Stepan Zemtsov, Senior Researcher of the Innovation-Driven Economy Department, Gaidar Institute took part in the 2021 RSAI World Congress held in the online mode on May 25, 2021.

Within the framework of the “Regional Research in Russia” section moderated by Alexander Pilyasov, Moscow State University Professor, Stepan Zemtsov presented the report “Small Business Development Factors in Russia.”

In his report, Stepan Zemtsov noted that because of the pandemic and relevant restrictions the SME sector encountered numerous challenges and different countries had to look for new economic growth drivers.

In Russia, the development of small business and entrepreneurship was declared a priority of the government policy in the 2010s. In conformity with the President’s Executive Order, in 2016 a strategic planning document regarding SME was approved, while in 2018 the national project on SME development was prepared; this project was updated in April 2021 and approved till 2024. At the federal and regional level, a number of instruments was introduced to support and promote priority SME lines, namely, reduction of bureaucratic procedures, digitalization of government services, provision of various tax privileges, reduction of tax and other audits, establishment of special economic zones and introduction of regional tax rebates and tax holidays. As a result, Russia moved upwards from the 124th place in 2010 to the 28th place in 2020 in the Doing Business rating. However, the rating assesses the business climate only in two regions: Moscow and St. Petersburg.

In his study, Stepan Zemtsov sought to identify specific features, that is, small business development determinants in Russian regions. As per econometric outputs, the most important factors include households’ incomes, an access to international and interregional markets and availability of capital. The density of small business is lower in regions with a high rate of crime because of high investment risks. The availability of online services has a favorable effect on the development of SME because it opens up new market niches. The government support in terms of tax allowances and tax holidays produces a positive effect, but a limited one. Regional tax privileges, tax audits and special economic zones are insignificant if the overall institutional environment is taken into account. The identified factors can help comprehend trends and prospects of the entrepreneurship policy in Russia.

Summing it up, Stepan Zemtsov presented calculations showing that with a 4.3% shrinkage of global markets (UN, 2021 г.) and a 3.5% reduction in households’ incomes (Kudrin at al., 2021), a decrease in the number of small companies was to be equal to 3.3%. As per the data of the RF Federal Tax Service, in 2020 the number of SME entities fell by 4.3% (see the study by S. P. Zemtsov and А.А. Mikhailova, 2021). A substantial decrease in the number of small companies can lead to a long-term recession in regional

development. By estimates (see the study by S.P. Zemtsov and Yu.A. Smelov, 2018), a 4.3% decrease in the number of small businesses can result in a 0.22-0.67% GDP decline which explains partially a 3.35% drop in Russian GDP in 2020.