 I'm leading the forum's work on competitiveness in the area of Eastern Europe and the CIS countries. And before we start talking about the future of Russia, I would like to highlight one specific product that we launched actually here at the summit in Vienna, which is the Russia Competitiveness Report. This report looks actually at how Russia could become a more diversified and a more entrepreneurial economy that would put it on a more sustainable growth path. This report is a collaboration with Speerbank and strategy partners, and we'll be launching it also at the St. Petersburg Economic Summit in 10 days. But without much further ado, I would like to pass on to Charles Grant, who is the Director of the Centre for European Policy and European Reform in London, and I wish you a successful session. Thank you. Thank you very much, Margarita. I'm going to start with an apology to our panelists because we have a lot of people here in the audience with a lot of expertise who want to say things, so I'm going to be very brutal on timekeeping with our panelists, and I'm sure they'll understand. I'd like their opening comments to be just two to three minutes. And I'm glad, Margarita, to mention the report on competitiveness, which is well worth reading. It's 270 pages without an executive summary, but it's still worth getting right to the end because it's extremely good. I just want to quote something that Herman Greff at Speerbank wrote in the introduction to the report. I think it does actually set the scene for our discussion today. Russia's current growth model, which is centred on high oil prices and leveraged facilities, is no longer effective. And he says that unlike the other BRIC states, which are either rich in commodities or in a well-educated workforce, Russia is in died with both. However, it suffers from poor institutions, sluggish competition, weak business competitiveness, and an unstable financial system which does not meet the needs of business. So I think that sets the agenda very well today. There's four particular questions that I'd like our panelists to focus on. One of them is the politics. We have a presidential election next year, and that political uncertainty obviously affects the business climate. Hello, welcome. I guess the political uncertainty makes it harder for the current government to act effectively, and it also may discourage people from investing in Russia from outside the country. A second subject for us is the road to a knowledge economy, and I guess we'll talk a bit about the Skolkovo venture outside Moscow, and whether or not that's going to help. And one may ask the question of whether a top-down approach to innovation is the best way of producing innovation. One could also ask whether Russia should focus on producing its own indigenous technologies rather than just copying technologies that other people produce, which is what China has been doing. The third subject is the investment climate, which I guess will give us a chance to talk about the whole modernisation agenda that President Medvedev has been talking about. And I think it'll be interesting to see in our discussion whether there's a role for the EU to play in helping Russia to modernise, and indeed whether WTO membership, which may, after 18 years of negotiations, be just around the corner. Would that really help? And the final subject is institutional trust in Russia, which gives us an excuse to talk about corruption. According to the WEF Spurbank report on competitiveness, corruption is the number one factor putting people off investing in Russia. And I would commend the report for being so extremely frank. I just to quote what it says on one particular place. The problem of corruption and undue influence is getting much worse. Undue influence is rampant in the administration and the judiciary. The regulations are amongst the most burdensome in the world. In addition, the judiciary is inefficient and unfair. Well, we've got a fantastic line up today to answer these questions and others which may come from the audience. I'm going to start off with Vadim Belkyarev, CEO of Ott-Cretier Financial Corporation. I'd like him to talk about, or just a very brief word about, how he sees modernisation in Russia. In particular, whether the question of tariffs and WTO membership are significant, would the customs union with Russia also be important? Is that going to be important in generating growth? So the customs union with Belarus and Kazakhstan, is that important in generating growth in Russia? How does that fit with the EU's own relationship with Russia? Tell us what you think, Mr Belkyarev. Thank you, sir. Good afternoon, ladies and gentlemen. I would like to speak more in Russian and a much more comfortable user translation if you need. I'd nevertheless like to begin perhaps with a different point that is the forthcoming elections as our moderator just mentioned that has introduced a certain element of uncertainty. As I see it, unfortunately, for us living in the country, there isn't really any uncertainty. My view is whoever comes in as a result of the elections will still be one of the members of the tandem. And there's scarcely any disagreement between them, so it looks like we're still going to be left with the same approach. As to the business community, I think stability is a big plus. I think that means as a result that too was likely to continue in the long term. Not long before coming here, I met with Mikhail Prokhov as you possibly know, has accepted to head the new old party. It goes under various names and one of the main issues is the sorts of things that could serve as motivation in terms of street analysis. He was trying to tap the public sentiment about a possible extension of the tandem and what they thought the impact would be economically. People tended to think things would deteriorate because this has gone on for so long we would have to need yet another hike in oil prices or a shift in internal policies as far as price regulation is concerned. And it was this sort of thinking that prompted him to make his move. But I think the situation is