In Order to Expand Russia’s Presence in APEC Markets We Need to Develop our Country’s Asian Part
Vnesheconombank Chairman Vladimir Dmitriev told Interfax about how VEB would be represented at the APEC 2012 Summit and what sort of agreement they planned to conclude
Moscow. August 28. INTERFAX.RU – Vnesheconombank acts as one of the APEC 2012 Summit’s organizers. The Summit is to be held in September in Vladivostok. On the threshold of the Summit Interfax asked VEB Chairman Vladimir Dmitriev several questions.
- How is VEB represented in the APEC space and what are the Bank’s further plans?
- VEB is implementing a whole range of projects with our partners from APEC countries. I believe that the Summit will become an important stage in expanding such cooperation.
At present, VEB is involved in implementing 17 investment projects with the participation of financial institutions and companies from APEC countries (Japan, China, South Korea, the US) whose total value exceeds $11 billion.
VEB’s objective as a bank for development is to boost Russia’s economy competitive edge, diversify it and encourage investment activity. We give high priority above all to implementing projects in Russia. These projects are aimed at developing infrastructure, innovations, special economic zones and environmental protection.
VEB has a high international standing, many development institutions from APEC member countries are our partners.
One of new mechanisms for co-investing is the Russian Direct Investment Fund (the RDIF) – VEB’s subsidiary. The Fund is designed to implement major investment projects together with foreign investors including those from APEC countries.
Last October, the RDIF and the China Investment Corporation (a sovereign welfare fund) with assets worth $410 billion) signed a memorandum of intent to establish a Russian-Chinese Investment Fund. The Fund is being established to make direct investments primarily on Russia’s territory and encourage economic development of constituent entities including regions of the Far East and the Baikal Territory. The Fund’s capital is to amount to $3-4 billion.
The recently established Agency – EXIAR gives high priority to the Asia-Pacific region. Even now, the region’s countries account for a significant share of total insurance obligations assumed by the Agency, and two of the first EXIAR’s transactions to insure the supply of Russian-made products were conducted with APEC member countries, that is, China and Vietnam.
- Russia’s role in APEC markets hasn’t been so far in line with its potential. What should be done to reverse the situation?
- A key factor in expanding Russia’s presence in APEC countries is an economic development of our country’s Asian part, above all, the Far East, the Baikal Territory and entire Siberia. Development of Siberian and Far Eastern transport-logistics infrastructure would help to increase Russia’s trade turnover with the APEC and raise additional foreign investments.
The region has a huge potential for creating clusters of economic development: substantial mineral resources, a large variety of bio resources, highly qualified personnel, the tourist and recreational potential. At the same time, despite its huge potential a task of this macro region’s development has not been accomplished. There are several objective obstacles: extreme nature and climate conditions, remoteness and poor accessibility of territories, non-developed infrastructure, multi-sectoral nature of industrial production, specific conditions of farming and sparse population settlement. Traditional nature management of Northern indigenous peoples is the basis of their life and their lifestyle.
VEB takes an active part in the development of territories. Even now, the total value of projects in which the Bank participates on the territory of the Far East Federal District exceeds 93 billion rubles and the amount of VEB’s investments is more than 57 billion rubles. The Bank implements projects in transport infrastructure, aircraft construction, petrochemical industry, timber processing and tourism.
To address main objectives of the macro region’s development we create a specialized development institution – OJSC the Far East and the Baikal Region Development Fund. As of today, the Fund has performed work on analyzing and systematizing investment initiatives of all 12 regions and made a preliminary list of investment projects.
By 2015, VEB’s loan portfolio with regard to projects with the Fund’s participation might grow to 70 billion rubles and this will result in forming and supporting projects by the Bank for a total amount of more than 350 billion rubles.
Territorial-production complexes are the only type of investment projects that can ensure development through using non-budgetary sources. In order to implement this approach we need appropriate political decisions.
It’s important to avoid a one-sided approach when high priority is given to the export of resources. We focus on projects aimed at creating export-oriented production facilities with a high level of processing and a significant proportion of value added. In the future, such production facilities might receive support from the Export Insurance Agency of Russia (EXIAR).
- Might the APEC become an instrument for transforming the region’s countries’ growing economic role into a political one?
- Since its inception the APEC has regarded itself as a free “aggregate of economies” rather than a politically well-consolidated group. This means that the organization gives high priority to economic rather than political issues. The organization’s long-term objective is to deepen intraregional relations through eliminating obstacles in trade-investment and technological interaction. Successful economic development and integration of APEC countries is sure to increase their influence on the world’s economic agenda. This is a natural process and there is no need to speed it up.
In terms of its geographical coverage and presidential format an APEC summit is the most representative and unparalleled business forum in the Asia-Pacific region where the world’s experts hold a multilateral dialogue and cooperate on key issues of trade, investments, economic and technical cooperation as we’ll on topical world problems and challenges.
Despite a mosaic nature of the APEC as an organization comprised of countries with incompatible levels of economic development and political systems it is a pretty homogeneous institution in terms of interests and development vector. Regionalization acts as a common denominator implying that high priority is given to intraregional cooperation and integration and to creating zones of free trade. This guarantees a strong consensus of opinion within the establishment of APEC member countries on key issues of intraregional trade and investment interaction as well as the world’s economic agenda. An APEC business summit has factually become a mechanism for drawing up regional rules on carrying on trade and undertaking investment activity and for formulating unified principles of doing business binding to all countries.
From the outset, one of APEC’s operating principles was to reach consensus through consultations. Success stories of neighbors act as powerful incentives.
