Any small business (there are over a million under-100-employees businesses and 2.9 million self-employed citizens in Russia) meets with numerous challenges, which partly explains their relatively low share of the country’s GDP. Russia’s 12% look rather bleak if compared with 40% and more in Europe and the U.S. Worse, most such businesses still lack cash flow.
“Only 40% of small businesses can take bank loans. Most of them cannot even buy property for their core activities – the prices are prohibitive,” Borisov says.
Growth would be much faster if local and regional governments abandoned their wild-west arbitrary practices: very often bureaucrats abuse their power by giving companies affiliated with them unfair advantage and clamping down on competitors.
“Last year, businesspeople spent 9.6% of aggregate revenue on various illegal payoffs, simply bribing bureaucrats, fire officials, policemen, and others whom the law gives powers to close down small businesses for technical and sometimes contrived reasons,” Borisov says.
“This figure was less in 2005 – 8.5% - so this is, ironically, another area where we have real growth. Bribes make up a lion’s share of all non-core costs,” he says.
“Other challenges are the lack of welltrained personnel and of a special law on small businesses,” he added. One external challenge adding to internal issues is Russia’s accession to the World Trade Organization.
“WTO accession is an objective process. If Russia wants to be competitive in noncommodity sectors, primarily in the ‘knowledge economy,’
the government
needs to do more to alleviate the process of accession for small businesspeople,” he said.
Borisov acknowledges there would be some discomfort for small businesses but warns against following in the footsteps of China and India, where, he says, “up to 40% of small enterprises were out of business shortly after the accession.” Farmers are alarmed more than anyone else, Borisov says, and will require the same tariffs and quotas as now to survive. Small business has not yet been established in Russia’s agricultural sector: and accounts for less than 3% of all small businesses in the country, which earn less than 1% of the aggregate revenue.
Things are much better in retail trade, where 45% of enterprises and 70% of revenue are concentrated, services (over 20% and about 17%, respectively), and manufacturing (13% and nearly 10%). In these sectors, small → businesses do not expect the WTO transition to become very challenging; high-tech businesses even welcome WTO as “a positive development opening up bright opportunities for equal competition with foreigners,” Borisov says.
He is worried about small concentration of small businesses in manufacturing: 13% is too little, considering recent claims that Russia is moving forward from a commodity-dominated economy to a knowledge-based society where added value is crucial. Borisov expects manufacturing companies of all sizes to be severely hit by a need to compete where they are still, admittedly, weak, and warns that manufacturers must unite and pool their efforts to win the impending battle. One way to do this, he says, is to promote industrial clusters.
“What existing national SME support programs do is give preferences and open up some resources for small businesses.
Helping businesses increase their own technological level and competitiveness is what they do not do.
Industrial clusters is one way to resolve these issues. Such clusters should be centered around large companies, economic mainstays, which will act like umbrellas for smaller subcontractors.
Together, they will become true growth engines for local and regional economies. These technological chains will link up with science, education, and financial entities,” Borisov says.
He says this integration will make both big and small businesses more competitive.
He sees the government role in creating such clusters as the provider of key modern infrastructure.
As the Arkhangelsk Region government launches a pilot cluster project for the timber industry, Opora is looking into ways to make a model for future “off-the-shelf” clusters in automotive, chemicals, food, biotech, and IT industries.
This means that we are going along the same path as our Western counterparts, Borisov says, even though our pace leaves much to be desired.
First business incubator zones have been set up; the role of small companies in special economic zones has been recognized; loans are becoming more affordable; the government promises tax breaks and allocates direct subsidies; Russians reach out to their foreign counterparts and do business together.
However, all this is done so slowly that, Borisov says, to continue it in the same way is unacceptable.
State support for small businesses is expected to be worth 3.8 billion rubles this year – more than the last year but still too small to make difference. In China, any small business gets a five-year tax break and is freed of rent. Other countries also provide opportunities which Russian businesspeople can only dream of. Without a new law on SMEs, co-drafted by Opora and still struggling in parliament, responses to many challenges will be half-measures.
Lawmakers have many times promised to adopt it this spring, but is has not yet even been considered properly.
This, in turn, discourages people from engaging into business and self-employment and, more, creates public perceptions towards small businesses, which are far from respectful and inspiring.
The government and the broader public, Borisov says, has yet to recognize that businesspeople are not the “bloodsuckers” of society but its blood and its driving force. Appreciating their role in promoting creativity and creating jobs would also help, he says.
“Russia needs a system of benefits and incentives for businesspeople; we need educational programs promoting a positive image of small
“Opora” means “pillar” For the record: Opora Rossii, an association of small and medium businesses, was established September 18, 2002 to safeguard the rights and interests of entrepreneurs against red tape and in disputes with government authorities; help fight corruption; facilitate affordable loans for SMEs; promote middle-class mindset and positive public perception of businesspeople; and provide feedback to the government from business quarters.Opora has offices in 79 Russian regions.
Its 330,000 members together account for 4.5 million jobs across the nation. It maintains Non-Profit Partnership Opora, which includes a hundred industry organizations, associations, and guilds, and runs a special bureau to look at how entrepreneurs’ rights are honored.
International outreach is a high priority. Currently Opora runs several projects of liaison between Russian and international SMEs.
