Australian Businessman Fights Red Tape

ReutersAustralian entrepreneur Peter Bohn standing in one of the 36 small Diva stores, which sell inexpensive jewelry.
Every morning, staff at fashion jewelry chain Diva line up to bring their Australian boss about 500 documents to sign, as he swims against a tide of bureaucracy and corruption.

In two years, entrepreneur Peter Bohn has opened 36 small stores in shopping centers across Russia, selling inexpensive jewelry to fashion-conscious young women.

The problem is that the original schedule to hit 200 stores had to be put back, and Bohn currently estimates the startup costs for the chain will top $4 million, against an initial estimate of about $1.5 million to $2 million.

"I've got a signing period from 10 to 10:30 a.m. per day, and every one in the office knows it," Bohn said. "On one extreme it could be ridiculously mundane paperwork, on the other hand, I could be signing my life away."

The walls of his outlets are covered in display cabinets of bangles, hair slides, chunky necklaces and fake diamond rings that cost a fraction of the real thing. Bohn's eye is on the oil-fueled boom that is gradually turning a section of the population into a middle class with disposable incomes.

Standing in his way is an incessant series of headaches. In one recent incident, a shipment was impounded because a single document was missing.

Customs froze the delivery and charged rental fees and fines that, three months later, left Diva with a bill five times higher than the cargo's value.

"There was no flexibility at all," said Bohn, shaking his head, still frustrated by the episode. "And all because we missed out on one little document."

President Dmitry Medvedev has said cleaning up graft and boosting small business are among his top ambitions. Small firms make up 15 percent of gross domestic product, but Medvedev wants their share to reach 50 percent.

"It's very difficult to run a small business … but we do see that retail and consumer goods sectors are developing, so despite all these obstacles, people are doing business and making profits," said Yelena Anankina, a credit analyst with Standard & Poor's in Moscow.

If Bohn's experience is typical, there is a long way to go. The World Bank's site www.doingbusiness.org calculated that it takes 54 procedures and over 704 days to get the licenses, paperwork and utility connections to build a warehouse in Russia.

"This place is in the dark ages with most of its structures," Bohn said.

Bohn is attempting to go it alone — without a local business partner and the connections that might bring.

"My job is to get this business to 200 stores within three years and sell it for the best price I can and give the money back to the venture capital firm and hopefully make my life a bit more reasonable," said Bohn, who is backed by Australian venture capitalists, BB Retail Capital.

He says Diva does not pay bribes but that there have been attempts to extort cash from the firm.

Diva only operates in shopping centers, to minimize its exposure to local crime gangs or zealous officials seeking to find excuses to shut down a shop — a typical threat unless operators pay out a few thousand dollars.

Already, local tycoons have muscled in and forced Diva to quit two shops in the regions, despite having the law — at least in theory — on its side.

That experience left Bohn with an uneasy fear that someone may come along and try to wrest the firm from him.

"It's structured so if someone wants to make a mess they can't take everything," he said.

Diva should turn the corner by the year's end, said Bohn, who now hopes to open up to three new shops per month.

"It's been tough, but I'm an optimist, so it will work out. Still, it is virtually impossible for a small business to start up here."