What restricted the work of Russian constructors in 2016

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What restricted the work of Russian constructors in 2016
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Georgy Ostapkovich, The Conjuncture Research Center of the Higher School of Economics’ Statistical Research and Knowledge

Our centre has prepared analytical material on the main factors which restricted the business activity of enterprises and organisations of the basic branches of the economy, including construction and construction materials’ production.

The report is based on the results of business activity research of more than 22,000 Russian enterprises and organisations, including 6,500 construction companies, the heads of which quarterly take part in the polling carried out by the Federal State Statistics Service.

In the final quarter of 2016 more than half of the construction companies’ top-managers thought the demand limitations to be the main problem behind the development of contracting activity (30% reported the financial insolvency of customers and 29% noted the lack of orders). During the year the intensity of this factor’s impact grew by 12pp.

The negative impact of the taxation burden was noted by 36% of the respondents (the year before it was 40%), and the high cost of materials, structures and facilities was mentioned by 31% (33%). The lack of financing and other construction companies’ unfair competitiveness were marked by 24% of businessmen (the year before it was 26 и 27%, correspondingly), the high percentage on commercial credit was mentioned by 19% (20%), and the lack of qualified workers by 13% (14% in the end of 2015).

It should be noted that Russian entrepreneurs are the most enterprising entrepreneurs in the world. Being under constant pressure they are able to withstand, using different managerial schemes, any limiting factors, including inflation and rate turbulence, a decrease in the demand of their products, and even administrative and corruption barriers. 

However, the economic indefiniteness factor made the majority of them deadlock. It is one thing when one works under the conditions of perfect information and established rules of the game, and quite another thing when creating a strategic business model under the conditions of macroeconomic instability and regulatory surprises.

And we must give credit to the Russian Government and the economy regulators, including the RF CB, who have managed to moderate the macroeconomic situation in the country and alleviate the weighty requirements for business concerning taxation and non-taxation payments.

The results of the investigation of the anti-corruption factor were a pleasant surprise for the researchers: this factor came only 10th in the negative ranking, although it was supposed to be the 5th. However, the explanation is rather simple because some of the respondents who had not marked it as a problem consider corruption to be a customary production expense which is included in the business plan, and consequently factor it in the primary cost and have it paid by customers.

A number of Russian enterprises even have special staff busy with minimising the expenses connected with corruption and informal payments. These are rather qualified specialists with experience of work in law-enforcement agencies or in the sphere of negotiation psychology, but they have nothing to do with the company’s production process and its functional support.  

Comparing the results of the research of Russian entrepreneurs with the results of the same polling in European countries we may draw a very interesting conclusion. Among the list of the factors restricting business, the respondents were offered the variant “no restrictions”. In 2016, on average, almost half of the entrepreneurs in the EU, dealing with industrial production and construction, chose this variant.

And only 5% of the CEOs of the Russian construction companies who took part in the polling reported the absence of pressure from any limiting factors. Draw your own conclusions.