KEY CONCLUSIONS:

• Despite the crisis trends in the economy, the SME sector is showing a rise in business activity and the number of small and medium-sized enterprises.

“Even in a crisis environment, with most of the industries really struggling, the small businesses sector <…> has seen a 1.5-fold rise in revenue over the past three years, which is a very positive sign indeed. Moreover, there has been a 30% improvement in investments, confirming the ability of SMEs to move from simply staying afloat to growing and emerging despite the challenging conditions. On top of that, we saw an increase in what you can call the sector’s birth rate: the number of new SMEs exceeded those going out of business,” said Oleg Fomichev, State Secretary, Deputy Minister of Economic Development of the Russian Federation.

“SMEs in Russia have seen no decline in momentum – far from that. Last year, the number of Russian micro and small businesses alone went up by as much as 10%. Some 500,000 new companies emerged in just one year,” said Alexander Kalinin, President, All-Russian Non-Governmental Organization of Small and Medium-Sized Businesses Opora Russia.

“In 2017, we have been seeing a sustained improvement in business activity of small businesses every single quarter,” said Konstantin Basmanov, Chairman of the Management Board, Vozrozhdenie Bank.

CHALLENGES:

• The shadow economy is hindering growth of law-abiding SMEs

“We are perfectly aware that it is not middle-sized or large businesses that are the true rivals for legal SMEs – it is the shadow economy, which has its own small businesses: those engage in illegal schemes and pay no taxes to benefit in the competitive struggle,” said Oleg Fomichev.

• Limited access to finance is one of the key challenges faced by SMEs

“According to a recent report from the World Bank, there are more than 510 million micro, small and medium-sized enterprises in the world. They have a credit gap, or demand for finance, in excess of USD 3.2 trillion. Interestingly, more than 75% of these micro, small and medium-sized enterprises are on the banking grid: they have bank accounts,” said Thomas Deluca, Chief Executive Officer, AMP Credit Technologies.

• Too many SMEs in retail/wholesale trade as compared to other industries

“We still see a disproportionately high share of small and medium-sized enterprises operating in retail or wholesale – this is not at all bad, but it’s not so good in other industries, such as transportation, communications, telecom, health, construction, or tourism,” said Oleg Goshchansky, Chairman and Managing Partner, KPMG in Russia and the CIS.

SOLUTIONS:

• Creating an attractive environment for legal SME operations

“We do not think regulations should be further toughened here; it would help to create more incentives for the business to come out of the shadow. <…> After an attractive environment has been created, and businessmen have no more excuses for hiding in their garages and not paying taxes, it might be reasonable to gradually tighten the responsibility and introduce some additional compulsory payments and things like that,” said Oleg Fomichev.

“It is but natural that the regulatory framework should be transparent, and the administrative barriers should be further reduced. And, last but not least, in general, the image of a businessman, the image of an entrepreneur in Russia should be improving, sprucing up, and you cannot just underestimate it,” said Oleg Goshchansky.

“Quite a lot of requirements should be lifted for micro enterprises, you do not have to educate them – just give them more freedom, because the administration process costs more than the breaches that can emerge as a result,” said Konstantin Basmanov.

• Creating a client-oriented infrastructure

“Our objective is to make sure a businessman anywhere in the country can quickly obtain all the necessary services offered by the small business support infrastructure,” said Oleg Fomichev.

• Adjusting banking programmes to ensure SME support

“The SME Corporation and leading banks <...> have been doing their best to adjust their systems for SME support recently. And we are inviting an increasing number of regional banks, which are also flexible in their response to changes in the environment and to new enterprises emerging,” said Oleg Fomichev.

• Creating conditions for Russia’s small and medium-sized businesses to enter foreign markets

“We are actively building Russian small businesses into global supply chains,” said Alexander Braverman, Member of the Board of Directors, Chief Executive Officer, Chairman of the Management Board, SME Corporation.

“In November last year, Prime Minister Li Keqiang paid a visit to Russia and took part in the 21st China-Russia Prime Ministers' Regular Meeting. An agreement was reached to promote cooperation in terms of SME development. I came to Russia to carry out the arrangements agreed between the Prime Ministers,” said Wang Qinmin, Chairman of the All-China Federation of Industry and Commerce.

“Besides all the infrastructures and financing, what they [SMEs] are lacking really is customers – customers and partners to grow their businesses. [...] And this is the kind of partnership that we initiated with Mr Braverman,” said Erwan Dupuy, General Director, Saint-Gobain CIS.

• Incentivising small businesses for growth using an accelerator or a specialised transition mode

“In micro business, we do really have something to be proud of, but there is no systemic description of an accelerator, that is, how to turn a micro business into a medium-sized business. <…> This accelerator needs a careful description, and all development institutions should be focused on turning Russian micro enterprises into medium-sized ones,” said Alexander Kalinin.

“It is not just an accelerator – a transition regulatory mode should be well thought through because now the issue is about us having created a really good regulatory framework for small businesses, with a tax burden that is way more relieved. And it is a real challenge for a small business to get out of this playpit. The environment is too comfortable. We either need to start loosening everything for small businesses as well, or come up with an intermediate transition mode,” said Oleg Fomichev.