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Modernization and Improvement
Davos Annual Meeting 2011 – Russia’s Next Steps to Modernization

Davos Annual Meeting 2011 – Russia’s Next Steps to Modernization


Good morning.
Before we start this session I just want to express our great satisfaction not only
for the presence of such a strong Russian delegation – yesterday the Prime Minister,
the President, today the Deputy Prime Minister Mr Shuvalov and a strong group of
business leaders, members of the Cabinet – but I want to use this opportunity
to underline the strong cooperation which the Forum has with the St Petersburg International
Economic Forum. We have worked together during the last years and
this session here is a co-branded session, co-branded between the St Petersburg
International Economic Forum and the World Economic Forum and I want to thank you for
the spirit of cooperation and we are determined to continue this type
of partnership also in the future. So, I turn the microphone to you, Tom.
Great, because I think we have a video that’s going to run first before
we introduce the panel. Well, thank you.
Welcome, everybody. Russia’s Next Steps to Modernization.
We have a great panel this morning. We’re certainly sorry the President isn’t
with us, but we’re really pleased to have the Deputy Prime Minister
Igor Shuvalov with us. Next to Igor is Indra Nooyi, the CEO
of Pepsi. We’ve got Patrick Kron, the Chairman and Chief Executive of Alstom
and, last but certainly not least, Jim Albaugh, President and Chief Executive
of Boeing Commercial Airplanes. I just want to begin and ask all
four panellists the same broad question and each of you can take your own slice on it
from your own direction and, Deputy Prime Minister, we’ll certainly start with you.
Russia’s a unique country in many ways, but in one way in particular it’s a
country enormously rich in natural resources, but that’s enormously
rich in human resources. It’s a country with a long history
and tradition of science and mathematic learning and institutes to promote that
and yet a country blessed and, in some ways, burdened also by having so many
natural resources that sometimes you don’t develop those other muscles.
Deputy Prime Minister, how do you see that challenge of balancing these two now, because
it’s very easy to fall back on your natural resources and not
tap your human resources? How is that a challenge for the Government
in this broader question of how do we take Russia into the knowledge economy? Thank you.
Good morning, everybody, and first I would start with one of the four ‘Is’
you’ve just seen in the video. One is very important for us now,
is investment and I spoke with the head of Federal Antimonopoly Committee this morning
and I can congratulate PepsiCo with the consent they received yesterday
to finalize all the formalities with Wimm-Bill-Dann to take over the company.
I think this is one of the greatest deals in the country and it shows that
the investment climate is changing and best regards from everybody from the economic
side from the government and I think this is a very good opportunity for us.
Thank you. Thank you, Mr Shuvalov. Thank you. By the way, PepsiCo has been in my country
since ‘50s and is a well known, popular, well respected company and well presented
in the market and we hope that with this purchase, with this takeover you will show
how you will cooperate with Russian investors, with Russian people, who are
major consumers of the product, and I wish all the best.
Thank you. And then we’re here with a group of
people. Actually, we represent different institutions and a colleague of mine and
a friend, Elvira Nabiullina, who is the Minister for Economic Development and
previous Minister for Economic Development and now the President for the biggest bank
in Russia, Sberbank, Herman Gref, and another big bank which is very well
known in the world, VTB, Andrei Kostin, and heads of the regions and other
institutions. Actually, we represent different institutions but we are the same,
we one team and we work under the strong political leadership in order to
bring our country to an absolutely different stage of development. We all work hard in order to achieve which
is called ‘new Russia’ and we understand that by 2020, which was outlined in 2008,
we need to achieve and to develop Russia as one of the most comfortable countries
to live in, where human beings could be well accepted by all the institutions
and where you can develop all your talents and where future generations would
like to live and invest. I can talk about my country endless, because
I love my country and with all the difficulties we face and with all
the difficulties we have I believe and we believe, our team believe, that we are
a unique country in all respects. You mentioned mineral resources,
you mentioned human resources. My personal belief is that we are a very
rich country, but mostly the real wealth is people. Herman Gref, for instance, is always complaining
that the labour skills are not very good and we need to do a
lot in order to improve it. But at the same time you can imagine
that everybody in our country all get good education at schools and a lot of
people get higher education. Nowadays it’s very modern to get even second
high education and that concept which is called ‘long life learning’ is
well accepted in the country and we have many people who always try
to modernise their skills. And I believe that with all our history,
with all our culture, with all our skills, even nowadays skills, we are a very talented
nation and we have shown many times in different aspects – in space,
in chemistry, in metal industry, car producing, whatever – we have very
good examples, we have bad examples, sometimes mistakes, but we are human beings.