slightly different. This is a reality on the ground that goes without saying. But I think if we analyze the last ten years, sometimes this is compared with the stagnation that prevailed towards the demise of the Soviet Union. I think somewhere in the neighborhood of 2005 we were seeing some serious, some vigorous reforms being introduced under Putin. And as I see it, it's likely that that policy is going to continue regardless of who comes into the office of the president after the elections. But I also see that in actual point of fact if we're going to have numerous structural reforms the first main condition is a liberalization of prices or tariffs and that is less state regulation. For that to happen in real terms and let me remind you that most of the people in the country are still people living within the strict household budget or pensioners and they are interested in seeing their income wise at least to the point where they can cover all of the essential outlays. If that doesn't happen then it's clear then there's really not much point to such reforms and that one will still have to compensate people. That is a large proportion of the people in the country. As far as I'm concerned what really happened between 2005 and 2008 was a sort of preparation for that sort of reform but actually pension payouts wouldn't seem to be more than negligible at that time and one could move towards liberalizing the internal prices. However the crisis hit in 2008 we now see nobody wanted to take an unpopular decision just before elections but I think after 2012 it's quite possible that such a decision could be taken and if we add to that a fiscal reform so that the burden be shifted from corporations to private individuals then we truly could see the potential for comprehensive change in the Washington Federation. Thank you. Thank you for that optimistic outlook. Let me turn now to Anatoly Ballo, Deputy Chairman of Vanessa Conerman Bank and he's going to tell us what he thinks Russia needs to do to modernize its economy and in particular the role of his own particular bank in that. Good afternoon. I just wanted to draw people's attention to the fact that for any number of years now the Russian government has been engaged in a constructive policy which in particular has had the effect that in 2007 on the basis of the Nezhekin Bank which is one of the more traditional banks which covered all of the foreign trade deals of the Soviet Union that an institute for development was set up very much along the lines of what exists in other countries like KLW in Germany or China Development Bank in China actually this was a decision that was taken right at a very good time because given all the symptoms of the crisis that were making themselves felt back in 2008 I think that was being felt throughout the economies of any number of countries the Nezhekin Bank which was at that time meant to be elaborating long term projects did in fact on the one hand look into recapitalization of the banking system in the country there were long term subordinated credits provided to the bank system and thereby there was indirect support provided for the priority sector at the same time we provided more than 11 billion dollars worth to strategic companies at the same time we were paying off debts that we held with western banks so that these same western banks could avoid bankruptcy proceedings over the last two years we have though actually emerged from the crisis which can be seen from the 11 problems that our Roselka colleagues are talking about they've been talking about restructuring debt they are now on the Hong Kong exchange they are doing an IPO and are in future talking about additional projects but what I want to say with that is that what the Russian government is about is precisely what is going on in the international market having said that this is precisely what the Russian economy actually does need those who may not be aware of the Fineshek Bank and state corporate developments we cover any number of lines we are involved in major investment projects we are also involved in public-private projects by way of illustration I could cite the joint venture with spare bank for building the Moscow St. Petersburg motorway that comes to more than 40 billion rubles the Fineshek Bank is also involved in export crediting which is very similar to what the last 10 years has been operating in France plus for the last six months our bank has been involved in establishing a direct investment fund which I think will act in good synergy with the development institute because the Russian administration is planning to invest no less than 10 billion dollars in this fund and we feel that ultimately this same fund should amount to some 10 billion dollars worth in addition to all of that similar to what the KFW German Development Bank is doing we are trying to support medium-sized businesses encouraging small entrepreneurs we work on a bank-to-bank basis and at the moment about 5% of all the support for small and medium-sized entrepreneurs is provided through it I don't want to come across as advertising my own bank it's just that not to plug in but our 100% subsidiary is working in the northern Caucasus the region which you probably realize is the one that feels the pinch more than anyone else for long-term credits there is a civil plan in place for a pipeline we have some 10 projects for the northern Caucasus you know that there's a tourism cluster that's also in the pipeline in April for example Sorry, I want to interrupt you with a quick question you mentioned building a road from Moscow to St. Petersburg there's an incredibly interesting table in the WEF report on competitiveness that shows the cost of building a road in Russia is $10 million per unit I don't know what the unit is, it doesn't tell us which is three times the cost of building a road in America twice the cost of building a road in the EU and roughly ten times the cost of building a road in China why is it so expensive to build a road in Russia? Well that's no surprise with regard to China because of the administrative control of the