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. Last Updated: 07/27/2016

Small Businesses Slam Moscow

Regions most friendly to small business
01. Yamal-Nenets autonomous district
02. Bashkortostan
03. Stavropol
04. Tula
05. Smolensk
06. Ust-Ordynsky Buryatsky autonomous district
07. Omsk
08. Marii-El
09. Khanty-Mansiisk autonomous district
10. Komi-Permyatsky autonomous district
16. Primorye
58. Ingushetia
67. Moscow region
68. St. Petersburg
77. Moscow
80. Voronezh
Source: Opora / VTsIOM

Affluent cities such as Moscow and St. Petersburg are among Russia's most hostile environments for small business, according to a report published Wednesday.

A survey of 4,350 entrepreneurs in 80 of Russia's 89 regions found that the northern Yamal-Nenets autonomous district and Bashkortostan were the top two places to run a small business. St. Petersburg ranked No. 68 and Moscow No. 77.

The survey also found that Russian entrepreneurs fear bureaucrats more than criminals, avoid taking out bank loans and do not bother taking business disputes to court. The report, the first of its kind, was presented by Opora, the lobby for small and medium sized business, and VTsIOM polling agency.

The survey revealed an underlying fear of tax authorities and deep-seated distrust of the legal system.

"We are sounding the alarm," Opora president Sergei Borisov told reporters. "If such tendencies continue we will see the fading out [of small business]."

There 4.7 million individual entrepreneurs, as well as 952,000 small businesses, which account for 10 percent to 12 percent of Russia's gross domestic product, according to Opora.

The researchers faced the difficult task of comparing regions as diverse as wealthy Moscow and hardscrabble Ingushetia. "What small businesses in Moscow consider bad is perfect bliss for small businesses in Voronezh," the head of VTsIOM, Valery Fyodorov, told reporters.

The reason for the surprisingly high ranking of regions such as the Arctic Yamal-Nenets district have to do with the relative ease of entering the market and accessing commercial real estate in such regions, the authors said.

In fiercely competitive markets like Moscow, on the other hand, businesses have a host of hurdles and costs they do not encounter elsewhere.

While 68.2 percent of respondents were positive about their own businesses, entrepreneurs from a number of regions said their financial situation was only "good enough for maintaining the business" -- not for developing it further, the report said.

The survey also found that entrepreneurs across Russia said their most troubling problems were the lack of legal protection and access to affordable office space.

Given a choice among criminals, government inspectors and the police, businessmen said their worst enemies were the inspectors, followed by the police.

The most acute risks for entrepreneurs are a "sharp deterioration of economy on the whole" (64.4 percent); rent hikes (45.2 percent); and changes in the regional legislature (28.9 percent).

The authors said these figures were a testament to Russia's economic development, as entrepreneurs had become more concerned with issues such as economic development and fair competition rather than kickbacks to officials or protection rackets.

The report said a majority of respondents drew a direct link between the entrepreneurial climate and the chances of getting a fair hearing in court.

Sixty-one percent said they would not go to court to solve a business dispute.

Businessmen in the Far East and the Urals were the most trusting of the legal system, while Muscovites were the most pessimistic.

Tatyana Ponomaryova, an economist with the Foreign Investment Advisory Service, agreed that distrust in the courts is widespread. But she said the situation is changing.

"It does make sense to go to court, as hosts of entrepreneurs have seen their interests upheld recently," she said. "And the number is growing."

Interestingly, the study found that businessmen do not mind when regional authorities take corrupt officials to task in high-publicity trials.

In Tula region, ranked No. 4 in friendliness toward small business, entrepreneurs welcomed the "rap on the knuckles" for crooked bureaucrats, Borisov said.

Businesses across Russia struggle with the expense of many financial services, the report said. Only 15.9 percent of small businesses across Russia make use of bank loans, it said, and 48.6 percent of respondents said they had never borrowed from a bank.

Lack of accessible commercial property is also among top inhibitors of entrepreneurial activities, with 55.7 percent of businessmen saying rents were unaffordable.

The Far East and Siberia were the most affected regions.

The authors said the report underscored a continuing trend: the richer the region, the more pressure the authorities exert on business.

Of all regions, Moscow was hit hardest by tax and sanitary inspectors, with Muscovites spending 11.5 percent of their monthly earnings on kickbacks. In comparison, the national figure stood at 8.9 percent.

"In Moscow, officials are greedier and believe they can get more," Borisov said. "I came here to receive a certain amount and I'll be sitting here until I wear you out," officials often tell businessmen, Borisov said.

The survey covered 80 of Russia's 89 regions. Chechnya did not make it to the report due to "security reasons," Fyodorov said.

"Honestly, there is nothing to look at in the Chechen republic," Borisov said, adding that he hoped the war-torn republic will make it in next year's survey.

Andrei Nevedeyev, director for economic programs with Delovaya Rossia, a business lobby, disagreed with the exclusion of Chechnya.

"The civil responsibility of business is to insist on inclusion of Chechnya into the common economic space," he said.