It is a pleasure to be here at the Higher School of Economics in Moscow, a prestigious institution in Russia, and all the more impressive that it was established on the initiative of renowned Russian economists Evgeny Yasin and Yaroslav Kuzminov, along with leading reformists from the Russian Government such as Yegor Gaidar and Alexander Shokhin. I was privileged to meet Mr Yasin in the Kremlin when I visited Russia in the aftermath of 1992 and he was a clear thinking, imaginative man in uncertain times.
The UK and Russia share a rich history and culture. Both famed for producing literary greats, the likes of Pushkin, Shakespeare, Dickens and Chekhov - rarely a week passes without a Chekhov production featuring on a stage in a London theatre. Russian culture remains of great interest in the UK - a new exhibition at the London V&A museum of Diaghilev’s Ballets Russes has already attracted more than 50,000 visitors, since September, and the annual Maslenitsa festival in spring remains popular. And, of course, with the London 2012 Olympics and Sochi 2014 Winter Games, we have an additional sporting link.
I’m here today to talk about some of the other things we have in common, particularly regarding our shared economic difficulties, but I also touch on some of the opportunities we have to work together for our mutual benefit. Both our countries experienced the full force of the global economic crisis. But, particularly through our efforts in the G20, we are helping to forge a common path to recovery.
Between 1999 and 2008 the Russian economy boomed on the back of large foreign capital inflows, rising commodity prices and re-utilisation of Soviet-era capital stock that had lain unused for much of the 1990s. Growth averaged over 6% per annum. Britain, too, embarked on a period of growth, albeit at a more modest rate of 2.4% per annum, built instead on a property bubble and over-reliance on the financial services sector. However, the global economic crisis hit Russia hard, with the country experiencing a 7.9 per cent drop in GDP, while the UK suffered a 6.5 per cent drop in GDP. The Russian economy is now in better shape, with the government forecasting 4 per cent growth in 2010, while the British economy is in the early stages of recovery, although again with slightly more modest growth.
One thing the crisis taught us is that it is important to pursue broad-based, sustainable growth, without excessive dependence on a single sector. What is clear to both governments is the need to rebalance their economies and seek new, innovative sources of growth, a commitment shared by both President Medvedev and our Prime Minister David Cameron. In the case of Britain, we are rebalancing away from financial services towards sectors where we have a particular expertise or ability, for example in terms of advanced manufacturing, low carbon technologies, creative industries, pharmaceutical and healthcare. In your case, away from the over-dependence on natural resources towards a greater focus on some of your traditional strengths, such as science and manufacturing.
That is not to say that natural resources, or in our case financial services, will not continue to have an important role to play in the future prosperity of our nations. Financial services play a vital role in the British economy and will continue to do so, and we have a wide range of expertise in terms of consultancy, insurance, legal affairs and various financial markets. It’s just a realisation in both countries that such over-reliance, as has been proven by the credit crunch, can be dangerous.
Shared aims for the future
Both countries are working towards reducing deficits, both are dealing with challenging issues around its banks and banking sectors, but both share the fundamental aim of economic growth and the improvement of conditions for our people and businesses. And it is here where there are real opportunities for increasing bilateral trade - and that is one reason I am pleased to be here in Russia this week.
It is clear that despite recent problems, both the Russian and UK economies have enormous potential - and both remain important economies on the world stage. And to achieve growth, both countries have set out ambitious plans to transform their economies. Of course, the process will not be quick or easy and difficult choices are being made by both. But I am struck by the similarities of both governments’ ambitions and I would like to touch on some of these here today.
Efforts are being taken in Russia and the UK to improve the conditions for investment. The UK is ranked first in Europe for ease of doing business and we intend to become first in the world. We are cutting our corporation tax to 24 per cent, the lowest in the G7, creating one of the most competitive corporate tax regimes in the G20, cutting the time it takes to set up a new business, and scrapping the needless red tape and excessive regulation. Ultimately, the message I want to give to you today is the Britain is open for business.