economy this road will be going through a number of populated areas and the price has to do with the need to buy up land as you may recall with the Olympics coming up operating administratively one has to operate using the given market mechanisms for purchase of land but that's not the biggest project as far as we're concerned the development bank at present sees its priority rather as developing those regions which are most sorely missing long-term financing so that's why we're trying to set up this direct investing fund for the Far East but we're also talking as I said about the northern Caucasus and we have a huge pipeline of projects we imagine that over the next two to three years these will create jobs for no less than 100,000 people in the region the other thing I just wanted to add is that we're also financing Olympic projects Olympic Games projects which are also important social terms for the country you've brought us to the Caucasus so let me now turn to the Prime Minister of Armenia Mr. Sargsyan your economy obviously intimately connected to the Russian economy are you optimistic about Russia's ability to modernize its economy and can I also ask you would Armenia like to join the customs union between Kazakhstan, Belarus and Russia? thank you very much Mr. Chairman thank you very much for your invitation and additionally I would like to answer your five questions as well I have four minutes for five questions I will try to answer first question is about the elections and I agree with my colleague that the outcome is already foreseeable that's clear to investors that's clear to all of those who will be governed by the victory the other question was about setting up some sort of innovation centers what efforts have been made in Armenia specifically there are any number of circumstances that prevent us from successfully developing such innovation projects especially to do with funding and third had to do with the investment climate and we have a number of problems there because we have to carry through institutional reform that has to do with your fourth question and what prevents us from doing that is corruption so we have to tackle the matter of corruption we have to find a way to overcome corruption which is putting a break on everything else for transnational corporations corruption and the current investment climate are not perceived as terribly risky what's more important for them is the political foreseeability of development in our country the investment climate in our part of the world as it relates to small and medium sized business because you have to have a middle class for that unless you have the middle class you can't talk about small and medium sized business or have a civil society so if we want to see really fundamental change in the country if we want to see a more favorable investment climate if we want to see institutions functioning properly then we have to create a civil society and what emerges is that in order for that to happen and in order to develop small and medium sized businesses we have got to develop a potential for combating corruption I think the first remedy is institutional reform but we have to have the political will in the administration to resist corruption but when does political will emerge it tends to be when people are fully convinced of their right doing if the authorities have that conviction that what they're doing will be good for the country will be good for the people but good for the future of the country then they will engage in such reforms in essence that's what it involves all of the processes underway in Russia have an impact on what happens in Armenia we are part of the same economic space we have similar outlooks we have a similar cultural background as to the customs union and we've heard this question raised many number of times as far as Armenia is concerned we see no will gain to be had by joining it there are economic reasons we're already a member of the World Trade Organization since 2003 and we have been pursuing sufficiently liberal policy export import duties and all the rest have come under that heading so there's really no point in joining the union do we border on the countries which are members so as I say as we don't have a common border we don't see what we stand to gain from it what would be the advantage then in having goods from Armenia do not have to travel a border from one of those three countries be exempted from customs duties so as I say we stand to gain no advantage rather we would have to review all of our own customs duties and bring them into line with what Russia, Kazakhstan and Belarus are imposing that would entail certain changes in our own economic national structure and that's very difficult to assess at this stage thank you I turn now to Kelin Betov who's Minister for Economic Development and Trade in Kazakhstan I know he has a particular interest in the customs union so having heard a slightly negative assessment from Armenia can you tell us why Kazakhstan is so committed to it why have you agreed to have a common system of terrorists in Russia are you benefiting from it and do you think it will grow beyond three countries and are there potential problems in your relationship with the EU because it may be harder for you to develop trade links with the EU if you have your own customs union with Russia and Belarus so thank you very much for your question I try to form a more optimistic approach rather than my previous colleague and so today we are talking about modernisation so in order to have modernisation we have to have focused industrial or innovation problems so in order to have this program you have to realise what kind of market do you really work for example if we are talking about why the Kazakhstan or Belarus wants to enter in jointly with Russia to the customs union so in Kazakhstan we have 16 million people joining to the customs union we get the access to the market with the size of 170 million people it's a different type and I think it's not reuniting of the previous value-aided chain but on the base of the new technologies maybe it's a