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Sunday, March 18, 2018

Growth through sanctions: how restrictive measures can help domestic producers

As Chinese say, a crisis is a time of new opportunities. And the most important thing is not to give in to total pessimism, but rather to find positive trends. For example, Western sanctions and the Russian food embargo may become a catalyst for the growth of domestic production. In particular in small business. However, one only own domestic business is not enough. How the government can help them to use the “gift” in the form of sanctions, “MK” told the Chairman of Committee Trading-industrial chamber of the Russian Federation on development of the procurement system Anton Emelyanov.

photo: pixabay.com

It is important that the final domestic products consisted of Russian components.

Anton Andreevich, what business in Russia is considered small?

— Speaking of small business, must be called by its characterizing criteria. They are quite simple. The first limit value of proceeds from the sale of goods, works and services. For micro enterprises — 120 million roubles, and for a small business — 800 million rubles. The next criterion is number of employees. For micro enterprises up to 15 employees inclusive, small — from 16 to 100 people. The earlier procedure for identifying the enterprise to small business has been rather blurred — venture is either self-identified or did a large number of various bodies in different regions of Russia. Now there is the Federal Corporation for development of small and medium-sized businesses, one of whose goals is the creation and maintenance of the register of subjects of small business. This is an important step in order to enable them to work without reference to your particular area. By definition, business — extraterritorial. The enterprise can and should work wherever he wants. In Russia the status of a subject of small and medium enterprises (SMEs) should be unified. This is an important step towards the development of SMEs in our country.

— Why now in Russia, a small business is not widespread as abroad?

— The reasons why these companies have not very many, several.

The first is that until 2014 the total economic vector was strongly focused on open international competition in virtually all areas. This led to the fact that not-so-developed Russian company immediately began to compete with serious high-tech global giants from Germany, Japan and so on. But, unfortunately, on the final products market domestic companies almost always lose to foreign companies who have long-term experience. The fact that they had “Prasad” in the ‘ 90s faced by our businesses, they have not scattered the team abroad, the company has not experienced hunger, investment and so on. What is small business? As a rule, these are companies that are on the second or third stage of production of the goods. They create some kind of node, component or another element that goes into the Assembly of finished products. The result is that all the added value goes beyond the borders of Russia. In fact, our companies do nothing remains as all parts are made abroad and are delivered to us. In this regard, we have competitive mainly engineering and manufacturing of high-tech elements.

In addition, small businesses have a powerful marketing system and sales. It mainly concentrates on the production of an element, site, or product level. While he has two or three key customer with which it works long enough trying to maintain. That is a small business develops its potential only in a certain area.

— This approach is reminiscent of marking time…

Yes, you can say that. Moreover, this was observed in food. On the shelves of Russian stores for a long time can be found exclusively imported goods. Abroad the situation is completely different — anywhere on the national products. In Russia it was the opposite. However, in 2014 with the introduction of sanctions, the situation changed. I am sure that limit is a gift to domestic producers, who need to use wisely.

— Russian companies have succeeded?

Here it is necessary to consider first of all the enormity of our country and the specifics of each industry. Imagine any manufacturing, any high-tech business. First you need to make a decision, go through all the bureaucratic procedures, to master the technology, to organize production, to establish sales and so on. And if this is limited to equipment. But we must not forget that this difficult process is also connected with the people. They need to come, have mastered the profession. The problem is that ready human resources are almost there — the Soviet Union, along with experts, the system of education and training already 25 years ended. Need to recruit young workers, which you want to teach. But for a year it is unreal. Therefore, it is very important that the sanctions had no hesitation.

— How long should last the sanctions that the substitution is working on all cylinders?

— If the sanctions regime will continue for 3-5 years, then our situation will change quite dramatically, and it is in the manufacturing sector. Agriculture is already demonstrating positive results. Just go to the same shops — half Russian-made products. In the regions already appear absolutely equivalent local cheeses, some meat products and so on. In the Crimea, for example, you can purchase an amazing local wine and excellent local cheese. The result is obvious: people in two years were able to solve the issue of import substitution. And the prices are much lower than in Europe.

— However, farmers in the regions complain that they simply do not have warehouses for storage of food, necessary equipment and so on.

Something that came up in the decline over decades, may not recover for a year or two. As they say, break — not to build. And here the situation is the opposite: had a long break and now want to quickly build. A lot has changed for the better, and more needs to be done.

— How to help domestic enterprises?

