Russia is switching to the remote economy

вестник 02.04.2020

COVID-19 pandemic invaded the global economy. On the background of OPEC+ failed deal and falling indices, the people faced to the new crisis not connected with financial and market conditions.

The Russian companies arrange for their employees to work from home. How this will influence the business? How the state will support entrepreneurs to bridge over the difficulties?

Being the key development model, globalization does not stand the test. Quarantine and self-isolation of the countries force entrepreneurs to resort to technologies and remote office practices. The current crisis will be undoubtedly resulted in financial losses, especially in transport, tourism and production sectors. However, along with obvious challenges, distance working has some advantages.

Challenges and advantages of distance working

1 In case of global quarantine, smokestack industries will suffer the highest losses due to disability to stop manufacturing, like metallurgy for instance.

Transport, tourism, hotel, restaurant and entertainment business, as well as mass market with a significant import share should expect serious difficulties.
Media, IT companies, marketing, advertising, creative professions, recruiters, personal assistants, and sales managers will be able to switch to the remote economy format more easily than others will.

Online platforms for food delivery and provision of services will increase their revenues.
2 The breaking of traditional economic ties will lead to a long-term decline in industry and services in the USA, EU, China and other countries, which will cause a global recession, undermining world trade and the inevitable search for a new development model.

According to the data for January-February 2020, the annual decline in industrial production in China is 13,5%. The decline reached 13% in the service sector, which was a record high over the past 40 years.

The Purchasing Managers' Index (PMI) of 19 EU countries in March fell to 31,4 points from February's level of 51,6 points. This indicator is the lowest in history. A value of more than 50 points indicates an increase in business activity, below - a decline.
Due to the forced curtailment of cooperation between countries and the closure of borders, a number of states can receive certain economic benefits: start reindustrialization, revive local production and the national services sector, and build supply chains within their territory. A quick response to the situation will help to occupy a certain share in foreign markets.

Countries with the necessary resource base, scientific and technological potential, and low dependence on imports will take advantage of the crisis.
3 Current events will strengthen the discussion in the professional community about the need to reduce the human factor in a number of professions. The remote economy will give a new impetus to the maximum automation of business processes.
4 In case of protracted crisis, companies with no experience in remote working will begin to downsize. The transfer of employees to remote work will help reduce the costs of enterprises and avoid wholesale redundancy.
5 According to the experts, less than half of the Russian employers are ready for complete transferring the employees to remote work. The following large companies have transferred to remote work: Yandex, Rambler, RT, as well as companies of the real sector such as Gazprom Neft, Igristie vina, etc.
6 Remote work has no firm schedule for the beginning and the end of the working day. Employees work more often in the evenings and on weekends. The combination of professional and household activities can cause conflicts and affect the results. Transferring employees to a remote work will reduce rental payments, and specialists themselves will be able to save time and money to get to work. The schedule is becoming more flexible.
7 Overstaffed companies with no firm job descriptions, when employees do work without scope and timing, will face difficulties to switch to a remote mode. Many employees have never worked outside the office. Remote work requires a specific setting of goals, objectives and deadlines for employees. This implies their complete independence in planning their time. It is necessary to create a performance management system and evaluate the result of work taking into account the changed working conditions.
8 The organization of corporate chats, CRM-systems that will allow quickly monitoring the implementation of the plan and discussing working issues will require costs from companies. The market offers many solutions for remote work. Companies that implemented them will suffer fewer losses under global quarantine. To maintain productivity and involvement in the work, there are modern IT solutions: webinars, messengers, corporate mobile applications and platforms, and much more.
9 Currently, according to labor laws, an employee can choose any one type of employment: remote or traditional. Laws do not provide for combining remote work and staying in the office, but in practice, it occurs, often with cuts in benefits and material incentives for such specialists. Changes in the Labor code will allow legalizing the remote work, which many employees are now transferring to because of the outbreak of COVID-19. In February, the co-chair of the All-Russia People's Front central headquarter, Aleksey Komissarov, sent a letter to the Deputy Prime Minister Tatyana Golikova, which was accompanied by a bill to include the item “Temporary remote work” in the Labor code. This form of work is established on the basis of an additional agreement to the employment contract. The employee will be able to choose a place for remote work independently. If an employee complies with established labor standards, salaries should not be reduced. The proposal has not yet been considered, but if it moves to the stage of the bill and is accepted, it will help regulate remote work.The proposal has not yet been considered, but if it moves to the stage of the bill and is accepted, it will help regulate remote work.
10 Transferring to remote work under the minimizing business contacts with partners both within the country and abroad, there is an increased risk of cooperation with unreliable company. The increasing need for information resources that allowing to collect and analyze information about the counterparty online.

The crisis raised the acute question of sustainability in the face of global challenges not only for business, but for the entire countries. The dynamics of the recession and subsequent recovery of GDP in the countries of the world will make it possible to estimate the effectiveness of the state and the incentive supporting measures for the economy.

Supporting measures for the Russian economy

  • For microenterprises, small and medium-sized businesses, the size of insurance premiums to social funds will be reduced from 30% to 15% for salaries exceeding the minimum wage; for salaries at the minimum wage level or lower, the rate will remain 30%. A reduced rate is entered on an ongoing basis.
  • A six-month tax deferral (excluding VAT) is introduced for microenterprises, small and medium-sized businesses having difficult financial situation. In addition to tax deferral, microenterprises have an option not to pay insurance premiums to social funds over the next 6 months.
  • A six-month deferral of credit payments for microenterprises, small and medium-sized businesses having difficult financial situation. State subsidized loans.
  • Suspension of bankruptcy proceedings (moratorium) at the initiative of creditors for companies from affected sectors for 6 months.
  • The list of affected industries will be adjusted and updated by the Government of the Russian Federation.
  • A 15% tax is imposed on interest income and dividends received on offshore accounts.
  • A 13% tax is imposed on interest income on bank deposits and investment in securities, provided that the total amount of funds exceeds 1 million RUB.
  • The government will raise an anti-crisis fund of 300 billion RUB, aimed at supporting the economy.
  • Since March 17, restrictions for transport providing deliveries to retail chains have been lifted.
  • “Green corridor” at customs for essential goods. The zeroing of import duties for a specific list of goods is discussed.
  • Cancellation of control and supervision measures, including tax and customs before May 1. Exception is unscheduled inspections in case of threat to life and health.
  • Temporary deferral of payments for the lease of state and municipal property.
  • Coverage of damage to transport companies related to non-refundable tariffs for air transportation and transportation of citizens from abroad.
  • Deferral of payment of dividends by state-owned companies for up to six months.
  • Recapitalization of leasing companies.
  • Allocation of additional funds of JSC SME Corporation expand support for small and medium-sized enterprises.
  • Informing organizations about anti-crisis measures through the taxpayer’s office on the website of the Federal Tax Service.
  • Expanding the list of systemically important companies.

Whether the measures will be effective and sufficient, whether small and medium-sized businesses will be able to take advantage of them, and whether bureaucratic barriers arise for fulfilling the promises of the President, the near future will show.

In conclusion, we would like to wish you good health, and your companies to rebuild business processes quickly and without damage, without difficulty transferring employees to remote work as one of quarantine measures, not stopping the business and experiencing a difficult situation with minimum losses.