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Russian big business could stifle start-ups-EBRD
By Andrew Hurst
MOSCOW, Nov 24 (Reuters) - The power of Russia's big business elite could snuff out opportunities for small firms to flourish if it is not reined in, the European Bank for Reconstruction and Development said on Sunday.
Economists worry that Russia, which relies on oil exports, is doing little to diversify its economy by encouraging people to set up small companies -- a major engine of growth and job-creation in East European countries such as Poland.
"The spread and strengthening of vertically integrated business conglomerates may constitute a barrier to enterprise reform," said the EBRD in its annual report. "Restraining their influence will be necessary to ensure the effective implementation of reforms."
Russia is heading for economic growth of more than four percent this year, fuelled by privately-owned oil and metals producers at a time when most western economies are barely expanding at all.
However, the bank, which was set up to help the former Soviet bloc make the transition to market economics, painted a picture of an economy in which giant businesses and monopolies hold sway and shut out upstart competitors.
"Large enterprises typically enjoy privileged regulatory treatment by the regional and local authorities and the degree of monopolisation remains large," it said.
"Entry by new firms, especially small and medium sized businesses, is extremely difficult and the inflow of FDI (foreign direct investment) remains limited," said the EBRD.
Russia's west-leaning President Vladimir Putin quickened the pace of reform over the past two years, bringing a sweeping shakeup of taxation and restoring private ownership of farmland for the first time since the early years of the Soviet era.
NEW TAX CODE EXPECTED
But Putin has had more trouble creating a fertile environment for small business to take root, free from harrassment by corrupt bureaucrats, while powerful tycoons lobby against reforms that might threaten their interests.
The government was expected to introduce a new tax code and accounting procedures for small entrepreneurs next year but the report said newly introduced laws simplifying licensing and inspection requirements have "not yet greatly impacted upon these areas."
Russia was also preparing to join the World Trade Organisation, a move seen by the EBRD as a potential catalyst for a fresh wave of reform. But the bank added: "There is growing opposition from protected industries."
"Deeper integration with the world economy would accelerate restructuring, promote investment and build a constituency for reform. Early accession to the WTO at fair terms will be central to this process," said the EBRD.
Meanwhile, the pace of privatisations of state firms, which has flagged this year, was expected to quicken in 2003 with a revenue targed from asset sales of 51 billion roubles, the bank said. "The privatisation programme for 2003, recently approved by the government ... envisages the partial or full privatisation of over 1,000 companies," it added.
The EBRD also called for a speed-up in the pace of banking reform to ensure a bigger flow of funds to "the real economy."
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