Yekaturinburg, Russia – Under Russian President Vladimir Putin, Russia has made efforts to improve the ease of doing business within the country.
According to the 2019 edition of the World Bank’s Ease of Doing Business survey, Russia has improved to the world’s 31st nation in terms of ease of doing business. This is an improvement from 35th in 2018 and 40th in 2017. Seven years ago Russia was ranked 120th in the same survey.
The Ease of Doing Business survey focuses on quantifying the difficulty of forming and running a moderately sized business within a given country by looking at the regulatory framework that shapes the nation’s corporate law and policy.
Indeed, Russia has instituted a number of reforms that seek to improve the business climate for domestic small and medium enterprises. Improved procedures for obtaining construction permits and electricity have significantly bettered Russia’s ease of doing business according to the World Bank survey. Tax policy has also improved the business climate by allowing for a higher tax depreciation rate for fixed assets.
The Russian government’s reforms in the area of getting electricity have improved that metric to the global rank of 12. It now takes only 2 procedures and costs 5.7 percent of income per capita to get connected to the electrical grid, compared to the average of 5 procedures and 325 percent of income per capita in Europe and Central Asia region.
Contract enforcement and registering property are other areas in which Russia shows relative strength. Registering property has been an area policy focus in recent years, which helped place Russia in 12th place globally for this category. In the area of Enforcing Contracts, it takes only 337 days for a business in Russia to resolve a commercial dispute through a local first-instance court, compared to 496 days elsewhere in the region.
There is room for further improvement in the doing business survey in several areas, however, including international trade, resolving bankruptcy, and protecting minority investors. Of particular note, Russia scores only 2 out of 10 in the extent of director liability index, which means that in case of misuse of corporate assets, directors would be held liable in very few situations.
In practical terms, for the average Russian business owner, the ease of doing business is seen as not different from elsewhere in the world.
“I think it’s similar to other countries of Europe or America,” says Bakulin Semen, a web developer in Yekaterinburg.
Semen’s beliefs were echoed by Yekaterinberg based lawyer Alex B., “doing business in Russia is generally no different than in the US. Yes, we have a lot of inspections. But in this environment one can still conduct business.”
Bureaucracy – especially on the local level – is a common complaint among small and medium sized Russian entrepreneurs. While the Kremlin has made improving the climate for doing business a business priority, in reality the regional and local governments can often complicate the process.
Artem Zapertov is a bar owner in Samara who expressed some frustration with the sometimes labyrinthine business regulations, “The bureaucracy in this country is too much. My bar had to go through three police inspections.”
For foreign business owners Russia remains attractive as an emerging market compared to other attractive markets like Brazil and Nigeria due to resource base, large population, and public and private spending capacity.
While cases of direct government involvement in Western business affairs in Russia are relatively rare, international investors often face regulatory policies that complicate their business interests in the country. Large American and European businesses with a footprint in Russia cite numerous unplanned inspections of facilities, threats of abruptly changing regulations from regional and federal government – often without notice – and pressure to hire and manufacture locally as complicating factors in doing business in Russia.
Nevertheless, there is no denying the appeal of tapping into the enormous resources and customer base of the country of over 144 million people and 6.6 million square miles.