Page 10 - RUSRptSept18

has directly increased the burden on the population during his 18 years in office.
At the same time the Central Bank of Russia (CBR) focus on controlling inflation has made life for business harder too. Despite a string of cuts, the monetary policy rate remains very high at 7.25% and the central bank is expected to cut rates only one more time this year – if at all. Given inflation remains at record lows levels of 2.5% the CBR’s ultra conservative monetary policy means Russia has real interest rates of around 4%, which is extremely high by international standards and makes its expensive to borrow money.
The difficulty and reluctance to borrow are also visible in the banking statistics. Retail lending has taken off over the last year and has been growing so fast that the central bank recently moved to dampen the growth in consumer loans by increasing prudential restrictions. However, the same has not happened with corporate lending which has been stagnant for almost a year, although it has increased somewhat recently.
The small entrepreneurs that Alfa surveyed said the main problems they face are: high taxes (46%), demand reduction (39%) and lack of funds for development (37%).
Business anxiety continues to grow against the background of increased tax and financial controls over small businesses and self-employed citizens, the study revealed. And there is an unspoken fear behind the practical worries: what will happen in 2024 when Putin is scheduled to step down, barred from running for president again by the constitution. Many middle class Russians are making contingency plans, buying property abroad or making sure their kids can speak English in case things go badly wrong in the transition to post-Putin.
In the meantime 83% of Alfa’s respondents believe that the current economic situation in the country hinders business development, and half believe that the situation will worsen in the next six months. About half of enterprises record a decline in profits, a third - a reduction in the number of customers and purchases.
There maybe something else at work here as at the aggregate level Russian businesses have been earning more profits this year than in the last two years, according to Rosstat figures. However, the aggregate is distorted by the large role oil and gas companies play in the economy, so it could well be that while the commodity producers are pulling the numbers up as oil prices rise, the SMEs are being left behind and under pressure from the greater austerity being imposed by the government.
The SME respondents themselves seem a bit confused as Alfa found they estimate their own business prospects more optimistically than the situation in the industry and the economy as a whole. Since the autumn of 2017, the number of companies and entrepreneurs has increased and is expecting revenue growth: 22% of entrepreneurs call their business successful – a share that has not changed from the last survey. In the PMI survey too panellists were basically optimistic about their prospects for the rest of the year, despite the slow down in orders and shrinking backlogs.
One of the changes that is affecting all businesses dealing with the consumer is the rapid expansion of e-commerce that is seeing more and more of Russia’s retail business go online. The Watcom Shopping Index that measures sales at leading Moscow malls has under-performed all three of the previous years this year since the index was launched, despite the fact that retail turnover is expanding again after two years of contraction and real and real disposable incomes are rising again since the start of this year.
10 RUSSIA Country Report September 2018 www.intellinews.com