The government of the Russian Federation has recently stepped up its attention to the promotion of small and medium-sized enterprises (SMEs) considerably, by taking actions to create a more competitive business environment and introducing public programmes to tackle barriers in areas such as skills, finance, and innovation. Russian SMEs currently represent less than 30% of the workforce, but the government’s intention is to increase this to 50% by 2020.

There is great potential to accelerate economic growth, job creation and diversification in the Russian Federation by lifting its rate of business creation and the numbers and competitiveness of its small and medium-sized enterprises (SMEs). There are substantial gaps to be made up with most OECD countries and a range of other emerging economies. Less than 30% of the Russian Federation workforce is employed in SMEs compared to more than 50% in every OECD country. Only 5% of the Russian Federation’s adult population is currently involved in starting or running a new business compared with 16% in China and 18% in Brazil. Only 5% of Russian Federation SMEs undertake any type of innovation, compared with typical rates of around 50% in OECD countries. The Russian president has set ambitious targets to increase the contribution of SMEs to the Russian economy, including growth in the share of GDP generated by SMEs from 25% in 2012 to 50% in 2020. This report examines how government policy can help achieve these objectives.

One of the most distinctive features of the Russian Federation’s SMEs is their relatively small contribution to the economy compared with other OECD countries and emerging economies. In real terms (i.e. excluding significant numbers of enterprises that are registered but not in operation), there were only 3.2 million operating businesses in the business sector in the Russian Federation in 2010. By international standards, this is a relatively small figure when juxtaposed with the size of the economy (). Italy, Mexico and Korea, for example, each have more businesses than the Russian Federation although the total outputs of these countries are smaller. The rate of 31 registered enterprises per 1 000 working population in the Russian Federation is well below that of the OECD countries, and is low in comparison to rates of 67 in Mexico and 102 in the United States.

This chapter examines the state and recent evolution of entrepreneurship and SME activity in the Russian Federation. It presents key structural indicators such as the SME share in enterprises, employment and GDP, the sector and size distribution of SME activity, business start-up rates, entrepreneurial intentions, number of growth firms and the size of the informal economy. It also analyses performance indicators including productivity, exports, investment and innovation.

This chapter examines the quality of national framework conditions for SMEs and entrepreneurship in the Russian Federation, covering macro-economic conditions, international market integration, competition and state ownership, public procurement, the administrative burden, tax and social security, transparency and the rule of law, human resources, physical infrastructure the innovation system and access to financing. The state has made several important improvements across these areas that will ease SME and entrepreneurship development. A number of further policy reforms are recommended for example in the areas of reducing state control in the economy, strengthening transparency in public dealings with enterprises, building a skilled SME workforce and commercialising public research.

This chapter examines the legal framework for SME and entrepreneurship policy in the Russian Federation, the distribution of responsibilities across federal government for different aspects of SME and entrepreneurship policy, and the extent of policy leadership and co-ordination. It also assesses the major strategic directions in SME and entrepreneurship programme support that the federal government has chosen to pursue and the distribution of federal SME programme spending across different activities. Recommendations include developing an integrated master plan for SME and entrepreneurship promotion and shifting the weight of programme expenditures away from general SME investment and start-up subsidies towards more targeted subsidies aimed at innovation and exporting and more business development services such as company diagnostics and consultancy.

This chapter examines federal programme support for building the capacities of SMEs and entrepreneurs and developing the business support infrastructure. It examines existing programmes for building an entrepreneurial culture, start-up grants, youth entrepreneurship support, support of innovative SMEs, support for production modernisation, support for export-oriented SMEs, microfinance, loan guarantees, support for tailored municipal programmes, support for diversification of mono-industry cities and development of the business support infrastructure. A number of areas for improvement are identified in these programme areas. The chapter also recommends introducing new measures for entrepreneurship awareness, entrepreneurship training, high-growth enterprises and large firm-SME supplier linkages and further increasing the scale and quality of the business development services infrastructure, including the business incubator system.

Although recent state interventions have significantly increased the supply of external financing to SMEs and entrepreneurs, further increases in the scale and sophistication of financial markets for SMEs and entrepreneurship will be critical for the growth of SMEs and entrepreneurship in the Russian Federation. This chapter examines the nature of the SME and entrepreneurship finance gap and how policy is seeking to address it in the Russian Federation, covering bank loans, microfinance, and equity finance. It makes a number of recommendations for further improvements, including strengthening the operational arrangements of credit guarantee funds, expanding credit history information and credit bureaus, and increasing the remit of the public Vnesheconombank and SME Bank to cover new financial products and roles such as education in SME financing for investor institutions.

This chapter identifies strong spatial variations in SME and entrepreneurship performance across the regions of the Russian Federation together with differences in the scope and nature of constraints in regional business environments. Some regional and municipal governments are active in improving their regulatory conditions for SMEs and entrepreneurship, but the progress is highly uneven across the country. Federal government ministries and agencies also operate some locally-differentiated actions such as in cluster and financing support. However, regional and municipal governments are not as active in SME and entrepreneurship promotion as they could be, reflecting constraints in their budgets and professional capacities for strategy making. This gap needs to be addressed if government objectives for growing the SME economy and achieving more balanced spatial development are to be met. The co-funding arrangements of the federal SME support programmes are critical in helping to secure local interventions and could increase participation further with greater flexibility and dialogue in design and implementation. The federal government also has a role to play in building the strategy-making capacities of regional and municipal governments.