Russia's Business Climate: An Uphill Battle

Russia still suffers a brain drain. A study by the World Economic Forum (WEF) suggests that bright young Russians are flocking abroad even faster than they were in the early 2000s. Many are fleeing the insecurity of living in a mafia state—the fear that a well-connected goon will show up one day and announce that your business now belongs to him.

“Everybody pays [bribes], even those who insist they are totally clean,” says an investment banker in Moscow. Companies owned by the state or powerful oligarchs enjoy some immunity from extortion, but smaller private firms do not, which is why Russia has so few of them. _Economist

In the WEF’s study Russia fared worse than India, China and Brazil on the affordability and availability of finance. The other BRICs are not exactly models of lean, clean government either, but their states are less predatory than Russia’s. And their economies rely more on talent and less on hydrocarbons. Reviving Russian industry will be a long struggle.

...Three years ago Mr Deripaska brought in Bo Andersson, a former GM man, to turn GAZ around. A conscientious Swede, Mr Andersson insisted on zero tolerance for corruption. For a Russian factory this was a tall order. But he has got rid of various “managers” who ran businesses on the side, helping themselves to GAZ’s supplies. He has introduced bonuses for workers who turn up sober and refrain from stealing, and the sack for those who do not. Thousands of surplus workers have been laid off; more will follow. This has not made Mr Andersson popular in Nizhny; hence the bodyguard who accompanies him everywhere, even inside the plant. GAZ is now in profit and producing double its 2009 output, despite cutting its workforce by half to 23,000, says Mr Andersson. In 2010 only 16% of vans rolling off the line were fit to be sent out without remedial work; that is now up to 64%. _Economist

Good enough for Russia, perhaps, but not good enough to compete internationally. It will be an uphill battle all the way.

Besides fighting corruption and crime, businesses must find and keep good conscientious workers. Unfortunately, in Russia that is easier said than done. Disease, alcoholism, mental illness, and drug addiction all plague Russia's working age population.

Most of Russia's 2.5 million drug addicts are aged 18 to 39 — a generation of Russians lost to heroin.

"The only thing the government can do is save the new generation, because we cannot be saved," said Valery, a former heroin addict from the Volga River city of Samara. He gave only his first name because his support group does not allow contacts with the media. _SFGate

Russia's fertility rate is still below 1.5 -- far below replacement level. When one counts only ethnic Russians -- excluding immigrants -- the fertility rate is much lower yet.

Russia is in many ways the world's richest country, in terms of natural resources. But due to bad government, Russia is also one of the world's poorest countries in terms of realistic hope for the future.

Russia needs tens of thousands of men like Bo Andersson -- the man mentioned above who tried to clean up GAZ, and succeeded to a certain point. But where is Russia going to find them? And how can Russia keep them alive and out of Putin's prisons while they are trying to save the country?