Russia’s small businesses squeezed
MOSCOW, Russia —THERE are growing concerns that Russia’s burdensome bureaucracy and corruption are holding back the country’s economy, which has become increasingly reliant on massive oil and mining companies.
According to the International Monetary Fund, Russia is the world’s eighth-largest economy — just behind Brazil — with an annual gross domestic product of some US$2 trillion. While it exports a large part of Europe’s and Asia’s energy needs, it also helps fill in the order books of companies across the globe.
However, as leaders of 20 of the world’s biggest economies gather in St Petersburg for their annual summit this week, Russia is raising concern. The country’s economic growth has been on a downward path since the start of last year. The Economic Development ministry estimates it will only be 1.8 per cent this year — the slowest rate since 1999. Economic Development Minister Alexei Ulyukayev has also warned of the risk of recession.
With Russian oil and gas exports slowing, the best hope lies with small and medium-sized businesses, Ulyukayev said in an interview with the Kommersant business daily last month. “Russian exports can no longer be the key driver of economic growth,” he said.
But some businessmen claim the government isn’t backing its words with action.
When President Vladimir Putin was campaigning to win his third term as president in 2012, one of his promises was to increase the pay and benefits of state employees — who make up to 40 per cent of Russia’s total workforce. Soldiers saw their pay more than double last year, while teachers got a 14 per cent raise. While this lavish spending has improved the lives of millions of Russians, it has put a strain on the country’s budget.
The private sector has seen its tax burden increase. The government has doubled employers’ contributions to the state-run pension fund, which small business association Opora estimated had caused about half a million small businesses, or 15 per cent of the total, to shut down.
“Putin is trying to understand what’s going wrong, but he doesn’t get it,” said Yana Yakovleva, who heads the advocacy group Business Solidarity.
Since coming to power in 2000, Putin has fostered state-owned conglomerates like gas company Gazprom and oil producer Rosneft, showering them with tax breaks and encouraging them to expand. Entire industries, including banking and transportation, have become dominated by state-controlled companies, which account for at least 50 per cent of the Russian economy.
Small and medium-sized businesses account for only about 22 per cent of Russia’s economy, compared with 46 per cent generated by small businesses in the United States.
“Huge parts of the economy have gone back to their more or less previous state where they were controlled by a very, very small group of people,” said Bernard Sucher, an American who has been running businesses in Russia since 1993. “This means that Russia is internally non-competitive and, of course, in global terms it becomes less and less competitive as an economy.