Translated material
We need to stop giving
The biggest obstacle for foreign investors in Russia is kickbacks
It will not be possible to achieve the declared modernization of the economy without attracting foreign investment, all participants agreed at the round table held at the end of last week at the Chamber of Commerce and Industry. However, the opinions of our and foreign participants differed significantly on what is required to improve the investment climate in Russia. Russian experts spoke about the need to reduce taxes and other administrative barriers, and foreign businessmen already working in the country complained about kickbacks, the need to “negotiate” and unfair competition.In the context of the global economic crisis, the attractiveness of the Russian economy for foreign investment has decreased. According to Rosstat, the total volume of foreign investment received in January-September 2009 amounted to less than $55 billion, which is 27.8% less than for the same period in 2008. Including foreign direct investment decreased even more and amounted to less than $10 billion, or 48.1% compared to January-September last year. A rapid decrease in the number of minority shareholders in large companies has begun, which indicates the unprofitability of portfolio investments.
Of course, this is a general trend. However, according to Vice-President of the Chamber of Commerce and Industry Vladimir Strashko, the state has every opportunity to contribute to increasing the investment attractiveness of the country. Some things, he believes, have already been done. Anti-raider laws have been adopted, the system for resolving corporate disputes has been improved, and legislation against deliberate bankruptcy has been adopted.
The investment climate in Russia is often subject to serious and fair criticism, admitted Anton Danilov-Danilyan, Chairman of the Chamber of Commerce and Industry Committee on Investment Policy. But large and medium-sized foreign companies are present on the Russian market, and it attracts them even in times of crisis. Moreover, we are talking not only about companies in the raw materials sector, trade or high technology, but also about enterprises in agriculture, mechanical engineering and even the defense complex. “So it’s not all bad,” the economist concluded.
But one should not think that the resource of government influence on the situation has been completely exhausted. Vladimir Strashko believes that to improve the investment climate in Russia, it is necessary to guarantee the stability of taxation principles. At least promise that taxes will not rise. We need state guarantees for all foreign investments and a 50 percent benefit on income tax allocated for the expansion and renewal of production.
According to Anton Danilov-Danilyan, increasing the investment attractiveness of the Russian economy is hampered by the lack of a “grandfather clause” (the practice that existed in Russia during the time of President Boris Yeltsin of guaranteeing the stability of the tax, tariff and administrative burden for a reasonable payback period for new projects with foreign participation, and the immutability of the principles of technical regulation etc.). According to the expert, the Ministry of Finance objects to this procedure, fearing the semi-criminal attitude of business towards tax optimization, as well as the complexity of administering preferential and special tax regimes.
According to the economist, many foreign companies, especially those who were considering investing in high-tech industries, are now refusing to work in our market. They are frightened by the increase in the tax burden due to the increase in mandatory insurance payments in 2011 from the current 26% of the wage fund to 34%. Since the costs of qualified personnel in this area are very high, an increase in the fiscal burden by 2-2.5 times turns out to be unacceptable.
According to Mr. Danilov-Danilyan, “there is no example in the world of such a large-scale increase in the state’s social obligations during a crisis” as the proposed increase in pensions in Russia from January 2010. “Incorrect social, tax and tariff policies lead to an increase in the level of inflation, to which the Central Bank of the Russian Federation directly links the refinancing rate. As a result, interest rates on loans in Russia remain unacceptably high,” the economist is confident.
A “one window” regime needs to be created not only for registering legal entities, but also for foreign investors, who could go through all the procedures required by law within, say, one hundred days. It is also necessary to simplify the permitting system in the field of design, at least in those cases when we are talking about standard projects implemented in the countries of the Organization for Economic Cooperation and Development, whose standards we have no reason to doubt.
Executive Director of the Russian-German Chamber of Foreign Trade Alexander Marcus is confident that the administrative barriers to foreign investment in Russia are too high. “You are dragging all the rules from the Soviet Union, and there is no systemic change in legislation,” the entrepreneur believes. For example, regulatory systems in the tax and legal spheres are so complex that this makes their normal administration simply impossible. As a result, conditions are created for the selective application of laws, the possibility of not complying with them on the terms of “we’ll agree.” At the same time, Mr. Marcus noted the increasing level of independence of the Russian judicial system as a positive trend. As a result, foreign investors began to win cases in our courts more often.
President of the public foundation “Business Perspective” Dina Krylova believes that the main problem of countries with transition economies is the incorrect attitude of officials towards their official powers. Officials perceive them not as duties that need to be performed, but as personal “feeders.” Responsibility for improper performance of official duties is poorly defined in Russian legislation. As a result, we are mainly fighting bribery, and “it’s like running after every cockroach with a slipper instead of using modern insecticides.”
General Manager of Knauf in the CIS Gerd Lenga decided to argue with the Russian participants of the round table and said that Russian tax legislation is very simple, especially compared to German. According to him, threats to German businesses operating in Russia arise rather in connection with the new German tax legislation, which obliges local companies that move their enterprises outside the country to pay taxes in the same amount as if these enterprises continue to operate in Germany.
But solving the problem of corruption in Russia, says Gerd Lenga, is very simple: “we need to stop giving.” “Bribery is the only crime where there is good will of both the criminal and the victim. Our company would rather refuse a deal, or implement a specific project, than agree to give a bribe,” Mr. Lenga assured.
The moderator of the round table, Deputy Chairman of the State Duma Security Committee Gennady Gudkov, confirmed that large foreign companies practically do not pay bribes. But, smiling, he warned: “When a business does not agree to this voluntarily, inspectors begin to try to force it in.” And in a very sad tone he expressed the hope that “all investors will have enough courage and strength to resist the onslaught of the bureaucrats.”
Another way to solve problems arising in communication with government agencies, used by Knauf, said Mr. Lenga, is to attract additional labor to interact with the bureaucracy. Thus, the company has three people who are involved in obtaining work permits in Russia for ten foreign employees of the company. “I personally have work permits in 13 regions of Russia where our company’s enterprises operate. In the statistics of the migration service, I am counted as 13 different foreigners,” the businessman shared his experience.
Far more troubling than bribery is kickbacks. “The amount of kickbacks is much higher than the scale of corruption. This is Russia’s third problem,” said the businessman and did not even begin to decipher what he meant by kickbacks, and none of those present demanded this.
Counterfeiting of their products brings huge losses to large foreign companies operating in Russia. “Counterfeit goods are considered a private problem for entrepreneurs, not a government problem. There is no idea that counterfeits pose a threat to the health and even lives of citizens,” lamented Gerd Lenga. Due to counterfeits of its most popular products - plasterboards - Knauf annually suffers losses of several tens of millions of euros. “With the taxes received from them, it would be possible to support a sufficient number of government employees with very good salaries, whose tasks would include the fight against counterfeiting,” the businessman believes. According to him, unscrupulous competitors dump on the market not only by saving on taxes and low wages of their employees, but also on rail transportation. It turned out that if plasterboard slabs are called sheets, then their transportation will cost 30% less.
Oleg Ivanov, an expert at the State Duma Committee on Security, is confident that the fight against counterfeit goods in Russia is possible, but that the fight against counterfeit goods is often the fault of the copyright holders themselves. “They need a certain will on their part to protect their intellectual property,” says Mr. Ivanov. However, according to him, very often law enforcement agencies are faced with the fact that copyright holders refuse to file claims against counterfeiters of their products. As a result, Article 146 (violation of copyright and related rights) and Article 180 (illegal use of a trademark) of the Criminal Code are those that practically do not work. Not a single sentence with an actual prison term was passed on them.