

Thank you.

Rair Simonyan: Thank you, Mr Putin.

Another issue mentioned here, which you have discussed in your address, is how to make Russia attractive to domestic and foreign investors. As you know, the speakers here are rather optimistic on this issue. First, the world has sizeable liquidity standing idle while the markets are closed. As Mr Mack has said, $5 trillion is in piggy banks in the United States alone. Other countries also have money. Where will this money go? Participants in this meeting think Russia possesses unique opportunities to attract investment because it combines vast mineral resources with high engineering and scientific potential, an educated population, and other factors.

It was very interesting to listen to Mr Immelt in this respect. He spoke about the industries you also mentioned-nuclear energy and clean, energy-saving technologies. That is what General Electric is eager to invest in Russia and bring its own technologies here.

There is another interesting point. Mr Michael Calvey, who is among the participants, is a managing partner of Baring Vostok Capital Partners. It is quite a small fund that has been investing in minor companies for 16 years. These companies are interested in new technologies rather than resources. There is a history of investment from overseas not only utilising foreign technologies but also supporting the development of high-tech companies in Russia. There are good prospects in this field. The whole matter depends only on our willingness to accept investment.

Much has been done to improve the investment climate, as you have said. Mr Dennis Nally, who is also among the participants, is chairman of PricewaterhouseCoopers, which has been operating in Russia since the early 1990s. His personnel have experienced the change in the quality of corporate management and transparency in accounting in Russia firsthand. Now, I want to ask him a question.

Mr Nally, will you say a few words on what, to your mind, have been the most important changes in Russian companies?

Dennis Nally: PricewaterhouseCoopers has been a notable presence in Russia for more than 20 years. I think Russian business really has changed significantly within that time. When I look back, I pay attention mainly to 200 leading Russian companies. The number of comparatively small companies in that list has grown spectacularly-approximately tenfold. Corporate development is an essential factor.

Second, the transparency of companies working in Russia has increased. More than a half of the leading 400 companies use international financial accounting standards in compliance with the global system. Progress in this field continues. Companies have become much more open. More explicit information about their achievements is available. This is also a vital factor for growth.

Last but not least, I want to mention the mergers and acquisitions of recent years, by Russian companies in particular. These companies have become major figures in business. The acquisition of Opel has been mentioned in this context. A part of this-namely, multinational activities-makes such companies highly promising.

So when I look at recent changes, I can say they are essential for the reputation of companies working in Russia. We of PricewaterhouseCoopers think the trends will persist. Thank you.

Rair Simonyan: I want to ask participants in this meeting a question in the context of what Mr Nally has said about Russian companies developing into global enterprises.

When we mention investment, we mean investment in the Russian economy. To what extent, do you think, can the acquisition of overseas companies become a new engine for Russian economic development? That is what Ms Elvira Nabiullina and Mr Vladimir Putin have said; that Russia needs a new type of development-it needs modernisation. To what extent might such occasional acquisitions abroad promote qualitative changes in the Russian economy? Mr Mack, what do you think?

John Mack: If we look at the costs of American and European companies, I think the crisis has diminished their capitalisation-by 80% in some companies. This offers real investment opportunities, but nationalism sometimes comes into play. When a group of countries starts buying up classic companies in the United States and Europe, I would expect a response. Much depends on how acquisitions are made. The investor should be a partner in a joint venture, in which skills are acquired. Technological companies can come to Russia and to the developing markets. Everything depends on how the process is carried out. Mr Immelt mentioned successful instances in the Middle East when companies were established to make investments and train personnel in financial services. So, much depends on the practical approach of particular companies in a particular country.

To my mind, Russia and other countries should think of how to use their extra money-in particular, by acquiring companies in the developed world-not only to bring technologies to Russia but also for Russian companies and executives to work abroad in such companies.

Rair Simonyan: Please add something more. (To Jeffrey Immelt) You have ample experience with the Russian engineers and Russian scientific and technological potential. What benefits can this intellectual potential create for Russia in the future?

Jeffrey Immelt: We have worked for many years in the Moscow aviation industry with about a thousand engineers-excellent, intelligent people. Highly competitive and productive.

I should say companies such as General Electric have two options for investment in Russia. For instance, Russian health services have no major manufacturers of cutting-edge medical equipment that would improve health care. So there are ample opportunities here.

