Communique on the 18th Session of the Foreign Investment Advisory Council

(Moscow, September 27, 2004)

The session was addressed by Mr. M. E. Fradkov, Chairman of the Government of the Russian Federation.

In his address, Mr. Fradkov congratulated members of the Foreign Investment Advisory Council in Russia on its 10th anniversary, summarized the results of its work, provided an overall assessment of the state of the Russian economy, and outlined the key tasks in national economic and social development.

It was stressed that the Advisory Council plays a major role in establishing a favorable investment climate in Russia, and its recommendations and proposals are used in drafting laws and other regulations.

The Russian economy in recent years has been characterized by high growth rates. In the period from January to July 2004, gross domestic product grew by 7.4 percent year-on-year. Industrial output increased by 6.9 percent over the eight months and investment in capital assets grew by 12.2 percent. Foreign investments in the Russian economy in the first half of 2004 totaled $19 billion, an increase of 49.9% against the first six months of last year, and accumulated foreign capital exceed 66 billion US Dollars.

The real personal income continues to grow, while the rate of inflation in 2004 is estimated at approximately 10 percent.

In recent years, Russia has made positive progress in implementing the social and economic policy, which has reinforced country's favorable investment image in the global community.

It was noted that, to resolve the strategic task of securing high economic growth rates, further enhancement of investment appeal and activity and accelerated renewal of fixed capital are required.

The measures envisaged by the Principal Areas of Activity of the Government of the Russian Federation for the Period to 2008 will further enhance investment activity and economic development based on technological modernization.

The Government of the Russian Federation will continue work to raise the efficiency of government agencies aiming to establish the optimal environment for business activity. Administrative reform has been launched, and the budgeting process is being improved. Measures are being taken to reduce administrative barriers to business activity, and to improve tax policy and tax administration. Structural reforms are underway, as well as efforts designed to develop anti-monopoly legislation and ensure fair competition.

The members of the Foreign Investment Advisory Council in Russia hold in high esteem the efforts of the Russian Government aimed at establishing a foundation for high and sustainable economic growth and enhanced investment activity.

To improve the environment for intensified investment processes and increased direct investment in the Russian economy, and enhance the contribution of investments to economic growth, members of the Foreign Investment Advisory Council in Russia deem it necessary to concentrate efforts in the following areas:

I.  Administrative reform, including:

  • prepare proposals on arranging work to remove technical and administrative barriers based on international experience and harmonization of requirements with international standards;
  • analyze and prepare proposals on improving procedures involved in obtaining new permissive documents in the process of legal entity reorganization;
  • consider and prepare proposals on eliminating unsubstantiated restrictions on foreign capital participation in investment projects;
  • analyze current regulatory documents concerning state registration of certain types of products and prepare respective proposals taking into consideration the development and introduction of the relevant technical regulations;
  • consider issues associated with ensuring conditions for investments in the oil and gas sector taking into account the interests of all stakeholders.

II.  Tax Policy and Accounting System Improvement in Russia, including:

  • prepare proposals on the advisability of introducing statutory provisions to streamline taxpayer document flow, including its reduction and regulation of tax audits;
  • consider and prepare proposals on optimizing and agreeing deadlines and procedures for submission of documents for review by taxpayers and tax control timeline;
  • analyze and prepare proposals on introducing differentiated rates of mineral extraction tax, levying of export duties, and the feasibility of developing tax mechanisms that will promote investment in long-term projects;
  • prepare proposals on improving value added tax refund procedures;
  • consider progress in transition to international financial reporting standards and prepare proposals on its acceleration.

III.  Bank reform in Russia, including:

  • continue work to develop the banking sector based on improving the regulatory framework to institute the use of internationally accepted standards in supervisory practice in Russia;
  • develop mechanisms designed to enhance the regulation of bank liquidity;
  • prepare proposals on improving legislation protecting the rights of secured creditors;
  • improve bank merger procedures and enhance control over bank management and owners.

IV.  Enhancement of Russia's investment image, including:

  • finalize the development of the Program to Build and Maintain Positive Investment Reputation of Russia Abroad.

Session participants also discussed issues relating to more efficient use of natural resources, development of the food industry, agriculture; the manufacturing, construction and high technology industries, and deem it advisable to consider, inter alia, the following:

  • create an investment regime in the natural resource sector based on the principles of transparency, objectivity and fairness towards all parties involved in natural resource development, utilizing international experience in government supervision of investor activity;
  • reduce import duties on agricultural raw materials not grown in Russia;
  • specify the list of products subject to border veterinary control;
  • prepare proposals on amendments to legislation to implement the "one window" principle.

The members of the Foreign Investment Advisory Council in Russia reaffirm their readiness to continue participation in the Russian Government's efforts aimed at creating conditions for high-paced economic development and making direct investments a key economic growth driver.

The Government of the Russian Federation expresses gratitude to members of the Foreign Investment Advisory Council in Russia for assistance in the resolution of Russia's essential tasks in instituting and developing market relations in the economy and creating a legal framework for investor activity.

It is planned to step up the work of federal executive bodies in considering the recommendations put forward by session participants and preparing proposals concerning their implementation.

The Bank of Russia will be instructed to consider recommendations regarding further development of the banking system.

The next, 19th session of the Foreign Investment Advisory Council in Russia is scheduled to take place in Moscow on September 26, 2005.