new approach and this is the biggest market after the European Union probably is the second market from Lisbon to Vladivostok and I think there are some advantages of this definitely it will be also a competition between different type of enterprises Russia, Belarus and Kazakhstan but this is a market competition and I think it's a good sign this integration union from the other side the second very good issue is now we understand that it's a lot of changes of investment and trade flows between different parts of the world between Europe and China between Europe and India and in these terms the customs union or let's say post-Soviet union countries could be really good business hub or channel or transport routes from south to Europe from India and China it's a former silk road or something like this is also good opportunity to develop infrastructure and number three is what is let's say destiny and what is the future of this customs union to be service economy to be growing Chinese dragon service economy to India in the future when they will be let's say in advance than other countries or to be more innovative maybe to be to produce some new technologies in these terms I know that there are some pessimistic approach here could we produce innovation and I'm not sure that even such famous project like Skolkova could replace the whole innovation system which have for example exist in United States or in European Union I think it's more center of excellence more the benchmark for the rest of the system how to develop we know that the Russian colleagues or some enterprises in Belarus in Ukraine in Kazakhstan very much develop in terms of technology in military terms in nuclear energy in space and I think we should based on these achievements maybe develop more let's say latest technologies but the rest is there is nothing bad with the transfers of technologies and there is no we should not be shy of that Russia and Kazakhstan depends from the oil and gas so like you mentioned in your competitiveness reports so three important issues for the sustainability of the state is first is macroeconomics and I think in these terms Russia and Kazakhstan managed last decade it's more or less good the second is infrastructure we should be maybe develop it more and there is opportunities to do it which you mentioned my colleague from development institution like development banks or something like this or PPP mechanism and number three is institutions we talked about the oil curse in terms of the countries like Russia and Kazakhstan oil curse is more about the grand seeking behavior of the business community if business it will be approach not the government driven growth in Russia and Kazakhstan but more let's say private sector driven growth it will be absolutely another approach and I think this is the only way for transformational economy and I think we should follow more this way in these terms we should decrease the number of shares of the government owned and national companies both in Kazakhstan thank you very much I turn now to Wolfgang Schussel the former chancellor of Austria and I'd like to ask him a little bit about the EU's relationship with Russia and the world that the EU can potentially play in helping Russia to modernize there is now a modernization partnership between the EU and Russia and a lot of member states have modernization partnerships but as my colleague Barisch has said of the EU-Russia relationship it's all smiles but no action there's quite a good friendly relationship but the partnership and cooperation agreement talks are stuck the four common spaces nothing much happens in them so do you think Mr Schussel that there is scope for the EU doing more than it's doing now to help Russia? we're on both sides and I think we should do much more but I think the moment is now and the time is ripe for it first coming back to the elections I fully agree what is already said we had experiences with Vladimir Putin eight years now three years president Medvedev so whatever the outcome will be Russia will continue and I think this is good because I was in 98 I was as asked to foreign minister I was chairing the European Union and the year second half of 98 was the year when Russia nearly collapsed so I have some experiences with that and since these times these dark times I think there's really an enormous improvement in the status of the Russian economy the Russian political institutions etc nothing is perfect no doubt about it but I think we should really have a broader picture and a broader view how Russia developed and I think there was always a balance between those who are more we call it in Europe conservative may be a little bit more state oriented and those who are more modernized and there's a carefully designed balance between these I think Medvedev and Putin are more or less addressing the same electorate but probably two different constituencies one more to the urban more liberal constituency and the other is more addressing those who are more interested in stability in the military complex etc so I think whatever happens I think Russia will stay on track and I think it's important to keep Russia on track because what President Medvedev announced at the beginning of his presidency to fostering rule of law encouraging entrepreneurship modernizing the economy I think this is absolutely state of the art this has to happen and there are good news and some problematic news good news I think Russia is now probably this year completing negotiations with the WTO I think Russia is next in line become a member Pascal Lamy is quite optimistic you and United Nations the United States agreed more or less on the terms of the membership of Russia and I think this is important because it's the precondition that Russia could become member of the OSCE but this will probably happen next year and one precondition was decided last year I think it was last week or 10 days ago when the Duma signed the anti-private convention of the international anti-private convention because this is an important step forward to fight corruption because for the first time corruption