Russia shoots up World Bank’s Doing Business ranking

Cash, Calculator, Pen

(Business New Europe – bne.eu – October 29, 2013) Russia has shot up the rankings of the World Bank’s annual Doing Business index this year. According to the survey, its now easier to do business in Russia than in China, the previous stand-out leader in the ranking amongst the five Brics nations.

“Improving the investment climate is a top policy priority for the Russian authorities,” Augusto Lopez-Claros, director of Global Indicators and Analysis at World Bank, said in a statement accompanying the report. “The local entrepreneurs are seeing the results.”

Russia rose 20 places from 112th out of 189 countries on the list to 92nd, just ahead of China, which dropped five places to 96th. It is also ahead of Brazil, which moved up 14 places to 116th and well in advance of India, which dropped two spots to remain stuck near the bottom of the table at 137th.

This year’s report cited Russia’s main achievements in five major market indicators, including ease of establishing a business, ease of applying for construction projects, registration of projects and property, improving international trade, and ease of applying for connection to the national power grid. The latter category was an area in which Russia made the most progress: the World Bank said the country has reduced connection times by 40%, with costs reduced by 80%.

The rise up the table is good news for Russia. The economy is flagging and even the Kremlin admits that most of the slowdown, “is structural in nature,” according to recent comments by Economics Minister Alexey Ulyukayev. The only hope of recovery is to make a raft of reforms stick and increase both productivity and investment.

Moving up the World Bank list has been a top priority for President Vladimir Putin, who signed the first decree designed to get the ball rolling literally minutes after he was inaugurated to his third term as presidential in May 2012. Putin has called for Russia to attain 20th place on the list by 2018.

The jump this year should come as little surprise then, despite the complexity of reforming a country as large as Russia. As East Capital’s chief economist Marcus Svedberg pointed out when goal was first set, Russian always had the opportunity to make big gains with relatively little effort.

Within the ten variables that make up the final ranking, Russia was amongst the worst in the world on two: issuing construction permits and connecting business to the electricity grid. However, just fixing these two things should propel Russia to about 80th place, Svedberg said. Fixing the worst five issues would propel Russia into the top 40, he suggested. Russia also does badly on the ease of starting new businesses, protecting investors and trading across borders.

Meanwhile, Russia is well ahead in terms of the simplicity of tax administration (thanks to its flat tax regime), although its performance is less impressive on getting those taxes actually paid. It also scores extremely well globally on contract enforcement, according to the World Bank, despite its image as a lawless wasteland.

There’s more to come, according to government plans. The state has earmarked funds to subsidise lending to small and medium-sized enterprises in a scheme that will kick in next year. Protecting investors has always been a problem but the on going financial reforms that include hooking the equity market up to international clearance systems Euroclear and Clearstream as soon as January is part of improving the whole corporate governance regime. A fundamental reform of the customs service was introduced at the end of last year.

Whether Russia will hit Putin’s target of 20th places by 2018 remains moot. The fact that Russia is successfully making reforms work at all and to the point where it is easier to do business in Russia than China is a feather in the Kremlin’s hat.