Moscow International Business Centre or “Moscow City”, October 2017. In the foreground, the Evolution Tower, started in 2011 and completed in 2014.
Photo credit : Swann Bigot
Russia ranks as the 35th easiest place in the world to do business with a score of 75.5/100, ahead of Italy (46th), Belgium (52nd) or Luxembourg (63rd) and just behind Japan (34th) according to the World Bank Doing Business 2018 Report. The country also outpaced Belarus and Kazakhstan, its partners inside the Eurasian Economic Union. New-Zealand is the best country to do business according to the report, ranking the 1st place.
If taking into account that Russia ranked 118th in 2012, 50th in 2015 and 40th in 2016, this result can be considered as a success. The Government of the country maintains the goal to reach the 20th place by 2018, as it was decided in May 2012.
Moreover, this promising result comes after that Russia improved its position in the Global Competitiveness Report 2016-2017 last September, ranking 43rd place in a list of 138 economies. Note that this index is released by the World Economic Forum.
Experts of the World Bank write in their report that the Russian Government has understood the importance of business regulation that affects small and medium-size enterprises as a driving force of competitiveness and economic growth. Federal regulatory reform committees used the Doing Business indicators as tools to shape and implement their programs for improving the national business environment.
Over the past 15 years, the country has carried out 36 reforms to improve its business climate, reports the World Bank. The core of latest measures covered the areas of registering property (seven reforms) and starting a business (six reforms).
In the ranking covering 190 economies, the Russian Federation improved its position in several areas, ranking 28th for starting a business, 10th for getting electricity, 12th for registering property, 18th for enforcing contracts, 29th for getting credit, 51st for protecting minority investors, 52nd for paying taxes, 54th for resolving insolvency and 100th for trading across borders.
The Doing Business Report measures the business regulations and their enforcement regarding small and medium-sized companies through their life cycle across 190 economies and selected cities, covering 11 parameters: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority shareholders, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labor market regulation.
However, any reader of this ranking must remember that it does not include parameters such as the level of corruption, international sanctions or macroeconomic stability.
The interest of the World Bank ranking is that it can help to measure the attractiveness of doing business in the Russian market.
Moscow International Business Centre or “Moscow City”, October 2017.
Photo credit : Swann Bigot
According to the Financial Times, foreign investors would still complain of the Russian state’s dependence on oil and gas revenues, the large role of state-run companies in the economy and the burden of bureaucracy.
Nevertheless, foreign investors appear to be back in Russia, with a volume of foreign direct investments which has almost doubled over the first half of 2017 compared to the same period in 2016, announced the Prime Minister Dmitry Medvedev last month.
These good results may be explained by the three key business reforms implemented in Russia in order to improve the investment climate and generate economic growth and stressed by the Word Bank Doing Business 2018 report: registration of property, access to credit and trade across borders.
Better registration of property
The Russian Federation made property registration services easier and available at a one-stop center. The procedure is completed in 13 working days both in Moscow and Saint-Petersburg according to the report while it needed 52 days in 2004 when Doing Business began monitoring this parameter. The average time in the OECD high-income economies is 22.3 days.
In addition, the Russian government passed new legislation requiring that state registration of title transfer be completed now within 9 working days. The registering property area has been a focus of recent reforms and the country performs well, with a 12th place in the global ranking.
Strengthening access to credit
Russia adopted a new law establishing a modern collateral registry for movable property in 2016-2017. The new legislation enhanced the protection of legal rights of borrowers and lenders. The country now ranks 29th while it ranked 44th in the 2017 World Bank report.
It has a score of 8 in the strength of legal rights index from 0 to 12, while the average score in in the OECD high-income economies is 6. In addition, credit information score in Moscow and Saint-Petersburg reaches 7 in the index (0-8). The OECD average score is 6.6.
Easier trade across borders
Russia recently strengthened transport and port infrastructure for exports and imports, opening a deep water port on the coast of the Gulf of Finland, increasing competition and reducing the cost of border compliance at the Port of St. Petersburg.
Customs fees for Russian exporters from Moscow have fallen in one year from $ 765 to $ 665 and for importers – from $ 1125 to $ 587.5, reports the business daily Vedomosti. The time of border compliance procedure have also decreased, for exporters from 4 to 3 days in Moscow and Saint Petersburg (OECD average time : 0.5 day) and for importers – 14 hours in Moscow and 96 hours in Saint Petersburg.