— Today one of the fastest and effective ways is an electronic auction which aims to build sales. By and large, for businesses the key to success is the ability to sell. Currently there is a huge number of trades for small business: in public procurement, and the procurement of state-owned corporations. Under Russian law, the purchase of small and medium enterprises is an independently allocated segment. Not less than 18% of public procurement should be for small businesses. That is, large companies can participate in these procurements. And procurement of small volume — just the vast majority. The figures the government order of the Russian Federation is about 6 trillion rubles, and ordering state companies — more than 20 trillion rubles.

— How can I get a state order? What are the criteria for supplier selection?

— There are several ways to purchase. The most common of them — the electronic auction. The client formulates quality criteria and indications that he wants to buy. Then defines a set of quality parameters that he needs. The participant submits the application for the purchase, confirms that it is ready to deliver the specified products in accordance with all the requirements. The client arranges the admission of participants to trading, and at the time when bids go, the participants are competing solely on price. Who proposed the lowest bid is the winner. If within 10 minutes, a new price quote is not received, the auction automatically ends and the winner is determined.

There are also such forms of trading, electronic tenders and request for proposals. Here one price clearly the issue is not solved. If the subject of procurement is technologically complex construction project or some scientific work, then here are more quality criteria and qualifications, which are determined by previous experience. In this case, the supplier selection is based on weighting two criteria — price and experience. Around these two estimates is based the whole system of procurement procedures — as in public procurement and procurement by state companies.

Typically, for small business purchases are on a fairly simplified procedures and criteria. Another question — participants are not sufficiently aware of it or not always use it. Or are they simply not know their rights or are not confident in their abilities. Despite the fact that quite a lot of money placed on the market, we often see tens of thousands of procedures stay no applications or only one application is filed. But this is real money, backed by the obligation to conclude the contract.

— Why is this happening?

— The whole procedure — from the moment of the publication till the moment of conclusion of the contract — is absolutely open public area. It is housed on the national public procurement portal, i.e. visible to the criteria indicated by the customer and what he requires. Posted the draft contract. In other words, all essential conditions for future work are already visible at an early stage. All purchasing rules are already defined, they are standard. The participants traded with each other on equal terms. At the same time from home or office to go anywhere is not necessary. And participate not only in a single auction, but in several. We can say that it all depends on the hand owns a mouse. The results is absolutely clear contract.

Moreover, at all these stages, the participants have the opportunity to appeal procedures in Federal Antimonopoly service. Not to say that this is somehow secretly that somewhere someone can cheat. If participants notice signs that the client begins to tailor your needs to any particular type of products or is a contract with certain terms, this entails the emergence of the complaint. FAS in the vast majority of cases takes the side of the bidders. But all this, of course, a process that requires effort.

Meanwhile, we formed this image of small business, which does not require any effort. It is necessary to maintain, to grow, to help, to cherish. But it is also extremely important and counter-movement. If there is any skepticism until until you try and not pass the procedure, you end up in no way to be sure. The first problem is psychological. In any case, the business, though small, is a big responsibility, irregular hours of work. Not all are capable and not all are resolved.

As a rule, small business is a company that produces some element. And customers are organizations that buy finished products. Stimulating demand for domestic components — that is the question that is not yet resolved. Now we are stimulating demand on the domestic products. But small business — it is in the area of production of components. It is important to implement a sufficiently large set of measures to end domestic products consisted of Russian components to the maximum in our country.

— How to do it?

— One way is by creating preferences for products, which more than 60-70% collected from domestic components. To prove that the product is developed in Russia, in several ways. For example, to use the opportunities of the chamber of Commerce, which issues certificates of origin of products. Then, these certificates can be present during the competition.

Another, more complex method is associated with the Federal tax service. Now the tax service is very good administers all types of taxes paid and has a powerful information system covering the whole country. If the company manufactures its products internally, across the supply chain VAT is closer to 18%. When import tax is paid immediately on importation. Applying certain efforts, such combinations can be seen in Russia this value added is deposited or a substantial part is exported. That is why the question of promoting production of components is very important.

In addition, it is necessary that large customers came to the realization that your provider need to grow. However, steps in this direction have already emerged. “Kids” are already getting orders from the big players on more favorable terms. However, they have to show and prove that they are ready to go to the bones to make this work.

— In public procurement in some sectors more small business?

— In public procurement is big enough sector is the repair and various construction works. Widespread goods, works and services related to the maintenance of state institutions — furniture, office supplies.

— How the Russian system of public procurement is different from the West?

— Russian e-procurement system this year, 10 years. The development and created a well-functioning system that is the best in the world. In other countries everything is much more closed and hard. We have a very open information, open procedures. Now in Russia almost any organization or company can participate in any procurement. We are the most open to all possibilities. In the West one had to go through the certification path of the company’s qualifying criteria. But it costs money and time and is a natural barrier for getting into a certain segment of the market.

