The current economy presents unprecedented challenges for Russian entrepreneurs.
An opinion poll conducted by “Business Russia”, a group that represents Russian medium-sized businesses, shows desperate results. These businesses are preparing to lay off employees, lower production output, and face reduced demand and higher interest rates.
65% of the Russian entrepreneurs polled do not expect to grow their businesses in 2009. They believe that sales will either stay at the same levels or will drop as soon as the fourth quarter of 2008. 39% percent of business owners surveyed are pessimistic. The main reason for these negative sentiments is a lack of liquidity for daily operations. At this moment, debt makes up 20% of the portfolios of 35% of the companies; for 30% of the companies the debt amounts to 21-40% of their total balance sheet. Most of the companies need more credit which is not available. Many Russian banks are raising interest rates or refusing to give them loans at all.
More than 60% of Russian businessmen could not refinance their loans this fall. While in August the ruble credit rates ranged from 12.1% to 15%, this year the rates have risen to 15.1% - 20%. These higher rates have affected 40% of the businesses, while only 15% of the businesses did not suffer rate increases.
“The banking system has almost no liquidity. If you took all the accounts of all the banks and subtract their debts to the Central Bank and the Ministry of Finance, you would get a negative digit,” said Vladimir Gamza, first vice-president of the Association of the Regional Banks of Russia. He continued by saying that “the government’s financial injections only reduced the size of this debt. It is 400 billion rubles ($14.8 billion) at the moment; it reached 750 billion rubles ($27.75 billion) a few weeks ago.”
In only two months of the global financial crisis, Russia’s banking system lost 1.5 trillion rubles ($55.5 billion) of liquidity. Companies are purchasing foreign currencies to pay off their international debts and private citizens have liquidated their ruble accounts to purchase U.S. dollars.
“Business Russia” believes that 40% of Russian entrepreneurial businesses are not going to survive through the beginning of 2009. This number could go even higher, given the unstable situation in global markets. On the other hand, there shouldn’t be too many bankruptcies. Many businesses can slow their production or operate with real negative returns. To survive, 41% of these companies are ready to drop non-specialized assets, 30% are prepared to reduce production outputs, 22% are willing to cut salaries or lay off employees, and 19% will raise prices for their products. Private companies are seeking help from the government. “Business Russia” advises to pay taxes in installments for the second half of 2008, and to seek regulations from the government to cap business tax rates at 15%.
According to Reuters, The benchmark RTS index .IRTS rose 4.77 percent to 575.64 points, broadly in line with the emerging markets benchmark, the MSCIEF. However, the ups and downs of the market seem to go unnoticed these days, and Russian businessmen, on par with their international counterparts, are getting ready for tough seasons ahead.