But if you look at the country and if you read the history thoroughly you will understand
that in many aspects Russia was able to show that we can achieve if we want,
if we can combine all our efforts and if we all see the final aim we dream
of and if we have enough resources, we can achieve.
Let me ask a specific question. If you think about it, Google is
a half-Russian company – Sergey Brin came from a Russian family.
To our great advantage, the United States, though, his innovation was hatched
and harvested in the United States, but I’m sure there are many others
like him in Russia today. What would make – entice – the next Sergey
Brin, who’s sitting out there in one of your institutes or schools or whatever,
not to come to Stanford and Palo Alto, but to stay in Russia now and
launch his new company? I don’t see any problem if people leave
the country and get education somewhere, including the States. I think it’s
even for better of my country. The more people we send abroad for their
education and if they return – and we have many people who got education in Stanford.
For instance, I see Xenia now, who works for Sberbank and she studied at
Harvard University, MIT, am I right? Many people now are coming back and they
believe in the future, they trust and they feel they are Russians, but I don’t see
any problem if people decide for their residence other countries.
It’s okay, it’s modern life, people should choose their permanent residence and
we don’t see any problem with that. It’s not old Soviet time when we thought
that all talented people should stay 100% within the country and there were some
limits even for going abroad. Nowadays nothing of that exists.
And carry on with people, can you imagine the size of the territory? You
can fly almost 10 hours from Kaliningrad, which is based on the shores
of the Baltic Sea, to the Pacific, it’s 10 hours’ flight and it’s still the same
continent and the same country. And the Pacific side, if you fly from the
north to the south it’s approximately 5.5 hours to fly and it’s just Russia. And to
the east our immediate neighbour is the United States and we are separated by the
Bering Strait and our natural neighbour, Americans. Always when the people
say something about America and Americans we always turn to the West and Americans
always to the East, but vice versa, our natural neighbourhood is East.
Our Governor in Alaska said she could actually see you.
Welcome. So this huge territory with different climate zones, with very comfortable
climate zones, with very cruel where people maybe cannot live permanently.
We have Siberia, we have Western Siberia, Eastern Siberia. We have
the Black Sea side and the Baltic Sea – different, different areas.
Moscow, St Petersburg the most developed towns and we have other towns which are
not maybe very popular amongst people in the West and investors, but we have towns
like Kazan and I see the head of the Tartarstan, the region along the Volga River
and other towns which are very big, the population is over one million people
and where you can find a very modern atmosphere for youth, for students,
good university, hospitals and so on and so forth. And with 145 well educated people,
with all the people speaking one language – for instance even in England, in London,
just in London you can find people speaking one language but not be able to
understand each other, because if you have someone with the Queen’s language and
Cockney people will not understand each other – with all the dialects and all the
accents in the country all speak the same language and it’s understandable and I
think this is very good for future and is unique.
Great, thank you very much. And – just a minute – at the same time,
we have 180 other nationalities and over 100 different languages and old people
speak Tartars, other languages, Finnish and others and they all accept Russian
as the native language. Different cultures, different religions.
Again, if I come back to the point of Kazan, in the heart of the town Kazan,
just in the Kremlin you see the mosque and the orthodox church just standing next to
each other and people who are serving in the mosque and the orthodox church
they are just friends. They communicate even though they belong
to different churches and different religions.
And along with that we have, as you mentioned, natural resources.
We have everything. If you want to produce something in
the country you can just explore the soil. Russian soil is very rich, not only with
oil and gas, anything you need for any other industries you will get in Russia.
Great, well, let’s hear from the others, okay? I’m sold; I would like
to buy something right now, but I – But I would
like to carry on. Indra, Pepsi, global, in so many product
lines, you can buy companies anywhere yet you’ve gone through a big effort here to
buy a big consumer products company in Russia. Why and what have you
learned from that experience? I’m going to be sounding like I’m just picking
up where Minister Shuvalov left off, but we love Russia. We love doing business
in Russia, we love what Russia stands for. We’ve been there for 50 years and the last
10 years we’ve invested more than $3 billion in Russia and we will invest
another billion dollars by the end of this year and this does not include the almost
$4 billion we spent on Wimm-Bill-Dann, $3.8 to be precise.
