Vnesheconombank First Deputy Chairman, Member of the Board P.M. Fradkov’s interview to Vedomosti newspaper

Philipp Sterkin, YelizavetaBazanova
April 22, 2015
Vedomosti

“My ambitions are to boost Russian exports”

The Fradkovs are a dynasty of government officials: they work as functionaries and state bankers. Petr Fradkov has been with Vnesheconombanksince he was a student. His dad helped him to get a job with Vnesheconombank, he admits. So far, he doesn’t have any ambitions to repeat his father’s success and become Prime Ministerbut he is following his father’s path – foreign economic ties (his father’s track record ranges from foreign trade to foreign intelligence). Since 2011, Petr Fradkov has been in charge of the Export Insurance Agency of Russia (EXIAR). Since 2011, the Agency has insured export supplies worth more than $6.5 billion. Now he is going to engage in non-financial export support by way of simplifying procedures, consulting and helping to tap new markets. In his interview to Vedomosti he is trying to explain how exactly he is going to go about this.

-Did your father help you in your career?

Yes, he surely did.He helped me with advice and suggestions at the start of my career.

-And what about moving up the career ladder?

-After graduation, I started working as an expert for a respected institution, namely, VEB. It was the first career push.

-Your father served as Prime-Minister, what ambitions do you have? Would you like to occupy the same position?

-Not bad (laughing). You took me by surprise. I’ve never even thought about such a prospect. (laughing). All my thoughts are associated with supporting exports. My task is to combine interest with implementing ambitious plans.

-So far, your ambitions are to boost Russian exports.

-Exactly…

-Now your father is involved in foreign intelligence, he is the head of the Foreign Intelligence Service. You are responsible for exports. Do you somehow discuss your work?

-I can’t discuss his work. (Laughing)He is interested in exportsafter all it’s a question of foreign trade in which he was involved in his young years.

We don’t see much of each other, so there are many things to discuss besides work.

-Would you like to join the Russian civil service?Are there any offers?

-I haven’t been a civil servant. So far, I haven’t received any offers, so there is nothing to discuss.

“He let this theme through himself”

What’s the main aim of a Russian Exports Center being set up?

-It has become clear in the past two years that there is a need to consolidate services for exporters. We were active in working directly with exporters both when we launched EXIAR and as part of a road map to support exports, (the road map “Support for Access to Foreign Countries’ Markets and Exports Support”, it was approved by Resolution of the Russian Government dated June 29, 2012, № 1128-r Vedomosti). It is one of the road maps that wasworked out in due time as part of the national entrepreneurial initiative. Unfortunately, in those times exports were not perceived as a key priority. Nevertheless, a task of creating conditions for export activity was formulated and they started to implement it. Nowadays the third revision of this road map was approved by the Government in early April. And we could clearly see that for addressing this task we need to create a unified exports support system. Until that time we segmented our work from various points of view. We successfully worked on financial exports support instruments includingVnesheconombank'sundertakings. It established EXIAR, restructured Roseximbank but this is far from being sufficient now.

Exports support system requires both financial and non-financial measures. And it was the work on the road mapthat was an underlying factor in our strenuous efforts to form an exports support system. We held lengthy discussions with First Vice Premier Igor Shuvalov who took charge of the work and with Andrei Belousov who started to work on the road map and is taking part in developing it and with line ministries and ministers in person. And as a result it became clear that we can’t createan adequate exports support system using only financial assistance rendered by EXIAR and Roseximbank. On the other hand it makes no senseto developnon-financial instruments separately. We need a unified management system. A decision was made to set up anappropriate institution – a Russian Exports Center. And now we are taking strenuous efforts to launch it. On April 13, Dmitry Medvedev signed a decision to establish an institution within Vnesheconombank.

How did you take this sort of decision with Shuvalov?

