RS Main Commitments to make the Russian economy more transparent were announced at the Saint Petersburg Forum

Commitments to make the Russian economy more transparent were announced at the Saint Petersburg Forum

August 2011

It’s impossible to make a country attractive to foreign investors only. On the other hand, when capital is being invested in the nation’s economy at the end of the day, it doesn’t really matter whether it’s foreign or domestic capital

Erasing barriers

The keynote of this year’s St. Petersburg International Economic Forum was markedly different from the last year’s one. Back then the main focus was on presentation of the global strategic idea of creating an international financial center in Moscow. This time the discussion tended to more down-to-earth practical steps that need to be taken on this long road, such as removing border barriers and creating an environment for the private capital to come in. This special report from the St. Petersburg International Economic Forum was prepared for the Russian Survey by the tax observer of the Moscow News Andrei Susarov.

At first sight this year’s St. Petersburg Economic Forum saw an unusually small number of discussions about Russia’s appeal to foreign investors. It appears there is understanding now that trying to attract foreign investments to Russia is a hard nut to crack as long as Russia’s own investors continue fleeing to other markets.

We’re in for some changes

The business environment is going to be changing for all businesses. Thus, in the opinion of the Russian president Dmitry Medvedev, ‘we can become one of the world’s largest and most attractive markets’ if we manage to create a single economic area spanning the three countries of the Customs Union (Belarus, Kazakhstan and Russia) and join the WTO and then the Organization for Economic Cooperation and Development (OECD). At the moment, Russia and Kazakhstan are on the verge of achieving these goals. International integration, according to president Medvedev, will remove some obstacles for foreign investments.

‘Our efforts will be focused on improving the investment and economic climate in the country drastically in order to create high-productivity jobs in all the regions of the country, on achieving real progress in our fight against corruption, on creating a modern police force and other law enforcement agencies, on improving the efficiency of our legal system,’ said Mr. Medvedev in his opening address at the forum. He also promised to repeal many of the existing restrictions on the issuance and circulation of the Russian securities abroad.

The head of state believes that even the fact that the Russian economy has weak and underdeveloped sectors can be viewed by an investor as an opportunity to make good money on modernizing and developing such sectors. ‘Russia must offer investors new opportunities; from growing consumer demand to dozens of infrastructure projects,‘ Medvedev promised.

Even the fact that the Russian economy has weak and underdeveloped sectors can be viewed by an investor as an opportunity to make good money on modernizing and developing such sectors…

Immodest privatisation

Foreign capital is very much needed for modernization of the champions of the Russian economy. Thus, one of the central topics tossed at the St. Petersburg forum was large-scale privatization. Mr. Medvedev is convinced that state capitalism ‘endangers the future of our country’. ‘State doesn’t need that many assets.’ He said the government’s current privatization plans were too modest and demanded that the state gave up ‘controlling and in some cases blocking stakes in many a large company’. ‘I’m sure we will be able to organize modern transparent privatization to attract efficient private investors and raise significant amounts of money for the Russian budget,’ Mr. Medvedev said, thereby immediately laying down the basic rules of the game.

Discussions about the ‘ambitious privatization plans’ began in the fall of 2009 when the First deputy Prime Minister Igor Shuvalov promised investors during his visit to the US that portions of the state owned stakes in Russia’s largest companies, including Rosneft, would be sold to private investors. In June 2010, during last year’s St. Petersburg forum, the audience applauded enthusiastically as right in the hall President Medvedev signed a decree reducing the number of strategic joint stock companies from 208 to 41, and the number of federal unitary companies from 230 to 159. It has to be noticed here, however, that since then the only large-scale privatization deal has been the sale of a 10% stake in VTB for USD 3 billion. ‘We’re not talking about privatization for the sake of privatization, as it was in the nineties, the Vice Prime Minister Shuvalov was quick to assure the business people present immediately after Medvedev’s address. ‘We need to thoroughly prepare every sale, make sure that every privatization deal is totally transparent and get the interest of serious investors. And naturally we’ve got to try and sell them for as much money as possible, even though that is not our main objective,’ the official noted.

Moreover, oftentimes strategic investors actually want the state to hold on to its stakes in their companies, the head of Russian Technologies, Sergei Chemezov told the participants of the forum. For example the management of the Renault-Nissan alliance that has a 25% interest in AVTOVAZ refused to buy the 29% state-owned stake in Russia’s largest car manufacturer, telling the Russian Prime minister Vladimir Putin that they wanted the state to stay in as a guarantor of stability, Chemezov told the audience.

By early August the government had prepared a more ambitious privatization plan to sell assets worth 6 trillion RUB by 2017.

Let everybody in

Russia needs capital, but also it needs to know the latest capital management practices. The first Vice Prime Minister Igor Shuvalov reminded the forum that capital management competencies can only be found among the ‘best experts working for the world’s top financial companies’. The President promised that as a natter of good will Russia is prepared to unilaterally grant long-term visas to all investors and entrepreneurs who have a ‘significant business in Russia’.

The Chief Executive Director of the Association of European Business (AEB) in Russia Frank Shauff was fast to present the Russian authorities with a long list of other measures that could significantly simplify the work of foreign specialists in our country. He would like for not only the Russian companies to be able to recruit highly skilled professionals*, but for representative offices of foreign companies to be able to do that as well. The business community are also concerned about the fact that a foreign national who makes the required minimal annual compensation of RUB 2 million by working for several companies simultaneously may be stripped of the status of a highly skilled professional. It is often the case that one person heads several companies. Mr. Shauff also suggested that foreign nationals should be registered with the immigration authorities automatically upon arrival or via online systems instead of having to be issued immigration cards.

The head of the AEB strongly opposed the ban on the use of outside personnel. This amendment to the Labor Code is currently being discussed by the State Duma. Mr. Shauff believes that if the amendment in question were to be passed, a large number of foreign nationals, Germans, French, Scandinavians would be cut off their countries’ social security systems, and in particular from their pension plans.’ Naturally they wouldn’t want to work in Russia on such terms.

This July, the Federal Immigration Service submitted a draft concept of Russia’s immigration policy to the Government, under which it was suggested that temporary residence should no longer be used for controlling migration. All immigrants are to be issued permanent residence permits straight away, while foreign business people who’ve invested in the Russian economy will have the option to get Russian citizenship in a new much simplified manner.

For more on the status of a ‘highly skilled professional’ see section “Our opinion”, articles “Hospitality” of Russian taxes” & “The number of highly skilled foreign nationals in Russia will go up…”

Andrei Susarov,
Tax columnist for the Moscow news
Exclusively for Russian Survey RS