‘We Need Solutions That Will Allow Russian Business not to Look to Offshore Companies, but to Gain Profitability in Russia’

 

HSE’s XX April International Conference opened with a plenary session devoted to Russian economic development and fiscal policy. Mr. Anton Siluanov, Russia’s First Deputy Prime Minister and Minister of Finance, discussed the solutions proposed by the Russian government to stimulate economic growth and business development.

Economic Stability and Political Predictability

According to the minister, in recent years the Russian government has managed to lay the foundation for further reforms and structural changes. Macroeconomic imbalances have been eliminated, and budgetary resilience to external conditions and impact factors (such as oil prices and sanctions restrictions) has improved. Regional finances have strengthened—debt levels of Russian provinces have not only ceased to increase, but have even begun to decrease. All this made it possible for Russia in 2018 to maintain an economic growth rate of 2%—not high, Siluanov admitted, but surpassing the country’s average rates over the past 10 years.

Balancing the budget at the primary level is now possible at a price of $45 per barrel. The Minister noted that the budget surplus in 2018 was 2.6%, and reserves were formed.

Unlike other countries with developing economies, Russia did not increase its debts, but pursued a balanced budget policy

Russia’s national goals, as outlined by President Putin, stipulate growth rates not lower than international ones, as well as Russia's entry into the top five largest world economies. ‘That is not an easy task,’ says Mr. Siluanov. One of the ways we can achieve this goal are national projects, so a resource base has been formed in order to finance them. Regional governments are also involved in this endeavor.

For high growth rates, investments of at least 25% of Russia’s GDP are necessary (investments currently make up 21%). According the minister, this amount should not consist of only or mostly budgetary funds: ‘We are working with business in order to reduce the risks of investing and create incentives for it.’

The government is also focused on ensuring the stability and predictability of budgetary and fiscal policies (for the next six years there will be no major changes in the tax system). Another task is leveling the field of competition for different business entities. Siluanov agreed: the criticism that preference is given to state-owned companies is fair. At the same time, as the state improves administration procedures, it is closing tax loopholes, and this benefits certain companies.

In terms of reducing administrative burdens and eliminating obstacles, we have already had some success, the minister says: the time it takes to start a business is decreasing, customs procedures have been simplified (in part thanks to the introduction of electronic forms). Russia has risen from below the top hundred countries to within the top thirty in the international ‘Doing Business’ ranking.

In the future, regulatory measures (including those of a technical nature) that may adversely affect business development must be implemented with a delay of two years, so that businesses can prepare for them.

Opportunity for Domestic Investment

‘We are taking measures to encourage the return of business to our jurisdiction,’ the minister says. Russia will continue to provide capital amnesty. Two special administrative districts have been established that have essentially the same status as those foreign zones where the capital used to go.

Siluanov stressed the need for business to participate in the realization of large investment projects. It is necessary to negotiate with large and medium-sized businesses in order to transform resources that are in the economy (such as business’ profits) into concrete projects. A governmental and entrepreneurial working group has been formed, which eliminates administrative restrictions that affect business. Two bills have been prepared: a new version of special investment contracts and a law encouraging investment in the Russian economy. 

‘We are taking a path of long money development,’ says Siluanov. ‘Legislation of the voluntary pension savings system is a tool for both raising pensions and long-term investments.’ Such resources, according to the minister, are especially important in cases when restrictions are imposed on attracting funds from foreign jurisdictions.

Industrial measures developed by the government include subsidies and tax incentives, especially in the field of petrochemical chemistry, which will be actively developed and will contribute to economic growth.

Siluanov also noted national projects on infrastructure development, digitalization (which will facilitate business operations and make the economy more transparent), labor productivity and the development of small and medium-sized businesses.

Plans for 2019 include loans to small and medium-sized businesses that are ten times bigger than last year’s, which amounted to 80 billion rubles

Another task, without the achievement of which it is impossible to improve Russia’s competitiveness and economic growth is to increase its exports. ‘Within six years, we need to almost double the volume of non-primary exports,’ the minister says. Companies working in this endeavor will receive state support.

At the request of the business sector, the Russian government is preparing to liberalize currency legislation in terms of currency earnings returns and the elimination of vestiges of the Soviet era, during which this was criminalized. In general, by 2021, a reevaluation of currency laws should be complete and outdated measures that were implemented a decade ago and hinder businesses today will be eliminated.

‘These measures are our responses to the current limitations and challenges, and they will encourage Russian business not to look to the West and offshore companies,’ Siluanov asserts, ‘but to work in Russia and gain high profitability.’