factors in their investment decisions and in the beginning of this year growth. was slow it was significantly smaller than what the government wants to see the government wants to see five percent at least in terms of the average growth rates per annum so i think it will be important. the government that the president deliver a message deliver a vision. a vision and a message to the cabin intensity sure there were various signals there were various messages what is important is also a message to investors in terms of the road map of the key steps that are going going to be undertaken to address the key vulnerabilities that we currently see on the growth front and the cue ball in ability is investment right now consumption is doing relatively well but the weakness is investment so this is going to be the key issue i think martin what do you think what kind of economy will foreign guests see

in st petersburg are going to see the gloom and doom story that they read in western media or are they going to see something more new once again world of the. big changes in approach and. i will say. we countries managed at least last year is a businessman a lot of change and i guess the most important part on this upcoming forum will be the economy which growing slowly but which has and less patootie. again it's kind of a growth deficit it's we're not in negative territory here i mean some of the people are talking today about a recession it's not a recession and if anything i expect the economy to pick up in terms of growth rates later on in the course of the year i think the issue right now for russia is

to switch gears to some degree to have more of the growth take place not so much to consumption consumption is doing relatively well but more through investment russia after saving it's all windfall for so long has to finally fathom and learned how to invest this is really interesting is i think a lot of people forget the one nine hundred ninety s. and i think that explains the government today when they were broke yes debt yes and housing asking for that forgiveness remember that was the time when constantly there was this expectation and then two thousand two thousand and one completely changes the paradigm and starts to prepay external debt so there was a lot of that is one of the best solvent balance sheets in the world and you're saying you have to use it better they. better exactly it's the key issue just another figures that we have only two point five percent. versus our g.d.p. which is all. come on you know that's what a lot of business people are saying in their members of the government are saying

the same thing loosen up a little bit and invest it stimulate the economy but there's that's the big debate going on in the race is a very fine balance that has to be observed because russia has a fiscal rule which to some very well when you get out of where you are but yes go ahead but there are basically constraints. that are self-imposed that russia currently has in terms of how much it can spend to stimulate the economy but i think the key issue for russia right now is not to go for easy decisions it has the wherewithal it has the reserves to do the easy stuff i think right now the key issue is to do the difficult things the structural reform the productivity which is did allow you all the growth that's the question because it becomes a political question as well. i mean if there is a capability now at this juncture to deliver both growth and maintain macro stability i think that's going to be the ideal mix for for investors in terms of

what they're trying to. look for now because other emerging markets they may have a bit more growth but the sovereign balance sheets are in the four worst state what a company c.e.o.'s like yourself looking to the government to do what would you like to see the government do to stimulate the economy more i guess most important for us is certainty in fiscal policy is this is the key i guess second one is to have more transparency in term of or the control i mean. how is it to do because companies like ours we have full cycle manufacturing sarah rees production we need to more certainly if you just to increase our investments what we are doing so far and i guess what we see now that we're on this way i mean we need more sort on it in terms of to reinflate trade you know into

a more for fiscal project we are suffering a little bit about social taxes. immediately and significantly we are growing and i think. there is already some feedback from market because they have less collection and i have. i hope that will come back in near future in is really interesting is because we hear the economist arguing all the time ok but is the government in the economists listening to the business community enough you think. i think there has to be more of that for sure i think there's still has to be more emphasis that is made with regard to the bottom up growth in terms of investment and terms of enterprise in terms of innovation still it seems that to some degree at times the government would try to opt for easier top down decisions the big large scale projects to be conducted rather than the or have already been done yes and that delivered very in paul important impulse to growth including you

on the investment side and that's very important especially in terms of the growth at the regional level but i think we need a broader based app for it to facilitate business to business conditions for small and medium sized enterprises and at the end of the day yes it is about learning from businesses about what the real constraints are in that form that kind of reform that brings together business people and decision makers i think that is precisely one of the key issues for the forum in terms of what it can say with the former if you were to talk to someone an investor. or other companies thinking about coming to russia what would be your hierarchy of pitches you know the track to make it make make them come here what would you say to them i will give a. sample of the look in russia working much better than when you are doing some speculative investments and so you're saying you know we make make

a real commitment not just to you know you know just jump in and buy a few shares in june but. yes. i can see that in the long term investment in russia is more profitable than when you are trying to get money just. and this is something that can bring could not switch from vestment to real long term investments and i see a lot of a lot of companies. orders as well as you to see other companies and i see some high technology companies coming in russia and this is a long term project because the most important investment is investment people and this one is very important to build up a robust team which is able to grow your business to support your business you cannot make business internationally using expatriates and they want to say you know you're so vain those days are long over don't you think. greece and we will

