"International Economic Cooperation with the Regions of Modern Russia (by examples of Western Urals)"
The Speech of Andrei Klimov, the deputy of The State Duma (Russian Parliament), Chairman of the Parliament group for cooperation with Benelux countries, Brussels, 18.11.04
Mister Chairman! Ladies and Gentlemen!
I am honored to be here with you. Thank you for inviting me.
Precisely 69 year ago, in autumn 1935 Soviet Russia signed the Trade Convention with Belgium-Luxemburg Economic Union. Last year the trade turnover between our countries reached 3.6 billion euros.
I hope the organizers of this Forum from Benelux - Luxemburg chamber of Commerce mind that the next year we shall have a good opportunity to celebrate 70-th anniversary of our direct commercial affairs. And it"s better to mark such an event not only by words, but by new fruitful deals.
Before I was elected the Duma deputy I had been teaching economics for nearly ten years in one of the Russian universities. So, I fully realize this simple reality - much as politicians call on businessmen to develop economic relations with any area in the world, their calls will be left unanswered unless such relations are of interest to businessmen.
The best case if one can say: Ladies and gentlemen, pay attention to this region. It is full of all kind of cheapest resources. It has perfect infrastructure. The business here is safe, free of taxies, stable and much profitable than anywhere in the Globe. But unfortunately such promising cocktail of conditions may be some where in Paradise than in our material world.
In this world the competition in the sphere of international trade and investments is extremely keen. Therefore every potential partner has to be fully confident that he will gain but not lose by choosing Russia for his business.
This is clearly understood in Russian corridors of power.
My being here is an evidence of it.
This spring I was elected the chairman of the Parliament group for cooperation with Benelux countries. Similar groups were set up to promote cooperation with many other states of the world. One of our aims is to clarify the essence of laws passed by the Russian parliament and to analyze their influence on international relations and external economic relations of Russia.
Another important aim is to get the feedbacks from our potential foreign partners which would help us to improve Russian legislation for the benefit of mutual cooperation.
I have been a member of the State Duma Committee for the Federation Affairs and Regional Policy for 5 years already. This is a leading committee for development of our country"s regions. Together with the Ministry of Finance, the Ministry for Economic Development and Trade and the recently restored Ministry for Regional Development we discuss complex programs of development of all Russian"s regions.
One of foreign diplomats from Europe after being in Moscow for more than three years told that his flight to the Russian Far East was the most impressive event of his life in my country.
Eight hours of non stop flight inside one state better than any books, maps and lectors showed him that:
Firstly - Russia is really the biggest in the Globe;
Secondly - it is so different and potentially rich;
Thirdly - Russia is not only Moscow city and Moscow is not all the Russian Federation.
He was right. Except Moscow and S. Petersburg we have over 1000 cities, 21 republics, about 2000 different kind of districts.
90 percent of Russians live out of Moscow and St. Petersburg. 9/10 of Gross Domestic Product (GDP) is produced in the Russian province. But during Soviet period most of this land was close for foreigners and they had make business only via Moscow"s offices of state external trade organizations.
By the way in my native Perm city with 1 million inhabitance, universities, well known theaters and huge industry we saw first foreigners in 1988 only.
Mostly because of this, people from abroad still prefer to make business in our capital. But situation is changing now. At the end of 80-th 9/10 of international business activities were in Moscow - now it is about 1/4.
On the base of my own 50 years experience of living in Russia I also have a good reason to say this: with all my respect to the first-rate administrative and economic centers of my country, it would be a great mistake to limit business relations to relations with those cities.
More so in many cases those business people, who turn their business to cooperate with Russian provinces directly, are more profitable, take less risk and save time and money.
I am afraid that some of you have learned from personal experience that Moscow is considered to be one of the most expensive cities in the world. Moreover the bureaucracy in the Russian capital perhaps is the largest in our country.
Time waisted in Moscow traffic jams would let you have more than one serious business meetings in my native city Perm.
Hope by now I warmed you to my report about special features of running business in the Russian province.
As I see it these peculiarities have been changing for better year by year.
Some 14 year ago, Boris Eltsin offered Russian regions a chance to grab as much sovereignty as they could "swallow", so to say. This stimulated the local authorities for active forming their own and closed legal, administrative and economic systems. It was carried extremes when some territories were just ready proclaim their independence and to introduce their own currency and customs.