So we’ve invested a lot in Russia. Tell us about that company.
What does it do? Wimm-Bill-Dann is Russia’s number one food
and beverage company in the business of dairy and juice. Extremely well run company, great products,
it’s going to be a great platform for us to grow dairy globally.
Why do we like Russia so much? First, we believe the location
of Russia is very strategic. It can be the centre to serve Central
and Eastern Europe and the CIS countries. If you take those countries together, that’s
400 million people, so it’s a great strategic location.
Second, we like the fact that it’s got a stable economic policy and the political
situation is stable, so we can do business easily in Russia.
Three, the people in Russia, the workforce is very, very good.
It’s a hardworking group of people. We have technical talent.
We can get good workers in Russia, so when we invest in Russia and put on the
ground factories, manufacturing assets we can actually get a return on that investment.
It’s a market that’s becoming increasingly consumer-centric, so global brands
are becoming much loved in Russia and so you can actually make a very
good living in Russia. And I think above all the thing that we
like the most about Russia is the fact that the government of Russia is actually
doing everything possible to encourage foreign investment.
I tell you the unprecedented access that they give investors to the government
officials is unbelievable. Just to speak about the Wimm-Bill-Dann
acquisition where I was closely involved, to make a request to the Russian government
to ask for a meeting with Prime Minister Putin to say we’d like to
buy Wim-Bill-Dann and to get that request granted in a matter of hours I think
is phenomenal. That was just before Christmas and then for them to approve the deal in
such a record time, less than six weeks, I think is a tremendous testimony to the
fact that Russia is welcoming of foreign investment and wants to
make it work in Russia. So we, as a company, like doing business
in Russia. We think Russia’s got it right that they’ve got to expand beyond oil
and gas and natural resources. They are putting in place the right
technical innovation and infrastructure, but most importantly they are making it
easy for foreign companies to do business in Russia and that’s the
reason we like it. You’re not concerned about the rule of law
issues and security issues that have come up over the years? Look, the recent
bombing in the airport is something that distresses us enormously;
our condolences to the Russian people. This is not something that any country
should accept and I’m sure that President Medvedev and his team will do everything
possible to address the security issues, but when you’re dealing with any developing
and emerging market there are going to be issues, Tom, and
we multinationals just have to learn to do business in each country with the governments
to advance our interest in those countries. Are we worried? Of course we’re
worried about all of these issues all the time, but there’s some worry
or the other in some country, but as long as we – we are not there as a temporary
player in Russia. In Russia we’re Russian and we intend to grow with
the country and thrive with the country and as long as you go into that country
with that perspective you work through all of the issues that happen in the country. Look, we’ve had a good record in Russia,
we like it and we feel very Russian in Russia and we’d like to keep it that way.
How do you say ‘Pepsi’ in Russia? ‘Pepsi?’ ‘Pepsi.’ That’s what
I thought. Tom, with a smile.
Patrick, you’re in a hard and very competitive space, the energy space.
What’s been your experience, what are the challenges and where are the directions
you’d advise or like to see Russia go to make it easier for foreign companies
like yourselves to operate there? Thank you.
Just a couple of words about what we are doing, as we may be a bit less famous than
my predecessor when she talked about Pepsi.
We are in infrastructure. We are selling power generation
equipment, transmission equipment and trains, high speed trains, metros and mass transit
equipment. We have installed 25% of the world capacity in power generation.
We have one metro out of four, one tram out of three, half of the high
speed trains in the world, etc. So we are in many countries.
We are quite recent in Russia, but I think our experience in the country is
quite interesting. We have started to seriously address the opportunities in Russia when
it was clear that the government has decided to put a strong push on
the development of infrastructure as it’s a bottleneck for economic development,
social welfare, environment protection, so it’s a key priority as regularly expressed
by the Russian government. And the way we have addressed
the opportunities in the country is through partnerships.
We started a few years ago. We made a joint venture with Rosatom in
order to participate in the development of the nuclear programme in Russia, which,
by the way, in a sensitive area shows the openness of the decision makers, because
it’s not that easy to ask a foreign company to participate in such a sensitive
area such as nuclear development. We have also established a partnership
with Transmash Holding for the development of the railways network, which is also an
area in which there is a strong need of modernisation and expansion and in
December we have broadened these partnership networks in a number of new
areas, such as hydroelectricity, thermal power, transmission and
grid management, smart grid areas, etc. So we are starting, but it’s moving very
fast and it just establishes – you know the image that we sign a memorandum
of understanding and it never happens. This is not what happens.
