OREANDA-NEWS. November 17, 2009. President Dmitry Medvedev gave the State of the Union Address, touching on modernisation, social issues and democracy.

The key focus of the speech was on modernising the economy (five priority high-tech sectors). Medvedev said very little about foreign policy, except that it should serve the modernisation of the economy. There was also some criticism of Georgia. The large-scale modernisation that Medvedev announced included many details and targets but omitted any bold statements on reforms. He only mentioned that the authorities would reconsider reducing the tax burden on the economy and the government’s share in the economy (even in strategic sectors).

As expected, part of the speech was devoted to living standards, pension hikes etc. And Medvedev briefly mentioned all the recent positive developments: economic recovery, the better state of the banking sector and the first signs of population growth (which is really encouraging). He made no sharp criticism of the government but admonished Government Corporations and ordered that they be reorganised.

We particularly welcome the part on speeding up the approval of investment projects and the tight deadlines set for the government to accomplish this task (indeed, this might mean that the process has already started). The large number of initiatives mentioned with regards to education and inviting talent seem to be well-elaborated.

As to democratic values and corruption, Medvedev touched on violations during parliamentary elections and said that the rules for regional elections needed to be almost the same as for federal elections (5% threshold, equal access to media etc). He also gave rather impressive statistics on the number of anti-corruption cases (4,500 in the last six months). Internet and electronic government would, he said, be the key tools for fighting corruption.

President Medvedev opened his address to the Federal Assembly saying that the purpose of the speech was to outline what Russia should do in the short term to reach the goals mentioned in his Russia-Forward! Article. In his view, Russia is to become a world-leading country based on democratic values, a smart economy with unique knowledge and technologies.

The slump in Russia was deeper than in other countries as it is still hugely dependent on exports of resources and its production segment is uncompetitive. Extensive anti-crisis measures have allowed the government to stabilise the economy in the second half of the year.

Social support remains the key priority and over the next three years, pensions are to increase at least one and a half times. All social liabilities should be met in full, despite lower budget revenues. The government has undertaken steps to prevent an increase in unemployment and needs to focus on supporting mono-cities. It must also stimulate local demand by supporting retail lending and housing construction.

Russian companies have received over RUB 1tn of government support during the crisis. Now, only those companies that strive to be efficient and upgrade technology will receive support. Inefficient companies cannot rely on customs barriers any more. The government will also continue its successful support of the agricultural sector.

Banks have also received a lot of government help in the past few months and the sector is now on an even keel: credit growth has resumed and NPLs have stabilised.

The priorities for modernising the economy are to ensure better security, improve the health of the people and facilitate access to energy and to information. Hence, the government is to focus on creating cutting edge technology in the pharmaceutical, energy and information technology industries, developing space and telecommunications systems as well as drastically increasing energy efficiency.

In August, Russia recorded the first increase in population in the last 15 years. This happened as a result of the National Project ‘Health’. In five years, Russian pharmaceutical products should account for 25% of the Russian market, increasing to 50% by 2020.

The government’s share in the economy, far from decreasing to below 40%, has actually increased during the crisis. The government needs to reconsider the role of the state in the economy, even in strategic sectors, and Government Corporations should be reorganised.

In the next two months, the government must develop a new investment approval process to facilitate investment, as it should take three-four months to launch an investment project (instead of one and a half or two years). The heads of the regions should be responsible for this.