Russian President Dmitry Medvedev Holds a Working Meeting with Vnesheconombank Chairman Vladimir Dmitriev

VEB’s Chairman informed the President on the Bank’s activities in the field of innovations and modernization of the Russian economy as well as on the measures for supporting small and medium-sized enterprises (photo caption)

D.MEDVEDEV: Vladimir Alexandrovich, I’ve just met with American heads of venture capital funds involved in risky investment. They are ready to work on the Russian territory to implement our projects. This is of course a good thing, but it is also very important for our financial institutions, our banks, our development institutions to be ready to fund our economic modernization and invest in high technologies and innovations. What’s your Bank doing to this end?

V.DMITRIEV: We are fully keen to work in line with the objectives set for state financial and sectoral development institutions. In this respect, we intend to fundamentally review our approach to modernization and innovation projects in our new strategy for 2010-2014. This is a strategic line of activity for us. At present, about 15% of projects in Vnesheconombank loan portfolio are linked to economic modernization and innovations. Honestly speaking, they largely deal with modernization and import substitution rather than innovations.

D.MEDVEDEV: Rather than innovations in a narrow sense.

V.DMITRIEV: You are absolutely right. We hope, together with other innovation–oriented development institutions, to change the established practice after all. In this respect, I’d like to tell you that for a month or even more we have been cooperating with financial and sectoral development institutions under a new paradigm of relations. We signed an agreement on cooperation in April. There are nine parties to the agreement including such key development institutions as Vnesheconombank, RUSNANO, the Russian Venture Company, the Fund for Supporting Small Enterprises in Scientific and Technological Sphere, the Federal Agency for Youth Affairs, the Moscow Interbank Currency Exchange, and Opora Rossii , that is, all those institutions  more or less involved in supporting small and medium-sized enterprises in the innovation sector.

We believe that this agreement is very important in terms of establishing a unified data base, providing financing at all stages of innovation cycle, involving financial institutions on the one hand and sectoral institutions and agencies on the other to make this process continuous or as we say to create an innovation lift.  We have already started establishing this data base working in close contact and on a bilateral basis, for example, with RUSNANO; I’m a member of RUSNANO’s Supervisory Board. We have similar agreements with other companies that are parties to this agreement. In other words, we sit on their supervisory boards and we are cooperating with them systematically at a lower, working level.

D.MEDVEDEV: It’s a good thing that all our development institutions have taken a consolidated position. You were right in agreeing to cooperate in order to be able to make joint efforts.  I’ve just talked with foreign investors and it became clear to me that we need to create mechanisms for supporting small and medium-sized enterprises. Large institutions are sure to find money in any case with the assistance of RUSNANO for example, in its capacity of a specialized state development institution or with the assistance of such universal development institution as VEB. It’s very important to involve small enterprises in this sphere. This is, of course, a lot more difficult to do and we should admit that these are risky operations with regard to which relevant provisions have to be made and certain decisions on Central Bank current regulations have to be taken. But if we fail to establish some kind of scheme, they will never be provided with a source of financing.

V.DMITRIEV: I’d like to inform you on the results we have achieved together with our subsidiary bank, the Russian Development Bank. It started to carry out a brand new program in the innovation sector. This program is called ‘Financing for Innovations and Modernization ‘.  This means that the Russian Development Bank’s partner banks are to receive financial support of up to 150 million rubles from the Russian Development Bank to finance SME projects in the innovation sector. Credits are to be extended for a period of at least seven years. Most importantly, an interest rate will be two thirds of the Central Bank’s refinancing rate. In fact, the Russian Development Bank will operate on a break-even basis without generating any significant profit margin.

D.MEDVEDEV: As a result, we get an interest rate of six percent. Is this an effective interest rate at which loans will be extended?

V.DMITRIEV: This is an interest rate at which credits will be extended to regional banks but we’ll also keep track of interest rates for final borrowers to ensure that they do not exceed 10 percent.

D.MEDVEDEV: But this is the maximum because if an interest rate exceeds ten percent this sort of business could lose its appeal.

V.DMITRIEV: We are launching this project hoping that it will be in demand. The Russian Development Bank’s another initiative is to establish a Direct Investment Fund for the bank to directly participate in SME projects in the innovation sector thus minimizing risks and making these projects more attractive to regional banks.

D.MEVEDEV: You mean quite big projects?

V.DMITRIEBV: No, projects in the SME sector.

D.MEDVEDEV: Precisely in the SME sector.

V.DMITRIEV: Yes. Sometimes banks are reluctant to assume risks when project initiators do not invest themselves. In this case, the Russian Development Bank’s participation as a shareholder or as an investor in a project gives a certain degree of guarantees and protection to regional banks.

D.MEDVEDEV: Good. You should keep it going.

V.DMITRIEV: One more thing, Dmitry Anatoljevich, if I may. Being aware that high priority is being given now to socio-economic development of the North Caucasus we have again started examining projects, which were under discussion at our Bank before the crisis because a considerable emphasis is being placed now on developing the North Caucasus as a tourist and recreation cluster. We launched this initiative because we became quite experienced in funding Olympic projects and our current activities in Sochi as part of preparations for the Olympics are to a certain and maybe to a full extent in line with what is being planned to do in the North Caucasus but on a much larger scale and this includes transport and logistics infrastructure, Olympic sports facilities proper and the related infrastructure needed for implementing such a large scale project.

Moreover, in cooperation with Canadian company SNC-Lavalin, one of the largest engineering services providers, we established a joint venture, VEB-Engineering LLC. We are going to make use of our Canadian partners’ competence and expertise because they participated in building Olympic and sports facilities in Canada and other countries to provide a full project cycle from design to monitoring of proper use of funds, technological process control, expert examination in the North Caucasus at the facilities planned to be built in Karachayevo-Circassia, Adygea and Dagestan.  We have again started to examine the Arkhyz project in Karachayevo –Circassia. This is a large scale project that requires the construction of complicated transport and energy infrastructure and we are ready to perform this work.

D.MEDVEDEV: It’s a good thing that you got down to examining these projects again because there’s no way of implementing them without the state’s support. In fact, there are ambitious plans to build a mountain-tourism cluster in the North Caucasus. I have been informed on these plans and I have approved them. You should go ahead with the plans, given the political decision.

The most important thing is that this will enable us to build resorts where, I hope, millions of our citizens can go to for their holidays. Now, they like this kind of holidays and they don’t have to spend their holidays abroad as we offer the same and sometime even better services. What is most important is to build infrastructure. Moreover, this will create about 150 thousand new jobs and this is crucially important for the North Caucasus.

Origin: official site of the Russian President