When new President Vladimir Putin came to power, these tendencies, dangerous for country"s unity, were blocked. During the first years in office Putin and his team succeeded to bring all local laws to conformity with the Constitution of the Russian Federation, adopted in December, 1993 referendum.
Now I would like to quote One of economic related articles of the Russian Constitution:
(Article 8) "In the Russian Federation the integrity of economic space, free flow of goods, services and financial resources, support of competition, and freedom of economic activity shall be guaranteed.
In the Russian Federation private, State, municipal and other forms of property shall be recognized and shall be protected on an equal basis".
By the way, the change of the election system for regional governors and State Duma deputies, offered by President Putin on the 13th of September (2004), would also allow to guarantee the constitutional principle of "integrity of economic space" more efficiently.
Furthermore, the election of Russian governors by local legislative assemblies on the basis of nominations submitted by the President of the Russian Federation, permits to realize one more significant article (Article 77) of our Constitution, which runs that
"within the limits of the jurisdiction and powers of Russian Federation on issues under the joint jurisdiction of the Russian Federation and the constituent entities of Russian Federation federal executive government bodies of the constituent entities of the Russian Federation shall form a unified system of executive authority in the Russian Federation".
Simply speaking, the unity of the state executive authority from federal to regional level shall be ensured - as settled in the Russian Constitution. This is what we usually call "the vertical line of executive authority". This innovation reinforces such important administrative principle as "check and balance" as well.
It enables unified approach to all participants of the economic process regardless of a place: be it in Moscow, Chukotka or in the Urals, in my native Perm city.
Federal ministries are called on to ensure the unity of economic policy all over the country. New administrative reform, launched by Vladimir Putin this spring, has allowed to amalgamate Russian ministries, to divide more precisely their obligations and responsibilities and to release them from the functions, which are not appropriate for state government bodies.
The Parliament and the Government take gradual measures to make business in Russia civilized. For that bureaucratic barriers are decreased, and western standards for banking, insurance and audit are introduced.
The Russian Prime Minister Mikhail Fradkov said: "All our reforms shall be aimed to form convenient investment climate in the country. A year ago he was in charge of the Russian mission here in Brussels. So, I hope that you have presented him the best samples of the "convenient investment climate".
Times of strange so to say "new Russians" in bright jackets, with sacks of dollars, doubtful background and adventure"s offers have stayed in the past.
For the first time within 75 years people in my country prefer to keep voluntary their own money in our national currency - ruble and not under the pillows but at their banking accounts in national banks because it is safe and very profitable now.
You have to mind that my compatriots during Brejnev"s stagnation, Gorbachov"s "perestroika" and Elzin"s "shock therapy" got out of the habit to trust their own government. So if millions of Russian skeptics start to change their personal savings from international hard currency to rubles it means that we are really on the way to stability.
For the purpose of better attention to the problems of Russian province, Ministry of Regional Development was restored two months ago. Its main aim is to assist the regions in framing and realizing complex programs of social and economic development and if necessary to render direct state support including federal budgeting of important individual projects.
The modern business infrastructure is established in all major parts of Russia.
The laws passed by the Russian parliament allow dividing the responsibility and the powers among the federal center, Russian regions and municipalities.
By the way, the Russian Federation shall have jurisdiction over establishment of the basic legal principles for the unified market; financial, currency, credit and custom regulation; money emission; the basic principles of pricing policy, federal economic services, including federal banks.
Within the joint jurisdiction of the Russian Federation and regions shall be, for example, management of land, use of natural resources, coordination of international and foreign economic relations of Russia"s constituent entities.
Outside the federal limits of authorities our regions shall enjoy full state power.
In particular, regional parliaments pass charters for their territories, laws, based on the Russian constitution and charters of the constitute entities. Regional executive government bodies can issue special edicts and regulations compulsory for the whole constitute entity.
The regions independently elaborate the programs of their social and economic development and determine priories including external economic relations as well.
They can grant discounts and preferences to certain categories of enterprises and organizations, share the financing of various projects in their territories, provide financial guarantees and render any other assistance to those who run programs beneficial for a region.
Thus most Russian regions have passed the foreign investments laws and elaborated the programs of development of external economic relations and of industrial and investment policies in their territories. On the basis of those laws the state guarantees to the participants of investment activity can be provided and the participation of regional government bodies in elaboration, expertise and fulfillment of investment project is regulated.
