Expert View on 2010: MIBA CEO's version

Business needs new ideas and strategies

In theory, crisis is a situation, when disproportions in an economy reach their limit and, in essence, paralyze it. Therefore, simply injecting a lot of liquidity into an economy in crisis is not sufficient for it to exit the downturn. In other words, new breakthrough ideas and projects, technologies and approaches are needed to overcome a crisis. With regard to Russia, the different ideas and approaches that have been announced, including those contained in the last Presidential State-of-the-Nation Address to the Federal Assembly, have been long on rhetoric, while in reality everything is being done to preserve the current ‘status quo’ so that the present situation does not get worse. This is evident in the state’s provision of financial support for non-competitive companies. Indeed, the government has so far spent more funds to help local automobile giants — GAZ and AvtoVAZ — than on unemployment payments to jobless citizens nationwide. 

Thus, based on experience gained in recent years, when the majority of Russian companies developed along a single growth pattern, the so-called ‘positive’ growth scenario, thus making the outbreak of the current crisis a major surprise for most business owners, I’m more inclined to view the coming year in a negative way for the following reasons. First of all, there are rampant cuts in wages, part-time work schedules and a decrease in consumer activity in the industrial sector. Similarly, the corporate sector is hamstrung by the prevailing risk of defaults and non-repayments of loans. 

Despite plausible anticrisis measures, overall situation still critical

Though lots of companies had re-financed and/or restructured their debts, they have not been able to get out of the risk zone because of the overall low demand for their services and products. This is why the threat of new mass bankruptcies in the corporate sector will also remain very high next year. According to some estimates, over the cause of next year, Russian companies will have to repay about $200bln in both foreign and domestic loans. Finally, the collection of tax revenues and customs duties by the government has fallen by as much as 40%, and it is only the relatively stable oil price that has enabled the Russian Finance Ministry to remain in an optimistic mood. 

“It is quite obvious that the end of a recession does not mean the end of a crisis, especially in this current case, when the anticrisis measures adopted to combat the current economic meltdown have also created several new problems and additional risks in the economy.”

Meanwhile, a survey conducted among 600 major industrial enterprises by the Center for Market Trends Studies at the Higher School of Economics has shown that the situation with the availability of private finances and incomes in these companies have continued to worsen. Besides, most of these enterprises are afraid of weak domestic demand, and therefore, do not produce additional products, even if they have the means to do so. According to analysts’ estimates, the consolidated financial result of Russian corporations will hardly exceed $60bln-$70bln in 2009. If their accumulated debts, estimated at $200bln, are taken into consideration, then the gap in these companies’ ability to repay such debts will be $130bln. This stark fact needs to be kept in mind.  

At the same time, investments into fixed assets has nosedived by almost 20%, while the volumes of traditional export commodities, namely, oil, gas and metals, have also dipped by 30%-40%. Thus, out of the three key Russian economy drivers — export, investments and domestic demand — it is only the latter that still holds some fragile hope. Even in this case, some problems still exist. This is because the citizens’ disposable incomes have over the past nine months of 2009 decreased by 1.1%, compared with a similar period in 2008. At the same time, almost one-third of all incomes were earned by only 10% of the nation’s wealthiest citizens, while 10% of the nation’s poorest citizens earned less than 2% of the gross revenues generated in the country over this period. Today, the national average wage in September 2009 was about 18,156rubs, boosted by a nominal growth rate of about 8.6% compared to the September 2008’s data. However, the real purchasing power, considering the prevailing inflation rate, decreased by 3.5%. Thus, by spending 6% more on the purchase of goods and services, the citizens actually acquired goods and services 6% less, since the consumer price index has grown by an average of 12.5% during the first nine months of 2009. 

Similarly, in several other industries, while small- and medium-scaled companies, which are not overburdened by excessive loans, and also have been able to restructure/reorganize themselves in conformity with the new economic reality, will also continue to develop further mostly by relying on their own resources. This trend is collaborated by the results of a series of surveys of representatives of the local business community, with the exception of state-owned companies, which have shown that most companies are not asking the government for financial support or aid to survive or exit this crisis. This is because these companies just need the government to do its job for them to successfully exit from this crisis. This includes a sharp reduction in administrative barriers, boost in the stimulating roles of the taxation, customs and tariff policies, etc. In other words, they want a transparent, equitable market conditions, comfortable and real business-friendly environment for entrepreneurship. Isn’t this the state’s direct role?

* The author is the CEO of MIBA and chairman of the Consumer Market Development Committee of the Russian Chamber of Commerce and Industry.