We also think it expedient to establish partnerships in Russian strategic industries such as energy, transportation, and aviation, and to work with leading companies. A company such as General Electric might be very successful in this field.

The Russian Prime Minister has called for the creation a new Russian economy that would not depend entirely on natural resources. This means the world can join in the process. General Electric does not need to start from scratch. On the contrary, it should work in partnership with established manufacturers and global companies.

Rair Simonyan: Thank you. Mr Calvey, your company invests in cutting-edge technologies. What comparative benefits of Russian companies do you see?

Michael Calvey, managing Partner of Baring Vostok Capital Partners: First, we think that Russian personnel and human resources are among the best in the world, provided they have the right incentives and management.

Second, I think Russia possesses a vast potential. We should not forget that services and consumer-oriented industries began developing in Russia a mere 10 years ago. Though 2009 is a hard year, we are sure these industries will develop much more rapidly in Russia than in other countries over the next 5, 10 or 20 years.

Rair Simonyan: Thank you.

Mr Gref, you possess such a large amount of stock of many different companies that, I think, you know the problems and prospects of technological restructuring of Russian companies inside out. One of the principal questions you have asked is about changing the Russian economic paradigm. I think this is a crucial matter. Based on your experience, what we can expect? What can foreign investors do?

German Gref: I do not think Russia has any alternative, because it is too early to speak of an innovation stage in its economic development. We can speak about the modernisation stage because the Russian economy has vast potential for productivity. It will be successful if it implements the latest technologies developed by multinational companies. Borrowed technologies would help Russia make a significant progress in its economic development. Mr Calvey's short address touched me to the bottom of my heart. I fully agree with him.

We have excellent human resources. They can perform excellently when they have the right incentives and good management. There is not a single word to add. That is correct. We should borrow the best executive know-how to set up incentives correctly in companies for the best possible performance. That will be a step forward in productivity.

Russia lacks a strong, competitive environment. The innovation era can start only after the modernisation period is over and a strong competitive environment emerges. Only then will we offer the market new products it does not yet have.

We are not modernised enough now. I think it is to Russia's benefit to attract investments. We are trading in our market. How well can we trade in it?

America and Europe do not have such a vast potential for sales. General Electric has every opportunity to realise this now. America and Europe have no opportunities for the sort of increase in consumer consumption that is possible in Russia, China or India. When companies come to Russia, they increase their chance for success spectacularly.

If companies set lower prices than the United States for their products, they acquire a market due to Russian localisation. In fact, one such global corporation can seize the entire market. The question is how we should attract investors to locate all their production here, and how we should exchange the latest technologies, personnel training and cutting-edge managerial know-how for our market opportunities.

Have our companies embarked on this road? Two days ago, I met with the world's leading car manufacturers. One of them asked me: "Do you happen to know such-and-such a businessman in Russia?" I said yes. Then our client asked me to arrange a meeting for him with that man, because his company could not reach an understanding with him, however hard it tried. I know the man-he is not part of the automotive industry, so I said: "What is your business with him?" to which he replied: "He owns one of the three largest accumulator battery production companies. We are offering a lucrative deal, but his company will not agree to it, although we could become technological leaders together." The company in question is based in the United States.

I had never thought a Russian could have such a prosperous innovative business in America. The process should be reciprocal, and deserves promotion. Such investments in and from Russia are crucially important today.

Rair Simonyan: Mr Gref, I want to ask you more questions in the light of what you had said before Mr Putin came to the meeting, and about some statistics. Russia had one of the world's highest growth rates in recent years. Its companies had practically unlimited access to investment within the country, and even greater access to debt instruments and joint stock abroad.

Now, many sources of financing have dried up-we do not know whether for a short time or forever. What are the prospects for the Russian economy getting out of the crisis and increasing growth rates? What part can direct investments play in connection with the limited financing for development? If I am not mistaken, the relative role of direct investment as sources of financing has become much more prominent. Am I right?

German Gref: Thank you for your question. It is a good question because long-term, cheap money is the key problem. Such money mainly comes from pension funds and insurance companies' available assets.