Actually, we have been able through this strategic agreement to start doing serious
business, it has turned into contracts in the country and, interesting, starting outside
of the country – in partnership with Transmash Holding we are starting
an operation also together in Kazakhstan, so it’s broadening.
So I’m very encouraged and although it’s an original step and we are in the initial
ramp up, we are encouraged by what’s happening, strong support by
the government, obviously. With all those good trends, if you
were advising the Deputy Prime Minister, is there anything you’d say, ‘Gosh, if you
guys would just do this it would really help, it would really take
it to a new level’? No, I think this is moving nice, so I’m
not going to give lectures or lessons. In our industry what we need is visibility,
so we need to have a long-term view. We are a long-term player.
Infrastructure has a long-term development, so we need to have the visibility
and stability in the decisions which are taken within this global view.
Okay, thank you. Jim, not many Americans know that the
planes they’re flying on the wings were designed partly in Moscow. Tell us a little
about your own partnership with Russia, how it’s worked and where do
you see it going in the future? Thank you, Tom. Maybe I could just tell
a short story first and then I’ll talk about what we’re doing there in Moscow
at our design centre. I remember the first time that I got involved
with Russian engineers was 1998; it was the International Space Station.
We had elements of it, Russia had elements of it and we had the first element launch
from Baikonur in November of 1998 and we launched the second element from Cape
Kennedy and we did that in December. And we had two spacecraft; they hadn’t
ever been within 5,000 miles of each other and they were travelling at
22,000 feet per second 250 miles above the earth and we docked these two spacecraft.
We bolted them together, we threw the switch and it worked perfectly.
I don’t know if American and Russian politicians or economists speak the same
language, but I can tell you that Russian and American engineers do and we have had
a great experience there over the last 20 years working in Russia.
In Tom’s book he wrote about a design centre that we have in Moscow. In 1998 we
hired some 12 engineers and we’ve grown that now to about 2,000 – 1,600 engineers,
about 400 programmers – and these people have designed elements of the 777, of the
47 and they’ve designed about 30% of the structure on the new 787 Dreamliner.
Well educated, hardworking, not expensive to hire. It allows us to do design 24 hours
a day and they do it very well. And based on that experience we’ve done
more. When we decided to do the Dreamliner we needed to have an assured source
of titanium; about 20 tonnes of titanium goes into every 787 that we build.
And we found a company called VSMPO, I think one of the world’s largest titanium
manufacturers and we will invest some $18 billion with them over the next 20 years
and we’ve put together a joint venture to work on developing various titanium alloys
that we’ll own the IP for and they will also own it and we’ll use it to support
the businesses that we have. I look at this country as one that
has great natural resources but, more importantly, human resources and if I go
back to that design centre, while we have exported to the United States a lot of
great designs we’ve also exported to the United States a lot of good engineers.
In fact, the engineer that’s setting up our production facilities in India was
one that we took from Moscow. And as we go forward our view is you need to take the
best ideas and the best capabilities wherever they might be in the world.
Now, clearly, in aerospace with the rich heritage they’ve had and the capabilities
that they’ve developed we think we’ll continue to be there for years to come.
Jim, you’re not in the advertising or branding business and I know because I’ve
been to your centre, when I hear the Deputy Prime Minister speak and Indra
and Patrick, is Russia under-branded as an innovation centre? Do they have
a bad rap when, in fact, there’s a lot more going on, a lot
more potential there than people realise? I think you’re right.
We don’t tend to talk about that a lot. We look at Boeing as a global company.
We have research centres around the world. We look at them as just part of the team.
We’re not out there promoting where we do work necessarily.
Just as some of the other speakers have talked about, we want to be Russian when
we’re in Russia and that’s the way we look at it as well. We have such a knowledgeable audience here
let’s open the floor for a few questions, we’ll work this around.
I think there are people with microphones around and if you’d raise your hand
right here and identify yourselves. Thank you.
Esther Dyson, an investor in a variety of Russian start-ups. You asked what is the one thing you could
ask for the government to do and I would like to suggest that in the Skolkovo
project you add transparency top to bottom. I really would love the Skolkovo
project to be successful, so would the government – Can you tell us
a little bit about that project? It’s the project
for modernisation; it was in the slide show.
