State Rolls Out Small Business Plan

Economic Development Minister Elvira Nabiullina rolled out a three-year development program worth 740 billion rubles ($23 billion) for small and medium-sized businesses at the state Presidium meeting on Monday in an ambitious reflection of the government's unprecedented interest in this long-neglected sector of the economy.

While Nabiullina declined to cite any figures because the three-year budget will not be approved until later this year, a ministry official told journalists Friday that together with 186 billion rubles set aside this year, the program's cost would total 924 billion rubles.

"In the conditions of the crisis, of course, support for small and medium-sized businesses is especially significant, because it is linked with the creation of new jobs," Nabiullina told the key group of Cabinet members.

The ultimate goal of the program, said Nabiullina, is to enable small and medium-sized businesses to account for one-third of Russia's GDP by 2012 and raise the number of those employed in the businesses from the current 14 percent to 28 percent of the work force by the same year.

The federal budget is being asked to foot close to one-third of the cost over the next four years: 78 billion rubles in 2009, 60 billion rubles in 2010, and 94 billion rubles and 55 billion rubles in 2011 and 2012, respectively, the official said Friday, Kommersant reported.

Nabiullina said the program would work to grow the number of small enterprises by easing their access to loans; subsidizing interest rates; allocating more funds for direct business subsidies; increasing the percentage of state contracts that can solely be fulfilled by small and medium businesses; and easing and reducing administrative barriers.

She said the ministry hoped that the measures would help diversify small businesses away from the retail sector and raise the number of small enterprises involved in nonretail business from 30 percent of the current total number of businesses to 50 percent.

Several key tax and legal measures proposed by Prime Minister Vladimir Putin last month at the All-Russian Small and Medium Business Forum have been incorporated into the program, such as allowing companies with revenues of up to 60 million rubles to use a simplified taxation system, which is currently reserved only for businesses with revenues not exceeding 30 million rubles, the official said Friday, according to several news reports.

The program will double direct federal budget support for small and medium-sized enterprises in 2010, from this year's 10.5 billion rubles to 21 billion rubles.

While extra support from federal coffers is welcome, Vladislav Korochkin, vice president of Opora, a lobby group for small and medium-sized businesses, said the most important elements of the program lie in the creation of a large fund for state-backed loan guarantees and amendments to the law on state orders.

"Companies will gain much greater access to credit if the state commits to backing loans for small and medium-sized businesses," said Korochkin in a telephone interview on Monday.

On Friday, the ministry official said the program would put 15 billion rubles toward a "guarantee fund" and recapitalize either state-owned Vneshekonombank or the Russian Development Bank with 30 billion rubles in 2011.

The program also calls for a change in the law on state orders to require not only state and municipal agencies but also natural monopolies and state corporations to reserve a portion of orders for small and medium-sized enterprises, Nabiullina said.

"New regulations and laws in the area of government orders will help erode corrupt tender practices, inertia and deals through personal connections," Korochkin said.

He added that increased competition among businesses for contracts could cut costs for the state and taxpayers by as much as 40 percent.

Last month, Nabiullina said new regulations that would require small businesses to supply at least 60 percent of government purchases were under development. She did not state any figures at the Presidium meeting.

Earlier Monday, Nabiullina spoke at a roundtable with Opora representatives on simplifying obstacles and reducing the high costs for small enterprises to connect to electric grids -- an issue, Korochkin said, that has long been the bane of the small business community.

The meeting came less than a month after a new law took effect and made it illegal for electric networks to refuse to connect businesses to the electric grid if they required no more than 100 kilowatts of power.

"Before they were able to just say no, and that was that. Now they can't, and this is a huge relief. They also have to connect you within six months now instead of the long periods of time it used to take," Korochkin said.

Connecting to the grid has also become less expensive for very small businesses that require no more than 15 kilowatts of power. According to the new law, businesses will only pay 550 rubles per kilowatt to gain access to the grid. To connect to the grid in Moscow, a kilowatt-hour used to cost 30,000 rubles for all businesses, Korochkin said.

"Can you imagine the startup costs? One hundred kilowatt hours is 3 billion rubles just for the right to be connected," he said. "This is a step forward, but we are still waiting for all connection tariffs to be canceled. This will be real progress."