is a crime there's no longer something which is immoral or whatever it's not a moral issue anymore it is crime and that the Duma last week decided on that is a big step forward the third steps I think the modernization program announced by President Medvedev end of March was also a good step forward to de-link a little bit more the SOBs the state-owned businesses from state influence I think it's again it's not perfect there's still a strong part of the Russian economy in the hands of politicians and the institutions but to separate ministers from the board functions of state-owned business is a good step forward we have some experiences as well it's absolutely fine but there on the other hand some problematic news one was mentioned by my neighbor the pension scheme reform there's an absolute need today the the relationship between those who work and pay for the pension scheme is 2 to 1 workers and retirees and in 20 years time from now it is 1 to 1 so this is really an urgent issue I agree that before elections it's maybe a killing issue and a very dangerous issue but I think it has to be addressed in the minimum after the next elections as soon as possible second point which is also very concerning this is the situation of capital outflow if you want to get foreign investors in a country you have to create a climate of confidence and trust but if there is an outflow of capital out of Russia and it was last year about 40 billion US dollar and in the first quarter of this year it was more than 20 billion US dollar so there is a lack of trust within Russia this is a very concerning point in my view I think it has to be addressed the other things are included in this perfect paper really congratulations to the WEF this is fantastic the Russia competitiveness report includes everything a to-do list and one point is absolutely important this is creating a kind of middle class we call it in in Austria-Germany middle standard without the middle standard we will never get an entrepreneurial society and this is so needed not only in Russia but also in other countries in the region thank you very much indeed before coming back to our panelists I'm sure I've got a lot more to say I want to open this up and take some points from around the room it's a bit difficult to see because of the lights who would like to answer the question but can people who would like to make a point jump up and wave at me so I can recognize them and then we'll get some microphones to them who would like to make a comment or ask a question nobody at all in that case there is a gentleman near the back if you could introduce yourself if you have a question comment brief please good afternoon you mentioned the organization twice I will ask you a question I just came back from Moscow talking to different policy makers and one of the key question is what is the role of the states in Russia knowing that the state controls directly or indirectly large proportion of the economy to turn it around what should be the role of the private sector how to support SMEs and also foreign direct investments to further diversify the economy that's my question and it's related to the membership of Russia to the OECD because that's a major question to address if you could cast the microphone to the lady in front of you Katinka Barisch from CR she would like to ask a question we'll take one more and then we'll come back to the panelist thank you very much Katinka Barisch from London I'd like to hear from the panel how do you assess the impact of the trial and retrial of Mokovsky on the perceptions amongst the business community on the investment climate in Russia and also perhaps what we read about the experience that some oil companies like VP and Shell have made in Russia, thank you I can see two hands up on this side the front is the lady from Oxfam the lady first who's got the microphone she can go first then the lady from Oxfam yes, please go ahead and introduce yourself Sarah Hewinn from Standard Chartered Bank a very brief question has the recent rise in commodity prices been a blessing or a curse for Russia okay and then finally in this round lady at the front just here thank you Olga Gazarium from Oxfam, UK in the last two decades Russia has witnessed a spectacular reduction in the number of people that were impoverished as a result of the economic transition however there are stark regional disparities and inequality within the population and my question is how do you see whether that's a problem that hinders the development of the whole economy and what do you think the government needs to do to address the stark inequalities between the regions and among the population, thank you well four good questions there and I'd like our panellists to not answer all of them but just pick on one or two that I think they really like to comment on let's start with our two Russian panellists Mr Benayev would you like to comment on any of those points a venture replied to the last question about inequalities and the way in which income is distributed we have a very weak middle class in Russia I think that's clear to most of you it's a huge problem when business is built on out of its own means and there's nothing else by way of supply them you're talking about the need for capital flows nor the rest of any number of other problems one could associate with this so you're asking how can we put together a system enable us to develop smaller medium-sized business over the last 20 years been working on it but we haven't got any clear results to show for it yet what it seems to me that's important that has happened recently is that the situation I think has radically changed with regard to retail bank capital I think that's one important and possibly the most important step forward because a number of retail banking societies provide credit in Russia and they have managed to pull something off that we had never accomplished throughout the whole of Russian history they've managed to penetrate just about each and every household by providing financial services the sort that is most necessary in Russia and that is in the