#18 - JRL 2009-168 - JRL Home
Moscow Times
September 9, 2009
Graft, Red Tape Dent Russia’s Ratings
By Maria Antonova

Despite regulatory reforms, Russia got poor marks in terms of competitiveness and the ease of doing business, with corruption considered the biggest problem, according to two global reports released Tuesday.

Russia ranks 120th in the World Bank’s annual “Doing Business” report, which evaluates laws and regulations that affect business activity in 183 countries.

Russia improved on three of the survey’s 10 indicators by easing the process of registering property, lowering the corporate income tax rate from 24 percent to 20 percent, and defining bankruptcy rules more clearly.

But it still slid overall because of tough competition in a year that saw countries introduce a record 20 ­percent more business-friendly reforms than in any other year since the report was first published in 2004, said one of the authors, Svetlana Bagaudinova.

“The splash of reform activity indicates a concerted effort to support business during the crisis,” Bagaudinova told The Moscow Times.

The Russian government has proclaimed the development of small business as a key aspect of its anti-crisis program, allocating 10.5 billion rubles ($336 million) from the budget to the regions to support budding entrepreneurs this year.

Four of the 10 top reformers are former Soviet republics, Kyrgyzstan, Belarus, Tajikistan, and Moldova, according to the report. Russia beat Tajikistan, along with Ukraine and Uzbekistan, in the overall ranking, which is topped by Singapore, New Zealand, and Hong Kong.

At No. 4, the United States was not included in the top three for the first time.

Bureaucracy surrounding construction remains Russia’s weakest area because it takes 700 days, 54 procedures and more than 2,100 percent of per capita income to acquire permits for a project, the report said.

“Despite some attempts to improve the situation during the crisis and the introduction of a new Building Code, the process remains very difficult,” Bagaudinova said.

The World Bank surveyed about 50 experts at Russian law firms for the report, she said.

Meanwhile, Russia fell 12 places in the “Global Competitiveness Report,” published by the World Economic ­Forum, to 63rd out of 134 countries. It was ranked lower than Azerbaijan, which replaced Russia at No. 51, but higher than other CIS countries. Switzerland, the United States and Singapore topped the list.

Among the emerging economy BRIC countries, only Russia declined in performance. Its major structural weaknesses are a “perceived lack of government efficiency, ... little judicial independence in meting out justice,” and a lack of property rights, the report said.

Russia “depends a little too much on a few sectors that depend crucially on world prices,” while the economies of Brazil, India and China are more diverse, said the report’s co-author, Xavier Sala-i-Martin.

Russia’s performance is also hindered by its relatively low degree of financial sophistication and the weakness of its business environment, he said in remarks posted on the World Economic Forum’s web site.

Among Russia’s competitive advantages are its market size, relatively efficient labor market, good public health, and a high capacity of innovation, the report said.

Unlike the World Bank study, the report also includes perception-based data from a survey of business executives, who were asked to select the five most problematic factors out of a list of 15. Corruption is considered the biggest impediment to doing business in Russia, with 19 percent of respondents marking it, up from 18.8 percent last year, followed by access to ­financing and tax regulations, with 16.9 percent and 11.6 percent, respectively.

The report also included a survey on how the financial crisis will affect countries’ long-term competitiveness prospects. While economists said Brazil, India and China would be positively influenced by the crisis, their outlook for Russia was pessimistic because of factors such as “enhanced government intervention” and “nonoptimal allocation of resources to education and transportation infrastructure.”

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