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After years of subdued expectations there is an air of confidence surrounding the Russian economy as it pairs its economic potential with economic growth. But regardless of the positive strides it has made, many challenges to doing business in this diverse and notoriously tricky economy still remain.
Traditionally regarded as a resource-reliant economy, notable growth in retail, telecommunications and real estate development in recent years has driven an expansion in the country’s consumer base. Incomes are increasing and consumer lending is also becoming more widespread, which has allowed the country to weather the economic storm far better than other export-reliant nations.
As the market matures and open market policies are favoured over a protectionist stance, the international business community is starting to warm to Russia as an investment destination. However, the obstacles are difficult to overcome without local help
Starting a business
According to a report by the World Bank and International Finance Corporation (IFC), it takes an average of nine procedures and over 23 days to start a business in Russia. What’s more, it costs on average 2.3% of income per capita, with Surgut found to be the hardest place to start a business and St Petersburg ranked the easiest.
The number of steps needed to acquire construction permits can vary significantly from city to city; Novosibirsk requires only 16 compared to 47 in Moscow. As a result, there is huge variation in the time it takes to acquire permits; a year in Moscow compared to five months in Surgut.
Registering property is relatively cheap in Russia, and registration fees are among the lowest in the world and well below the OECD average. However, it still requires an average of four procedures and over 35 days to complete the procedure.
Getting electricity is an extremely laborious task in Russia and firms can wait between four months and a year to get switched on, depending on the destination. Design approval is a particularly complicated step, requiring several trips to public agencies and taking anything from 30 to 120 days.
Businesses often find Russia’s polychronic culture - where attitudes to punctuality are a little more relaxed - hard to grow accustomed to. Many meetings will not conform to linear agendas used in other nations, which can disrupt inter-business communications.
Russia’s infrastructure is heavily Moscow-centred, with most transport channels of economic significance emanating from the country’s capital. Commercial transportation is heavily reliant on rail, although it is insufficiently integrated into world transport systems. For such a large nation, air links are still underdeveloped, making inter-country travel arduous.
Intellectual property rights
Establishing intellectual property rights in Russia is still a tiresome business, although steps have been taken to simplify the process. As of 1 February 2013, a specialised court for intellectual property rights has been instituted within the commercial courts of the Russian Federation.
Government transparency is a notoriously fraught problem in Russia, although the situation has improved significantly. The Open Budget Survey 2012 conducted by the International Budget Partnership found Russia has significantly improved its budget transparency over the years and is now telling its public more about government income and spending than countries such as Germany or Spain.
Ruben Vardanyan, head of Troika Dialogue Group, described Russia’s main challenges as being corruption, government interference and the high level of monopolisation. Although steps have been made to amend problems in central government, overseas firms still find the state of governance in Russia difficult to navigate.
An EU report revealed a “staggering increase” in protectionist measures as governments seek to shield national industries from foreign competition amid a difficult economic environment. Russia was among the worst offenders; the report concluded that Moscow was not in compliance with its future obligations to the World Trade Organization.
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Russia or just want to streamline your Russian operations, talk to us.