A Russian Exports Center is Mr. Shuvlov’s initiative. I think he explored this theme thoroughly,if I may say so, he let it through himself. At the meetings, he often cited experts’ opinion about China that didn’t isolate itself under the conditions of sanctions in the late 1980-ies and on the contrary liberalized its exports - legislation, a support system etc. Mr. Shuvalov’s backing made things easier for us including a decision on a corporate structure,Igor Shuvalov was in favor of creating an exports center on the basis of VEB, given its mandate as a development institution, with EXIAR and Roseximbank to be transferred to the Center in order build up a unified system of strategic exports management within VEB. We enjoyed full unanimous support here.

-An original idea was to create many support pointswithout any overlap points and now an idea to unify has emerged. Sometimes from the outside it appears that separate points do not function well.

-Nobody says about poorly functioning points, what is meant here is the absence of a unified system. After some years, we can see better how the exports support system should work more efficiently. New things are coming into being. In recent years, we have launched an export insurance mechanism as well as an exports subsidy mechanism. These are new things. A lot has beendone in terms of finance, it’s a new stage as regards our road map. This is just a new system, a new quality. And it is too early to say thatit will replace the bad one.

“A stereotype that exports are nonexistent is not true”

-You say that the idea came into being two years ago but now the economic situation and the situation with exports have changed.

-It wasn’t an idea to set up a center two years ago, it was a matter of systematic exports support. It became clear that the then exports support was not in line with requirements and needs of Russian exporters. At present, we have institutions and agencies, which provide nonfinancial support for exports – export transactions support on foreign markets, identifying demand for domestic products, studying operational specifics on various markets. Matters related to export contracts execution are also within their competition. In the past, even exporters who wanted to be supporteddidn’t apply to the state for help because the exports support system was not structured enough. We arrived at a conclusion that we should create a system of one window through which exporters would able to receive a whole range of services to support their products on foreign markets. This system will be a sort of assistant, a broker between exporters and institutions without taking functions from institutions.

-What do you mean by a broker?

-Broking is a reaction to the fact that functions to support exports are performed by various institutions. The Center being set up will be a partner for exporters in receiving a whole range of services. When exporters apply for support, they will not need to know how this mechanism operates but they can be consulted on any matter. And as result it won’t take them long to receive financial support and a range ofnon-financial services. Non-financial services will be offered by institutionsat the request of a Russian Exports Center and they will choose form of cooperation.

-What non-financial services will be offered to exporters?

-A list is rather long. For example, assistance in customs clearance, export VAT-refund execution.

-The Russian Federal Tax Service is responsible for this.

-In most cases small and medium-sizes exporters do not simply know howto execute documents on refunding VAT.

Butwe have an accelerated tax refund system.

Nevertheless, problems arise even today both of technical and substantive nature. We are working on a procedure for exporters to apply to the exports center and then the center and FTS will use their own regulatory procedure to settle a given problem. The same applies to the customs service and market promotion issues.

For example, we have a system of trade missions abroad. There are more than 50 of them. But in practice few exporters cooperate with them and it’s not because trade missions do not want to work with exporters – in most cases exporters do not simply go there and trade missions are not in a position to address specific tasks for business.

This exports support center will be also responsible for promoting Russian products to foreign markets as well as for processing exporters’ requests jointly with trade missions thus developing jointly trade mansions’ project business competence.

-It’s hard to imagine that trade missions are capable of assisting greatly in promoting products to the market.

-There are always two approaches here – you can close and break up quickly what was in place for yearsand you can try to reform on a step by step basis. One of the reasons to set up such a centeris to introduce andapply all state mechanisms for them to start operating as a single market mechanism. Surely nobody says that trade missions should become commercial organization with comprehensive market competence – it is not possible. The center will assign a task to trade missions both directly and by asking specific questions with regard to promoting a specific product made by a specific manufacturer to specific markets.

An estabblished stereotype that there are no exports and that Russian exports are not competitive is not true. One of the center’s goals is to form and support a continuous flow of various projects of all kinds of companies.

