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. Last Updated: 07/27/2016

Kremlin Befriends Small Business

A group of small- and medium-enterprise lobbyists came away from a meeting with President Vladimir Putin late Wednesday feeling hopeful and understood, saying, "We have a friend in the Kremlin."

The lobbyists represented the Russian Entrepreneurial Organization's Union, or OPORa -- meaning "support" in Russian. Founded last spring, the group is the largest small-business lobby in Russia, with 70 entrepreneurial unions as members.

The meeting signified a sea change in the government's attitude toward small and medium enterprise, or SME.

At a news conference after meeting with Putin on Wednesday, OPORa leaders praised the president's detailed understanding of the problems the sector faces.

"The president made it clear that his position is if we don't create a powerful layer of SMEs in our economy, Russia will remain an underdeveloped, export-oriented country, highly dependent on natural resources," said OPORa co-chairman Alexander Ioffe.

However, the group was surprised by the government's inability to formulate a policy on supporting SMEs.

"There is an understanding in dialogue, but it has to be filled [with concrete measures]," said OPORa co-chairwoman Dina Smekalova.

To create a unified national policy on SMEs, a working group comprising 30 regional leaders and businessmen is writing a proposal that will be presented to the State Council, a consultative body of regional leaders, created and headed by Putin, on Dec. 18.

The recommendations the State Council makes will be incorporated into a number of legislative reforms affecting SMEs.

Ioffe, one of the members of the working group, outlined three major impediments to the development of small business: a subjective taxation approach, multiple administrative barriers and lack of financing.

Administrative barriers routinely faced by SMEs range from the lengthy process of registering a company -- according to a recent Renaissance Capital report, it takes an average of three times longer than in other emerging markets -- to liquifying a company, and everything in between, including routine inspections by administrative and regulatory bodies.

In response, Putin asked OPORa to prepare a list of departments and agencies that abuse their power to make money out of small business.

The lack of financial backing for small businesses stems from the reluctance of banks to credit them because of "SMEs' inability to offer collateral on loans," said OPORa member Andrei Nasonov.

"To obtain credit you need collateral. To have collateral, you need property, in most cases real estate. To have real estate, you need the law on land," Nasonov said.

Although owning land will become possible under the new Land Code, this won't happen until contradictions in legislation are smoothed over.

Meanwhile, tax reforms aimed at easing the life of small businesses are already under way. Deputy Finance Minister Sergei Shatalov said at a banking conference this week in London that new legislation will take effect in 2003, Prime-Tass reported.

"We're working on making some amendments to the tax law," said Alexei Sorokin, head of the Finance Ministry tax policy department. "We hope to present new legislation to the government in the first half of 2002."

But not all problems facing SMEs can be blamed on external barriers, according to Alexei Moiseyev, co-author of a Renaissance Capital report on small businesses in Russia.

"Although administrative barriers and legislation are a major problem in Russia, a Soviet mentality among many proprietors themselves is a hindrance to the sector's growth, especially in the regions," Moiseyev said.

The report describes how businessmen frequently work for their own interests at the cost of their companies.

"The development of small business will be evolutionary," Moiseyev said. "Perhaps the children of today's businessmen will better understand the workings of the market."