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The following OECD assessment and recommendations summarise chapter 5 of the Economic Survey of Russia published on 15 July 2009.
The OECD’s product market regulation (PMR) indicator for Russia reveals that, despite liberalisation in some areas, such regulation is, on average, highly restrictive. The overall level of regulation is significantly higher and restricts competition to a greater extent than in any OECD country - including the emerging market economies within the OECD area. All three of the high-level sub-components of the overall PMR index are high in Russia relative to comparator countries, although there is considerable regulatory heterogeneity in lower-level sub-components.
Product market regulation in Russia is more restrictive than in any OECD member
Note: Index scale of 0-6 from least to most restrictive.
Reflecting the legacy of the Soviet era as well as the backlash after the chaotic early years of transition to a new system, state control in the Russian economy is extensive, via both direct state ownership and control over economic activity. State-owned enterprises are found across a wide range of sectors and often occupy a dominant position in their industry. Furthermore, there is a pervasive blurring of the line between the public and private sectors, arising not only from the extensive role of state-owned enterprises but also by close ties between government (at all levels) and major private firms. One reflection of this phenomenon is the unusually important role of current or former politicians and senior bureaucrats in business, which gives rise to multiple, distorting and costly conflicts of interest. Recent initiatives to strengthen the obligations for politicians and senior bureaucrats to publicise their incomes and financial assets are welcome. The special-status state corporations, most of which were established recently, are exempt from some reporting and monitoring obligations. These exemptions should be removed. Furthermore, the extent of the problems posed by the unclear governance of these institutions, which are neither under full political surveillance nor privately owned, should be carefully monitored. The PMR indicators also signal a high level of government involvement in the private business sector. In part, this reflects a prevalence of command-and-control-type regulation. Significant benefits in terms of economic performance could be yielded by reducing political interference in the operation of state-owned enterprises (SOEs) and private sector firms. This should include separating the activities with non-commercial policy objectives of SOEs and consolidating them to the relevant government department; improving standards of transparency and disclosure in SOEs; imposing an effective firewall between public and private professional activities to avoid conflicts of interest; disposing of golden shares in SOEs and private firms; increasing the independence and accountability of government representatives and accelerating appointments of independent and accountable directors on SOE Boards; revitalising privatisation (once SOE corporate governance has been improved); reducing the list of strategic firms and sectors; and using regulatory alternatives to command-and-control regulation and direct intervention.
State control stands out as accounting for the high overall score
1. Czech Republic, Hungary, Korea, Mexico, Poland, Turkey.
2. Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, Netherlands, Portugal, Spain.
Note: Index scale of 0-6 from least to most restrictive.
Russia performs well in some regulatory areas related to barriers to entrepreneurship, including regulatory and administrative opacity and the system of licensing and permits. However, the administrative burden that the government places on entrepreneurs starting a new business, whether they are corporations or sole traders, is still very high and acts as an obstacle to new entry. This could be indicative of more widespread inefficiencies in government administration and reflect ongoing difficulties in reforming the public administration, creating new regulatory institutions and implementing market-orientated forms of regulation. Many measures could be taken to reduce barriers to entrepreneurship and increase competition, including: further public administration reform and cutting red tape; increasing the transparency and accountability of public administration; carrying out Regulatory Impact Analysis to assess significant new regulatory proposals; breaking the dependence of regional governments on a limited number of local firms for revenue raising; providing for more vigorous and uniform implementation of competition law; minimising uncertainty and the need for subjective decision making within the government administration so as to reduce corruption opportunities; and continuing work to make network industries more competitive, with stronger regulation.
Russia’s average import tariff rate is somewhat higher than in most other middle-income countries and significantly higher than in OECD countries. Further, despite the implementation of a programme to simplify the rate structure in 2000-01, the dispersion in tariffs has actually increased since the beginning of the 2000s, indicating a less uniform structure. Lowering tariff protection and tariff dispersion to OECD levels would be both beneficial for economic performance and helpful in speeding Russia’s accession to the World Trade Organisation (WTO), which has been under negotiation for more than 15 years. WTO membership would in turn exercise some leverage for making more progress with competition-enhancing reforms. As to foreign direct investment (FDI), inflows have, until recently, been robust, but barriers to foreign ownership are estimated to be high in Russia compared to OECD countries. In part, this reflects the enactment in May 2008 of the law on strategic industries, which defines 42 sectors in which control by foreign investors requires prior authorisation from a government commission. Although this law increases transparency and is less ad hoc than the previous regime, its sectoral coverage is broader and notification delays longer than OECD-recommended practice. The emergence of large state-controlled conglomerates with dominant market positions also acts as a barrier to FDI inflows. The scope for foreign investors to acquire equity in these conglomerates or participate in government procurement contracts in the sectors they occupy is strictly limited. Beyond explicit barriers to FDI, the overall regulatory environment in Russia is perhaps the most significant impediment to greater inflows of FDI. The government should increase the openness and predictability of the foreign investment regime, review the list of strategic sectors and ensure a level playing-field between domestic and foreign firms with respect to government procurement and access to subsidies.
How to obtain this publication
The complete edition of the Economic Survey of Russia is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
For further information please contact the Russia Desk at the OECD Economics Department at firstname.lastname@example.org.
The OECD Secretariat's report was prepared by Geoff Barnard, Roland Beck, Paul Conway and Tatiana Lysenko under the supervision of Andreas Wörgötter. Research assistance was provided by Corinne Chanteloup.