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Analysis & Opinion
26.08.10 Troubleshooting Bureaucracy
By Tai Adelaja

Can a foreign investor ever navigate Russia’s labyrinthine business landscape without being caught up in a cobweb of bureaucracy? Well, the Kremlin thinks it has the answer. In a move that is both bold and bullish, the Russian government has granted new powers to the Investment Policy Department of the Ministry of Economic Development to tackle various problems facing business investors, an acknowledgement that doing business in this country can sometimes be nerve-racking if not impossible.

Conceived as a little more than an ad-hoc arbitration court, the department now has decisive say on the resolution of some of the investors’ worst nightmares, including modifying the nation’s horse-and-buggy trade and customs legislations. “We have been granted the maximum power imaginable under the law,” Mikhail An, the deputy director of the department, told Russia Profile in an exclusive interview on Wednesday. To give credence to his claims, An said Prime Minister Vladimir Putin has appointed his deputy Igor Shuvalov as the department’s ombudsman. “This makes the department the highest authority for arbitrating disputes concerning investment issues in Russia,” he said.

An also touts the department’s newfound authority to tackle systemic issues facing Russian and foreign investors, in particular those relating to abuses of power by federal government officials. “Whenever we receive complaints or reports from business people and investors, we mobilize all our resources into resolving the issues in dispute,” An said. “If the issue concerns investors, foreign or local, we directly contact the organization involved, be it at the federal, regional or municipal level.” He said the department now has “both the authority and the leverage” needed to resolve problems relating to investment disputes, adding that it invites the minister or deputy prime minister only when particularly thorny issues arise. “When the problem relates to violations, usually the erring party always tries to make amends as soon as it is aware that we are on top of the problem,” An said. “In most cases, a simple recommendation from us is all that is needed to get things straightened out.”

The fact that a deputy prime minister, rather than the arbitration courts or special regulatory organ, should have the final say in how business is run was underscored by President Dmitry Medvedev during a recent visit to California to the Silicon Valley. Russia, he said, has a peculiar business environment that requires intervention from the highest level of leadership in order to get things done. But legal experts like Yevgeny Reyzman, a partner at law firm Baker & McKenzie, said government ministries, including the Ministry of Economic Development, have no direct authority under the law to address issues relating to business disputes. “The most such a department should do is to direct investors’ complaints to other state departments with regulatory authority, such as the labor inspectorate or the prosecutor’s office,” Reyzman said.

Since the government first declared its intention to improve the investment climate in Russia, the Ministry of Economic Development has pushed through a raft of regulations to attract much-needed foreign investment. Now the ministry has created a one-stop shop for foreigners to lodge complaints and offer suggestions on a wide range of issues affecting their business activities in Russia. The department said it hopes to improve the investment climate by improving customs services, cutting red tape, taming taxmen, reducing corruption and opening the doors wide for skilled foreign executives. An said the department has enlisted the help of various business lobby groups like the American Chamber of Commerce, the Association of European Businesses and the Russian Union of Industrialists to help in its onerous task. “All these organizations petition us – sometimes on behalf of their members and sometimes to resolve some system issues – and we try to act on their requests. Individual investors are also encouraged to send in their complaints directly to us.”

To effectively get its message across to Western investors, the Economic Ministry has also enlisted the services of the U.S.-based firm Ketchum. The Department has been encouraging Western investors to send complaints through ModernRussia, an online forum managed by Ketchum on behalf of the Russian Federation.

An said that the department has so far received 26 complaints and petitions from various investors out of which 11 were acted on while 15 are being considered. Most of the complaints so far – about 28 percent – concern problems with administrative barriers – a euphemism for the practice by local officials of deliberately delaying the resolution of problems ranging from refusing to connect offices to communication lines or utilities services. No less important to investors are issues relating to customs and trade legislation, as well as willful discrimination against foreign companies in matters of business priorities, according to information posted on the Economic Ministry’s Web site.

“Investors often complained about administrative barriers, delays in approving deals, as well as complicated customs and immigration procedures,” An said. “The other set of problems investors face are corporate disputes and raiders’ attacks. Sometimes investors complain about taxmen slapping them with unjustifiably high taxes and we try to help them when we can.” An added, however, that foreign companies were not always victims of the complicated business environment. He said that there have been instances when particular companies resorted to all sorts of tricks in order to avoid paying taxes. “Of course, there are rare cases when companies are on the wrong side of the law and we also offer advice on how to rectify this,” An said.

The immediate challenge for the department, An said, is how to improve the country’s investment climate and attract a foreign workforce. The department has been working hard to improve the practical implementation of various customs regulations and the newly adopted immigration laws, he said, adding that a set of rules has been prepared to guide officials to stimulate investment in the innovative sectors of the economy.

One glaring example of such an initiative is the abolition of a new customs duty that had imposed a $5 per kilogram fee for every kilo above 50 kilograms on the personal belongings of foreigners moving to Russia from July 1. The tariffs, which emanate from the new customs union with Belarus and Kazakhstan, introduced a hurdle for the influx of foreign specialists advocated by President Dmitry Medvedev, The Moscow Times wrote on Wednesday. “Yes, we indeed received representations from business lobby groups such as AEB and the American Chamber of Commerce about this problem. Discussions were held and the problems were solved. Hopefully the appropriate state body responsible for the situation will make an announcement soon about the abolition of the tariff,” An said.
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