POINTS OF THE ADDRESS OF THE RUSSIAN AMBASSADOR TO TURKEY P.STEGNÝY TO THE PARTICIPANTS OF THE BLACK SEA FORUM
ON THE BUSINESS COOPERATION DEVELOPMENT
Istanbul, 3rd March 2004

Dear Mr. Chairman,

Dear participants of the Forum,

It is a pleasure for me to address the prominent members of the Istanbul business community on “Russia’s business and investment opportunities and the perspectives for bilateral cooperation”.

Let me first outlinethe current situation in the Russian economy. Our most important accomplishment of the recent years is that we have managed to overcome the dangerous negative trends of the previous decade and to secure our country’s macro-economic stability. It is now possible to state that Russia has restored its position as a reliable and predictable business partner.

The task of securing the nation’s economic and legal integrity has been essentially done, and the threat of its territorial disintegration eliminated. The large-scale reforms have been initiated dealing with the paradigm of the relations along the “centre versus regions versus local self-government institutions” line. This especially applies to the way the authority and the functions, as well as property and finance sources, are distributed between the various power levels. The general vector here is to transfer more power and authority to the regions, thus making it possible for them to cooperate more effectively with foreign partners.

The sustainable growth of the nation’s GDP has been assured. In fact, the growth in real figures has been almost by one-third (29.5%) within the years 2000-2003. For 2003 only this figure is estimated to have been by no less than 7%, with the annual rate for the last four years remaining 6.7% on average.

Throughout the recent years, the inflation rate in Russia has been gradually decreasing. It was just 12% last year, compared to the average of 36.5% for 1999. As for 2004, it is expected to be not more than 10%.

Russia’s foreign trade balance has been positive, with export totalling almost two times as much as import.

The taxation reform is another field where a significant advance has been the case. The rates of some primary taxes have been noticeably reduced, such as the tax on profits — from 35% in 1999 down to the present 24%; the income tax — a unified rate of 13% has been imposed; the VAT — from 20% down to 18%. A new simplified system of smaller business taxation and a unified tax on agricultural production have been introduced, and the motorway and sales taxes abolished. As a result, the general tax burden for 2000-2003 has been reduced by approximately 4%.

The national finance system has been actively recovering. There has been a considerable increase in the assets and resources of national financial institutions — banks, pension and investment funds, insurance companies, etc. The structure of Russian bank resources is getting closer to the international practice. Consumer and industry crediting has become a prominent banking activity. The people’s trust towards banks is rising: in 2003 alone, the total amount of bank deposits grew almost up to US$50 billion. From this year on, such service as the consumer bank deposit insurance has been introduced.

The situation with the federal budget utilisation has changed drastically: in 2000-2003, the average annual budget surplus was kept at the rate of 1.9% of the GDP.

The federal revenues obtained from the privatisation process in 2000-2003 amounted to almost US$5 billion.

As of January 1st, 2004, Russia’s national debt has dropped from 146.4% in 1999 to just 33% of its GDP, which is two times lower than it is required for the EU membership.

It is now possible to say that the problem of foreign debt has by now also been largely defused. As for the end of 2003, the ratio between the country’s foreign debt and its GDP was slightly more than 26% (or US$119.1 billion), compared to almost 90% as of the end of 1999 (or US$158.4 billion).

The permanent investment growth has also continued (by 12.5% in 2003 alone). The high rates of the economic growth, the political and social stability have had a positive influence over Russia’s investment attractiveness, which is also the case on the international scale. The amount of direct foreign investment is estimated to be around US$6 billion for 2003 (with the average for the period of 2000 to 2003 being US$4.7 billion). By the end of September 2003, the accumulated foreign capital in the Russian economy has amounted to US$53.6 billion. We are also pleased to state that Turkey is becoming one of the leading investors into the Russian economy (along with Germany, the USA, Cyprus, the UK and France) with its accumulated direct investment exceeding US$1 billion.

The fact that our country has been recently promoted in the Moody’s Agency ratings is a clear recognition of its progress.

The Russian currency, the rouble, is gradually becoming more and more attractive as an object for investment (with its exchange rate remaining roughly on the same level as it was three years ago). The process of de-dollarisation of the Russian economy has begun. The stability of the rouble’s exchange rate, largely owing to considerable gold and monetary reserves (amounting to US$84 billion as of February 1st 2004), in line with the dynamic economic growth, create the necessary prerequisite for the Russian currency to become fully convertible.

The rising per capita income (growth by over 50% within four years), is directly related to the positive changes in the economy and constitutes a serious factor making Russia’s huge consumer market an attractive destination for investment.

The current positive trends both in the Russian and, as far as we are aware, the Turkish economies, are a good incentive for further development of our bilateral trade and economic relations. Such relations have lately been developing at a very high rate, assuming the locomotive role for the development of the whole range of our contacts. The existing high level of cooperation in this sphere was appreciated by H.E. Mr. Abdullah l, Deputy Prime Minister and Minister for Foreign Affairs of Turkey, who has just completed his visit to Moscow. It is also worth noting that during this visit he was accompanied by some 150 Turkish businessmen.