Here, again, we turn to the problem of overseas sources for financing. We can only regret that the amount of financing from these sources is still small in Russia. However, it increases by approximately $1.5 billion each year through pension accumulations. Now the Government has launched a new programme of voluntary pension insurance. I have read a report by the head of the Pension Fund with the utmost attention. He is very optimistic because many people are involved in such insurance. This is very important-in particular, as a source of long-term domestic investment money.

Domestic money matters so much because it does not require currency risks. Just remember the drama in the Russian finance sector and in many Russian manufacturing companies during the great recession of last autumn! Businesspeople were in panic due to the huge currency risks. This is what makes hedging risk sо important, and why it is essential to have domestic capital sources in the currency used for investment.

There is another major source of long-term money: direct investment by major investors-in particular, those who are here now. This is also crucially important for stability, even during an economic crisis.

I am an optimist on this issue. True, we will have a shortage of direct long-term investments for the next year or two-but if we do well these two next years, I think Russia will have sufficient sources of investment. I am ready to prove that we need significant changes and to modernise our economic and financial behaviour so as to replace foreign investments with domestic ones, and thus avoid currency risks and the macroeconomic hazards of other countries that our investors assume.

Vladimir Putin: Allow me to make a contribution, please. I agree with what Mr Gref has said. He has mentioned two sources of long-term money-insurance and pension funds. There is another one, however. I think it is the principal source. I mean private bank deposits.

To make these deposits a sustainable reserve, Russia needs low inflation and complete economic stability, supported by growing reserves in banks and controlled by the state, by the Government and the Central Bank. When we have all that and more, we will truly have sources of domestic funding for our economic progress.

By the way, the drastic decrease in overseas financing was due not to Russian economic problems but to the shortage of liquidity in the Western economy. Now that many Western economies are coping with the crisis and foreign markets have been reopened to Russian borrowers, Mr Gref and other leaders of our financial agencies should clearly see that they are competing on a global level, and they should offer competitive goods for competitive prices.

As long as they fail to do so, their clients will pay their debts as soon as possible and go to other financiers, who will offer better terms at less interest. The Government intends to reduce our banking interest rates to 6% or so in the years to come. At any rate, I truly want to do so.

Now I would like to say a few words about our cooperation with foreign partners. Mr John Mack has said that when Russian companies acquire assets abroad, so-called nationalism occasionally comes into play. I should call it national economic egotism, and even an economic policy.

Our investors truly face such problems from time to time. I am sure this is part of the aftermath of the Cold War. Neither we nor our partners in Europe and the United States are entirely free from it. But that will pass with time. The more we work together and make reciprocal investments, the sooner it will vanish.

I hope that our American guests, representatives of large businesses, will do all they can to bring the end of this dire heritage closer and not to impede the development of cooperation.

We all remember the notorious COCOM lists, which limited the transfer of technologies to the Soviet Union. Though these lists have been formally abolished, a major part of them survives in the decisions of the Department of State, which impedes Russian partnerships, mainly with the United States. It is detrimental to American companies too, because it impedes business with Russia, thwarts the most effective production, and renders American business less competitive in world markets.

However, the latest decision of President Barack Obama, which shelves plans for a third missile defence shield in Europe, makes us hopeful. This is a brave and correct decision. I expect other decisions to follow-in particular, completely repealing the limitations on cooperation with Russia and transferring advanced technologies to Russia. I also expect increased lobbying to include Russia, Belarus and Kazakhstan in the World Trade Organisation.

Rair Simonyan: Thank you, Mr Putin.

Mr Bonderman, yours is one of the largest direct investment funds, with investments in more than 40 countries. So you can judge the economic benefit of long-term money. We need this information due to a drain of short-term money due to the crisis, which has exacerbated the problems of Russian borrowers and the entire Russian economy.

What is the difference between your money and short-term money, and what do you think should we do to attract more of it to the Russian economy? And another question, please: is investment in Russia different from investment in the other BRIC countries-Brazil, India and China? Everyone who wishes is also welcome to speak up on this issue, if we have enough time.

David Bonderman: This is not one single question, but three or four in one! Let me try to answer at least one. As Mr Putin has said, market money comes and goes overnight. This is technically possible. As for our money, it aims to build companies. It is strategic, long-term money.