see more contribution from russians themselves and the desire what i call reports russians like we as you were aware for a while and u.k. i. think they're going to be more people like that and one of the issues for the government right now is to exploit to use that diaspora that is out there abroad millions of people that potentially can come back and work in russia and russia has the third largest diaspora in the world we're talking about tens of millions of people and this is probably also the highest tech diaspora in the world so there are some of them have some money also right that's important but the most important thing is know how and a lot of them are professional silicon valley israel germany what have you and i think it is very proper and it's very encouraging that the russian government is starting to realize that there's this tremendous potential that needs to start working just like as was the case in ireland in south korea and taiwan are miracles

economic miracles precisely because they managed to bring back a lot of this human capital and make it work for the good of the country. i will say that such a forum like some people are going to make for almost some event. happening in the moscow. led by must call me or. give some broad picture for even russian experts in you know you know i'm not i think these forms are all good because you know that you get a lot of press attention but i still think it's individuals and companies that can sell this country better not the government yes exactly exactly and i think it's also the regions to some degree i mean moscow is very. very different from the rest of the country and this forum is a bit of window into how other regions of russia are doing part of the thing and i think there are some very interesting developments taking place at the regional

level we're starting to see that moscow is starting to be a bit of a lag laggard in terms of growth and their new growth polls i mean it's a lot of saturation of a lot of sectors and exactly exactly but at the same time in other regions like in southern russia for example there is a tremendous momentum in terms of the growth and consumption in terms of the development of infrastructure there is the northwestern part of russia around st petersburg that is quite successful in terms of attracting of the i four east is another growth pole that is taking off partly again because of the infrastructure effort that was undertaken recently due to the apec summit there so it seems like we're starting to see a bit of a change in paradigm in terms of regional development then for investors it's very important to gauge are you going to jump in here we're going to a short break and after that short break we'll continue our discussion on the st petersburg international economic forum state.

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welcome back to on the money where the business of russia is business i'm going to go to a minute we're talking about the st petersburg international economic forum but first let's have a look at what's going on in the russian economy. russia's economy is picking up again after slowing performance in the first months of twenty thirteen growth was recorded in all key sectors already in march and all eyes will be on the april g.d.p. results which are to be published within the next few days what in for size is the

issue of domestic growth is the fact that russia currently holds the g twenty presidency but the mere putin wants to present a recovering economy at the g twenty summit that will take place in russia in the end of the summer the country's gross domestic product expanded to one point six per cent in the first quarter of the year this figure is better than the economy ministries earlier projection of one point one percent the followed was broadly expected due to very high base effect from last year projections now are more cheerful hereto forecasts is three percent that we hear and we think the economy is going to grow three percent. where we will all have. been aware i mean there is a discussion at the moment about growth in russia there is concerns where it's going to go and it's going to go a long way even though the european bank for reconstruction and development slashed its twenty thirteen forecast to just around two percent for emerging economies for next year however it predicts

a striking recovery growth will be back on track up to three point two percent across the region and russia's g.d.p. would take the lead with a sharp upturn of three percent from the current one point eight higher growth should keep prices from rising inflation has concerned russians as it soared up to seven point two percent in the end of april from a target six percent but there are reasons to be upbeat russian agriculture ministry reports that this year's harvest will be good and slower food prices can be expected also the government plans to tighten control over utility and gas tariffs this is well could help keep a lid on inflation. powering up the economy will be the subject of intense debates at the st petersburg international economic forum in june this is a vital task that many countries are now facing and russia is part of this global paradigm lisa look and on the money.

ok gentlemen you know yourself can you you know when we look at the slowdown in growth in the russian economy which we just heard from that report will probably rebound at the end beer but how much of this can be attributed to external factors the eurozone for example russia's very susceptible to the european crisis and part of the reason for that is that for the past twenty years russia's foreign economic policy was tremendously eurocentric so instead of diversifying its economic and trade and investment links there was a very focused effort on europe and to some degree everybody believed in europe and you know we've been the euro we have some people seem to agree you know during some periods it did work but at the same time now when europe isn't crisis obviously this is having a significant impact on russia through the following mechanisms firstly europe is russia's largest trading partner so the capability for russia to export is lower because of that the second issue is on the investment europe as russia's largest

investor so there is less of an inflow coming from europe when europe is in crisis . the other issue is that there are more outflows from russia abroad because russia is seen as being susceptible to the european downturn and finally of course the other very important transmission mechanism is world prices through the oil price channel the crisis in europe affects russia so what is russia is trying to do is to diversify its economic links and to develop links with asia with other parts of the globe thousand happened very quickly yeah it will take time but. is encouraging to see the paradigm of russia's economic for and economic policies changing it's starting to forge alliances with countries on the far abroad like new zealand like vietnam like us so it's like taking virtue from the city in mean this was something that was thought about now you have to do it you don't have much choice. we have to