-In order to advise on various matters you need a large staff. Are you going to employ specialists on the staff or are you going to hire them on an outsourcing basis.

-There is no doubt that there will be a combination of both. We wouldn’t like to create another garbage-like structure that would be responsible for everything. We presume that there won’tbemany people at the firststage, we don’t need a numerous team. Our center will focus on developing non-financial instruments and EXIAR,Roseximbank and VEB will be responsible for providing financial support.

There are many non-financial lines of activity for example providing support for access to the market, protection of intellectual property, certification, permission documentation etc. And there is no doubt that one and the same expert won’t be able to specialize on France and on Yemen at the same time, we won’t have expertson each line of activity, on each country but we’ll have a group of highly qualified experts on specification and special regulation and we’ll have a special group on taxation and currency control and as far as highly specialized matters are concerned we’ll turn to outside experts.

“Ministries will never be customer-oriented”

-How are you going to capitalize this center?

-So far, a decision has been taken that VEB is to capitalize the center became it is being set up in its structure. The Bank will be the center’ssole shareholder. EXIAR’s and Roseximbank’s shares will be transferred to the center. At a pilot launch stage, it will be enough for us to use our own financial resources. Our center is being set up not to make money on exports, so we don’t plan to charge money for our work from exporters at an initial stage. Maybe, if the center’s performance proves to be super-efficient and exporters confirm that the center is of great help for them in terms of financial resources, consulting and promotion and if the center develops a unique market product, we’ll explore the possibility of receiving commission for our work but this won’t happen at the current stage. So, we are going to discuss this issue with the government and experts later.

-Maybe, the center should operate on a semi-commercial basis?As a rule when I pay, I expect to be served well and those who serve me will try to do their best.

-All the exporters we talked to, showed their interest but their interest and their readiness to pay are different things. Now we should start working and the closer we are to specific project matters the easier for us to see if we need paid services.

-You’ve mentioned that you hold meetings with exporters, you had a meeting with Mr. Shuvalov but the center is oriented not for big business but I’m sure big business participated in the meeting with Shuvalov?

-When we met with Mr. Shuvalov, we focused on medium-sized companies. But nobody says that we won’t provide support for big business. But let’s be realistic – big companies are capable of addressing their problems on their own they have their own funds. Our mission is to inform small and medium-sized companies about instruments, about existing opportunities.

-How can you inform so many exporters – it’s a very difficult problem.

- It’ a difficult but manageable question. I have experience from working at EXIAR.Just imagine, three years ago a mechanism came into beingwhich nobody could in principle understand. Can you imagine if a new concept of “credit” had emerged only three years ago? Now everybody understands this concept and even now sometimes questions arise. And there appeared a concept of export insurance. Sometimes people reacted aggressively as if it had been another attempt to trick people out of their money. But we did our best to communicate by giving explanations, holding dozens, hundreds of workshops as well as meetings with exporters and financinginstitutions. I held this kind of meetings myself, so I believe that our center’s functions, above all at the first stage should include communication with regions: we should tell them about financial and non-financial instruments, hear regions and get to know their needs, identify required changes in their business environment to address issues of supporting exports on a systemic approach. We don’t have such a structure now, we have only a list of ministries which work in their niche.

-This is what the Ministry of Economic Development is designed for.

-On the one hand it is, but on the other, it is not. Look for example at the distribution of powers in the Ministry of Economic Development, the Ministry of Industry and Trade. The Finance Ministry, the Federal Tax Service, the Federal Customs Service as well as the Federal Service of Financial and Budgetary Supervision and many others operate in the exports sector.

-German Gref often criticizes the public administration system and he proposed setting up a center to manage reforms outside of ministries and you also made a decision to set up a new institution on the basis of several existing ones which appear to be functioning inefficiently. All this testifies to the fact that the existing administrative machinery is not capable of meeting the interests of market players?