Electronic auction procedure are also present everywhere in the West. As a rule, it is a competitive procedure with a fairly complex part. Systems of similar scale to such a large area it was possible to participate in the procurement of certain criteria to be able to complain, this is really a great achievement, which is unique.

— Small business from which regions are most actively involved in public procurement?

— Gradation corresponds clearly to the population, i.e., Moscow, St. Petersburg and other cities. The same disproportion, and geography: the European part and the far East. You can also link these statistics with the practice of the region to develop infrastructure to inform. The important point is that now people slowly begin to realize that the electronic method is the work for the whole country. No matter where you are, it is important to have strength, energy, desire to work and to do it. If you know that you know how to do something better than others, then using this system, you will be able to sell their products. And each region in its own good, the question is — what are you going to do there. In this sense I am absolutely sure that bad regions, where everything is hopeless, does not exist.

— Meanwhile, we have regions-donors and regions-recipients. What is the reason for the lag last?

— Certainly, here plays a role specialization of regions. For example, in the Republic of Tyva population mainly engaged in farming. It is clear that there is a question of processing and delivery. You need to have the capacity to develop and so on. There is a common problem that we now have unaffordable interest rates on loans. Entrepreneur it’s hard to take a loan at 15% per annum and to return it. This is an abnormal situation. Now the main problem — the entrepreneur access to financial resources. Try to solve it in different ways. As well Corporation to SMEs, for example, subsidizes the interest rate to the entrepreneur loan is cheaper. But as a small business no support — it’s still a risk and still the question comes back to the person who, somehow, have this responsibility to take this burden ably to carry. Not enough to make a decision, you also need to work on yourself, with all the difficulties to cope with, what is called, masterful. It is always difficult and requires great effort. And it’s not a problem of one region.

photo: pixabay.com
Domestic farmers already demonstrate positive results in our shops, half Russian-made products.

It is clear that there is a problem with the loans for small businesses, but on the other hand, there are also small purchases. You can not go to perform the contract at 2 million rubles, start, relatively speaking, with 200 thousand. Currently, using the mechanism of the electronic platform, you to start virtually any amount up to the contract that you can perform with their hands. The existing infrastructure is the ability to find a solution in the situation when the loan roads and need to develop at their own expense. One of the stories is to take a small contract and execute it, and then switch to the project and more so on the rise.

One more important thing: according to Russian law, before the customer starts to purchase it a year in advance makes the purchasing plan. In fact, the supplier can figure out what the customer needs, not at the time when the purchase has already been posted, and long before that. By and large, he can see — who is customer plans to purchase its products. Can assess their capabilities.

This is the real the tools that are already working. The computer and Internet are already available for everyone and everywhere. Now many things can be done without much money. But the strength and desire no one will give, no program. It is the choice of the entrepreneur who should take a lot of problems and risks. But the fact is that no one achievement does not come easy.

Of course, you have to understand that the sanctions will gradually be lifted, they will not be eternal. Our Western partners understand that in today’s world it is impossible to punish a person or a country, ceasing to sell something. First you punish yourself. The period which we now have in the form of sanctions, would be beneficial. However not until you begin to do something — you will achieve nothing, even with the sanctions, even without them.

Help “MK”

Procurement of government and state-owned companies make up about 30 trillion rubles a year, of which 4.8 trillion rubles — procurement for small businesses

The leading regions for import substitution

1. Altai Krai

2. Bashkiria

3. Belgorod oblast

4. Voronezh oblast

5. Irkutsk oblast

6. Kaluga oblast

7. Krasnodar Krai

8. Moscow

9. Rostov oblast

10. Saint Petersburg

11. Tatarstan

The first results of import substitution

Production growth:

Drug +11,8%

Machines a +10.4%

Cleaning and maintenance products,

perfume and cosmetics +8,6%

Animal + 8,4%

Meat and meat products +4,9%

Fabric +4,2%

Dairy products +2,7%

* Data for January—August 2015 to the same period in 2014


Pavel SIGAL, the first Vice-President “Support of Russia”:

“The main positive economic effect of the sanctions regime — intensification of processes of import substitution in various sectors of the economy. In some cases, to obtain a quick effect, unfortunately, is not possible. For example, if we talk about engineering, in order to bring a product to market that can compete with its Western counterparts, you need at least 3-4 years. Many enterprises are already active, but it will take time before we see the first results. The situation is quite different in agriculture, which received a powerful driver of growth due to the introduction of the ban on the supply of different commodity groups from European countries. The industry had invested huge amounts of money, and now we see a measurable increase in production on a number of fronts. Breakthrough is observed in the production of dairy products, especially cheeses. Amid a sharp growth in demand from the retail sales volumes increased by 30-40% and continue to show positive growth. Not so clear picture is observed in the IT sector, where the main driver of the process of import substitution is not the market demand, and public order. There are several large projects that received a good amount of financing for creation of Russian analogues of the most popular software products in which you translate the public sector, but so far they have not received wide acceptance, because I cannot stand the competition with global leaders in the industry.”