The volume of our mutual trade has been steadily on the rise. Its total amount in 2003 has reached the level of US$6.5 billion (growth by 27.5%). Taking into account the whole scope of our trade items and the diversity of economic ties, Russia surely ranks second among Turkey’s foreign trade partners.

The preferential treatment for the importation of goods into Russia by individuals, which was expected to be abolished by January 1st 2004, so far has been left in force, since it is well known to be a valuable economic factor for those Turkish manufacturers and vendors who are dependant on their Russian clients engaged in the so-called “suitcase trade” business (in fact, in price terms, our duty-free importation allowance per person has been almost doubled). Nevertheless, with all my responsibility, I would like to draw the attention of the esteemed Turkish businessmen to the fact that it is high time for them to consider seriously re-orientating the current “suitcase trade” schemes towards more modern ones, including creating joint wholesale companies and opening trading centres in various parts of Russia. A good example of that may be the forthcoming opening of a new wholesale trade and office centre. Its construction has been made possible thanks to the joint efforts made by the Turkish Union of Chambers and Exchanges and the Union of Turkish Exporters.

Producing goods within the consuming country is known to be a good way of evading possible trade barriers, as well as improving the products’ market competitiveness. We therefore consider it very important to further develop our mutualinvestment cooperation. There are lots of good examples for that. Investments made by the “Ram” and “Enka” companies for the Ramstore supermarket network, the “Anadolu Holding” (food industry), “Þiþe Cam” (glassware production), “Vestel” (consumer electronics), etc., are worth mentioning. Since recently, an interesting trend has been noticed of investors moving away from major centres, where the costs of labour, rent, raw materials procurement and other production components are lower, and where various incentives are provided for the coming investors by local authorities. We therefore welcome the current practice of organising business trips to various Russian regions, which we find highly effective, making it possible for the Turkish businessmen to see for themselves the needs these regions have and the opportunities they offer.

The major Russian companies too have started to show their interest in entering the Turkish stock market and, together with their Turkish partners, participating in the privatisation of state-owned enterprises, such as the TÜPRAÞ or the aluminium plant in Seydiþehir. The project for the establishment of a sparkling wine production line in Kilis is also known to be underway. The recent discussions over the price issues and the amount of gas supplies from Russia slightly overshadowed the fact that the Blue Stream gas pipeline project, worth US$3.2 billion, has been indeed the major Russian investment into the Turkish energy sector and a clear evidence of our strategic attitude towards the development of our cooperation with Turkey.

The ongoing liberalisation of the Turkish energy market creates new opportunities for new joint projects. It might be rather useful — both for investors as well as consumers — if Russian gas suppliers were allowed to invest some of their gas sales’ revenues for the development of local infrastructure. This issue is expected to be put on the agenda of future discussions between the related governmental institutions and companies.

Turkish contractors have been active in the construction sector all over Russia. The total contractual amount of their projects there exceeds US$13 billion. The Turks have indeed secured their ranking on the Russian construction market as highly qualified and esteemed professionals, and we are willing to continue our mutually beneficial cooperation in this sphere.

There remains much to be done in terms of Russian companies’ participation in future joint infrastructural projects on Turkish territory (construction of power plants, dams, oil and gas pipelines, energy lines, transport infrastructure, etc.).

We also find it important to find mutually suitable solutions regarding the issue of our bilateral motor transportation. A good contribution to easing the situation could be provided via the establishment of joint transportation companies and signing direct agreements between the related business associations of the two countries. To our view, the agreement of September 12th 2002, signed between the Association for International Transportation (ASMAP) of Russia and its Turkish counterparts (UND), constitutes a good foundation for that.

New prospects for our two countries’ business relations on the regional level are created through the concept of developing the Russian-Turkish cooperation in Eurasia. The basis for that has been provided under the related Action Plan signed by the two countries’ Foreign Ministers in November 2001. The possible areas of such cooperation are currently being elaborated within the framework of the said document’s economic dimension. We consider it quite timely now to start discussing our mutual coordination and our companies’ possible joint initiatives concerning Iraq.

Within the recent years, Turkey for Russians has indeed become a tourist Mecca. A record number of Russians — some 1.2 million — visited Turkey in 2003 alone, making tourism yet another sphere where active cooperation between our companies is possible. This could be especially the case concerning possible joint projects for the development of the Russian tourist sector, the demand for which among the Russian public has been lately on the rise.

Responding to the sponsors’ request for providing additional business information about Russia, let me invite the esteemed participants of the Forum to address their questions to the Istanbul Branch of the Russian Trade Representation in Turkey and to the local representation of the Russian Chamber of Commerce and Industry. One could also find the necessary information on the following web sites:

www.tpprf.ru
www.ivr.ru
www.exportsupport.ru

Thank you for your kind attention.