#2 - JRL 2006-202 - JRL Home
Moscow Times
September 6, 2006
Reforms Slowed in 2006, Survey Shows
By Anna Smolchenko
Staff Writer

Business reforms in the country have slowed significantly over the past year, according to an annual "Doing Business" ranking published by the World Bank on Wednesday.

As a place to start up and run a business, Russia now ranks 96 out of 175 countries, just below Bosnia and Herzegovina and just above Ethiopia.

Last year, Russia ranked 79 out of 155 countries. According to a recalculation including the 20 new countries, Russia would have placed 97 last year.

"Russia was one of the world's top reformers, but there has been a very significant slowdown in the past two years," said World Bank economist Simeon Djankov, one of the authors of this year's report, the bank's fourth. "The pace of reforms in so many countries is so fast that you can't afford to stay still."

The pace of reform has been quickest in Georgia, Romania and Mexico, according to this year's survey. Those countries jumped respectively to 37 from 112, 49 from 71, and 43 from 62.

Meanwhile, China jumped to 93 from 108, overtaking Russia for the first time. Brazil is ranked 121 and India 134.

The rankings, which track the time and cost required in business start-up, operation, trade, taxation and closure, are benchmarked to April 2006. They are also adjusted for changes in methodology.

"The slowdown in reforms is one of the components of the resource curse," said Natalya Volchkova, an economist with the Center for Economic and Financial Research. "That was absolutely predictable."

Business licensing and cross-border trading are the areas where reforms are most needed, Djankov said, adding that the border-trade issue is especially significant in light of Russia's ambitions to join the World Trade Organization.

In terms of getting licenses, Russia is third from bottom at an average of 531 days, ahead only of Ivory Coast and Iran.

An entrepreneur in Moscow would have to pay more than $2,230 and wait 39 days to ship a container abroad. The same procedure takes $335 and 18 days in Shanghai, China's largest port.

"Artificial costs are significant" and have to do with Russia's customs service, Djankov said.

The Federal Customs Service was the subject of a government-ordered shake-up in May, but there is no guarantee the situation will improve drastically there anytime soon, Volchkova said. "There is no certainty it wasn't just the redistribution of spheres of influence," she said.

It's also hard for businesses to borrow money in the country's banks: Russia ranks 159 in that category.

Boris Titov, president of the lobbying group Delovaya Rossiya, agreed with some of the report's findings.

"So far, an effective [interest] rate has been 15 percent and collateral is huge," Titov said. "This is just impossible for small business."

Titov agreed with the World Bank that the ease of doing business in Russia varied from region to region.

This year's small improvement is due to reforms in starting a business and paying taxes, the World Bank said.

It now takes only seven procedures and 28 days to set up shop, an improvement from 8 procedures and 33 days last year, the study shows. Life is also easier for businesses due to cuts in unified social tax and pension fund contributions and because of the abolition of securities operations taxes, charges for the use of the names "Russia" and "Russian Federation" and the forestry tax.

"Russia is very strange," Djankov said. "It significantly lags behind others in some areas but is doing very well in others."

Russia ranks in the top 10 in the time it takes to enforce contracts through an arbitration court, at 178 days.

Russia has also improved rights protection for minority shareholders, who can now challenge management's decisions in court, Djankov said.

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Doing Business Survey

1 Singapore

2 New Zealand

3 United States

34 Armenia

37 Georgia

63 Kazakhstan

93 China

96 Russia

121 Brazil

128 Ukraine

129 Belarus

134 India

Source: The World Bank.