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Few chances to borrow, foul competition are worst woes of Russian businesses

March 17, 2015, 17:11 UTC+3 Zamyatina Tamara
© TASS/Dmitriy Rogulin

MOSCOW, March 17. /TASS/. Problems with the availability of borrowing and foul competition involving corruption schemes constitute the worst obstructions to improving Russia’s business climate, polled financial analysts have told TASS.

The availability of credit has outweighed by far even the problem of corruption Russian businesses are faced with, the president of the Russian Union of Industrialists and Entrepreneurs, Alexander Shokhin, told the conference Russian Business Week-2015, which opened in Moscow on Monday.

From October 2014 through January 2015 the RUIE has questioned its members regarding the key elements of Russia’s business climate. In the polled group 66.7% belonged to big businesses, 13.3%, to medium-sized companies, and 20% to small businesses. Alongside the problem of the availability of credit most respondents (51.4%) named too complex procedures for starting a business of one’s own. A little more than 20% of respondents said foul competition was one of the worst problems in doing business in Russia.

"The availability of credit is the determining factor that makes businesses attractive or, on the contrary a repulsive factor, if the key rate is too high. The fact that the Bank of Russia over the past two months has twice lowered the key rate is a sign pointing in the right direction. Ideally, the key rate must be a one-digit figure, and not a double-digit one (for instance, the current 14%). But lowering it overnight is hardly possible. It will be going down, depending on the inflation rate," the president of the Association of Russian Banks, Garegin Tosunian, has told TASS.

"I agree with RUIE comments to the effect start-up problems are a major problem for small and medium businesses. Weeks and months are wasted on obtaining permissions to launch construction projects, to be connected to power grids, and so on and so forth. The bureaucratic machinery keeps moving with its brakes switched on. The problem of foul competition is hardly surmountable for both external and domestic investors. Business people would like to hear sensible arguments from courts and law enforcement agencies that deal with their disputes, and not see biased preferences extended to either party or the outright use of the administrative resource," Tosunian said.

"Regrettably, businesses have never enjoyed great favors from the authorities since the Soviet era, and Russia finds it rather hard to overcome that legacy, still seen in the background and the upbringing of the judges and law enforcers. But since the development of business has been declared as one of the government’s priorities, it is the government’s duty to create conditions of stability and certainty for doing business," the analyst said.

"The high price of borrowing is a major obstruction in the way of bringing about a business upturn in Russia. Businesses had welcomed last week’s decision by the Central Bank to lower the key rate to 14% from 15, but that is merely a trend. In the European countries the key rate is close to zero, and there happens deflation. For Russia the optimal level of the Central Bank’s key rate lies between five and six percent," the director of strategic analysis and research at Vneshekonombank, Vladimir Andrianov, has told TASS.

"The unavailability of credit makes businesses non-competitive, and causes capital flight. Many enterprises are in shortage of turnover capital crucial to developing production and get unable to develop production and pay wages. Exit from the economic crisis requires incentives to establishing private, small and medium businesses, including foreign ones, in Russia, and not distributing budget money among major players, thereby giving them competitive edges," the analyst believes.

The Bank of Russia’s former governor, Sergey Dubinin, agrees that the current key rate is rather high, but still it is below the current inflation. "Should the key rate be lowered still further, banks would be operating at a loss, and that’s just nonsense," Dubinin told TASS.

"All of business people’s complaints about the unavailability of borrowing are easy to explain. Before, loans could be obtained outside Russia at very sensible rates. But in the wake of sanctions the Western banks have had to deny loans to Russia. That does not mean that Russia has no conditions for doing business. To be credible enough to get a bank loan inside the country the borrower company is to ensure there be no questions about its reliability, property issues, structure and risk assessment. As Prime Minister Dmitry Medvedev said just recently, the solution of problems of doing business in Russia depends on internal causes first and foremost, and not on external ones," Dubinin concluded.

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