Concluding my brief review on the institution of public authorities and their role in economy I would like to say some words about local self-government. From the 1st of January next year two levels of local self-government will be introduced. The first is local self-government in villages and small towns. The second one consolidating the first is local self-government in areas (districts) and large towns.
The jurisdiction of local self-government depends on its level. All local government bodies have a right to hold international and external economic activities according to federal laws.
The important instrument of regional policy towards business along with tax remissions and direct regional budgeting is purchase orders of local government bodies for goods and services, which shall be placed on a competitive basis among market participants and shall respond the main goals and objectives of the development strategy of a certain region.
The state and local government bodies accomplish most important tasks of economy development and external relations. Yet they can"t dictate their will to private enterprises, banks, financial and public organizations.
The state, regional authorities and municipality are not responding for the obligations of private companies. Even if they are huge one and well known. Certainly all of business entities shall keep Russian federal and local laws and pay taxies fully and in time, as in all normal countries of the world.
Therefore those who start or expand their business in Russia have to remember that the correct choice of a partner is one of the most important matters.
Therein chambers of commerce take on special significance. Nowadays there is one nearly in every region of Russia. In future the state intends to enhance the role of such self-government businessmen associations in business organization.
Essential assistance in the form of recommendations and consultations, what kind of business and with whom is worth establishing in a region, can be rendered by departments of international and foreign economic relations.
Nearly every constituent entity has such a department now. Your representatives are always welcome for advice to regional departments of the Ministry of Economic Development and Trade.
Regional exhibition centers and fairs can also render assistance in effective search for export, import and investment partners. In most regions they have already got a status of standing bodies.
By the way in Perm such a Fair has existed about 15 years and is one of the biggest among Russian regional fairs. A lot of domestic and foreign companies present their goods and services one the 10000 square metres area during dozens of special exhibitions, conferences, fairs and other forums.
Under the roof of Perm fair were a lot of VIP persons, including Russian"s and foreign ministers, ambassadors, presidents of huge and well known companies.
The representatives of some regions have been now accredited in Russian commercial missions including countries of Benelux.
We are not in surprise now, while observing in Russian province high level systems of mobile communications. One can find a number of well qualified banks and insurance companies all over Russia. Each region tries to have modern hotels, business-centers and convenient transportation networks.
Unfortunately I cannot say that every region in my huge country has the same conditions for international business activities, like Amsterdam, Antwerp or Luxemburg, but it is quite a different province that existed in Russia 10 years ago. And it continues to improve dramatically. In this case I want to thank our reliable foreign partners, like EBRD for their assistance in developing of Russian infrastructure from Kaliningrad in the West up to Kamchatka in the East.
I was born, grew up and was elected twice to the Russian parliament from Perm region. But it is not the only reason of my following examples. I am really sure that it is the good sample of how promising is the Russian province.
The Perm region is located on the western side of the Urals - the Industrial heart of Russia since 17-th century.
West Ural is one of the highly developed and prominent regions in Russia. Among 89 Russian regions Perm Land ranks the 12th in the volume of industrial output and the 14th - in fixed capital expenditures.
Administrative centre: Perm city is located on the banks of Kama river, one of the largest rivers in Europe. The whole region population is about 3 million people.
Total area: 160 thousand square km. For better imagination it is 5 times more than Belgium.
According to the referendum held a year ago the new constituent entity - Perm Kray will be created on the 1st of December 2005 instead of Perm oblast (region) and Komi-Permyatski autonomous okrug. It will be the first case of integration of Russian regions for the last forty years.
In future the process of integration can be applied to more number of regions. For example a month ago the authorities of three Siberian regions declared a will to integrate in a new region (kray) into which rich in mineral resources Taimyr and Evenk autonomous okrugs and industrial Krasnoyarsk kray will enter.
The principle wealth of the Perm kray now is its natural reserves. Oil fields provide 9 million tons of oil plus powerful oil refinery complex. 8 heavy-duty pipelines cross my motherland, and channel oil and gas across Russia and abroad.
Over 1/3-d of the world reserves is concentrated in a unique Verkhnekamsk deposit of sodium, potassium and magnesium chlorides. It gave birth to a prominent mining and chemical complex.
The region manufactures over 700 kinds of chemicals.