Our own investment is not directly connected with the crisis. It is more long term, which has allowed it to stay in the economy. We are establishing companies as we have done, and we will continue to do so. Russia has its advantages and disadvantages, as do all the BRIC countries, which differ from each other greatly. Russia has a good, educated workforce dedicated to making technological progress. This is its evident advantage.

Transparency will certainly increase in your country someday. Meanwhile, it is a problem. We are aware of it, as is your Government, which, as far as we know, is working on the problem.

To tell the truth, your country still lags behind China in this area, at least for now. This will be another advantage for Russia when it makes necessary improvements. Mr Putin and Mr Gref have mentioned the Magna-Sberbank Opel deal here. Everyone knows why it was so hard to have it approved-because of the doubt whether the three were capable of a mutually beneficial partnership, and whether they could arrange such partnership properly. Questions might also arise over intellectual property rights. These problems needed settlement, and they have been mostly settled. So the deal has been made. But it will be a test, the first of its example of the principle we have referred to.

What should be done for Russian investments to go abroad and the other way round? First of all, the Russian automotive industry needs a revolutionary change. At the same time, Magna and General Motors need their chance. Meanwhile, their representation is too small to find their bearings in Russia quickly enough to make their partnership mutually profitable.

As I see it, everyone should work well for a long time due to the current situation. If this partnership is a failure, it will cause a backlash against international cooperation, and such cooperation is very important. We all understand this. I thank Mr Gref for his personal efforts to arrange the deal on which we are all placing great hope.

Rair Simonyan: Thank you. I address my next question to Mr Igor Komarov. Do you regard the growth of foreign manufacturing companies in Russia as a threat? Or are you neutral towards it? Or do you have another opinion of it? AvtoVAZ is in a critical state and must be rescued. What remedies for it do you see? If any of the participants in this meeting want to say something on this issue, I would like to know whether the support for domestic manufacturers and the influx of foreign investments are mutually complementary measures, or if they clash with each other.

Igor Komarov, AvtoVAZ CEO: I think that protecting our interests should be based on our general economic goals. As I see it, protectionism should be kept to a minimum in industries related to innovation and technical development. However it might hurt our pride, we have to give up the stereotypes and join the circle of technologically developed manufacturers.

That is why we approve the deal. We are involved in it, in some way or another, because we have joint production with General Motors. We are eager to see Magna, one of the largest and most technologically advanced manufacturers of automobile manufacturers, in the Russian market.

We also hope the transaction will give us access to Opel technologies, innovations and production facilities. Russian auto manufacturers only win from this. The entire Russian automotive industry will gain.

We should certainly adjust production to implement the latest technologies. There is no other way for the automotive industry to develop. We are working at this actively with Renault and Nissan, our strategic partners.

Rair Simonyan: Thank you. So you are not afraid of competition, I see? Mr Putin has said that is the only way. He is absolutely right. The economy needs competitive markets to develop-otherwise, there is no market economy.

Igor Komarov: Life is tough, and it imposes its rules on us, whether we are afraid of it or not. If Russia is to have an economy open to new technologies, we should see that such technologies are made international now.

As for protectionism, I think it is mainly relevant for small and medium-size companies, which are the basis of social development. High-tech sectors do not need protectionism unless there are explicit goals and deadlines. Thank you.

Rair Simonyan: Thank you. Let us go back to the five questions I asked David Bonderman. One was about the difference between investing in Russia and in the other BRIC countries as far as effectiveness. Does anyone want to add something? Mr Immelt, is it easier or more difficult to work in Russia than in other countries, and why?

Jeffrey Immelt: There is a world of difference between them. Brazil, for one, has privatised its market entirely. It is a private market, though there are some government companies. Anyway, most enterprises are private.

I should say that General Motors would like to work in Russia on the basis of the idea Mr Gref has presented-using the domestic market, with its versatility, as the starting point to establish a modern, high-tech economy.

That is the way China has used its market to promote investments and become globally competitive.

So I think Russia should concentrate on two sectors-energy, in the broad sense, and transport. These are essential sectors with vast resources and potential. Russia might become the world leader in gas, turbine and some other technologies, which it can export.

Russia has all the necessary conditions to export, let say, cutting-edge diesel locomotives and related technologies. There is an opportunity to transform your market into an export-oriented one based on advanced technologies.

