In Russia, Small Businesses Face Challenges President Dmitri Medvedev says Russia's top priority must be the modernization of the economy. But most observers say there are massive political, financial and social obstacles that block the way to reform. Small- and medium-sized businesses are especially affected.
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In Russia, Small Businesses Face Challenges

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In Russia, Small Businesses Face Challenges

In Russia, Small Businesses Face Challenges

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All this fall in Russia, President Dmitri Medvedev has been calling attention to the country's dire political and economic situation. He has attacked bloated state-run corporations, which grew under his predecessor, now the Prime Minister Vladimir Putin, and Medvedev has called for diversification and modernization of the economy.

As NPR's Anne Garrels reports from Moscow, the road ahead is especially tough for smaller private businesses.

Unidentified Man #1: (Foreign language spoken)

ANNE GARRELS: At a recent rally in Moscow, private business owners said they're crippled by lack of credit, corrupt courts and greedy officials. They presented Prime Minister Vladimir Putin with a model of a sinking ship with the words small business etched on the side.

(Soundbite of cheering)

GARRELS: Their modest numbers did not draw much attention, and that, says analyst Ovanes Oganesyan, says it all.

Mr. OVANES OGANESYAN (Analyst, Renaissance Capital): The biggest problem that I see happened during the last 10 years, is that people lost desire to be entrepreneurs in Russia. They see that they are much safer working for large government organization.

GARRELS: Oganesyan, who's with Renaissance Capital, suggests the government might dislike small owners because they're more independent, while larger state-owned firms need little convincing to support government policies. But many of those government-friendly companies have not turned out to be productive, profitable or innovative. Often they have way too many workers. Now President Medvedev is saying, whoa, we need to modernize and diversify.

Oganesyan says rising unemployment in cities overly reliant on one industry should've been predicted.

Mr. OGANESYAN: It would've been wise to the government to spend some time three, four years ago - to try to find these people jobs and find these people small businesses. It wasn't necessary to wait until the crisis.

Mr. VLADIMIR PETROV: (Foreign language spoken)

GARRELS: Vladimir Petrov, whose company provides medical services, says banks don't want to support small businesses. He says that they simply don't have the skills to evaluate business plans.

Red tape, a boon for corrupt bureaucrats, continues to tie everyone up. For instance, getting a license to open a business should cost only $50, but it can easily end up totaling tens of thousands because of necessary bribes, if you're lucky.

Unidentified Man #2: (Foreign language spoken)

GARRELS: The mayor of Moscow recently held a meeting with owners of small and medium size businesses, hailing government efforts to provide them with affordable office and production space. A lot of real estate is still owned by the government. Auctions are supposed to make some of this available to small businesses.

Ms. YELENA STROMAKOVA(ph): (Foreign language spoken)

GARRELS: Yelena Stromakova can barely contain her fury and frustration. She has a small factory producing compression bandages and needs to expand. But she says real estate developers pay off officials, pose as small businessmen and scoop up the available space. She's watched it happen again and again.

Yevgeny Chichvarkin, who started small and eventually developed Yevroset, a highly successful chain of mobile phone stores, should inspire. But instead, his is a cautionary tale. Ovanes Oganesyan says large mobile operators use their government connections to force him to sell and eventually flee the country.

Mr. OGANESYAN: There are a lot of cases like this. On a smaller level, business becomes a little bit successful, makes decent money after all the problems with financing, with finding space. And you face people who threaten you with police, threaten you with tax problems. And then the story starts.

GARRELS: For this story to have a happy ending, everyone says something finally has to be done about corruption. In the U.S. and Europe, government supports the development of small business in the belief it's the backbone of strong economies. But small businessmen here say even if the government provided money and contracts, most would be stolen before they got to them.

Anne Garrels, NPR News, Moscow.

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