Irina ROGOVA analyst GC Forex Club:

“Sanctions have taken their toll on our fellow citizens. For the first time after the introduction of Russia grocery embargo has observed a sharp growth of prices for food products. On some items the increase reached 20-40%. But now this process has stopped. Weekly inflation does not exceed 0.1%. However, to fully exclude the likelihood of a new wave of rising prices is impossible, as there is a risk of another devaluation of the ruble. Meanwhile, the fall in real income forced people to save. And this, in turn, entails a reaction of the manufacturers. They are trying to produce more products in a cheap price segment. Naturally, this leads to the replacement of expensive ingredients in the product for cheaper counterparts. But, despite this, products of Russian manufacturers, which appropriately mark their products can compete with foreign analogues. Of course, while there is work to be done. This will require additional investments in terms of budget deficits and limited access of Russian companies to foreign markets can act as a deterrent to import substitution. So, in the coming years is expected to decline in investment in the agro-industrial complex. In 2017 the sector will lose about 10 billion rubles in comparison with the year 2016 (when the government allocated 215 billion). In other words, it is too early to speak about full replacement of imported products with domestic counterparts in the near future. It will require 5-7 years.”

Peter PUSHKAREV, analyst GK TeleTrade:

“Imposed by Western countries sanctions are stimulus for Russia to Overdrive to find and bring to mind our own development, and to build bridges with Eastern partners. In particular with the BRICS countries. They are our natural allies and are not inclined to link the common interests in the economic sphere with the policies. Cheap ruble this we assistant. Plus, we need to develop tourism. And in this issue one needs to raise money to Asian investors. For example, China is ready to invest billions in tourism cluster at Baikal. In turn, the Koreans and the Japanese propose to transform our Vladivostok”.

Sergei DUSHECHKIN, the company’s financial expert Analytics online:

“Before the imposition of sanctions, the Russian economy was going through hard times. The situation began to deteriorate in 2011. Hidden stagnation on the background of large-scale outflow of capital, accompanied by the growth of external corporate debt, sooner or later and so would have led to the crisis, but sanctions only accelerated the process. The average dependence of enterprises on imported products and technologies in 2014 was at least 50% and in some sectors up to 90%. Under attack in the first place were the machine tools, heavy machinery, light industry, electronic industry and the basis of the Russian economy — oil and gas industry. Since the issues of import substitution had been in power for a long time, and the relevant outputs were incorporated in most development strategies of specific industries up to 2030. So, now the leaders of growth are the military-industrial complex and agriculture. According to statistics, in 2015 the defense has shown a growth of 13%. A breakdown by industry: in the production of electronics has increased by 32%, ammunition and special chemistry — 22.5 percent, in the shipbuilding industry — 16%, in the rocket — 7,5%, in the aircraft industry — 6%. In 2016, Russia took the first place in the world in wheat exports. For that I must say thank you first good harvest this year, and secondly, farmers who are against sanctions have increased the number of investments, thus spurring the growth of production in the industry. In addition to producing wheat, a good result can be observed in the production of poultry meat and pork that eventually allowed to reduce the share of imports in the consumption of meat in Russia to 5% in 2015, compared to 16% in 2014.”

Stanislaw WERNER, Vice President of IFC Financial Center:

“Sanctions against our country along with the collapse in oil prices was the impetus that brought the Russian economy into crisis. The growth model based on consumption due to the influx of petrodollars, has outlived its usefulness, and international restrictions are actually became her Swan song. The restriction on access to foreign capital markets in the face of large external debt repayments inflated interest rates on loans and forced the Bank to abandon control over the ruble exchange rate, so as not to “burn” the gift reserves. The shock on the foreign exchange market brought out of equilibrium, all macroeconomic parameters. However, two years later, the economy has found a new balance that gives good opportunities for those who have entrepreneurial initiative. Opened brilliant prospects for agriculture and the food industry. A weak ruble is a barrier to the penetration of imports. In Russia it became profitable to produce, not only food. The improvement is observed mainly in those industries that focus on meeting consumer demand. Thus, according to Rosstat, with the beginning of the year increased the volume of production of food products 2.2% textiles, 4.0%, footwear and leather goods — by 6.4%”.

Sanctions . Chronicle of events

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