It is in Belgium I want to stress that we also have a large diamond deposit. Thanks to it the jewellery industry has blossomed up in Perm now.
Vast timber resources of the Perm area have attributed to the region a status of one of the leading timber industrial and logging depots in Russia. The region supplies 3.0 million cubic m per year.
The Perm region is a vigorous diversified industrial complex constituted of more than 500 large and medium-sized enterprises.
Machine-building is represented by companies oriented at instrument manufacture, machine-tool making, shipbuilding, aircraft industry, electrical engineering, cable industry, aircraft and rocket engines, spaceship control gear and wide range of consumer goods such as saws, excavators, electric and gas stoves, diesel shunting locomotives, bicycles, pumps, electric motors and many other competitive goods.
Over 40% of the electric power generated in the Perm region is cruised to the neighboring regions.
"Actions speak louder than words": The growth of Perm regional industry indicated last years on the level from 5 to 6% (in comparison prices)
The transportation infrastructure rapidly improves. Companies profit and peoples income have significantly increase.
For the period of 1994-2004 the total amount of foreign investments in Perm region is about half billion USD. Over 360 alien-invested companies have been incorporated there. Germany, USA, Italy, Great Britain, China, France and have gained the lead in establishment of joint ventures.
Taking into account the results of said area President Putin appointed in March Perm Governor Uri Trutnev as federal Minister. Now Mr. Trutnev is responsible for Russian Natural Recourses. May be some of you have already contacted him or will do it in the nearest future.
The new Perm Governor Oleg Chirkunov, also appointed by Mr. Putin came from trade business. In early 90-ths he worked in the Russian Trade Mission in Switzerland. Then he was a manager of a large commercial company in the Urals. So Mr. Chirkunov is aware of high standard business rules and European style of commercial life.
Today the Perm region is an active member of international trade is in communication with 130 countries. 420 companies perform foreign trade operations with overseas partners.
The government bodies of Perm oblast signed over 10 interregional agreements with different regions of foreign states. The main goal of the agreements is establishment and expansion of financial, investment, commercial and economic relations.
May be the next shall be with one of Belgium province?
The Perm"s regional inter-department committee for matters of preparation of Russia"s joining to the Worldwide Trade Organization has been established in Perm. Perm oblast"s participation in the "European Region of 2005" competition has been organized.
Along with the European Bank of Reconstruction and Development the Program of solvency increasing of Perm region and the city of Perm is realized.
Last year the foreign trade turnover of the aria arrived at $2.1 billion, with export over $1.8 billion and import $311 million.
10 million of said turnover belonged to import from Belgium. The good news is that it is the 9-th place among importers to Perm region. The bad news for us (my personal opinion), is that it is only 0.3% of Belgium turnover with Russia and that the total turnover of Belgium is 55000 times higher than said amount!
I and my colleges believe that this situation is not forever. As John Galsworthy said "If you do not think about the future, you cannot have one".
We hope very much that today"s forum shall be an important step to more optimistic situation of our affaires, and certainly not only by and between Belgium and the Urals.
For this purpose my colleges prepared more detailed information, which is ready for delivering.
We always ready to pass your additional information, and certainly not about Perm only.
Thank you very much for your attention!
Income tax for a Russian resident is only 13% now.
The maximum V.A.T. rate has been reduced from 20% to 18%.
Income tax for dividends paid to foreign shareholders by Russian enterprises is 15%.
Profit tax for Russian legal entities can"t be more than 24% and for foreign affiliates and representations is 20%.
The maximum rate of assets tax can"t exceed 2,2%, but it can be considerably reduced by local authorities.
Gold and foreign exchange reserves of Russia have exceeded 100 bln. dollars and at present my country takes one of the leading places in the world in that index.
The rate of exchange for major world currencies against the rouble has been stable for some years now.
For the last four years Russia has had stable surplus of federal budget.
Special stabilization funds established at the expense of budget assessments count tens billion of dollars.
Russian Parliament and Government gradually reduce the level of taxation for enterprises and people working in Russia.
Thus, income tax for a Russian resident is only 13% now. The maximum V.A.T. rate has been reduced from 20% to 18%. Income tax for dividends paid to foreign shareholders by Russian enterprises is 15%. Profit tax for Russian legal entities can"t be more than 24% and for foreign affiliates and representations is 20%.