Minister A.R. Belousov to participate in the IVth VTB Capital “Russia Calling!” Investment Forum
During October 2-4, 2012, the IVth “Russia Calling!” Investment Forum organized by VTB Capital took place in Moscow.
Among the speakers at the Forum premier day events were: President of the Russian Federation Vladimir Putin, Minister of Finance of the Russian Federation A.G. Siluanov, Minister for Relations with the Open Government of the Russian Federation M.A. Abyzov, Chairman of the Management Board of JSC VTB Bank A.L. Kostin, First Deputy Chairman of the Central Bank of Russia A.V.Ulyukaev, representatives of federal ministries and agencies, Russian and foreign business circles and the expert community.
It was Minister A.R. Belousov who spoke on behalf of the Ministry of Economic Development of Russia at the Forum plenary session “New Economic Architecture: Unlocking Potential. Honoring Constraints”.
In his speech, A.R. Belousov noted the fact of a "specific economic development model" having taken shape in Russia that had performed well before the crisis, ensuring in 2005-2006 economic growth rates comparable to those of Chinese economy growth. However, the model, according to the Minister, is currently out-of-date, having ceased to generate high growth pace. During 2006-2007, the rates of economic growth in Russia amounted for as much as 7-8% annually which was due to a series of factors no longer effective after the crisis. “Consumption growth accounted for 6% out of the 8% GDP growth, explosive growth in wages being the main factor,” said the Minister.
Another growth factor was the energy sector but in the longer term, as A.R. Belousov noted, “we are entering a period of stable production of energy resources”. According to the Minister, export of oil will decrease with oil output in Russia to stabilize at a level of 510 mln t annually by 2020 since the new deposits in Eastern Siberia are capable to compensate but for withdrawal of depleted ones.
Yet another factor is related to the budget consolidation being carried out: as the Minister said, the federal budget expenses level increased to be 25% of GDP while before the crisis it had approximately amounted to 16%. Today it amounts to 21% of GDP, half of the expenses covered out of oil and gas sources. That is why an overall reduction of expenses by 2 GDP percentage points by 2015 (down to 18.9%) is stipulated in the current draft budget, the oil and gas deficit due to decrease from 10% to 8%. “For that one will have to pay another GDP growth percentage point,” stressed the Minister.
An important source of pre-crisis growth was also inflow of credits from abroad but now, as A.R. Belousov noted, the private external debt already exceeds profit by a factor of 2.5 which means that growth of debt in the private sector will not be a driver any more.
Today, as per the inert development scenario, the rates of Russian economy growth may amount to but 2 percentage points annually. But “the calculations show that, progressing at a rate of 2% annually, we will be simply unable to balance out social obligations to our resource capabilities. This is impossible. That is why the task we are currently facing is to at least double the value and achieve, as a minimum, a 4 percentage points’ growth rate,” stressed A.R. Belousov. In the Minister’s opinion, this is to be done though cutting down capital flight, improving the investment climate, remodeling the trade missions system, supporting and stimulating export (especially –in the non-energy sector) and improving productivity of labor.
Russia lagging 2-3 times behind developed countries in terms of labor productivity increase rates, companies having begun to elaborate plans “focused on labor productivity upgrade” are currently demonstrating that the indicator may be as high as approximately 7% annually. Specifically, the Minister noted that those are mainly companies with a state share. “We can double labor productivity within a single equipment replacement cycle i.e. within 10-12 years,” said the Minister. At the same time, he noted that this is a “matter of economic policy, i.e. of such actions stimulation, since those are actions to be taken by private businesses; this is also a matter of the way we build-in the banks in this model and of the way those become integrated into the process”.
The Minister also touched upon the issue of correlation between labor remuneration and efficiency. In his opinion, increase of wages in the sphere of education, healthcare and science must be inseparable from attestation and evaluation of the provided services quality: “Creation of an attestation system, with a system of requirements to providers of services, is of key relevance. Wages increase ought to be payment for services quality enhancement, this is the most important thing”.
The Minister pointed out that the major task faced by Russia today is usage of the available resources, the main resource being our country’ investment capabilities. As A.R. Belousov noted, Russia is a country displaying a very high gross savings ratio - approximately 30%. However, the Minister communicated that 20% of the savings remain unused with nearly 10% representing capital flight from the country. “Capital flight is a concern,” said the Minister stating he is counting on effect from “roadmaps” (action plans) that are aimed at reduction of administrative barriers in the economy and are currently being finalized through consultations with entrepreneurs. “It is our first post-crisis attempt to improve the investment climate by efforts of the business, not bureaucracy,” stressed the Minister.
The issue of ensuring the required rates of economic growth, according to the Minister, consists in usage of available resources and pursuance of an intelligent economic policy. “Those are the two points we have been (I hope, successfully) trying to formulate and to budget,” said A.R.Belousov.