June 6, 2008,
Konstantin Palace, St Petersburg



It gives me great pleasure to welcome President Dmitry Medvedev to our forum today. This is a special pleasure because I remember very well your concluding remarks at Davos a year-and-a-half ago, when you amazed everyone with your views on Russia’s future and impressed us all with your knowledge of English. Our relations with Russia go back a long way. We first arrived in St Petersburg in 1991 and our hosts then were from the St Petersburg City Hall. As far as I remember, you and Prime Minister Putin were both here when our delegation first arrived, and today we are celebrating our longstanding partnership and friendship. Thank you very much for finding the time in your schedule to meet with us this evening.

I would like to introduce your colleague, Arkady Dvorkovich, who is one of your aides and is also Russia’s Sherpa in the G8. He is playing an important part in preparations for the G8 summit and, before we begin our discussions, I would like to specially thank you and the Minister for your work and for the cooperation between the St Petersburg Economic Forum and the World Economic Forum in Davos. I would like to thank you for this. I have already received a positive first reaction to this cooperation.

Mr President, we have calculated approximately that the people here today, the senior executives of many different companies, represent more than $1 trillion between them. We would like to hear view of the current situation in Russia. I am sure that this will be a productive discussion. Once more, I would like to wish you welcome, Mr President of the Russian Federation.

PRESIDENT OF RUSSIA DMITRY MEDVEDEV: Ladies and gentlemen, colleagues,

Today’s meeting during this Forum’s work is not taking place simply in order to continue tradition. Life and recent events have shown that only this kind of direct dialogue can help us discuss a number of serious issues that are equally important for business and for the authorities in our country and have an overall positive impact on the business and investment climate in Russia.

I would like to begin our discussion by naming five things that I consider important today. You can probably draw my attention to things I may have overlooked, things that you consider important for developing cooperation with Russian companies and with Russia in general.

As you know, and as I already said today, we have set ourselves the not very easy goal of setting Russia on an innovative development track and becoming one of the world’s five biggest economies by 2020. The ability to raise new long-term investment will be a determining factor in our progress towards this goal.

Last year, investment in basic capital increased by more than 21 percent (almost double the figure for 2006). We are consolidating this positive trend and laying the foundations for further economic diversification and, most importantly, for technological modernisation. That is the first point.

Second, we want to bring capital into as wide a range of economic sectors as possible. Most investment in past years has been in Russia’s mining and extraction industries and the transport sector, but now we are also seeing investment in agriculture, machine-building, real estate, timber processing and trade. We think these sectors are all just as important for Russia today as the traditional sectors of mining and extraction and transport.

At the same time, direct foreign investment accounts for a share of around 5 percent of our gross domestic product. Most direct foreign investment is in retail, construction and the commodities sector. We have taken a number of measures to change this situation. Above all, we have acted to put in place a full-fledged legal and regulatory framework defining the conditions for investment development.

This is probably the third important point to note. We have spent quite some time in Russia discussing the preparation of a special law on key strategic areas for investment. Just recently, on April 29, the Federal Law ‘On Procedures for Foreign Investment in Economic Companies of National Strategic Importance’ was passed. This law contains clear and concrete provisions, and this is what foreign investors wanted from us. It covers 42 types of business activities and clearly regulates procedures for investment in these sectors. Investors interested in purchasing a blocking or controlling stake in a company considered strategic must first get government approval. This document, which has now become law, has a lot in common with the procedures set out in a similar law in place in the United States. I specially made a comparison of the two documents and ours is more straightforward. If a particular sector is not on the list in the law then the question does not even arise and investment is carried out absolutely freely without the need for permission of any kind.

Another moment I wanted to draw to your attention, colleagues, is that we are currently drawing up a series of proposals on improving taxation conditions for foreign investors and for investors in general. We want to encourage investment in human capital, in intellect. In particular, we are looking at the possibility of introducing tax exemptions for spending on corporate education, which is very important for our country, and medical insurance – also an important new step.

We also want to introduce a special rule making it possible for businesses to co-finance employees’ mortgage loan interest payments and benefit from a tax exemption for a certain period.

We are aware of the difficulties the mortgage market in a number of big countries is facing at the moment, but we do not intend to abandon this instrument. We simply want to take into account the negative experience the developed economies have gone through lately.

