Small Business Does Not Grow in the Urals

10.06.2010 — Analysis

Alexander Misharin, Governor of the Sverdlovsk region, recently had a meeting with representatives of medium and small-sized business and made public disclosure of the trend - from year to year, the federal government is steadily increasing financing of small business. In 2008, the region was given 155 million rubles, in 2009 - 331 million rubles, this year the earmarked funds are expected to total 879 million rubles. Considering regional sources, the amount allocated for small business support will reach about 1.7 billion rubles. Small business, according to the governor, has responded to changes in financing with new registered companies added to the business community (+ 3.3% gain as compared to 2008) and increased turnover.

The staff-members of the National Institute for System Studies of Problems of Entrepreneurship (NISIPP), meantime, say that in fact, there is no connection between the government support and the performance of small business. The experts fear that many enterprises that have been set up through budget funds remain ink on paper. Based on their research they have revealed that in 2009 the small business sector was in deep recession: with the consumer price index being factored in, its turnover shrank by 17% in the country as a whole, and its investment activity sank by 32%.

Mikhail Maksimov, Minister of Economy and Labor in the Sverdlovsk region, at the meeting of the government confirmed that the share of the small business turnover increased only due to the reduced output experienced by major enterprises of the region. As for the growth: the neighboring Tyumen region can boast similar statistics on brand-new companies; however, its population is much smaller than that of the Sverdlovsk region.

Governor A.Misharin is dissatisfied with the situation in the regional small business. According to him, business people complain about lack of funds, red tape in registration of land lots and issuance of documents as well as about arbitrary behavior of banks that require personal cars, offices, etc. as collateral. Therefore, entrepreneurship has turned into the most vulnerable stratum in Russia and is not able to become a powerhouse generating modernization and diversification of production. The overwhelming majority of entrepreneurs (75%) operates in the retail and service sector. The Regional Innovation Center for Small and Medium-Sized Business has rendered support only to two production projects.

The latter instance ruffled the governor's feelings, and he demanded that the Corporation for Development of the Middle Urals should be registered within one month, taking into account that it is vitally essential to deploy the projects for development of an industrial park and free economic zone in Nizhny Tagil, a pipe-manufacturing cluster in Kamensk-Uralsky and a magnesium factory in Asbest. A.Misharin stated that for more than two years the regional authorities have been palavering the diversification of economy; however, for some reason, the newly created technological parks are turning into commonplace business centers.

How can it be explained? According to Anatoly Filippenkov, President of non-profit partnership "Union of Small and Medium Size Business of the Sverdlovsk region", the technological park created within Uralmashzavod boosted the rent rates and, as a result, the management board of the factory made good money. No breakthrough, no new products came to life for a very obvious reason: there is no establish system for deployment of inventions, and business-incubators operate at a loose end. The Union he is in charge of has no information even about the number of innovative enterprises in the region. A. Filippenkov is confident that the work must be started from the program of support for innovative business: setting the land and property tax rates to zero, providing soft lending and guarantees.

Vladimir Lobok, Head of the Small Business Association, thinks that benefits will be of no help to small business. Russia has an established system of relationship that prevents legality in business and does not bolster willingness to pay a payroll salary and taxes. The system was created by the government, which, for example, through its fire safety and industrial security requirements can bring a manufacturing enterprise to ruin. In this context, it makes no sense talking about benefits: a law-abiding business person will not be able to take a loan to start manufacturing business. In the meantime, budget-funded subsidies and grants are available to those who are in the shadow and are skillful at "designing" handsome business plans. Where the allocated money goes afterwards remains a puzzle: such spendings are not monitored in the Sverdlovsk region. Officials do not need such monitoring.

Dmitry Golovin, a businessman, thinks that monitoring can change nothing. Officials who have straddled cash flows will report that the allocated funds are spent as intended and business guys just had bad luck. To some extent, they will be right, because the authorities have chosen the easiest way, trying to solve problems of small business through money inflows. The actual picture is the following: officials establish a cash flow, channel it as intended, spend the money and then prepare a report. The result, of course, is zero.

According to D.Golovin, the situation is similar to the scenario when officials are trying to train all the Russians so that they could play football, keeping up with the Brazil team; they are sure that big money can close a gap. By all means, the money is spent, but the performance remains unchanged. There is no point in blaming the players: they will answer that they do their best, but just can't make it. Business should not be done by ill-fated untalented people. The businessman is sure that the difficult way must be chosen: reducing of corruption, building of roads, improving of administration; in other words, creating an environment, in which talented people could actualize themselves.

The institutional environment is created in quite a peculiar way in the Sverdlovsk region. Alexander Misharin questioned Alexander Petrov, the Regional Minister of Industry, why the innovative businesses account only for 2% in the small business sector. The latter referred to powerful administrative barriers that innovative groups are not able to overcome.

"The barriers have names, the governor interrupted the minister. - Here are members of the government and mayors. Who exactly is raising barriers?" The question hung in the air...

Vladimir Terletsky