Little comes last

The crash in commodity prices has increased the economy's dependence on its small and medium sized enterprises, or SMEs, but many of them are still not receiving the support they need either from the banking system or the government.
"We applied for some government support," said Tatyana Kalishevskaya, director of the Ecological Travel Centre, a small business in Moscow. "But we didn't receive it this year."
Like many SMEs they have suffered a reduction in demand during the crisis, with many of their bookings for tours in autumn and around New Year cancelled. Yet, despite falling revenues, many small businesses, including the Ecological Travel Centre, are still not turning to the banks for financial support.
"We did not attract any serious loans [in the past], so now there is no pressing for us from this side," said Denis Andreyuk, the director of technology firm NT-MTD. "We do not plan to get any loans - our growth is supported by our own reinvestment."
The crisis has also pushed up bank interest rates, as they are reluctant to make risky investments and can make more money on the foreign exchange market.
"Credit now is expensive if you can get it from a bank but in many cases you can get nothing and this makes your operations very difficult," said Viktor Sedov, director of the Centre for Entrepreneurship.
While many firms will suffer as a result of this and plenty will go bankrupt, the small business sector has never been overly dependent on bank loans.
"The unmet demand for SME loans was 80 percent [in 2007]," said Irina Alexeyeva, deputy director of the Russian SME Resource Centre. "About one-third of SMEs borrowed loans from banks while about 60 per cent received financing from other places, such as friends or personal loans."
However, with salaries being reduced and many people being made redundant, it is also going to be harder to receive loans from other sources, she added.
NT-MTD remains optimistic about its future as it is likely to receive government support indirectly through increasing its dealings with state-run nanotechnology corporation Rosnano.
"From 2000 to 2007 the sale volume increased 30-50 per cent annually but in 2008 it was the same as 2007," Andreyuk said. "But there is very high probability that Rosnano will support our ideas and if so, our growth will resume."
For other firms there is not always the opportunity for deals with state firms, which have more stable budgets, and the decline in industrial production by 16 percent in January alone will have a severe knock-on effect on SMEs.
"Some operations [of industrial giants] are outsourced and with the lowest industrial production in 15 years small businesses have lost tons of orders," said Sedov.
In the past the SME sector received little support and remained largely neglected as the government focused on developing the natural resources that fuelled eight years of economic growth.
"Small and medium business development was not a high priority for the government at the time of a booming resource sector which provided windfall revenues and fuelled economic growth," said Leonid Polishchuk, an economist at the Maryland-based IRIS Centre.
However, the crash of oil prices from over $140 per barrel in July to below $40, along with a fall in other commodity prices, has caused the government to reevaluate its priorities, with President Dmitry Medvedev saying that the creation of jobs in small businesses was a long-term priority in fighting unemployment, Vesti television reported.
Unemployment has shot up to a six-year high of 8.1 per cent and the government has stated that it aims to create 50,000 new jobs in small businesses, as well as offering 60,000 roubles to unemployed Russians as start up capital to open a new business.
Regional governments are also increasing the support they offer to small businesses, with Moscow Mayor Yury Luzhkov drafting new proposals to help SMEs during the crisis, including a total of 6,500 loans at reduced rates.
"The crisis has made all levels of government more appreciative of the SME sector as a possible economic shock absorber and potential source of employment and income," said Polischuk.
The SME sector has plenty of room for expansion, contributing 50 per cent of total sales and employment, which is significantly below the United States and Western Europe. However, Alexeyeva expects it to expand to 70 per cent by 2030, which will help fulfill the government's goal of diversifying the economy.
"[The government] understands that entrepreneurship is the solution in the current situation," said Sedov. "People should be employed, the economy should be diversified and to rely only on national resources is unreliable."
Increasing unemployment, in addition to more government support, could help the SME sector expand rapidly in the short term as people who have been made redundant look for alternative sources of income.
"The people who worked in the industrial and financial sectors are well educated and have lost their jobs now," said Sedov. "In years of prosperity they earned some capital so they have a chance to start their businesses and it'll be cheaper."
The main problem for small businesses remains corruption, particularly inspections, which are a method for some bureaucrats to extort money out of companies.
"Latest surveys still reveal serious concerns of small businesses over costly and arbitrary inspections by a panoply of controlling agencies, lack of fair competition, corruption, difficulties with leasing and buying premises and land," said Polishchuk.
To fight this problem the government has suspended all checks on small businesses for one year, a move that Sedov praised as stopping officials interfering and trying to get money, providing it was properly implemented.