Russian cabinet discusses Russian export structure and support

Russian exports have hit the mark of $137 billion but the export structure remains traditionally based on natural resources, and the share of industrial products in the total export is insignificant, Prime Minister Mikhail Fradkov said opening a government session devoted to the structure of Russian export and its state support.

Mr. Fradkov noted that Russian exports contained few hi-tech and machine-building products.

The government should analyze the situation critically, but the state should be able to find ways to support exports, stressed the prime minister.

"We should get this process moving forward," said the prime minister, and "the support question requires a complex approach."

Mikhail Fradkov set the task of increasing the export of machine building products from 8.6% to 10%, but Minister of Economic Development and Trade Gherman Gref entered into a debate with the prime minister.

He said, "it is impossible to solve this problem within a year, it is not a question of figures."

In his words, the 2% increase of the export share is $4.5 billion in terms of prices. "This is a very serious volume, and it should be produced, while we are talking about support for exports," noted Mr. Gref.

In reply, the prime minister concurred that this was not a question of figures. However, he said, "I want qualitative production to stand behind this, because one produce weed and sell it, but I want it to be cucumbers at least."

As a result, after this discussion, the prime minister suggested a new milestone for the government - to make the share of machine building products increase at least 0.5% a year.

According to Gherman Gref, the most important item of Russia's export is nuclear reactors to the sum of over $800 million a year. The most profitable items are deliveries of turbo-reactive, gas turbines ($600 million), deliveries of vessels, including military and rescue ($560 million), and also deliveries of cars and transport vehicles ($305 million).

According to Mr. Gref, the share of hi-tech equipment in the total export is $100-odd million.

The share of exported machines and equipment is growing worldwide, said the minister. In international exports, industrial production accounts for 40%, and machines and equipment total 50% of the U.S. and German exports, and 70% of the Japanese exports.

According to Finance Minister Alexei Kudrin, it is possible to increase the share of machine building products in Russia's exports in the next two-three years.

"We have really become competitive in attracting investment even with neighboring China," Finance Minister Alexei Kudrin said at today's government session devoted to the program of state support for export.

By way of example, the minister cited Siemens's willingness to obtain a large and the package of shares in the Russian-based Silovye Mashiny.

This will allow drastically increasing the export of electrical equipment, Mr. Kudrin is convinced. He also mentioned cooperation between Sukhoi and Boeing in building regional aircraft.

Mr. Kudrin suggested that the set task should be as follows: the share of machinery and electrical equipment in the export structure should be increased not 10% within a year but 15% within five years."

Another condition for increasing competitiveness of Russian exports is to increase labor efficiency.

"Our task is not only to create competitive conditions for exporters and help expand the markets, but also to raise labor efficiency," Gherman Gref believes.

He refuted the suggestion that Russian exports are hampered with high prices for energy tariffs and the rate of the ruble.

"There are also high energy tariffs in the West, and also a high rate. But the example of Japan and the United States shows that the tariff problem has nothing to do here," noted Mr. Gref.

The task of the government is not only to equal conditions for Russian and Western producers but also to expand the markets, including the domestic market, he said noting that the support for exports did not contradict the fundamentals of a liberal economic policy.

When asked by the prime minister why the support for exports was inefficient in the past eight years, Gherman Gref said, "We simply tried to make profits out of exporters, and did not pay enough attention to the fact that simply needed to build another nuclear station, and the state did not worry about how he would do it."

"Mentality did not allow us to spend real money on export support, because we did not feel comfortable about taking money from the budget for this purpose," Mr. Gref explained.

As for the main component of state support for Russian exports, Deputy Prime Minister Alexander Zhukov said, "This is above all the question of VAT, VAT reimbursement in exports is a key issue which would not allow exporters to be in an unequal position to competitors."

"It is necessary to solve this problem soon, submitting amendments to the Tax Code," said Alexander Zhukov.

According to the deputy prime minister, one of the most important elements of export encouragement is elimination of export customs on highly processed products.

Other significant elements, Mr. Zhukov says, are prevention of excessive ruble strengthening and crediting.

The vice premier also deems it necessary to attract attention to a number of sectors requiring state support, for example, Russian aircraft deliveries.

"There are two large world companies, Boeing and Airbus, who we can compete with only with state support," said the deputy prime minister. In his opinion, such measures are necessary for deliveries of Russian aircraft to Cuba and some other countries.

The Russian Economic Development and Trade Ministry suggested that the 2005 budget allocates funds for state guarantees to exporters and banks crediting them to the sum of $600 million at least.

This year, Mr. Gref said, $500 million was allotted by the budget but this money has not yet been used due to the lack of some regulatory documents.

Mr. Gref believes that apart from financial measures, non-financial steps should be made too. The minister added that such moves had already been made in the customs and tariff regulation. Gherman Gref thinks that customs duties on finished commodities should be maximally reduced in the next two years, and export duties should be confined to "the narrow range of raw material items." Besides, import duties on component parts and products, which have no analogues in Russia should also be cut.

According to Finance Minister Alexei Kudrin, this year measures for export support were somewhat wider than it was earlier mentioned. In particular, apart from state guarantees to exporters and banks, direct loans worth $600 million were provided to other countries for the purchase of Russian products and for paying for services and the work of Russian experts in these countries.

German Gref pointed out that the Budget Code did not heed the mechanism of state support for exports.

"The government cannot independently give guarantees to the sum of over $10 million. Such guarantees require amendments to the loan program to be passed by parliament," said the minister.

The Ministry of Economic Development and Trade drafted relevant amendments to the Budget Code and coordinated them with the Finance Ministry, added Mr. Gref.

According to him, amendments to the Budget Code encouraging the provision of guarantees, facilitating mandatory pre-export procedures and some other measures are also important.