Finnish-Russian Forest Summit

Speech by Jean Lemierre, President of the EBRD

Finnish-Russian Forest Summit
Finland
26 October 2004

Good morning. First let me say that all of us, we have listened very carefully to you, Prime Ministers. What you have said to us this morning is crucial for the investors.

I would like to make just a few remarks about the forestry business and about what the EBRD and all other institutions can do to help the process in which you are engaged. And I would like to thank you and the organizers for the invitation and for the very successful meeting on this question, which is key certainly for Finland and, of course, for Russia.

It is obvious, but very important for all of us, that forestry requires long-term thinking. It can be easy to make short-term money, and easy to get short-term cash. But it is difficult to make the activity sustainable and prosperous for the future. So we need long-term use – that's the point of view of the potential investor like the EBRD.

Why and how? First, there is a need for a sound legal framework, and Prime Minister Fradkov, I think all of us have listened to you very carefully about what you have said about the new Forestry Code. It's an important piece of the picture, and your commitment towards a balanced approach and a fair framework is crucial. But as crucial as the legal framework is, the implementation of the legal framework is the key. And we know this: we know that the devil can be in the details, and the devil can be in the implementation.

"When I speak of infrastructure, I think we can mention roads, we can mention railways, probably boats."

The second reason why long-term use is difficult is because it requires a lot of money – it is capital intensive. People are ready to take risks the moment they have a clear view about access to, and the supply of, raw material in a normal way.

The third element I would like to mention is infrastructure. Prime Minister, you have mentioned this, you have compared two maps. I do not know the geography well enough to make the comparison, but it is clear that years of low investment in the road sector must have created - and have created, unfortunately – some difficulty in Russia. When I speak of infrastructure, I think we can mention roads, we can mention railways, probably boats. And as we know, the forestry business is infrastructure-intensive in the same way.

I would like to add a fourth reason for long-term use. Forestry is a very complex business because it involves many partners: the private sector and, in the state sector, the Federation and the regions. And it is clear that a sound financial legal framework among the various levels of participants is a crucial element. This is certainly something which needs to be built in various strong ways, so people clearly understand what is going to happen.

"The last point I would like to mention is the environment, including the capacity to renew the forest. I must say once more, you can exploit the forest in an extensive way and make cash in the short term. But the key point for a country like Russia – and I understand this is a very strong commitment of Russia – is to be competitive in the long term."

Competition in the long-term means sound management of forestry resources and a sound environmental approach. Easier said than done. It is much more difficult to implement them in a clear, transparent and sound way.

And above all, there's a need for money – that's probably a role some institutions, like the EBRD, can play. What can we do? First, I would say that we are highly committed. We think this is a priority, that this is a global commodity, and that there is a unique opportunity for cooperation between Russia and Finland. This could be a success story about how to mix the existence of wood, money, skills in the long term. And there is, here, with this conference today, once more a unique opportunity to build a strong case for success for all the partners.

At the EBRD we can bring financing – which of course is not the most difficult part! We can provide investments, be your partners, and make loans, in various ways. I have already been talking with some of you about the way to cooperate. We know each other well, and this is not the most difficult point. The most difficult point is to structure good business in the long term. That's something we can do also by addressing the needs of the regions in Russia. We have been talking about roads and railways. We do invest a lot in Russia. We can make loans to the Russian regions or municipalities without a sovereign guarantee. And we tend to increase what we do and especially the financing in roubles, because we think that the regions and the taxpayers in Russia shouldn't bear the exchange rate risk. Therefore this is something we can add on top of the financing of the private sector and your companies, which is to address the needs in infrastructure.

There is a third element we can certainly do, which is to finance some small and medium-sized companies – SMEs. Forestry is very labour intensive – you need many suppliers, including transport. It's clear that we have very strong networks, we work with a lot of banks in Russia, and we can provide financing to SMEs which could be your suppliers – and this is certainly a very important tool for the sustainability of a project.

How do we see the situation as an international institution? We have built a very strong partnership with Finland over the years. I would like to express my gratitude to the very strong Finnish support to the EBRD, Prime Minister Vanhanen. We are working with a lot of you in many sectors. My visit to Finland today and yesterday has shown that we shall do even more in the future and especially to promote growth in Russia. We have been able, thanks to the Finnish support, to build very strong partnerships in northwest Russia, specially in the context of the Northern dimension on the environment and infrastructure, which is without any doubt a success story. I think this experience prepares well the work we could do together in forestry – it is a very good example.

Next I would like to share a few words about our cooperation with Russia, and I say this to Prime Minister Fradkov. We have positive views about Russia. From time to time there are debates, but we have a positive view. Russia has a sound macroeconomic policy, there are opportunities for investments, there are also challenges and difficulties that we know, and I am sure Mr. Fradkov knows better than I do. But it is a good place to invest. We are the largest financial investor in Russia and we are very happy about what we do.

In recent years we invested in the public sector without sovereign guarantee at the request of the Russian Federation. Times have changed. The budget is better in Russia. Now we invest only, or mainly, in the private sector. We shall invest more than €1 billion this year with private-sector companies in Russia. We have a very strong commitment to Russia.

"We believe there are two key elements for Russia: diversification of the economy and the commitment to the regions. And that's the reason, if I may go back to your industry, why your forestry industry is so important for us, and for Russia."

Because it's an element of diversification of the economy, of job creation and of access to global markets. And because it's an element of development of the regions and jobs in regions, that's why we would also support not only Finnish investors, but Russian investors being partners with Finnish investors, or developing their own business. The more investment there is in this sector, the better it will be for all of us.

My last words are going to be very simple. What I can propose to you, Prime Ministers – and this is my duty to all the investors here – is to create partnership with you. This is the way we see the situation. We know you have opportunities, and that you'll think about the returns, but also about the risk. Be sure that if you wish your partner to share the risk with you, to promote the policy dialogue, and to improve the situation step by step to build a fair, good business for everybody, we are here. I'm talking about the foreign investors, I'm talking about Russian investors and the Russian people. Be sure that the EBRD is and will be your fair partner the way you wish. We have a very strong commitment to you.