On 11 March 2021, President of the RSPP [Russian Union of Industrialists and Entrepreneurs] Alexander Shokhin took part in a meeting between Russian President Vladimir Putin and representatives of the business community. Discussions took place regarding measures to stimulate investment.
Vladimir Putin stated that the authorities planned to stimulate investment in four areas: establishing infrastructure support for investment projects; ensuring a predictable business environment; deregulation to reduce investor costs; ensuring that the financial market meets the needs of businesses.
Investment promotion and protection agreements (IPPAs), and special investment contracts (SPIC 2.0), which have already been introduced, as well as the formation of a venture fund of industrial technology funds and an infrastructure fund, are seen as the key tools to stimulate investment. The Ministry of Economic Development and the Ministry of Finance insist that the already deployed system of support tools are comprehensive. They include investment tax deductions, subsidies, guarantees, as well as special economic zones and priority development areas, etc. “We’re not lacking tools, but rather projects,” said head of the Ministry of Economic Development, Maxim Reshetnikov.
Vladimir Putin reminded those present that, due to the COVID-19 pandemic, the global economy has suffered its worst year since the end of World War II: in 2020 the planet's GDP fell by 3.5%. However, thanks to timely and calculated measures to support certain industries and businesses, Russia was able to reverse the downturn, and get the economy back on track, the President stressed.
Russia’s GDP contracted 3.1% last year. According to the head of state, the downturn was less severe than in many other countries. At the same time, in the IV quarter, investments in fixed assets even went up, he noted. However, by 2030, their annual volume should grow by at least 70% in real terms compared with 2020.
To achieve this goal, infrastructure development remains one of the state’s key priorities. It is worth noting that a lot has been done in this area, even during the pandemic. The volume of investments from the federal budget in national road and trunk infrastructure projects alone increased last year by 20%, and amounted to 538 billion roubles, stated Vladimir Putin. The Cabinet of Ministers is currently finalising a programme to provide additional financing of regional infrastructure.
The second fundamental issue concerns the long-term predictability of conditions for the implementation of projects, the president said. The authorities have already offered Russian and foreign investors a new tool, namely investment promotion and protection agreements, whereby large projects receive fixed tax conditions for up to 20 years.
Meanwhile, investments in transport, energy, social, communal and digital infrastructures can be compensated by the state through future tax revenues, the head of state noted.
“This year it is necessary to introduce investment tax credits throughout the country for projects that are being undertaken. Two-thirds of the revenues that regional budgets will lose out on due to the provision of these credits to businesses will be covered by federal funds,” he said.
Vladimir Putin called for investor costs to be reduced, as it is important to ensure that companies have access to financial resources for investment projects. The full range of financial instruments needs to be developed, and greater access provided not only to loans, but also bonds, he maintained.
During the meeting it was established that, with regards to investment projects, businesses need to be less exposed to political as well as regulatory risks. This means losses resulting from unfavourable market conditions and external risks being shared with the state. Businesses stated that they were not prepared to make large investments under existing conditions, and that they needed new forms of support for such activity. Private investments, at a time of fiscal consolidation, are considered the main driver of economic recovery and sustainable growth by 2030. By this time, the government expects investment to grow by 70% compared with 2020 (20.1 trillion roubles). Vladimir Putin noted the potential of companies to generate investment funds amid the recovery. “It is important that these funds go towards Russia’s development, towards the development of the country's economy,” he added.
RSPP President Alexander Shokhin spoke about insufficient investment support in his speech.
“While welcoming such tools as IPPA and SPIC 2.0, we also note that many elements of these tools, which have been incorporated into laws and regulatory legal acts, need adjusting. We now have quite a few specific proposals on the table on how to make these tools more effective. We would like all these amendments to be implemented in the current legislation during the spring session. It is also very important to note that it is now a question of developing new tools, rather than just fine-tuning the ones we have. I would like to take this opportunity to mention one tool that we also believe needs revising, namely corporate competitiveness programmes. A lot of progress has been made here, but we would like the government to extend these programmes until 2030. We are all now focusing on 2030: both national development goals and the new strategy. The corporate competitiveness programmes, which are quite effective, could also be extended to 2030”.
Alexander Shokhin also stressed that there were a number of systemic challenges that needed resolving to make the country business-friendly.
“Namely, reform of control and monitoring activities and reform of licensing activities. Quick progress needs to be made to make things easier for businesses, such as, for example, a reduction of binding regulations in construction,” said Shokhin.
During the meeting, Andrey Guryev, member of the RSPP management board bureau and general director of PhosAgro, presented a plan for large-scale investments in the industry to the tune of 1.6 trillion roubles through to 2026. He reported to the head of state on the dynamic development of the mineral fertiliser industry.