The idea is to have a centre for entrepreneurship, not just innovation, but
the commercialisation of innovation. My friends in Russia are all very
sceptical about this project. They say, ‘Oh just another one of those
real estate projects for people to steal’. I don’t want it to be that.
For the Russian government to make this work, for Russian mothers to say, ‘I don’t
want my son to work at Sberbank. I want my son to go to Skolkovo and become
an entrepreneur’. This thing, it needs to be – What’s missing right
now, from your point of view? What’s missing is
transparency around all the contracts that are being made with
Russian and American companies. Unfortunately, the American companies
are also saying, ‘We’ll just sign the contract; it’s the cost of doing business
in Russia’. Make it as transparent top to bottom, make the contracts transparent.
It’s proper for people to make money; it should be visible how they make money.
And you will have a huge success and change – Why does that
matter to you as a venture capitalist and then we’ll let the Deputy,
but I just want to understand from your perspective.
Okay, honestly, as a VC my little companies are doing fine without Skolkovo.
They’re good enough, they get the resources, they get the support, but there’s
no critical mass and this is for Russia, not for my particular companies.
The whole attitude needs to change towards business. It’s not easy to do.
To do it on scale you need the kind of transparency I’m talking about so that
those good values can actually happen instead of the same old cynicism.
Thank you. Okay, first, transparency. We understand
that this maybe task number one for all the government and for all the
institutions we need to work on it is our real home task.
And when we, just yesterday, we all got together – I mean all the Russian team –
and we discussed what can we say to the existing and possible investors why should
we – how can we attract new investors and what’s the real evidence that everything
is changing in the country. And we all came to the conclusion
that providing more and more transparency in all the institutions will show
that Russia is changing. But with Skolkovo I disagree.
Here, I believe Mr Vekselberg, because I have seen him, he is here, who is the head
of the special fund set up for those purposes and the head of the Council for
Skolkovo Fund, President of Russia and he had appointed two people from the Russian
government in his administration in order to provide all the transparency, in order
to get a transparent way how to select the project and so on and so forth.
If you consider that that process is not transparent enough, I would like
to understand in which way, because when I speak with other people who are working
with Skolkovo now they say they like Vekselberg, they like the way how he works
with investors, what terms we provide with issuing new law, because we adopted a new
law last year, as you know, relating to Skolkovo itself and with all the tariffs
and special taxation and so on and so forth.
So we believe that we have – and I understand that we have many sceptics
about Skolkovo and people were complaining that there are other existing already
innovative centres in the country and the Russian government should invest in existing
ones rather than build a new one. But the idea was to build something completely
new which would be able to show the example how to make business in a new
way with Western partners in cooperation with big innovative companies
and so on and so forth. This is our ambition.
So if you can tell us exactly in which way you can see that we work there
not transparently we would be only grateful and Viktor Vekselberg is working with all
the investors and so on and so forth. And I like that you said youngsters would
rather work in Skolkovo than in Sberbank, sounds good, but Sberbank is trying
to be innovative as well. But we don’t want that project Skolkovo
that will consume just federal funds, money, land, money for infrastructure,
that money will be distributed and it’ll be another development project.
We are not developing real estate there; we are developing know-how, innovative business
and how the result of innovative business then connects
with real industries. Let’s take some more questions.
John Chambers from Cisco, please. Right here in the first row. First of all, I want to congratulate the
leadership in Russia with being about as transparent as I’ve ever seen
in terms of candid questions. It’s a willingness to get feedback that I
think other countries, whether you’re in China, India, even the US, we would
not see in this type of forum. I think you are at a tipping point in Russia
and I think the odds on the tipping point going very well are very high.
I think you’ve prepared for several decades to achieve this tipping point.
The willingness to have one vision toward that. None of us are perfect and when we
look at transitions in China, India, even the US, it took us a much
longer time to get there. We’re all in, in Skolkovo. We’re
going to invest $1 billion. We are investing our brand.
We’re working with Viktor and others. Is it going to be challenging?
The answer is, of course, yes, because this has never been done on this scale
anywhere in the world other than Silicon Valley, which grew almost naturally on it.
I do agree that the biggest asset in Russia is the people and the intellectual
capability and so we’re going to invest in R&D in terms of our second emerging
markets territory $100 million in venture capital. I’ve found the group’s very open
to really be able to say here’s what works and to bring it to their attention across
the board in terms of the direction. And the last point I would make is you
learn more about leaders, a country, individuals under stress. If you watch the way that the leadership
has handled the terrible events, you watch how classy it was, how open, how
they identified with everyone in the world, I think this is an opportunity for a
new beginning. So I’d encourage us to say let’s put the past behind us.