Mr Gref has expressed the same idea better than I have. That is how I regard Russia as the CEO of General Motors. We can export what we learn in our own country. Let us make this the basis of our partnership.

Vladimir Putin: If you will allow me to, I would also like to say a few words.

The benefits investors see in Brazil and China have been mentioned here. I fully agree.

I see stability as one of China's main advantages. China has both political and economic stability. It possesses vast reserves, and its financial authorities can afford to make the correct decisions with no consideration for their political results. I think I can say that out loud. Some like it and some do not, but it is an evident advantage for investment.

China sets limits too-in particular, of the outflow of currency. As for Russia, it has not only problems but also advantages, including its financial liberalism.

The global, and therefore Russian, financial situation became clear to everyone at the end of last year and the beginning of this one. Professionals saw the national currency rate had to be changed.

The change was gradual, as I had promised in my public addresses. We did it for political reasons-I see no point in concealing this. We meant to give the nation breathing space to take stock of the situation and decide in what currency to preserve private savings.

Market experts, however, saw the optimum rate. Big financiers-mainly foreign-used the situation to take hold of our market and take away capital. Russian bankers and some other market investors did the same.

It would be natural for the Russian Government to respond by limiting the currency turnover. Please keep in mind that we deliberately lost more than $100 billion-a sizeable part of Russian gold and currency reserves. We did it to demonstrate to all engaged in the market that Russia would never go back to regulation, but would retain its liberal market economy. All investors with interests in the Russian market should realise that we will preserve our liberal system for everyone-a system I regard as one of the fundamentals of full-fledged investment in the Russian economy.

Rair Simonyan: That was a very optimistic statement. Thank you, Mr Putin. I do not want to return to the following topic, but a question has come from the audience. I shall explain it.

There are leaders of some of the largest companies in the world in this audience, and Mr John Carlson among them. He risks his bonus year in, year out as BRIC debt portfolio manager. He manages $10 billion worth of assets, and he has to decide every day whether to invest in China, Brazil or Russia.

Mr Carlson, you do not receive your bonuses from us, so you can tell us what your decisions are based on. Please compare the regions in a few words from the point of investment opportunities and advantages.

John Carlson, portfolio manager and emerging market group leader, Fidelity Investments: Whenever we invest, we do so based on very serious research. Overall, we tend towards long-term investments. We invest in global funds in approximately 80 countries.

My strategy is to search for corporate investments and funds in these developing countries. I seek mainly established companies, market leaders with small credit leveraging. Such companies are already quite numerous in Russia. We also want management to cooperate with us as investors. We want transparent management that will share plans with us.

In this sense, too, Russia looks rather attractive as compared to the other BRIC countries. The three principal countries I do business in are Korea, Brazil and Russia. There are two Russian industries that work well with the investor community: the steel industry and communications. There is another great benefit for multinational investors, by which I mean the resolute action taken by the Russian Government during the crisis to provide credit to its corporations.

So we have no reason to quit Russia. On the contrary, we increased our involvement when others panicked. This is good news.

As investors, we would like to see more world-class companies in Russia. You have some in steel manufacturing. We would also like Russia to make greater progress in bankruptcy settlement. That's about all.

Rair Simonyan: Thank you. Does anyone want to add something on the special features of Russia as far as investment and politics are concerned?

Vladimir Putin: Mr Carlson said something very good: "When everyone panicked, keeping in mind the developed foundations of the Russian economy, we calmly stayed." Somehow this phrase went unnoticed. I think Mr Carlson deserves applause.

Rair Simonyan: Mr Putin, I had to interrupt Governor Alexander Tkachev when you appeared.

I have heard from many representatives of foreign companies that Krasnodar and its region are very attractive for investment. Many leading brands are represented in Krasnodar. I have never been there, but many say that it gives the impression of a western European city. What is the secret of its success? What are you doing to attract Russian and western investors?

Vladimir Putin: The western European climate is less friendly than here, but everything else is quite similar.

Alexander Tkachev: Thank you, Mr Putin. However, I do not think that we owe the investments and economic progress merely to our climate. Our economic growth was 9% last year. It would be an understatement to call it simply "success".

Several thousand joint ventures from 70 countries are established in the region, and that number grows with every passing year. There are major companies known worldwide among them.

Why do they come, you may ask? Why do they trust Krasnodar? I acknowledge that the region was quite different a mere seven years ago, with lower living standards and smaller output.