form of consumer credits I think anything that follows thereafter will depend on just how we play that card in the first instance when we see what the return will be on this level of credit that has been provided through state and private banks to individuals that is to retail clients and we will see whether that can serve as a basis for further developing the small and medium business community because if we are to judge from the past the major banks with goddess of what has been said to their credit as we've heard from the Venetian bank they have us yet to score any major progress in that field I think in terms of how they are perceived by private consumers or how we have helped small and medium sized business that answers the question on inequality perhaps we will also question on whether commodities are a curse or a blessing and the question of the trial of Kotarkov scheme Mr Magnitsky's and the EOECD Mr Ballo would you like to pick up one or two of those questions I wanted to respond to a previous comment I'm not all together in agreement with what was said I just wanted to point out that there is a large scale program that is being carried out by our subsidiary for small and medium sized businesses we are providing through subsidized funds that come at a rate that is less than the usual rate in other words small and medium sized businesses who are keen to get in on some innovation project can do so on a subsidized basis moreover the program covers all of the regions of the country be that the northern Caucasus or the far east as to Mr Harokovsky and his trial I didn't really want to get above the discussion of that but it seems to me that the court in Strasbourg has determined that this is an economic issue at stake and even whether it would seem in financial terms that considered to be one of the more civilized societies people who are convicted of tax crimes or tax evasion are to face certain consequences so I feel that what is going on with Harokovsky really has no impact on economic development in our country or on the investment climate but another question was raised about disparities between the regions yes I would agree that there is an unequal distribution our bank does go out to the regions but we specifically set priorities as far as we are concerned for those regions that most need our help the northern Caucasus we see that there is a lack of investment resources and indeed one of the overriding principles by which we are guided is that there is a lack of competition from commercial banks in those regions so we go into areas where there is a lack there was also a question about high oil prices you were talking about the steep prices for oil the crisis has made it clear that the Russian official policy for setting up reserve funds this demonstrated that even at a time when oil prices are high that they are still setting up reserve funds and I think that's altogether right so as to have contingency fund in the event of further crisis and also to prevent further inflation I turn now to Prime Minister your country, unlike some of your neighbours is not blessed or cursed by oil deposits and lots of gas deposits are you happy about that do you think your neighbours are better off with or without oil and gas that's a tricky question sometimes we say thank God we don't have oil we have to use our brains instead but I actually wanted to devote to the question about the role of the state in countries with a transitional economy it seems to me that the state is like the Mulhausen image who pulls the weight of the country by his hair and there can only be a truly effective state though where there is a civil society because they hold the government to account and where there is no civil society then you have corruption on your hand so the government itself must appreciate the fact that to have a civil society isn't their interest so from that standpoint transitional economies are places where we have to see the government understanding that ultimately they're going to have to gradually relegate their responsibilities to the civil society now that's rather complicated because any corrupt system any corrupt administration is not likely to handle their responsibilities rather they will try to invent new forms of authority because it enables them to continue to derive profit I don't think there's any secret in fact that we need an enlightened government that understands the risk of such an infection taking hold and that it realizes that it has to delegate many of the government functions to civil society it needs to perceive the need for this handover to society first of all do you think that's true and do you think that in your own case oil is a blessing more than a curse if you wish to comment on any other questions that's also fine first of all I think we have to learn from each other we are very similar economies and I think so a lot of issues we have to do in the next period of time but in terms of the blessing of oil course so it depends from let's say how responsible your economic policy two sides macroeconomic policy for example both in Kazakhstan and Russia we create reserve fund which help us during the crisis from the other side is break even price in a budget plan so if there is more than 90 dollars per barrel and this is a pre-election campaign and social expenditures will increase definitely because it's always in Russia and Kazakhstan we are in between overheating or recession and we've seen it in previous terms and we've seen it in the future so for example in Kazakhstan during the crisis grows like 3% or 1.2% now we have more than 7% and we'll come back to 9 and 10% it's very difficult the second issue is more about how to build really are we going to build real market economy so in this terms the government should not replace the private sector and the question from OECD side was how are we going to do it how are we going to deliver it with institutional strengthening the Russian government and Kazakhstan government declare the huge privatization program in the nearest perspective so this is not the issues of the budget deficit this