Inefficient Businesses Slow down Russian Economy: Central Bank

Russia needs to create conditions for unsuccessful businesses to leave the market in order to accelerate economic growth, analysts from Russia’s Central Bank suggested in their latest bulletin, according to Vedomosti.

In the document titled “What the Trends Say”, the analysts note that the most effective 10% of Russian companies contributed to 100% of total factor productivity in Russian business in 2009-2015.

Russia’s problem is that the leading companies increase output and occupy an increasing share of the market, while the outsiders are reluctant to leave it, although they are getting smaller. As a result, such businesses slow down the productivity of the entire industry, Bank of Russia analysts said.

The solution, according to them, is to accelerate inefficient companies’ exit from the market or restructure them. It is necessary to simplify bankruptcy procedures, support growing enterprises instead of problematic ones, develop retraining and employment programs, and support small and medium-sized businesses, the analysis says.

Russia’s Economic Development Ministry expects to boost the efficiency of medium-sized companies with 5-10-year development plans at the expense of leading enterprises.

“Large and successful companies have all the necessary skills and tools, and can transfer them to medium-sized enterprises,” said Yulia Urozhayeva, an adviser to the economic development minister. Much attention is given to retraining, work on new equipment and managers’ training, she noted.

According to Vladimir Salnikov from the Center for Macroeconomic Analysis and Short-Term Forecasting, the gap between the leaders and the rest of the enterprises in some industries can be due to completely comprehensible processes. For example, in trade, large networks have squeezed out small companies from the market over the past 15 years, the expert says.

“Instead of simplifying bankruptcy, it is necessary to help create new, more effective businesses. The ideas put forward by the Economic Development Ministry are correct, but they may not be enough. Large-scale strategic decisions are required, such as joint programs with other countries to promote products to foreign markets,” Salnikov added.