Let’s talk about how together we go forward to a modern Russia and I think
we can actually take a terrible crisis and take it up one level.
So we’re all in, very comfortable with the investments, know the risk involved and
don’t minimise those, but I would encourage us to have that
kind of dialogue. Great, thanks, John. We’ll
go over right here. We know each other well.
This is a question for you, Igor. You showed some great videos, you’ve got some
wonderful people up on your panel who are all saying very nice things about Russia.
My own experience has been different. For those of you who don’t know me, I was
the largest portfolio investor in Russia. I had $4.5 billion invested in the country
and I was investing in a number of Russian companies where I encountered corruption.
I complained about the corruption and as a result of complaining about the corruption
I was expelled from the country. My visa was permanently cancelled and
I was declared a threat to national security.
Shortly thereafter, the police raided my offices in Moscow and they took away all
of our corporate documents and we discovered a few months later that we
no longer owned our corporation. It had been fraudulently re-registered out
of our name into a convicted murderer who’d been released from jail early
to put his name on these documents. We hired seven lawyers to represent us;
they discovered that not only had our companies been stolen but the people who
stole our companies stole $230 million of taxes that we paid from
the Russian government. We filed criminal complaints, our lawyer
was arrested – one of our lawyers was arrested, six of them fled the country.
The one who was arrested was then tortured and killed in prison by the Interior
Ministry. This is a worldwide story. The President of the country called for an
investigation into the people who killed my lawyer.
One year after the investigation the people who killed the lawyer have been promoted
and honoured with state honours. Now, my question for you, Igor, is what’s
going to prevent all of these reputable companies, particularly Pepsi, who’s just
gone in, from having the same experience and why should anybody, after my experience
and after nothing has been done, consider investing in Russia? First,
I have to acknowledge that we have both sides of the coin.
We have people who are very successful and earned a lot of money in Russia and we
have unsuccessful stories and people who lost and, unfortunately, as you just mentioned,
some people died and so on and so forth.
And we know this case very well and you just mentioned promotion of the
people who were involved. I’m not familiar with this, but I know
that the reaction of my President was immediate when Mr Magnitsky was found
dead that around 20 people were fired immediately and 20 people were under
certain proceedings within the Ministry of Interior. So it was not just the case
which everybody forgot the next day and the President was instructing authorities
himself. He was very pushy. He wanted that this case should be as
much transparent as possible and, unfortunately, I don’t know the result
and whether the criminal proceedings are now finalised and the materials were
transmitted to the court. I have no idea.
But a year ago it was very loud and everybody believed that President Medvedev
was personally involved and he was involved in such a way in order
to try to find the truth. But your question was about the future,
I think, not about the past. The past is very important, not always the
happy past, but in future I think we need to concentrate on the positive trends we
have now in my country and the trust to the people you work with.
You have different people, of course, in Russia and you have different people
involved in different bodies and agencies, but you have the President of the country,
you have the Prime Minister, who is the leader of united Russia and you have
the members of the Russian government and everybody who is here, including
regional authorities and we all, we all want to change the country, as you
know, we spoke about this. I cannot change and even all of us we
cannot change the country overnight, but we can provide the change.
If you ask the question can you see the change, I think you have to acknowledge
that the country is changing in a positive way. We have a lot of things we need
to change, a lot of things we don’t like, a lot of things we cannot adopt, we think it
is something which is not for our future, but we need to provide change, this is my
job. If every day and every year we can say we provided that for Russian people,
we provided that for domestic and foreign investors, the situation is changing, rule
of law is becoming better, not perfect but better, then I think I’m doing my job.
If not, if you think – and all of you who visited my country and know my country,
because sometimes people argue about Russia are not even visiting my country,
but everybody who visited the country and who invests in the country, if you
look back to 1999 or 1998 and the year 2000 when Putin became the President and now,
and yesterday it was, I think, a very good speech made by President Medvedev, I think
it was a huge way we pursued and we are very persistent to convert the country
with all the difficulties in something new.
We talked about the territory, human resources and I believe that we
are a unique country in any sense. The problem is we didn’t convert all
these unique things into a unique model. That’s why we need to work all together
with all the partners. We cannot do it ourselves.