is issue of to bring the owners and efficient private business communities in order to manage all this stuff because the government never could be efficient so it's not only classical theory this is a real practice so in this terms I think if we will do this responsible economic policy and to provide political stability during this period I think in a very nearest perspective we could deliver it with the right result before I turn to Mr Shusul just if anybody else would like to ask another question because they jump up and down so I can see them I turn now to Mr Shusul do you agree Mr Shusul with Mr Ballo when he said that the Karakovsky affair would not have any negative impact on foreign investment in Russia and you may wish to say something else as well but I'd like your views on that I think if you want if you mean it seriously establishing rule of law independent justice and independent judges this is a precondition therefore everybody looks carefully how this case or different cases are done so it is an important matter how people see their rights guaranteed how they see the judiciary sector is working I think if you want to establish rule of law and good governance I think Europe has a lot to offer with countries in transition and this partnership Europe and Russian modernization is exactly about these issues second if you want to reduce poverty you need business people you need manufacturing you need small and medium sized companies but don't forget industry and innovation so again Europe has a lot to offer in this in these areas we established last year here in Vienna a dialogue forum Europe Russia called DER and our partner in Moscow is the Inso Institute of Professor Jürgens we had various seminars already in Brussels and in Moscow and exactly all these issues were part of the debates so we need government to government approach but we need also think tanks addressing the right things and one of the most important things is to improve the educational system in Russia if you want to have business people you need a kind of entrepreneurial spirit if you want to have more technology more innovation you need more academics you need better education if you want to have industry you need skilled workers there's an enormous lack on that so again Europe can offer something we have for instance in central Europe in Germany, in Switzerland and Austria an excellent opportunity with our vocational training the Russians are very much interested to import these programs to the far east reach where they have enormous problems in poverty and less developed areas I think this is something what we can offer and what the European Union together with others could do but again I think Russia needs time there will not be from one year to the next year a big change in the role of the state it will be a gradual approach privatization step by step not the big chunk of what Jeffrey Sachs already proposed years ago and which ended in a by the way this is part of the Kodakowsky saga this was the wrong way to privatize some areas so we should do it in a better prepared in a very responsible way this is what Europe can offer and it is very interesting because there are no better partners than Europe for Russia, Europe is the best and the most important partner also for us Europeans, Russia and the countries in the neighborhood are very important I get a very optimistic tone coming out of our panel on various issues which is good can I just see anybody else keen to make a point from the floor not at the moment gentlemen at the front please Jochen, what is my name doesn't work here I have a question for Aminia really, we heard you were committed to fighting corruption we have recently invested about a billion into Russia, considered investing in Aminia but the story we heard I hope it's wrong but I would love you to comment on it it's a very concrete story so someone who is committed to invest 100 million or so into Nairit, a chemical company in your country someone who has apparently worked for three years to try to build the company up and then apparently the government cut off the electricity cut off the gas supplies nationalize de facto the company then sold it to gas from at a price much higher and supposedly your brother is now in charge of it now that sounds terrible to a foreign investor I was just wondering if we are talking about we want to fight corruption, what's going on here this sounds really bad and it would be nice to have a comment before we get the answers later here I would like to ask a question over on my right if you could stand up so we can see here and then ask a very brief question please and then two more if we can squeeze them in thank you very briefly at Davos this year Moscow made a big push on a global financial center could we have some kind of update on the banks, their balance sheets and also integration of financial services within the region okay there's a couple of hands over here all the questions are 20 seconds we can fit them all in three gentlemen on my left and then I'm closing the list yeah sorry Paul Austin I've been talking a couple of the other forums about the fact that we're a major investor in Azerbaijan but obviously I'd like to hear about how the problems between Armenia and Azerbaijan are going to get solved because we're trying to help the entire region good question nice and quick gentlemen behind you thank you a question primarily to the two panelists from Russia how do you assess the probability that we will really see a diversification of scale if there's large agreement that is needed for modernization innovation it's less clear if the rent seeking elite is really interested in diversification thus reducing a rather comfortable source of income okay and there was one final person who was over yes the gentleman with glasses very briefly Russia struggles with the same issue of demographics as western Europe and when we discuss this relation here today I'll just briefly to ask what the panel thinks about overtime and in history what you can't populate you can't control and up being to my question about whole Siberia and