“Since 2013, a new investment cycle has begun in the mineral fertiliser industry. Over 1.3 trillion roubles were invested. Fertiliser output in Russia increased by more than 35%. We have overtaken the United States and are now a clear second in the world,” said Andrey Guryev, adding that over these years PhosAgro has invested over 300 billion roubles in development, which is almost all of its net profit.
Andrey Guryev noted that effective state support tools played an important role in the implementation of investment programmes in the industry, in particular the new investment promotion and protection agreements (IPPAs).
“In the last 3 months alone, fertiliser producers have signed 5 IPPAs worth 430 billion roubles,” he said.
Vagit Alekperov, member of the RSPP management board bureau and general director of LUKOIL, asked Vladimir Putin to provide tax incentives for the production of highly-viscous oil. In response to the request, the government of the Russian Federation and the Ministry of Energy will be instructed to work out tax incentives for the production of highly-viscous oil and production at flooded fields.
“The oil industry is traditionally the largest investor in both industry and social projects. Our company alone will invest 2 trillion roubles in the development of our production programmes over the next three years. In 2020 we increased investments by 20% compared with 2019, despite the crisis. Thanks to your personal involvement, the OPEC+ Agreement is working effectively, and we believe that our industry will see dynamic growth. But at the same time, a sharp increase in tax on oil production in 2021 could lead to a significant drop in investments. Highly-viscous and viscous oils have been hit hardest, with the tax burden increasing almost 25-fold,” said Vagit Alekperov.
Grigory Berezkin, member of the RSPP management board bureau and owner of the ESN group, advocated expanding the range of financial instruments for companies that export. Markets are cyclical, he recalled: prices go up and down, but in recent years price volatility has increased significantly. Now is the time to think about a new financial instrument that could hedge these risks.
“Investors in new projects realise that when prices are low they won't have sufficient cash flow to meet obligations to the banks, which puts the brakes on any projects. But there’s a way out: they can go to a financial institution and buy an instrument that will allow them to avoid defaulting when prices are low and then pay off the debt when prices are on the rise again,” suggested Grigory Berezkin.
Roman Trotsenko, member of the RSPP management board bureau and chairman of the board of directors of the AEON corporation, made a proposal to carry out an investment “tax manoeuvre”. As a first step, the businessman proposed allowing enterprises to invest half of profits in the current tax period in building new capacity and upgrading equipment, thereby exempting investments from income tax.
“To compensate for budget losses, the base income tax rate could be increased by 2% in favour of regional [budgets]. This measure would not only boost investments, but would also significantly increase VAT revenues, as enterprises’ costs for construction, equipment, and machinery would increase, and this would also give a boost to domestic machine building and metalworking,” he said.
The second measure is to allow the regions to replace property tax with an increased income tax rate - for example, by 2%, Roman Trotsenko noted. In this case, Russia's constituent entities and businesses would share the same goal - to increase profits and investments. According to Roman Trotsenko, in order to successfully implement the manoeuvre, the Federal Tax Service would need to introduce a new automated system for recording investments. The proposed tools would unite the interests of the country and fulfil the task set by the head of state to increase investment in fixed assets, he concluded.
Dmitry Pumpyansky, member of the RSPP management board bureau and chairman of the board of directors of TMK, announced that TMK, with the support of the Ministry of Industry and Trade, had decided to begin production of stainless flat rolled products. The production site will be in the city of Volzhsky (Volgograd Oblast), and the design capacity of the proposed complex is up to 500,000 tonnes per year.
“Consumption in the Russian market of stainless flat products is about 300,000 tonnes per year, of which 95% is imported. This is an impossible situation for our country, and all these years the implementation of this technologically complex project has always been hampered by the lengthy construction time and uncertain payback period. Today, our new calculations, taking into account the above measures to remove barriers in industrial construction combined with the available support measures, such as SPIC 2.0 and IPPAs, indicate significantly reduced construction times and a perfectly acceptable payback period. As a result, TMK, with the support of the Ministry of Industry and Trade, has decided to begin production of stainless flat rolled products in the city of Volzhsky. Over 100 billion roubles are being invested in the project. We are confident that as a result of all our joint activities, Russia will have a leading manufacturer of special steels and alloys for all industries,” said Dmitry Pumpyansky.
Leonid Kazinets, member of the RSPP management board bureau and head of the National Association of Housing Developers, noted that companies from Turkey and China are currently dominating the international construction services market.
“In my opinion, this could become, to some extent, a state priority, just like the export of hydrocarbons or processing (...). We have great faith in our builders, in our planners. We used to be a big player in the international market,” said Leonid Kazinets. According to Kazinets, simplifying construction procedures, digitising the industry, and bringing in information modelling technologies will help improve the quality of construction within the country and, in the future, help export our construction services.
Vladimir Putin supported Leonid Kazints' speech.
“I know that the capacity of our construction industry has grown significantly, and what you are saying is quite realistic. We all need to work on this together,” said the Russian President, addressing the country’s builders and developers.