do that and we have to turn toward to. asia even excluding china because cells are growing much faster i will say we have to turn to africa which i guess is the next point of growth after those cells and. asia and we have to started to do now because the time we have to do it it could be late and all those are a lot of people interested in africa right. now you are stuff you mentioned in the budget rule because i think this is really interesting because it really gets to the crux of what kind of strategy is going explain to our viewers what the budget rule is and what is the arguments around it socially the budget rule stipulates that beyond a certain level of oil prices russia saves will fall below the benchmark level of oil prices which is around ninety one ninety two dollars per barrel russia will start to spend will fall to support the economy given that currently oil

prices are relatively high or they're higher than this benchmark obviously the issue is that russia is going to mostly save a windfall which is going to constrain growth because russia is not going to spend as much on stimulating the economy even though there have been. coming from the ministry of finance that some fiscal stimulus will take place the bottom line is that increasing we this first call rule is seen as too much of a constraint on growth and it is a very fine balance because your opinion and i do i like you and i like to have the budget rule i think we need this budget rule if anything it makes us very different compared to a lot of the emerging markets russia has rules versus discretion this is the proper economic policy especially in the crisis ridden world economy arguably with the european crisis we see that europe needs more rules at. it less discretion and i

think this is an anchor this first. gives russia more credibility but russia needs to be flexible it needs to retain this rule but also find ways to grow other than through the fiscal stimulus the simplistic. it's a short term thing you are doing when you think it will add just that we haven't as a potential in terms of. media and small size businesses because the they are paying much less in terms of taxes than their revenue today and we have. to increase their investments if we can promote and be more clear presenting our fiscal rules because for foreign investors it's kind of black books they're always talking about difficulties in russia but they never have a look at what does it means is difficult is and working in different countries i can say is that russia even not on the middle that's much better than

a lot of the traditional markets i mean in term of difficulties and we're particularly. recession two yeah absolutely i mean the global economic backdrop i think has a lot to do with the difficulties that are now experienced by russia but i think it's very important for russia to find. ways to generate growth and generate reforms even aside from what is happening with oil prices whether they're high or low there needs to be more of a momentum now coming from the russian authorities in terms of the structural reform how to boost productivity how to attract investment we're seeing some progress in terms of russia's rankings in terms of doing business. we are seeing steps in terms of trying to control the bureaucratic headcount actually for the first time in a very long time in the past one to two years we've seen a reduction. and the bureaucratic head count in russia so hopefully this is going

to be. you know i love talking about economics but let's talk about the consumer the average person what's the average consumer in russia how are they feeling about the economy right now they've got their wallets closed. it's not only economic this is also a country in our i mean nation we are consuming a lot of russians and love. and i don't think saw that their clothing. consumption is high but i guess consumption can be several times higher in case of interest rate in banks will be right much more down because well forty percent it's very very possible to think about growth so i think of the same time we have to acknowledge the fact that consumer lending is growing already. and almost to the point where i say you learn the lessons of what went wrong elsewhere exactly in the

eurozone in the united states so if anything some moderation at least from the point of view of the central bank is probably in order in terms of the scale to which this consumer lending its contribution to consumer growth again i would underscore the fact that the economy is maturing in terms of its consumption patterns there are new regions that are starting to consume or it used to be that moscow was all about the consumer boom that was the focal point of the consumer boom now it's regions more and more especially in the southern part of russia which is really probably now the main focal point of growth and the russian consumer is maturing in other ways it's it's a consumer who's more and more well off who is consuming more and more luxury goods or say consuming more and more foreign goods including buying property abroad according to the central bank of russia nearly twelve billion dollars are spent by russians. to buy property abroad so when we look at how much the russian consumer

is consuming it's not just within the country it's increasingly global yeah it's a global consumer and great job in the form in st petersburg is on the horizon if you were a lot of your putin's advisor what would be what slogan would you give for this forum in two thousand and thirteen. i will be very simple i will say we have rules and we have simple rules i mean this is rules and those rules will be the next forty years of five years come here look at the rules and do your business i mean. ok well that's what everyone wants an investment target a greater investment prioritizing investment on top of the strength that we have as a country as an economy in terms of consumption in terms of our quality of our balance sheet ok that's excellent there all right gentlemen we need thanks to my guests here in the studio and thanks to our viewers for watching us here on on the money see you next time.

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