Online daily magazine Slon.ru published the first in the series of articles on realities of doing business in Russia. It begins by establishing that the ownership issues are one of the main obstacles discouraging the inflow of foreign capital into the Russian economy, comparable to that of corruption. And while there are indications that the fight against corruption might be happening after all, nobody seems to address the need to ensure the protection of private ownership in the country. However, the increase of government role in the economy seems to be making the problem disappear by itself. According to Slon.ru, the Gaidar Institute and BNP Paribas recently estimated that the government already accounts for 50 percent of the country’s economy, noting that the percentage has noticeably increased during the last couple of years.
Therefore, the first in the series of articles about how the Russian economy really works tries to answer how big is the private sector in Russia? Media monitoring agency Integrum (http://www.integrum.ru/) sourced its information from the national business registry and the Russian Statistical Bureau to come up with a figure of 8.45 million legal entities registered in Russia, of which 5.05 million are limited liability companies, 223 thousand are joint-stock companies, and 55.4 thousand are public corporations. The remaining 3.1 million entities represent various types of civil organizations, unions, government institutions, representative offices, etc. In addition to the legal entities, there are more than 5 million individual entrepreneurs in the country.
The total number of companies seems quite high – 5.34 million, or one per each 27 inhabitants of the country. If the figures are to be taken at face value, there would be one business entity (legal entity or individual entrepreneur) per each 13-14 people in the country. However, the authors remind us that there are lies, damned lies and statistics, and that the figures require some adjustments. For instance, in 2009 the Russian Chamber of Commerce estimated that out of 4 million limited liability companies registered at the time, only 1.5 million can be considered active. As the current number of registered LLCs exceeds 5 million, one can presume that approximately 2 million of them are active. And it should not be forgotten that half of their output comes from the LLCs that are directly or indirectly controlled by the government.
Inactive companies can sometimes be recognized by their uninspired names: according to the national registry, there are as many as 3000 “Absolutes”, 1500 “Investstroys”, hundreds of “Exims” and “Impexs”, numerous “Trades”, “Torgs”, etc. Dead companies represent another category of inactive business entities. Those are the companies that were simply abandoned, as it was not advantageous to liquidate them. Some of them were used exclusively for the purpose of avoiding taxes, just like some of the individual entrepreneurs were also registered only to extract money from affiliated companies. The authors conclude that the number of active business entities in Russia is not nearly as high as can be seen from the registries. The next topic in the series of articles on doing business in Russia will cover the ways in which owners hide their ownership in businesses.