However, the country must continue the reforms in this area to join at least the OECD high income countries (border compliance time for exports – 12.7 hours ; border compliance cost to export – $ 149.9 ; border compliance time for imports – 8.7 hours ; border compliance cost to import – $ 111.6).
Nevertheless, note that the Russia’s foreign trade surplus over January/August 2017 grew by 25% compared to the same period of 2016 and amounted to $ 80 billion, according to the Russian Federal Customs Service.
Exports of goods increased by 26.2% to reach $ 223.8 billion and imports grew by 27.7%, to amount to $ 143.8 billion. Thus, Russia’s foreign trade turnover increased by 26.8% and amounted to $ 336.7 billion over January/August 2017.
Except these three key business reforms, Russia has also made efforts in other areas assessed by the World Bank.
Good enforcement of contracts
Russia performs well in the area of enforcing contracts, with a 18th place on 190 in the global ranking, thanks largely to the establishment of an electronic judicial system that implements different measures and good practices (e-filing, e-service, e-case management, etc.), reports the World Bank. Indeed, it takes 340 days and costs 15 percent of the claim to resolve a commercial dispute in Moscow (330 days and 20 percent in Saint Petersburg), compared to an average of 577.8 days and 21.5 percent on average in the OECD high-income economies, reports the institution.
Starting a Business
Russia now ranks the 28th place on 190 economies in the area of starting a business with a score of 92.81/100 for Moscow and 93.56 for Saint-Petersburg. The country carried out simplification of registration and post-registration procedures, improving information sharing between administrative bodies and reducing the time needed to open a corporate bank account to two days in Moscow and one day in Saint-Petersburg. Moreover, there is no more minimum capital requirement to start a business. The cost to start a new business has been reduced to 1.1 percent of income per capita, from 12 percent 15 years ago. (3.1 percent in OECD high income countries)
Thus, it is now possible to register a new business in Russia in 11 days for Moscow and 8 days for Saint Petersburg, with four procedures, compared with 43 days and nine procedures 15 years ago, according to the World Bank. The average time for OECD high income countries is 8.5 days with 4.9 procedures.
Subnational studies for better business
The World Bank reported that the Russian Federation is among the seventeen economies which have undertaken two or more rounds of subnational data collection to measure progress over time in business environment across their cities and regions.
Additional efforts for major benefits
The World Bank notes that Russia should continue the reforms in dealing with construction permits and trading across borders. Indeed, if the time to obtain administrative clearances and construction permits has been reduced since 2011, it is still almost twice the global average. Furthermore in spite of improvements in transport infrastructure and development of electronic procedures for exporters and importers, the cost for border compliance and documentation remains high.
Moscow International Business Centre or “Moscow City”, October 2017. In the background, the Mercury City Tower, started in 2009 and completed in 2013.
Photo credit : Swann Bigot
An ambitious target for 2018
The Minister of Economic Development Maxim Oreshkin said on October 31st that Russia maintains its goal to reach the 20th place by 2018 but added that it is now harder to climb higher since the competition between countries increases and other states also improves their business climate. Thus, the Government must keep focus on economic reforms.
“We maintain our goal to be in the list of 20 best countries for doing business, we will actively work in the next six to nine months to implement additional reforms that will achieve this goal”, stated the Minister.
Remember that the Russian President Vladimir Putin ordered the Government in his presidential decrees signed in May 2012 to take measures aiming at increasing the position of Russia in the World Bank Doing Business Ranking, from the 120th place in 2011, to the 50th in 2015 and 20th in 2018.
According to the World Bank ranking, New Zealand remained the easiest place in the world to do business, before Singapore and Denmark. The United States ranks as the 6th easiest place. The United Kingdom is 7th, Germany is 20th and France is 31st.
The hardest places in the world to do business are countries in crisis, such as Somalia, Eritrea, Venezuela, South Sudan and Yemen.
This article was written with the help of materials from Russian official sources and the World Bank publications.
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© Copyright 2018 – Swann Bigot, legal expert and consultant in international affairs.