Kremlin, U.S. Hear Small Business Woes

Fresh off of briefing U.S. Secretary of State Colin Powell and senior members of Congress in Washington, a 100-strong army of Russian entrepeneurs marched into the Kremlin on Tuesday and told the president's top economic adviser what was wrong:

Corruption, poor tax incentives, lack of low-cost financing and an endless web of red tape are just a few of things that are dogging small and medium sized businesses across the country.

The 100 entrepreneurs are participants in a program sponsored by the Center for Citizen Initiatives, a non-profit organization that has crusaded for a better business climate in Russia since 1989 and is funded by the U.S. State Department, the Agency for International Development and the Eurasia Foundation.

The participants come from 29 regions across the country, Moscow excluded. Each has a university degree and owns a business in one of 26 industrial sectors. The average participant employs 63 people and is 41 years old. And each one has at some point spent at least a month in America studying its business practices.

Tuesday's meeting with Andrei Illarionov, President Vladimir Putin's top economic advisor, was the culminating point of a week-long pilgrimage that included the meetin with Powell, House Minority Leader Richard Gephardt, and Republican Senator Richard Lugar.

The goal, said delegation members, was to improve the image of Russian businesses in the eyes of Americans and to ask for continued financial support for programs that provide education and support to small enterprises.

"American officials at the highest level, including Mr. Powell, were really surprised there was such a thing as a small business in Russia, that it was alive and fighting to grow," said Igor Yukhnevish, who owns a publishing house in Uryupinsk, 340 kilometers from Volgograd.

"Unlike our government, the U.S. administration declared small enterprises a priority because they make up more than three quarters of the economy, " said Alexei Mamakov, a 26-year-old owner of a Kazan-based advertising agency. "We would like our government to have the same recognition."

And that is exactly what the 100 businesspeople told Illarionov.

"At the end of a three-hour discussion [Illarionov] asked us to compile all our suggestions into a concrete proposal and e-mail it to him," said Vladimir Leontovich. "In turn, he promised to show our suggestions to the president."

Leontovich, who owns a Volgograd-based firm that develops energy-saving technologies, said Illarionov agreed that a tangled web of bureaucratic processes haunts small businesses, making it extremely difficult to stay competitive.

"Unlike large enterprises, small firms have to waist a lot of money and precious human resources to cut through red tape," Leontivich said.

Small and medium size businesses in Russia currently account for just 5 percent of the country's industrial output and 15 percent of its services, Interfax reported.

For every 1,000 Russians there is just six small businesses for a total of about 880,000 Ч a ratio five times lower than in Western Europe.

The situation will not change unless the government provides small mom-and-pop shops with long-term financing at affordable rates, said Yukhnevish.

"When I wanted to borrow 300,000 rubles [$10,500] to buy new printing equipment, the bank didn't care about my reputation or my role in the community and asked me to show an 800,000 ruble collateral," he said. "If I had that kind of money I wouldn't have been seeking a loan."

Regardless of how competitive a small business is, it will suffocate unless it operates in a truly open market, said Viktor Kordik, who owns a construction company in the Moscow region.

Kordik said the government should stay out of assigning contractors for specific projects and offer open, competitive tenders instead.

"Municipal orders should be open to competition Ч the vehicle of progress," Kordik said. "Only then would businesses would be motivated to offer quality products at reasonable prices."