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Companies Supported by Government More Optimistic about Investment Climate

Over the past three years, the business climate in Russia has improved for companies with a long planning horizon and for those receiving government support. State-owned companies, however, have been worse off after losing their privileges and facing a level playing field, according to Andrei Yakovlev, director of the HSE Institute for Industrial and Market Studies, Irina Levina, research fellow at the same Institute, and Anastasia Kazun, postgraduate student at the HSE Faculty of Social Sciences.

In February 2012, the then Prime Minister and presidential candidate, Vladimir Putin, instructed the Russian Government to take steps to improve Russia's investment climate so that the country could upgrade its ranking in the World Bank's ease of doing business index from 120 to 20.

To achieve this, The 100 Steps Programme was adopted, the position of Business Ombudsman was established in the Presidential Administration to act as an advocate for entrepreneurs, and roadmaps were designed to facilitate access to electricity connections and construction permits; other measures included changes in customs regulations and export promotion policies. In September 2012, a federal decree was adopted which introduced a new framework for the appraisal of the performance of regional governors using local business climate indicators; in 2013, an amnesty was declared for entrepreneurs convicted of economic crimes.

The results were not long in coming. Russia moved up the global Doing Business ranking from the 120th to the 62nd position between the end of 2011 and October 2014 (to compare, some other countries’ rankings stand at 90 for China, 120 for Brazil, and 142 for India). However, according to experts, the Doing Business rankings often fail to capture the full range of diverse issues affecting a country's business climate and rarely address the institutional environment and overall economic development of individual countries.

Yakovlev, Levina and Kazun examined Russian entrepreneurs' perspectives on changes in the country's business environment between 2012 and 2014; the empirical study used the data from a survey conducted by the HSE Institute for Industrial and Market Studies in the summer and autumn of 2014 and involving 1,950 CEOs of large, medium and small businesses operating in nine manufacturing industries in 60 Russian regions.

The respondents were asked about various aspects of their operations and internal processes, including ownership structure, trading partners, investments, membership in business associations, perceived changes in business climate, etc., and then regression analysis was performed to identify trends and perspectives for different types of businesses.

The findings are presented in the paper 'What Firms Observed Improvement of the Business Climate in Russia in 2012–2014?' published in HSE's Public Administration Issues.

Government Support Drives Business

According to the study's authors, companies which receive support from government and those practicing long-term planning have benefitted most from the positive changes in business climate over the past three years. Companies with a planning horizon of more than three years are more likely than others to report improvement in their business environment.

The authors attribute this to the fact that companies with a long planning horizon are more likely to appreciate easier access to construction permits and electricity connections – an important focus of the reforms.

Although size was clearly not the most important factor, larger businesses are somewhat more optimistic in their assessment of business environment – perhaps because they have more opportunities to lobby for their interests via direct access to policymakers and bureaucrats; but on the other hand, they may be wary of sounding too negative, the study's authors suggest.

State-owned Companies Lose Privileges

Having the government as owner makes it more likely for a company to have a negative perspective on the changes in the business environment. "Simplifying certain formal procedures for doing business (reflected in the Doing Business ranking) means creating a level playing field for all market participants and thus leads to a depreciation of advantages enjoyed by companies with government participation," the researchers explain.

However, despite some progress, the policy changes did not achieve the main objective of creating a substantially better overall investment climate in the country, evidenced by absence of any significant differences in business climate assessment between companies which did and did not make investments between 2011 and 2013, the researchers conclude.

 

September 21, 2015