-Here I mean a different thing and to my best knowledge, this is the case with very many countries. Ministries will never be customer-oriented. A ministry’s goal is to perform clearly defined state functions. Ministries are responsible for rulemaking and law enforcement. Ministries do not have customer-oriented and service functions. So, we’ll have to lobby businessmen’s interests at those ministries too.

-Sanctions are a main motivator

-Who will be in charge of the center?

As a decision was made that this structure is being set up in VEB because VEBis a bank for development and since I’m responsible for exportsI can’t rule out that I’ll be in charge of the new center.

-You’ll be in charge of the center and Vnesheconombank First Deputy Chairman at the same time.

-Yes, I will – interaction with VEB is of crucial importance.

-How are exporters surviving under the conditions of sanctions? How do you help them?

-As far as sanctions are concerned-it’s to a great extent a financial issue. I can’t see any opportunities her to offer any non-financial services there isn’t much room here. Probably we’ll focus on legal matters related to exports if we don’t mean dual-purpose products, and there won’t be any legal problems.Subtleties emerge when we talk about funding exports, we are dealing with them,for example, we help exporters to find financial solutions for reentering other markets. Will sanctions limit the center’s activity? No, they won’t. On the contrary, exporters need additional assistance. We can say that sanctions have become a main motivator for our increased efforts to support exports. So far, we can’t see any problems directly related to raising financing for export transactions in the financial sector. Many projects are moving forward but with a focus on other markets – CIS, South-East Asia and Latin America.

-Are there any interesting contracts made on the Asian market?

-Yes, there are. Quite a few. Last year exports to the Asia Pacific region countries including India amounted to 110 billion dollars and foreign trade turnover with the region according to the customs is by volume the second after Europe. There are many large-scale projects, for example supplies of Russian-made turbines and there are also many small-scale projects worth hundreds of thousands of dollars and these segments of supporting small- and medium-sized exports should be enhanced.

- We often hear that China is our partner. But bankers and companies say one and the same thing – nobody is waiting for us in China, nobody is going to provide financing, China focuses on the development of its domestic market. What do you think about promoting our exports to China?

-China is a counter agent and we have to hold lengthy and detailed negotiations with it. Before I moved to EXIAR, I was responsible for raising funds at VEB. We performed long and detailed work with the Chinese – tens and hundreds of meetings. But after making a decision, nobody works as fast as our Chinese colleagues. As a result, we raised a significant amount of Chinese funds and nobody extended credits for such periods and at such interest rates. We export products to China but the amount of exports is insignificant. China is undoubtedly a top priority line of activity and here an issue of cultivating relationship is of crucial importance.

-How many contracts did you make on SukhoiSuperjet 100, how many did you plan and is anybody ready to buy Sukhoi Superjet-100 aircraft?

-As of today, VEB together with EXIAR implemented a project on the supply of SukhoiSuperjet -100 aircraft to Indonesia and a major project on the supplies to Mexico. Now we have supplied 13 aircraft and at least seven aircraft have been ordered. The projectis good but at the same - time, it is complicated in terms of funding. It is funded by a foreign bank together with VEBand we are using coverage of three export-credit agencies – EXIAR, Coface (France) and Sace (Italy). Now we are in talks with Mexicans on the supplies of another 10 aircraft. We are also working on the issue of supplies to other Asian countries - to Vietnam and Laos.

-Don’t you think it would be easier for small-sized companies to receive assistance and set up production facilities as part of import substitution policy instead of entering foreign markets?

-In order to enter foreign markets youneed production facilities that is why I believe thatimport substitution and export activity are links of one and the same chain. I can see maximum synergy here.

-According to statistics, import-substitution policy resulted in the decreased level of non-raw materials exports – because Russian analogues are more expensive or they are non-existent.

-I wouldn’t link this directly with issues of import substitution. During 2014, the amount of non-raw materials exports was250 billion dollars and the total exports – 500 billion dollars. Maybe some parameters fell but a significant part of exports accounts for non-raw materials exports. The only question is which is more import exports or imports.