- What agreements does Vnesheconombank Group plan to conclude in the course of the APEC 2012 Business Summit?
- On September 7, we plan to conclude an agreement with the Primorsky Territory Administration. This agreement provides for long-term cooperation in investment activity. We are to cooperate with the region in making arrangements for financing investment projects including those on PPP terms, work out schemes for their financing, participate in preparing project opinions and in raising funds to provide support for small and medium-sized enterprises. Currently VEB is already funding three investment projects in the region for an amount of 12.7 billion rubles (Vnesheconombank’s participation share is 7.6 billion rubles).
Moreover, our subsidiary bank – SME Bank plans to sign a memorandum of understanding with SME Bank Malaysia and with the Indonesian SME Development Ministry.
“There isn’t enough money for all”
Russian Business-Gazeta (RBG)
№ 857 (28), 31.07.2012
About 40% of small and medium-sized enterprises complain of being underfunded
The International Entrepreneurship Support Fund is to start operating in the first quarter of 2013. Board Member, VEB Deputy Chairman Mikhail Kopeikin told RBG about the new institution’s objectives and missions.
- What’s behind the idea of creating the Fund?
- The Fund’s main objective is to provide additional financial resources and boost access to investment financing for above all medium-sized enterprises in the production sector. According to surveys about 40% of small and medium-sized enterprises’ executives complain of being underfunded or unacceptable terms on which commercial banks are ready to extend credits. This is particularly important for the production sector where there is a substantial gap between requirements for investment financing and potential for collateral security of such credits. And in the last years, the state has focused its efforts on developing small-sized enterprises and on large-scale infrastructure projects. Factually, medium-sized enterprises have been left without support.
- Why did such a situation develop?
-We are actively funding small-sized enterprises through the program of providing financial support for small and medium-sized enterprises (SMEs), the amount of support increased now to 185 billon rubles. But there is a regulatory limitation – under the program a maximum size of a credit is to be 150 million rubles. And the amount of VEB’s financing is to be no less than 1 billion rubles, with a project’s total amount to be no less than 2 billion rubles. Therefore, there is a certain gap in our range of instruments in which medium-sized business falls. And now we are making efforts to fill this gap taking into account that medium-sized enterprises are of vital importance for the country’s economic development. They generate demand for innovations, create new markets, have a good credit history but they don’t have enough funds to finance the projects they would like to implement.
- Is the Fund going to give top priority to funding medium-sized enterprises?
- Yes, it is, medium-sized enterprises will be its top priority. The Fund will have a potential for direct financing and target-oriented lending to commercial banks. And direct financing will be provided only to medium-sized production facilities through long-term investment credits, mezzanine financing and maybe participation in capital. We’ll provide support for real sector enterprises. These include manufacturing industry, construction, transport, and communications. The demand for this sort of financing is pretty great. We did a research and it found that SMEs operating in the production sector needed additional investment resources for an amount of 900 billion rubles per year. A significant part of this demand is generated by medium-sized enterprises. Maybe it’s not very much (the total amount of lending to SMEs exceeded 6 trillion rubles last year) but this is a demand in long money that enterprises find it particularly difficult to raise.
- Will the terms of funding offered by the Fund differ from market ones?
- We expect the terms to be market ones. We might accomplish this through engaging foreign development institutions whose cost of raising funds is lower than ours. We believe that this will enable us to extend funds on more favorable terms as compared to commercial banks. Credit periods will depend on an enterprise’s financial standing, profile, projects and a form of funding chosen.
- You are setting up another institution, namely, a Federal Guarantee Fund. What is it designed for?
- Guarantee mechanisms are created to address an issue of credit collateral security in the case that classical liquid security, for example, in the form real property is not sufficient. These mechanisms are actively employed in Europe and the US. For example, financial resources of European guarantee institutions exceed 20 billion euros making it possible to cover credits for an amount of 70 billion euros. In the last years the Economic Development Ministry has been making strenuous efforts to set up regional guarantee funds for SMEs. These funds act as guarantors to banks where borrowers take credits. This measure alone produces a significant effect. Given that guarantee funds’ total capital across Russia is about 30 billion rubles, guarantees and sureties were issued in the amount of 130 billion rubles, almost 1 to 4.5. At the same time, there are certain limitations in the regional guarantee funds because they as a rule are not capable of extending guarantees worth more than 100 million rubles. Therefore, for the most part only small-sized enterprises take advantage of sureties rather than medium-sized enterprises.
We believe that the Federal Guarantee Fund will be an addition to the system of SME support that was created by the Economic Development Ministry designed to fund not only medium-scale projects but also large-scale ones. In parallel with creating such a Fund we might also perform a function of coordinating and methodological center with regard to the system of regional guarantee funds. This will enable us to coordinate instruments of guarantee funds with the SME financial support program and introduce unified operational standards for the guarantee funds and improve the quality of supported projects.
- What’s the amount of the Guarantee Fund’s capital?
- It is to amount to about 10 billion rubles. And this will make it possible to issue sureties and guarantees for at least 70 billion rubles. We believe that the Fund will have commercial partner banks. High priority will be given to extending sureties to medium-sized enterprises that will borrow money from partner banks.
- When will the Fund start operating?
- The Federal Guarantee Fund’s operational scheme is to be prepared till the end of the year. It’s also worthwhile linking activities of the Federal Fund and regional guarantee funds with the SME support program that is being implemented. It’s necessary to engage partner banks and infrastructure support organizations in the system of extending guarantees formed by the guarantee funds.