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. Last Updated: 07/27/2016

World Bank Sees A Tougher Russia

The flood of petrodollars into the economy is stifling reforms, and the country is falling behind its key emerging-market rival, China, on the ease of doing business, the World Bank says.

In a survey published Wednesday, the World Bank placed Russia 106 out of 178 countries for ease of doing business.

Russia dropped 10 places from 2006, while China rose 10 places to 83.

The survey, titled "Doing Business 2008," looked at 200 regulatory reforms in 98 economies that reduced the time, cost and hassle for businesses to comply with legal and administrative requirements.

The rankings also track indicators of time and cost to meet government requirements in business startup, operation, trade, taxation and closure.

Russia's fall in the rankings comes from a reluctance to continue reforms and complacency associated with its resource-fueled economic boom, said Simeon Djankov, the lead author of the report.

"Russia was doing quite well in the period between 1998 and 2000, when President Vladimir Putin took over the reins of power, but since then, only two reforms -- tax and credit information -- actually took place," Djankov said. "The period of slowdown in reform is consistent with the [period] of increase in oil revenues."

Roland Nash, chief economist at Renaissance Capital, said the government had been unwilling to expend political capital and rock what is apparently a solid economic boat by a raft of reforms.

Yet the private sector has been rapidly reforming itself, even while progress has slowed at the federal level, he said.

"The really important thing is that government has to do less, not more. It should step back and allow economic incentives to work," Nash said.

Yaroslav Lissovolik, chief economist at Deutsche UFG, said Russia had taken big strides in economic reforms, especially fiscal policy, in the last few years.

"The government initiated reforms that liberalized the business environment such as creating the stabilization fund and reducing inflation," Lissovolik said. "The drive to join the World Trade Organization also provided [the country] with the necessary impetus to reform."

The slow tempo of reforms has hurt Russia's performance in the key area of doing business, the report said.

In ease of getting business licenses, Russia ranked 176th out of 178, one place ahead of Ukraine.

Russia fares better in the time it takes to collect and file tax papers, however. The process takes 448 hours in Russia, compared with a whopping 5,000 hours in Belarus and Ukraine, the report says.

Although Russia performed comparatively better than other Commonwealth of Independent States countries on the ease of paying taxes, it still ranked 110th out of 178 countries worldwide.

Georgia, which last year was ranked the fastest-reforming country in the survey, was fifth this year, remaining one of the stellar performers for simplifying business regulations, easing tax burdens and increasing access to credit.

In 2006, Georgia slashed the number of activities requiring a license from 909 to 159.

This year's top 10 reformers on the ease of doing business are, in order: Egypt, Croatia, Ghana, Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China and Bulgaria.

One bright spot for Russia is the credit information bureau law, passed in 2004 and operational from 2006, which earned praise in the report as one of the top three out of 200 reforms worldwide.

The law led to a rapid increase in the volume of credit information, putting the country on the same level as France and Germany, both of which have a century of experience operating credit bureaus.

"With over 1,000 banks and close to 18 million bank accounts, the need for customer information has grown exponentially, making credit information bureaus a prerequisite for both big and small businesses willing to check credit worthiness of clients," Djankov said.

This year's report showed countries in Eastern Europe and the former Soviet Union surpassing East Asia on the ease of doing business, while several East European and CIS countries passed the level of some West European countries.

Results from the region also show that as business regulation eases, businesses are starting up at unprecedented rates.

"Many of the new companies are becoming global leaders, such as the Estonian-born software company Skype and the Czech carmaker Skoda," Djankov said.