Russia’s Aim to Rank 20th Globally in Doing Business by 2018 may Prove Unrealistic
In May 2012, Vladimir Putin ordered the Russian government to increase its Ease of Doing Business ranking from 118th out of 183 economies in 2012 to 50th by 2015 and 20th by 2018. The World Bank’s Ease of Doing Business measures different aspects of conducting a business and is one of the key indices used by foreign investors to assess countries’ suitability for investment. This is why Russia wants to improve its ranking, as it also wants to increase its foreign direct investment inflows. Russia’s aim may be over ambitious, however, as it scores very poorly almost across the board in Doing Business 2013.
Russia’s Doing Business 2013 rankings mostly very poor and declining
Russia moved from 120th in 2012 to 112th in 2013 due to reforms in areas including construction permits. Yet it has only recently begun to address declining rankings. 2012 was the first year it reversed a year on year decline in its overall Doing Business ranking from 2007-2011.
In Doing Business 2013, only three sub rankings of the ten which make up the overall Doing Business ranking were within its 2015 goal of 50th place: enforcing contracts (11th), registering property (46th) and resolving insolvency (53rd). Russia improved some of its rankings in Doing Business 2013, such as paying taxes which moved 30.0 places, from 94th place out of 183 countries in 2012 to 64th out of 185 countries by simplifying VAT compliance procedures and encouraging the use of tax accounting computer software. Yet many of its rankings are very low and also deteriorated during the global economic downturn of 2008-2010.
Russia needs to streamline, simplify and reduce the costs in the processes involved in its poorest rankings: for the ease of obtaining construction permits, which declined from 163rd in 2007 out of 175 economies to 180th out of 185 countries, and getting electricity, for which it ranked 184th in 2012. The former is ranked poorly due to the 42.0 procedures required compared to the 14.0 OECD average, and 344 days compared to 143 to obtain a construction permit. Getting electricity is a similarly arduous process, requiring 10.0 procedures, 281 days and 1,574% of the cost of the Russian economy’s per capita income compared to the average of 5.0 procedures, 98.0 days and 93.0% in OECD countries. Trading across borders fares similarly poorly due to cumbersome procedures and high costs.
Russia should continue to address corruption and bureaucracy to improve its business environment
Positively, despite its poor rankings, Russia’s FDI intensity (foreign direct investment inflows as a percentage of its total GDP) for 2012 was still the highest among the BRIC markets at 2.8%. China and India both stood at 1.7%, which was also the 2012 OECD average intensity.
Russia is taking steps to reduce its corruption and bureaucracy levels, which are a significant influence in attracting foreign business to the country. It is also conducting privatisation programmes to make the country more appealing to foreign investors.
While significant advances in Doing Business rankings are possible (Poland improved from 74th in 2012 to 55th place in 2013, the most improved economy), Russia’s aims with regard to Doing Business rankings in 2015 and 2018 look overly optimistic at the time of writing given the volume of reforms that would be necessary to achieve this and its current very low rankings in many aspects of its business environment.