Competitiveness of Russia: myth or reality

The Federal State Statistics Service released the results of the Russia's economic development in the 1st half of 2015 in comparison with the same period in 2014. It was recorded the decrease in the volume of paid services to the population (bln. RUB) by 1.5%; transport freight turnover (bln. ton-kilometers) by 2.3%; index of industrial production by 2.7%; real disposable incomes by 3.1%; investment in fixed assets by 5.4%; retail trade turnover (bln. RUB) by 8.0%; export of goods (bln. USD) by 29.1%; import by 38.7%.

Compared to the same period in 2014, an increase for the 1st half of 2015 is observed on the following parameters: the increase of a consumer price index by 16%; the price index of industrial products producer by 11.8%; total number of unemployed (mln. people) by 6.3%; officially registered unemployed (mln. people) by 5.2%. The increase of these indicators is a negative factor. Among the main macroeconomic indicators, the growth of only two is positive: the production of agricultural products (bln. RUB) (increased by 2.9%) and the volume of communication services (bln. RUB) (increased by 1.1%).

The decline of the Russian economy continues. However, the comparison of monthly indicators leads to the conclusion that the recession is slowing down. Following the experts of the RF Government’s economic block, the current situation in the economy begins to improve; that indicates the passage of the "lower" point. Within this framework, the statement of one of the largest consulting firms Boston Consulting Group (BCG) should be noted.

Having assessed the competitiveness of the 25 countries’ economies, which embraced almost 90% of world exports of manufactured goods, based on the index of production costs, BCG lifted Russia to the fourth position. The first three positions belong to Indonesia, India and Thailand. The assessment is based on four important criteria: wages level, operational efficiency, energy costs and the national currency exchange rate. The weakening of the ruble against the US dollar and the fall of the world energy prices influenced the index result.

It should be noted that this is a temporary phenomenon and one shouldn’t rely on long-term positive effect related to the devaluation. The devaluation reduces the GDP only in the first year, thereafter it stimulates GDP. But in the long run its impact is neutral or negative, as it will spin up another round of inflation. Further ruble weakening, demand reduction and other negative symptoms will take place. The experts expect the stabilization and increase of the world energy prices, and thus strengthening the national currency of Russia, which will reduce the competitiveness position of Russia. In this case the economy can be stimulated at the expense of credit support and improvement of the investment climate.

Following the Credinform experts, there is every reason to approve Russia as a competitive country. For the last 4 years (2011-2014) about 1 000 large industrial units and nearly as much smaller plants and units were opened in Russia. In spite of negative trends have slowed this process, more than 23 new production units with investments turnover from 500 mln. RUB were opened in Russia during the 1Q 2015. Only processing enterprises were considered at the calculating, and organization of energy, mining and agriculture were not.

TOP-5 of the largest executed projects for the 1Q 2015:

  • The first full-cycle plant for solar modules production (Novocheboksarsk, Chuvash Republic), “Hevel” – joint enterprise of “Renova” group of companies and “Rosnano”. Investment volume accounted to 20 bln. RUB. 300 jobs were created.
  • First of ten plants of the Russian-Chinese industrial park (Asinovskiy district, Tomsk region). The general investor is Chinese corporation AVIC-Forestry. ZAO “Roskitinvest” and “Henda-Sibir” are the project’s operators. As of today, 13 bln. RUB were invested in the project, and about 30 bln. RUB will be invested before 2022.
  • Integrated home-building factory (Naro-Fominsk district, Moscow region). The project was implemented by the “Morton” group of companies along with “Rosnano”. Investment volume accounted to 9 bln. RUB. More than 1000 jobs were created.
  • Manufacturing and storage facility of the Swedish cosmetics company “Oriflame” (Noginsk, Moscow region). Investment volume accounted to 8 bln. RUB. More than 800 jobs were created.
  • New meat processing complex of the “Miratorg” agribusiness holding (Vygonichskiy distrct, Bryansk region). Investment volume accounted to 7,9 bln. RUB. 850 jobs were created.

In 2013, the President of Russia supported the plan of Business Russia "New Industrialization-2025". This document involves the yearly creation of about 2 million high-productive jobs during 12 years. Thus, the real industrialization of the economy in Russia is yet to come, and its approval as a competitive country. To achieve this it is necessary to keep 255 th. of active enterprises and try to increase their number to 300 th. by 2025.

It should be noted that in the current economic conditions there are no mass ambitious statements about the suspension of investment projects or refusal of them. Not by chance the experts in the field of economy predict a rise in the Russian economy already in 2016, but situations in the market like it was in December 2014 are still possible.

Changes in the classifying terms of small business

The Government of the Russian Federation has changed the terms of reference of legal entities and individuals to small business enterprises by the order from July 13, 2015 of No. 702 "About limiting values of proceeds from sales of the goods (works, services) for each category of subjects of the small and medium business".

Using such occasion, it is appropriate to remind about these conditions in general, using Article 4 of the Federal Law from July 24, 2007 No. 209-FZ «On Developing Small and Medium scale entrepreneurship in the Russian Federation». The conditions are applied to consumer cooperatives, commercial enterprises (except the state and municipal unitary) and individual entrepreneurs and farms.

In brief, these conditions are formulated as restrictions on participation in the capital: the government in share not exceeding 25%; local and foreign companies not relating to the small enterprises, totally no more than 49% (with a few exceptions for the SKOLKOVO project residents and organizations, which are financing the innovations). The limitation of average employment (including part-time, contract agreements and in separate structures): 101 – 250 persons for medium-sized enterprises, till 100 persons for small enterprises, till 15 persons for microenterprises. The limitation of the amount of fees from the sale of goods, works or services (excluding VAT) or all assets value for each of the listed categories by the regulations of the Government of the Russian Federation.

Since 25.07.2015 the maximum values of standards has doubled in comparison with previous ones: 120 mln. RUB for microenterprises, 800 mln. RUB for small business enterprises and 2 bln. RUB for medium business.

Registration or accounting of the small business is not regulated by standards and such status doesn’t require the documentary confirmation. It is enough to meet the above requirements.

The most important positive thing of the small business is the possibility of accounting under the simplified system, which allows significantly save on VAT, tax on profit, property and the uniform social tax. Moreover, executive authorities and local self-government subsidize small and medium-sized enterprises with financial subsidies and the various intangible services and benefits. It is reflected in the corresponding registers of the subjects - support recipients.

The small business has important political and social functions and its meaning is especially growing in difficult economic periods. Small enterprises promote the extension of the range and quantity of produced goods and services without involving of notable public investment; produce the large amount of components and assemblies for large enterprises and carry out many mediatorial functions for them; involve in the turnover of the material resources and financial savings of the population; make a significant contribution in innovative production; promote the formation of the competitive environment and help to overcome the monopoly in general.
This Government Regulation significantly expands the range of small businesses and focused on the establishment and strengthening of business, increase in employment and, possibly, will help to increase the budget fullness; the share of this business category in budget revenues does not exceed 20% (estimated).

For estimation of the possible increasing in number of small business subjects it is possible to cite the statistics of the Federal Tax Service of the Russian Federation: more than 220 th. of limited liability companies, 339 th. of newly formed individual entrepreneurs and more than 16 th. of farms were established in Russia within 6 months of 2015.

Using the «Key financial and economic indicators» section of the company’s report and the recommended list «Grant recipients RF» in the Information and Analytical system Globas- i®, you will know, whether your contractor belongs to the category of small business and whether he is the recipient of the state support.