Red tape hurting businesses in Russia

By Vladimir Todres
Bloomberg News Service

MOSCOW — Russia needs to rein in local officials to implement new laws designed to help small businesses increase efficiency, avoid red tape and spur economic growth, the World Bank said.

As the Russian economy expanded 5 percent last year, almost half of the small companies surveyed by the bank said their sales were stagnant or falling, and only 22 percent added workers. Startup costs and bureaucratic harassment of growing companies were the main reasons, the bank said in a report.

Russia is pushing to cut taxes and paperwork for small businesses, as it tries to reduce the economy's dependence on oil, natural gas and metals, which are subject to price swings as global growth slows. New laws on small businesses took effect in July, after the bank did its survey.

"Past experience has demonstrated that the gap between sensible laws and effective implementation can be considerable," the World Bank said in the report. "Obstacles are particularly serious in the area of deregulation: officials at regional and municipal levels may benefit from the existing status quo."

The surveyed companies ranked bureaucracy and red tape as the biggest impediment to their businesses, with racketeering as the smallest.

Among the biggest problems are inspections by agencies ranging from police to tax and health authorities that can close companies for minor infractions. On average, inspectors visited each business more than five times a year, compared with once every two years as stated in the new laws, the bank said.

Russian businessmen say poorly paid bureaucrats carry out multiple inspections to elicit bribes. The problem gets worse as companies grow.