the borders with China do you see here as the future in view of demographics great thank you for the snap and isn't the question I turn now to our panelists they can have one minute each to answer whichever one of those questions they wish to answer I'm going to start with Mr. Vadim Believ very difficult to get that into one minute as to the financial center I think there are certain moves underway there is a lot being done in the legal sense of though as I understand it they're probably going to use Singapore as a model where it was initially proposed that one create a climate where foreign investors might feel themselves so comfortable I think that's the basics as to what's going on at the moment Mr. Palo of Vanessa Conan Bank I just wanted to say not just comfortable in the sense of taxation but also in terms of hotels and airports in other words that there be some modicum of comfort in the infrastructure as to the far east the government does realize the risks involved that you were talking about we are setting up this development corporation in the far east and a fund for direct investment in that region so that by investing in the infrastructure through projects in that region we can create new jobs on the one hand and also boost the local GDP did you want to talk about modernization as well I've got time sorry Mr. Sargsyan, two questions for you if you can do 30 seconds in each of them problem with corruption and how are you going to solve the Armenia as a by-genre the first question I would like to divide it into two parts first being transitional economies have a lot of problems some of them I mentioned corruption fluctuations instability and so forth and that creates certain problems for investors if such a transitional economy the investor knows that the rating is not going to be all that high that's a risk he's got to take that on board but we have to do what we can to get a higher rating so that the risks can be foreseeable and that we can do as much as possible to diminish that overall risk factor as to the other specific question I am very familiar with this particular case and countries with transitional economies do not turn out to be the best investors in fact they tend to be crooks more than anything they are not particularly interested in getting a particular factory built or reconstruction in another area they are after something else to buy things cheap may be affect a couple of changes and then triple the price for resale there may be objective reasons that could come into play as well for example the shift in gas prices we don't have gas ourselves we have to import it that's a market risk so any investor is going to have to take that on board as well that the gas prices themselves could shoot up at any given time finally that was to do with Armenia, Azerbaijan and our relations we are interested in having these relations smoothed out as soon as possible we believe that the OEC Minsk group is close to getting a settlement indeed the most recent statement that was made by the presidents of the US, France and Russia that is the statement on behalf of the co-chairs the Minsk group would give us cause for hope and it would seem that given the political will we can get a speedy agreement as far as we see it there are the objective conditions in place all that we need is to have our Azerbaijani colleagues exert the same political will and at that stage we will be in a position to sign an agreement which will constitute for future talks further talks Mr. Karan Betov pick one of those questions if you like or say any other final comment in a minute so we actually talk a lot about modernization I think we because we have more business community and expert community here it's time to invest in the custom union space to Russia Belarus or Kazakhstan it's a good opportunity good market infrastructure skilled labour force and I think definitely there is a lot of problems but we have to solve them jointly and I think it should be win-win approach from both side and I think in the nearest perspective it will be very promising market okay thank you finally Chancellor Shusum last week we had the seminar as I said in Moscow addressing exactly the problem of an aging society and we offered to our Russian colleagues different think tankers etc in insight how poor concrete issues poor Poland Hungary and Czech Republic what they did changing their first pillar the second pillar, the third pillar raising the the entry age of pensioners which is a necessity no doubt about it Russia has one of the lowest ages to become a pensioner so there is a need for that but also to creating a second and the third pillar so it was an exciting discussion and we offered also a poll made by GFK this is the Russian poll institute on 2000 Russians and they said they are absolutely not informed about this issue so they have no strategy at all so the consequences of that is first inform people there is a problem with the Russians Singapore does it in an excellent way they had the most difficult issues settled in a very participatory way with their population I don't like the semi-autority system of Singapore but the way how they communicate with their population was excellent so there is really a lesson to be learned from Europe and from other parts of the world and Russia again is not a case to be varied I think this is really for my opinion next years to come an interesting case study how a modern partnership could work I think the lesson about political leadership and the need to communicate the need for painful and difficult reforms is just as relevant for western Europe as Eastern Europe and indeed as Russia I'm not going to summarise the discussion I'm all I'll say is I'm happy about the optimistic tone which one doesn't always hear discussions on Russia can we have a round of applause for our panellists please and before you go for the rest of the report we've talked about are available for free at the document centre where is the document centre just it's too long to download try and print it out it breaks your printer it broke my printer but get a copy of the report