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The New Economic Povestka* (NEP): The What, the How, the Who?
25 May 2018
08:30—10:00
KEY CONCLUSIONS
The Russian economy has stabilized, but growth rates are insufficient

The macroeconomic situation is reasonably stable. Inflation is the lowest it’s ever been in the post-Soviet era – we have never experienced inflation of 2.4%. Unemployment is below 5%, the budget deficit is at around 1.5 percentage points of GDP. At the same time, there is a rule for the budget, whereby all our surplus of petrodollars is put into reserve funds. Government debt is at 15% of GDP, which also indicates that we can used the resources we have garnered to meet set objectives — Herman Gref, Chief Executive Officer, Chairman of the Executive Board, Sberbank.

Our prospects are rated very modestly. In particular, the IMF’s GDP forecast for the next six years is 1.7–1.5 percentage points. Virtually all independent experts conclude that potential growth rates will be low – around 1.5–2% (the most optimistic forecasts state 2.5%) — Herman Gref, Chief Executive Officer, Chairman of the Executive Board, Sberbank.

Accelerating economic growth is the main objective for the coming years, alongside social policy goals

The aims set out by the President address two categories. Social policy aims include halving poverty and improving living conditions for at least 5 million people each year. These aims are undoubtedly achievable. <...>The second set of aims are connected with economic development and accelerating growth. Here I see serious problems. <...> There are constraints of an internal and external nature. Given the demographic situation, we have entered into a long period whereby the working population is in decline. This will manifest itself as soon as we achieve economic growth of 2–2.2%. <...> External constraints include the current sanctions, unpredictable prices for oil and other resources — Evsey Gurvich, Head of Economic Expert Group, member of the Economic Council under the President of the Russian Federation.

The most complex task is achieving the specified economic growth rates. If we achieve this aim, then the wellbeing of the population will increase, too. This is the Government’s main objective. In the past, economic growth rates in Russia were inextricably linked to energy resource prices. We have now created a foundation which is less dependent on oil prices — Anton Siluanov, First Deputy Prime Minister of the Russian Federation .

We have a market economy, not a planned economy. <...> The extent to which our banking system will operate effectively, and the level of quality at which Sberbank will operate depends largely on whether we achieve economic growth or not. That is the market economy. The role of the state is to create the conditions for the banking system to develop, so that existing segments of the economy grow, and new ones appear — Maxim Oreshkin, Minister of Economic Development of the Russian Federation.

ISSUES
A predominant state sector and low level of competition

Experts have identified the very high proportion of state-owned companies in the economy and low level of competition as the two key areas impeding the rapid development of our economy — Herman Gref, Chief Executive Officer, Chairman of the Executive Board, Sberbank.

Competition. I have yet to hear any bold statements from the Government in this regard, other than providing support to small and medium-sized enterprises. I know how restrained the Government’s positions are in terms of reducing the proportion of [state-owned] companies in the economy. In the last year or two, there have been steps taken to increase the government’s share in the economy, including through the acquisition of major companies — Alexey Kudrin, Chairman of the Board, Centre for Strategic Research Foundation.

The low quality of state governance

The quality of state governance is not up to the challenges we are talking about. The speed of decision making is horrendous, the quality is horrendous, and regulatory practice is excessive. We need to cut the administrative burden experienced by businesses with regard to inspections and regulation by around half. That would place it roughly at the level of OECD countries — Alexey Kudrin, Chairman of the Board, Centre for Strategic Research Foundation.

The two main ills are complete inefficiency and complete lack of responsibility. By adding money to any inefficient system, we are merely doing one thing – proving the opportunity to steal it more efficiently — Andrey Makarov, Chairman of the Committee on Budget and Taxes, The State Duma of the Federal Assembly of the Russian Federation.

The agrarian, urban planning, financial, budgetary, and legislative sectors are already regulated to the point that there is total order. Total order is incredibly close to total disorder. That means that any action which is regulated to the highest degree is virtually impossible to implement — Sergey Sobyanin, Mayor of Moscow.

SOLUTIONS
A focus on innovation

Technology is a key driver. Today, the entire country is battling it out for a piece of the pie in the new digital GDP — Herman Gref, Chief Executive Officer, Chairman of the Executive Board, Sberbank.

The development strategy is well understood – it encompasses modernization and a technological revolution based on the new technological wave, which will grow at 30% per year. It is a dynamic catch‑up initiative in areas where we are close to leading the way (for example, in aviation, where manufacturing could be increased several fold). It is processing resources more deeply, increasing added value several times over, and ensuring that we catch up in the development of assembly lines in sectors where we have been lagging behind — Sergei Glazyev, Adviser to the President of the Russian Federation.

The innovative power is driven by universities and by the fact that the business sector can take up this innovative power and translate it into productivity. An important issue is the strong relationship between universities and the private sector. From my point of view, the most decisive point is this: in order to remain competitive, you need to have open markets — Jörg Gasser, State Secretary for International Financial Matters, Federal Department of Finance of the Swiss Confederation .

Investment in human capital

I would regard educational reform and investment in human capital generally to be of second most importance (regarding measures needed to ensure Russia’s successful development). For first place, I would cite a kind of reallocation or budget manoeuvre in favour of the so-called productive sectors – education, healthcare and infrastructure. Today we should regard the funding of human capital in the same way we view investments — Alexey Kudrin, Chairman of the Board, Centre for Strategic Research Foundation.

People must be at the heart of all changes. And the social sector, which works to these ends, must facilitate these changes. It is crucial that we work on building a life-long education system. The state must inform people about what social services they have access to. Currently, there are over 317 services, which people don’t know about — Tatyana Golikova, Deputy Prime Minister of the Russian Federation.

We have always strived to solve our problems at the lowest possible level: <...> from the community level to the canton level, and only from there to the federal level. <...> You need to have a system that is able to take the decisions when they really need to be taken. In order to be innovative, you need to have people who are able to adapt to a rapidly changing environment. In order to have that you need to have a good educational system — Jörg Gasser, State Secretary for International Financial Matters, Federal Department of Finance of the Swiss Confederation .

Reforming state governance using digital technologies

We have seen that via the digitalization of governance, through the creation of a state operating as platforms, we have the opportunity to significantly cut the regulatory burden — Alexey Kudrin, Chairman of the Board, Centre for Strategic Research Foundation.

Encouraging investment

Great value is being placed on the possibility of using state guarantees and other special investment contract mechanisms for the infrastructure fund in order to achieve stipulated economic aims — Herman Gref, Chief Executive Officer, Chairman of the Executive Board, Sberbank.

The material was prepared by the Russian news agency TASS