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Opening Address at the State Council Presidium Session on the Industrial Policy
February 19, 2007
Volgograd

Вступительное слово на заседании президиума Государственного совета «О мерах поддержки развития промышленности в Российской Федерации»
19 февраля 2007 года
Волгоград

PRESIDENT VLADIMIR PUTIN: Good afternoon dear colleagues.

You know that recently I met with the heads of Russias largest companies and we discussed various ways to diversify the economy by developing the processing sectors. And we often returned to one theme, a key one for us, namely diversifying the economy. It is obvious that one of the most important aspects of modern economic policy in general is directly linked with developing the economys high-tech sectors.

I shall repeat that, at present, the contribution the manufacturing industry makes to economic growth remains insignificant. And unfortunately the share of products with a high added value among Russian exports is still decreasing and only amounts to about ten percent. Despite the significant increase of imports of cars and equipment, technological reequipment is proceeding slowly.

It is true that literally in the past few days we took stock of our immediate prospects. It turns out that over the next four years investments in fixed capital in Russia should see an annual growth of about 40 billion dollars (when calculated in a dollar equivalent). As a whole, as a percent of our GDP this is slightly less than in western European countries. In western Europe this figure is about 33 to 34 percent of GDP and in Russia only about 20 percent 18 to 19. In certain Asian countries it is even higher than in Europe. In China for example it amounts to about 40 and some percent. But it is perhaps true that the quality of our investments into fixed capital is higher than that in several Asian countries, including China, for example. Because if we compare the money invested in fixed capital and the rates of economic growth, in Russia one rouble or one dollar invested has a larger effect.

In general, it will be quite good if we can keep such rates and this means that by 2010 we will have approximately increased these investments to two times what they were in the base year 2006. Analyses show that one of the main causes of todays problems consists in the archaic structure and organisation of production. The majority of Russian factories still have a closed production cycle, as before.

Today we visited a pipeline company and I asked Dmitrii Aleksandrovich Pumpianskii [Chairman of the Board of Directors of TMK] what he thinks of the fact that, in practice, TMK makes the metal itself as well as the half-finished and finished products. He agrees that at TMK this reduces profits. In Russia what Dmitrii Aleksandrovich describes often occurs; in other cases companies have one or two practically exclusive suppliers.

As a whole, one can confidently say that industry oriented towards such approaches will constantly lag behind the leading economies of the world.

The experience of successful industrial countries demonstrates that we need a fundamentally new model for organising production, a model designed to create innovation and based on a competitive environment, including that of developers, suppliers and dealers. Russia needs a model of industrial development oriented towards interregional and global cooperation relations.

We have the preconditions necessary to launch such a model. First and foremost this includes the increasing domestic demand for industrial production.

In addition, domestic business that has already become stronger now has the opportunity to invest in the manufacturing of hi-tech industrial products.

It is also important that increased government support to education and science allowed to preserve fundamental technological and scientific schools, schools that should be focused on accomplishing necessary economic tasks.

And finally, a legal and institutional basis for innovative growth is being created.