We began attracting investments eight years ago. That was when we realised the main thing-that budget allocations were not sufficient to develop the economy. What we needed was private and government investment. That was what Mr Putin told us repeatedly.

As I said in my first address to the forum, to attract investors you need to offer them lucrative terms, find a common language with them, be explicit, and guarantee investment safety. I think our region has been successful with all that, and I also think the investors present here can say I am right. Many companies have successful branches in the region, including Knauf, Class, Philip Morris, Bonduelle, FEKAP, Wimm-Bill-Dann, METRO Cash & Carry, Nestle, Radisson and Tetra Pak, to name just a few.

About 40-60% of these companies' capital comes from foreign sources. We prefer the arrangement as the money is invested in Russia. These companies have become our regional investors and contribute honourably to the regional consolidated budget.

Rair Simonyan: Thank you. Mr Putin, while you were absent, I asked forum participants to state any advice or desire they have for the Russian Government. Speak up please-just one piece of advice or request from each person please.

Dennis Nally: I would like to stress the necessity of further enhancing transparency. We expect that there will be criteria for investment in the developing technologies of developing countries. As for technology, the Government has spoken on this issue. We have heard about human capital and the use of human talent. All this opens up great opportunities. Third, investors should be persuaded ...

Rair Simonyan: I have asked for one piece of advice but you have offered three. Which matters most, do you think?

Dennis Nally: Transparency. Thank you.

Rair Simonyan: Mr Calvey, please.

Michael Calvey: Try to deal with traffic jams. It may sound like a joke, but all the most difficult problems for other countries are connected with providing a high a level education and innovation, which Russia has already acquired. Already has, and will have in future.

German Gref: May I say something? I think much advice will be given. I want to say only one thing. The Sberbank Macroeconomic Research Centre has published an interesting study. There is no end to the stories about environmental disasters on the television. It is the first thing you hear when you switch on the television in the morning. Is this just due to the television stations trying to make money or globalisation? Or has the world really changed that much?

There are very interesting figures-more than a half of natural disasters of the last 45 years have occurred within the eight years since 2001. So what the television shows is harsh reality, broadcast not only for commercial purposes. Clean technologies and investment in new energy sources are of vital importance to us.

Rair Simonyan: Mr Immelt, please.

Jeffrey Immelt: We would like to see an acting joint venture with a prominent Russian manufacturing company in a strategic industry. Our company is eager to start such a venture. We also would like multinational investors to enjoy equal terms with Russian investors. These are our requests.

Igor Komarov: If Russian business is to become more attractive, I think it should enhance its effectiveness dramatically. The state should demand it from us and become more flexible with aid and preferences, because companies are hard pressed to deal with their problems single-handedly.

David Bonderman: I think Mr John Mack was right from the perspective of foreign investors. Should they be entitled to equal terms with domestic investors? Should the system treat them similarly?

Alexander Tkachev: The agro-industrial complex is receiving unprecedented government aid. I feel obliged to mention it as the spokesman for the Krasnodar Territory, where many in this audience have interests. Next, we need more infrastructure projects. Then, please look after yourself, Mr Putin. That is my last wish.

Rair Simonyan: Mr Putin, do you want to say something?

Vladimir Putin: I thank all the participants in this forum, first, for attending. It is a token of respect for the forum and, on the part of our foreign partners, for Russia. You are all very busy people. You manage huge companies of global importance, so you have to settle urgent and strategic problems. However, you have chosen Russia and cooperation with it out of all your priorities, and you have come here. We really appreciate it. Thank you from the bottom of my heart.

As our survey has shown, our foreign partners and domestic agencies have no ideas that are out of the ordinary. They focus attention on the environment, the infrastructure and transparency.

I would like to note the latter point in particular. Mr Mack and his colleague said foreign investors should enjoy the same privileges as domestic investors. First, I would like to say we do not discriminate, and foreign investors are entitled to such terms as domestic ones even now.

The devil is in the details, however. I have already mentioned the COCOM lists and their aftermath. There are matters that defy settlement unless settled reciprocally. Let us work together for terms that would guarantee equal, transparent and effective market conditions and arrangement for Russian business abroad, and vice versa.

I wish you health and every success.