Russian entrepreneurship in dire straits

Russian business daily published an editorial on the unwillingness of Russian citizens to open their own businesses. The editorial was motivated by the Global Entrepreneurship Monitor report for 2012, which indicated that a mere 2.2 percent of the Russian adult population plans to open a new business. This is the lowest percentage among all surveyed countries and the lowest indicator for Russia itself since 2006. When the existing business owners in Russia are taken into account, the percentage of those wanting to open new business rises to 3.8 percent, compared to the average respective percentage for the BRICS countries and Eastern Europe of 21 and 24 percent, respectively. Furthermore, 93 percent of Russians are not even considering the possibility of opening new business, while 83 percent claimed they never attempted to do so. Almost 50 percent of the owners who shut down their business in 2012 stated they don’t want to be entrepreneurs any more.

The Russian Ministry of Economic Development claims that the figures do not take into account those entrepreneurs who prefer to stay below the radar and are not visible in the official statistics or polls. Authors find this explanation unsatisfactory, as the existence of such businesses would demonstrate pretty much the same thing as their absence – that the conditions for doing legal business in Russia are inadequate. Even the Business Ombudsman Boris Titov, appointed by President Putin in 2012, does not dispute this. One of the most disturbing consequences of government regulation became evident in 2013, when approximately 300,000 individual entrepreneurs closed their businesses after a twofold increase of mandatory social contributions for workers.

Not surprisingly, the Global Entrepreneurship Monitor report found that the government policy towards business is the primary obstacle for the development of entrepreneurship: the absence of transparent regulations and logic, vague legal framework and its weak enforcement, and corruption. This is unlikely to change as long as the government forms its business policies in accordance with the requirements of monopolies and large businesses managed by oligarchs. In addition, small private businesses find it difficult to access funding at reasonable rates and complain about the inadequate physical infrastructure. Ombudsman Titov agrees that the corporate lending rates and the energy utility costs in Russia are the highest among the BRICS countries. Some might find it surprising that the tax burden in Russia, estimated at more than 40 percent of a total company’s turnover, is among the highest within the BRICS group of countries.

Authors ironically remarked that Russia might achieve President Putin’s goal of entering the top 20 countries on the World Bank’s Doing Business list by 2020 with no one left to do business.


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