-Which is more important for you?

-Of course, I believe that exports are.

-This means that you go along with the Ministry of Economic Development.

-I go along with the task that was set before me.

“Everything that doesn’t have to do with raw materials”

-Does the center have any priorities in terms of sectors?

-Everything that doesn’t have to do with raw materials.

-If you help everybody, you help nobody.Shuvalov says all the time that we should choose priorities.

-As far as our center is concerned I can’t see any needfor prioritizing addressees to be supported. Those who will turn to us will be supported whether they are medium-or-small-sized exporting enterprises. EXIAR, VEB and Roseximbank have certain priorities of support, they include a criterion of high added value and the amount of exports project itself. The center is a universal support instrument for all exporters.

-Think for instance of IT sector with the highest added value, as they don’t have significant funds they move their business from Russia to Belarus, to Kazakhstan, Israel and even farther to Singapore, because these companies can’t see any environment for developing their business in Russia. What should be done to stop this process, will it be within the competence of the center being set up?

-This is a function we would like to develop and the center would contribute to it. We need a structure/a center with this competence, which iswell-versed in this environment. Wedon’t have such a structure now, figuratively speaking, a Ministry for Exports and there isn’t such a center that would somehow accumulate all the issues related to exports. All these issues are fundamentally different and they can’t fall within the competence of one and the same ministry. One of the center’s task is to be such an institution which is due to its expertiseand by law will act as an initiator of changes influencing Russian enterprises’ export activity.

-How would you size up the demand for Russian exports? What countries enjoy high demand?

-It varies a lot. We see the highest demand in CIS countries, South-East Asia, Indonesia and lately in Latin America.

-What effect from the center’s operation do you expect in the coming 2-3 years?

-This is a systemic simplification of exports regulations, a simplification of exports procedures and a growth in non-raw materials products as a whole. The President set a task of 6% growth of non-raw materials exports per year, so we’ll have to work hard.

-Here the center’s contribution may besignificant but it mustn’t be very significant in principle? After all, KPIs are more concrete?

-There are no digital indicators because the center won’t be responsiblefor “units”. Non-financial KPIs will be linked to indicators and results of the road map. The logic is as follows: goals and indicators that are included in the road map, are separately referred to institutions. The center should help to achieve them and this should increase exports.

-How would you rate yourselves?

-We’ll conduct customer satisfaction surveys.

-How would you rate EXIAR’s performance?

-During the last year EXIAR has supported non-raw materials exports for an amount of 4 billion dollars covering commercial and entrepreneurial risks. The exports include the supplies of SukhoiSuperjet -100 aircraft to Mexico, high-tech power engineering equipment to Poland, subway carriages to Belarus, grain harvesters to Kazakhstan and many other products. EXIAR supported a total of 112 exporters. The company is three years old and it achieved such impressive results. A task was set to increase exports by 50% annually in the next three years. The main thing is that a system has been set up, more than 100 projects are being implemented, exports supplies are increasing. This is our evaluation criterion.

-Did you conduct customersatisfaction surveys of EXIAR’s performance?

-Such a survey is now underway. This is one of EXIAR’s KPIs. Businessmen who turned to the Agency for support view their cooperation with it pretty positively. Now there is a great number of opportunities both for exporters and for commercial banks. EXIAR has become a real source of raising financial resources. Banks are being refinanced at the Central Bank against EXIAR’s insurance policies and this is very important under the current conditions of the financial market. They are being refinanced at preferential interest rates this is a 100% innovation for us. We created it from scratch for the banking system, it is a new type of credit security which allows banks to be funded on a preferential basis. It’s very good for customers to pledge EXIAR’s insurance policies.Now a decision has been made to insure 100% of some transactions thus removing risks from exporters and banks and proposals were submitted to the State Duma for extending guarantees. As a whole a process is going on.