I know that in Russia, Deputy Prime Minister Shuvalov has been appointed head of a commission to improve the investment climate and I hope both countries are successful. Certainly our presence here this week is part of ongoing efforts to improve bilateral trade and give our companies further opportunities for success. Of course there are issues, and we should not - and are not - ignoring them. Both countries understand that economic growth requires a robust and transparent legal system, the reduction of administrative barriers, smoother customs procedures and the protection of intellectual property rights.
This last point is particularly true in terms of supporting technology and innovation. Both countries boast proud histories and have potentially profitable futures in this area. The British Prime Minister and President Medvedev are both keen to develop their own versions of Silicon Valley but, this aside, both countries are already world-leading, something which certainly stems from a strong academic base.
We realise in the UK that we cannot compete with the likes of countries such as China in terms of labour costs. But where we do have an advantage is in terms of innovation and technology. The British Government is funding the development of technology and innovation centres in the UK to bring together in one place university spin-outs, business advisors and funding providers, all with the aim of creating profitable businesses from our innovation. It is certainly one area where I see potential for further cooperation with Russian companies, institutions and investors. The Skolkovo research hub is one where I see real opportunities for British companies and investors.
I know that the Ministry of Economic Development here in Russia is following a not dissimilar course of action, putting aside funding for investment in space, nuclear technologies and scientific research. I hope that the continuing efforts of our Knowledge Partnership are fruitful and that greater collaboration can take place. For those of you who don’t know, the Knowledge Partnership is a process facilitating links in education, science, innovative business and financial services to support Russia’s economic modernisation, and welcomed by President Medvedev during the Foreign Secretary’s visit in October.
Increasing international trade is another key ambition of the new British Government, and that is why trade delegations have visited - in no particular order - Brazil, India, China and now Russia. We strongly support Russia’s proposed accession to the WTO, and hope that the few remaining technical issues can be resolved in the nearest future.
Good trading relationship
In terms of bilateral trade between Russia and the UK, the position is good but could be better. Nearly 600 British companies are active in Russia. The UK is consistently one of the largest single direct foreign investors in Russia, with Shell and BP the largest foreign investors in Russia’s energy sector. Pilkington’s biggest factory outside the UK is in Russia, with other major investors including Barclays, Astra Zeneca and Kingfisher (B&Q). Financial and legal services are our largest export to Russia, and 15 UK law firms have offices in Moscow.
From the other perspective, Russian companies still account for nearly a quarter of all foreign IPOs on the London Stock Exchange, despite the economic crisis. Five successive Lord Mayors have been to Russia to talk about the many strengths of the British financial services industry. The British Government is currently addressing takeover rules in an effort to ensure shareholder value is much more aligned with the interests of employees. I’m certainly not opposed to foreign ownership of British companies, and I’d like to reassure Russian companies and investors that the UK remains open for business. Russian investment bank VTB Capital is doing very well in UK, while other companies such as property developers PIK and anti-virus software company Kaspersky are expanding in Britain.
Potential for collaboration
In terms of other sectors where I see opportunities for collaboration in Russia, these include advanced engineering; airports; construction, including rail and power; creative industries; and financial services and oil and gas, of course. It is encouraging, also, to see that both countries are supporting and encouraging small businesses and enterprise - something the British Government believes will be vital to a vibrant and successful economy. The fact that more than 2,000 UK SMEs showed an interest in doing business in Russia in 2009 is also a positive sign for Britain, and Russia, and we must work hard to ensure that the interest is turned into a reality.
I’d like to finish was a quote from Chekhov. He said we should “learn to appreciate there will be times when the trees will be bare, and look forward to the time when we may pick the fruit.” Well, I hope that we are now both moving towards a period of economic growth when we can pick that fruit. I can tell you that the British Government is committed to doing what it can to reduce barriers to trade and encourage bilateral trade, and I look forward to strengthening our historical and cultural ties in the future.