April 6, 2010 / 10:17 AM / 9 years ago

Foreigners, job cuts key to Russia success -Kudrin

* Foreign investment brings new technology: Finance Minister

* Says Russian companies must cut jobs, boost productivity

* More effective budget spending needed to avoid tax hikes

By Darya Korsunskaya and Dmitry Sergeyev

MOSCOW, April 6 (Reuters) - Russia must make more effort to attract foreign investors, while its companies need to slash inefficient staff if the economy is to succeed in diversifying away from oil, Finance Minister Alexei Kudrin said on Tuesday.

Russia’s dependence on oil and gas — which make up around 60 percent of budget revenues — meant it was hit harder than other major emerging markets by the global crisis.

President Dmitry Medvedev has made it one of his key tasks to change that, although initiatives so far — such as proposals for tax breaks for companies focused on innovation — have been relatively few in number and small in scale.

Foreign investment is key to bring new technology to Russia, Kudrin told a conference at the Highest School of Economics.

“It is essential to create a favourable investment climate, which could make it safe and comfortable for leading companies to come here or create unions with Russian companies,” he said.

Russia also needs “political competitiveness” and improvements in the legal system, Kudrin said.

Foreign investors are keen to tap Russia’s oil, gas and metals wealth, as well as to capitalise on its fast-developing consumer sector. But barriers include the state’s tight grip on the energy sector and widespread corruption.

Transparency International rates Russia joint 146th out of 180 nations in its Corruption Perception Index, saying bribe-taking is worth about $300 billion a year.

Courting investors may become more important after Russia suffered its deepest gross domestic product (GDP) contraction in 15 years in 2009. Foreign companies are increasingly seen as necessary to modernise industry and persuade Russians that domestic goods are not inferior to imports.

“The possibility of realising projects today hinges not on the lack of financial resources but on how protected investors are on the Russian market,” said Kudrin, a 10-year veteran at the helm of the Finance Ministry.

“In this we must make a breakthrough. Such proposals are being prepared by the government. Some of them will be aired in coming days.”


Kudrin has consistently sought to restrain government spending and his proposals may find little support among parliamentarians — many of whom argue Russia must spend more to build up its industry — while ordinary Russians are unlikely to support his proposal for job cuts in the name of productivity.

Billions of dollars of state funds were pumped into Russian heavyweights — such as carmaker AvtoVAZ AVAZ.MM — during the crisis, which helped to boost real disposable income by 1.9 percent in 2009 while the economy as a whole shrank 7.9 percent.

“Our anti-crisis policy was aimed at supporting the population ... but by defending the population we somewhat reduced our stimulus for growth in the next year or two,” Kudrin said.

“After such active support there remains the task of getting rid of excess staff, increasing productivity, cutting costs.”

Kudrin said the government too “will have to do more with the same amount of funds. And if we do not increase effectiveness of spending ... we will have to increase taxes.” (Writing by Toni Vorobyova; Editing by Ruth Pitchford)

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