We need to create partnerships. We need to create partnerships with
PepsiCo, Alstom and other countries and then we will be able to create something
new. The problem for us now, the session is called ‘Other steps for modernisation’,
which is the immediate step to do this and many of us believe in order to achieve
the further developing of modernisation we need to work out a new way how to make the
role of state, including state property, less – not less effective, but in order to
shrink it, because we now understand it’s too big.
In order to grow further, in order to develop the country further on we need to
shrink the state ownership and we need to learn how to manage things differently.
Not only I mean now state craft. We need to learn how to manage
corporations in a new way, municipalities, regions, federal bodies.
In order to do this we will attract new people, new generations of managers
and so on and so forth. So we understand exactly what to do.
We have a very precise agenda. We are very persistent and in order to
do this we need just to work every day. But what you have said, first, I’m sorry,
I regret, but in order to provide a better future I think my answer would be we will
need to work all together in very close cooperation. Once we work and do the job
in cooperation we will avoid situations like you had.
Thanks for your question. Right here. We’re also very glad to doing very
good business in Russia and we’re also investing to the Skolkovo project and we
like both Skolkovo and Viktor Vekselberg, so that’s very good.
But even listening to this panel I have the following conclusion: that companies
who are deeply in Russia they understand all benefits and are doing really
good business. And, by the way, even comparing with China, everybody investing in China
but nobody is making real money. In Russia, less companies are investing
but everybody is feeling very good. But the problem is that transparency of
all observation and number of company is still limited, so I would like to come
back to this question of rebranding Russia and promoting Russia, because, to be frank,
there are a few exceptions and the gentleman over there having one of the
few exceptions. There are a few really not good stories in Russia, but there are few.
It’s many positive story, so how to rebrand it, how to promote it more to make
sure that all international community knows about Russia, understand that it’s
a strong BRIC country to invest. I think that’s our challenge and opportunity
for Russia, so that’s the question.
Tom, if I may just add to what you’re saying. You asked a question earlier on
what can Russia do to promote itself even more and I think there’s a little bit of
a job to be done there, because companies like ours have been there for 50 years,
we understand Russia very well. But I think in today’s BRICs world, the
CIVETS world or whatever acronym you want to give to it, Russia is competing for capital
and I think people still look at Russia and say the demographics are
working against Russia because your population is not growing rapidly.
People look at it as a cold country. People do ask questions about corporate
governance within Russia. So I think it might be useful for Russia to embark on
some sort of a campaign which talks about the fact that don’t focus just on
the population in Russia, but it’s the gateway to Central Europe, East Europe and the CIS
countries and taken together it’s a big market of 400 million people with scale
in Russia, which is incredibly positive. Second, on the corporate governance standards,
if there can be some visible proof that stuff is changing.
We see lots of positive movement. If it can be made much more visible, I think
it will help Russia. And I think the FIAC, the Foreign Investment Advisory
Council that’s chaired by Prime Minister Putin is not a ceremonial committee.
He comes to these meetings, he listens to what everybody has to say and he actually
goes off and acts on it. I think it’s highly unusual for any country
to have a Foreign Investment Advisory Council chaired by somebody as
powerful as the Prime Minister and I think publicising some of those things would
actually help Russia and help the world understand that Russia’s open for
business, understands that it’s competing with the other BRICs and really
wants to make a difference. Change in developing and emerging markets
does not happen overnight; we have to just recognise that
and work with the countries. There’s a few more questions.
Please, right here. I work for Unilever and we share some of
the better experiences that people have spoken about.
We have a great business in Russia. In fact, we not only have some of our
Unilever brands there, but we acquired an ice cream business, Inmarko. I’m happy
to say it’s doing brilliantly; a lot of people eat a lot of ice
cream and that’s good for us. We also acquired a local iconic brand
of sauces, Baltimore, and our experience actually has been also that you can have
a great business in Russia, great talent, you’ve got a lot of investment on the ground,
we are a big contributor to the exchequer.
I think it’s less about transparency, it’s more about simplification.
One of the requests I have is that we need to simplify a lot of the administrative
barriers and technical regulations, regulatory environment.
There is a lot of that and, in fact, there is a lot of that that’s at the centre,
in some of the states and so on and so forth and I know that there is now a working group
of the Foreign Investment Advisory Council where I’m happy to say that
Unilever is very much part of that and leading that.
My request would be that if foreign companies can play a more active role in
terms of helping the industry regulatory environment I think that will lead to, if
you like, quote-unquote ‘transparency’. It is less about transparency,
it’s more about simplicity. That’s number one.