Last but not necessarily least, as a lawyer I know very well that a country’s investment climate is determined not just by the laws themselves and the state of the legislative foundation in place, but by the way the laws are enforced and, above all, by the existence of an effective court system. This is a very important matter for Russia: over these last 15 years we have created a quite modern court system that is radically different to the Soviet system, but we cannot say yet that we are fully satisfied with all of its institutions. Our task is to create absolutely independent and modern courts that measure up to the level of economic development in our country. This is an extremely important objective and this is why one of my first decrees as President was about developing the court system.

We consider it very important to remove administrative barriers and fight corruption, which as you know is unfortunately a serious problem in Russia. We will therefore tackle this issue. We also need to create new opportunities for small and medium businesses.

These are the five points I think are of key importance for developing the economy and attracting investment. Now we have the chance, as I said at the start of my speech, to discuss these and any other matters you wish to raise. Thank you.

QUESTION: Thank you, Mr President. The five points that you mentioned are all things for which we are grateful, especially for what you said regarding the strategic sectors. You anticipated my question. Significant progress has been achieved in this area. For my part, I would like to give this law my firmest support. But of course, in order to be able to prepare for acquisitions or for cooperation with Russian companies, we need to know as soon as possible how predictable this law will be. Once it takes effect, what will be the procedures for resolving disputes? Is there anything more you can tell us about this or about the way the law will be implemented in practice, especially as concerns how promptly and predictably its provisions will be enforced?

DMITRY MEDVEDEV: I am very conscious of the fact that any law, even such a long-awaited law as that on the strategic sectors, cannot solve all the problems that exist today. Being a lawyer by training I always warn my colleagues against having illusions as far as the law is concerned. I remember in the early 1990s when people thought it was enough to pass a law and wake up the next day to find everything going just great, but this was not the case. You are right in that predictability and the way laws will develop and change are very important issues for any civilised legal system and legal order.

I think that we have gained a decent understanding of this issue today. Russia is a country whose legal system is based on continental law, and this brings with it both advantages and disadvantages. One of the advantages is that by passing a number of fundamental laws we have laid the system’s foundation for the future. I think that the legal protection of property rights and the guarantees of contractual obligations that our legal system offers today are completely consistent with world standards and of a similar level to what exists elsewhere in Europe.

We cannot use the precedent-based common law system to protect foreign investment because we have our own legal system, although in the case of foreign investment that comes under the jurisdiction of foreign law this possibility does exist, of course. This can create certain problems because we very often turn to the decisions of courts in countries using the precedent-based common law system. But I say again that in my view our legal system is quite well prepared and offers quite a high level of predictability. Our main task today as I see it is to ensure that the courts enforce all these legal provisions at all stages, from filing lawsuits and examination of cases in the courts to delivering verdicts and ensuring that court decisions are enforced. This is something the state will work on extremely attentively. This is a somewhat more difficult task than laying a developed legal foundation, but I have no doubt that we will achieve results. I hope that within a reasonable number of years we can fully expect that our court system will be just as effective as that of most of the world’s developed countries.

QUESTION: This morning and on earlier occasions you spoke of innovation as one of the ‘I’s that are crucial for Russia’s future social and economic development. Could you say a bit more about Russia’s information strategy as far as information and communications technology is concerned? What part do you want global companies to play in this development?

DMITRY MEDVEDEV: Thank you. I listened very attentively to what you said today. I think that global companies have without any doubt an absolutely fundamental part to play in reaching our ambitious goals of an IT and communications revolution and developing an innovation economy. No matter what the criticism levelled at the big global companies, it is nonetheless they that bear the main responsibility for advancing what we could call the new society.

Every time we switch on a computer (I usually never turn mine off), we look at the screen through different eyes and think our different thoughts (sometimes good and sometimes not so good) about the people who develop the content we see before us. But we realise full well that the new digital world would not exist without it, that without it we could not say today, as one well-known work put it, that ‘the world is flat’. And the world today is indeed flat and we are becoming more conscious of this fact with every passing day. But I think that small and medium companies can also make a contribution. I think they too are entirely capable of this and, what’s more, talented specialists often start out in small companies and go on to become leading experts and sometimes managers in global companies. This is also something we see today. But it is nevertheless the global companies that bear the main responsibility for uniting rather than dividing the digital world of the twenty-first century, and we hope very much for cooperation with these big companies and wish you success in selling your products in the Russian Federation.

I thought it was an interesting speech…..


comments always welcome.