What is your experience in Russia? You helped set up a company here â Alinga â how did it all happen?
This is already my nineteenth year here in Russia.
I first came to Russia from Guyana to study law at the Friendship University in October, 1991. Moscow had a strong impression on me. I remember driving into a city of no colour: it was a dull gray day, a dull gray road, and a dull gray city. During that first ride into Moscow in 1991, there was no way of knowing what an amazing future was in store for me here.
I began seeing Moscow as a long-term opportunity in the early 1990s, when I was a student working in an upscale Mexican Restaurant, where Moscowâs business elite came to dine and I could see that business opportunities were opening up. While I was completing my studies in the mid-1990s, I went to work for KRES FB, a boutique financial brokerage firm serving private American and European investors investing in the nascent Russian stock market. After the crisis in â98, when investors became timid, I started an MBA at Kingston University in the UK. I completed the degree in 2000, just as investors were starting to return and to invest in the real economy as opposed to the stock market. Seeing this, I â along with my partners â saw that these investors needed legal and accounting advice to help navigate their business activity. We began Alinga Consulting to provide legal and accounting services, and to provide these services with the level of customer service and support that we know Western customers expect.
In the almost two decades since I first laid eyes on Moscow, the drive into the city has changed enormously: the city is lit up with neon signs and activity. Alinga is proud to be part of that activity.
In your experience, has operating a small- or medium-sized business in Russia become easier since Alinga was founded?
It is certainly easier. The time it takes to set up a business has gone down considerably since the late 1990s and early 2000s. It used to take about three-five months to register a business; now three weeks is usually enough. The time needed to get a work permit has also become much shorter (moving from a six months to two and a half). However, the rules have become less transparent and are constantly changing. This is still a major problem since the early 2000s, as Russia has become more integrated into the world economy and a younger generation has entered the work force, Russian professionals have become attuned to what âinternational-standard serviceâ means. In addition, it is generally easier to find staff with foreign language skills in addition to international accounting, audit, and/or legal qualifications. For example, in one recent case, a potential client insisted that the auditors working on a financial due diligence project would need ACCA qualifications. A few years ago we would have had to rely on expensive outside consultants, but we now have staff with these qualifications working for us.
The current economic crisis has actually helped SMEs doing business in Russia. For example, the cost of labor and the cost of renting facilities â two of the largest costs for a business â have come down significantly. In addition the SMEs have gained a bit more negotiating leverage. In the pre-crisis, high-growth years, landlords would raise rents at will, even beyond that allowed by the rent agreement, and simply tell the business to âtake it or leave it.â Employees too had the same approach, asking for salary increases on a regular basis and often starting just a few months or even weeks after starting work â and even if they had no argument as to why they deserved the raise. The market âcorrectionâ has âcorrectedâ thisâ¦ even if perhaps temporarily.
What major obstacles still hamper SMEs in the Russian market?
Three things: financing, financing, and financing! Issues like corruption, administrative barriers are all relevant and do affect SMEs. However, entrepreneurs and medium-sized companies have learnt to deal with these issues â and since most of them are more flexible than bigger companies, it is easier for them to find solutions. However, flexibility does not help much when there is no finance. There is always talk about helping the SMEs, but few banks âwalk the walk.â One of my clients â a food importer and distributor â applied to one of the banks professing to offer SME loans. He was quite surprised when the bank wanted him to lodge the goods he intended to trade as collateral for the loan.
A second issue is transparent financial reporting. Even if the company wants to be completely transparent, finding specialists that can prepare IFRS-complaint accounts internally is difficult. They usually need to outsource to a professional service firm to help with monthly/quarterly conversion of RAS statements to IFRS, or to help them implement an IFRS-reporting module for the popular 1C accounting software.
What value do SMEs add to their respective economies?
SMEs play major roles in most developed economies. They help bring flexibility and resilience to the economy, especially in times of crisis. They can be an engine of growth as very often it is not a major firm that finds and commercializes the ânext big thing.â However, the impact of this sector is still not fully recognized or even supported in Russia. I once heard a senior government minster say that âRussia will never be a small company economy like Italy. In Russia we like big companies like Gazprom.â
The major value of SMEs, and what Russia could really profit from, is the SMEâs ability to empower people to make a difference in other peopleâs lives. Allow a person to start his own business, and he can provide for not only himself and his own family, but also create more opportunities for others to provide for themselves and their families. This is the most rewarding experience for me as the managing partner of an SME â to see a young accountant from Siberia come to Moscow and join Alinga as a junior and after four or five years see him as an Audit Manager, ACCA qualified, married with a young child, and in a flat that he owns.