The second is a point about talent. I do believe that Russia has tremendous
technological talent, but I think what it needs is business and management talent
and allowing free movement of people, easy access for people to come and work in
Russia and I’m now talking about mundane stuff but important stuff.
Being able to get quick work permits to be able to go in and out of country I think
will also help build local talent. So these are the two comments I had.
Thank you. More questions please.
Is there someone at the back there? I’m sorry, I didn’t see.
At the end, back row, please. I actually want to touch on something
that all of you have brought up, but it is a bit of an elephant in the room, which was
the fact of the shrinking population of Russia. You are having 700,000 people a
year reduction over the next 20, 30 years. In the architectural field, many of the
great architects are trained in Russia but they leave and how does Russia keep its
talent but also grow its population, because the issues are not in the next
five years, but in the next 50 years and how do we treat Russia differently
with a much reduced population? Okay, I think your conclusion
is based on old data. Last year was a critical year for
the population, our population became growing. And I have to admit that it’s not a very
good situation with our population, but Russian families now have more and more
kids. We launched the programme five years ago and both President Medvedev and
Prime Minister Putin they are very active, believing that giving some subsidies
and benefits to the families, including free residence and some subsidies based on
the monthly payments and so on could help people just have more kids and including
school education, kindergartens, because in Russian culture it’s very important
in order to let mums work very soon after their delivery.
So it’s changing now and I wouldn’t say that we’re in a perfect world and we have
now three or four kids in each family, that’s not the case, but now it’s becoming
more fashionable to have kids. I think it’s like maybe 15, 20 years ago
in the United States when you could see on the buses and everywhere ‘get pregnant’
and so on and so forth. It’s not that obvious in my country because
the culture is different, but now, just travelling around the country, in
the small cities and the big cities, fortunately, you see pregnant women and
you see a lot of women with babies and so on and so forth.
So this is changing and now we have not bad figures.
Our death data is much better now than five years ago.
Because of alcohol consumption we had a lot of death every year.
Many people were dead in the traffic accidents. So in all that aspect we
are working and we have better and better results. Maybe I’m wrong, but I think last
year in traffic accidents we got 50,000 people less death than the previous year,
so it’s becoming better and better. Still people don’t want to fasten seat
belts, they drink sometimes and we had to adopt new laws.
Before, we adopted European rules letting people have some alcohol in
the blood while driving. Now we cancelled it, because
we think it doesn’t work. So it’s changing, slowly, but changing,
but how we keep deterrent? Since we are coming to a close, why don’t
you sum up whatever you’d like to say here to close the panel, with the issue of talent
and just generally what you have taken away from this session? Okay.
This issue again, talented people leaving the country and coming back.
My personal belief the more people leave the country for education is very good for
Russia, because the majority of them will return. The more people will leave the
country for seeking for better places where they can live and their family, again
it’s very good, because they will find better places where they
can spend their lives. But we have many people who return to
the country from science, biology, chemistry and so on, who left the country,
who emigrated even the country, they changed the citizenship and they now return to
Russia and they want to work in Russia and stay in the country.
And in order to finalize all of this, I heard today many positive things and we
attend many sessions in different formats and what I can hear now that the voices
of positive are becoming stronger and stronger. That’s good, but it doesn’t help
to change the image, that’s the problem. We have strong supporters of
Russian modernisation, we have strong supporters for Russian investors, investments, but
still if you switch on, turn on the TV screen somewhere in Great Britain or in
the States or you read the major papers you read all awful stories about
bad Russia, which is not true. I think what you get there is not about
nowadays Russia and not about modern Russia. We need to correct this picture
in order to reflect reality. I don’t want to present the picture as
a perfect world, we are not perfect, but we are not that bad. So trust us, we can deliver.
Stay with us and we will gain together. Thank you.
Thank you all for coming and thanks to our panel. Thank you.

6 comments on “Davos Annual Meeting 2011 – Russia’s Next Steps to Modernization

  1. It has to be said at 38:40 when a man describes his harassment and the murder of his lawyer and the Deputy PM's response is: "We must look at the future, not at the past" and says some people were "fired" — I don't know whether to laugh or cry.

  2. The man at 38:40 is William Browder of Hermitage Fund. His lawyer who was "Slowly killed" was Sergei Magnitsky.

    Google away.

  3. Russia needs to improve their judicial system first… I used to live there. Most judges are corrupt and citizens don't respect the rule of law.

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