Small business: the bill went to trillions

AVVA RUS General Director Alexey Egorov discusses increasing the share of SMEs in the public procurement segment.

Member of the Board of Directors, General Director - Chairman of the Management Board of JSC "Corporation for SME Development" Alexander Braverman at the anniversary forum of the All-Russian Public Organization of Small and Medium-Sized Businesses "Opora Russia" on September 18, 2017.

The volume of procurement by the largest state-owned companies from SMEs is expected to increase by 1.3 times by the end of this year—to 2 trillion rubles. Analysts are even predicting the 3 trillion.

Business was suffocating by systemic problems

With the volume of procurement by the largest state-owned companies from small and medium-sized enterprises (SMEs) at 1.5 trillion rubles in 2016, "the target for 2017 is 2 trillion rubles," reports IA "Finmarket," quoting Alexander Braverman, General Director of JSC "Federal Corporation for the Development of Small and Medium-Sized Entrepreneurship," speaked up at the conference "Improving Mechanisms for SME Access to Procurement by the Largest Customers.

"By the end of the year, SMEs are expected to account for about 29.5% of the total procurement volume of the largest state-owned companies (against a minimum quota of 10%). The official emphasized that 71% of contracts with SMEs are for amounts up to 400 million rubles, while contracts exceeding 4 billion rubles account for only 10% of the total procurement volume. These are important figures because previously, requirements for large-value supplies excluded many companies from procurement.

After the introduction of sanctions by Western countries, the situation for the average Russian business was, to put it mildly, difficult, says Stanislav Mudrov, Head of Projects in the "Valuation" Practice at JSC "NEO Center." Business was suffocated by systemic problems. If in 2013, 35.8% of SMEs assessed their financial condition as negative, in 2014, this figure rose to 54.4%. Other top problems for businesses included: high tax burden, lack of access to loans and other support sources, administrative barriers, corruption and crime, and the inability to gain access to tenders for orders from large enterprises, which would guarantee businesses relatively stable existence.

Overall, it can now be said that, thanks to efforts implemented in part by the Federal Corporation for SME Development, some of these problems have been resolved. For state-owned companies, the obvious benefits of working with small and medium-sized businesses include better service quality, driven by growing competition and, not least, guaranteed contracts for a certain period. This same benefit is particularly important for small and medium-sized businesses themselves.

The smaller will become larger

Alexander Braverman also stated that by the end of November, a Russian government resolution may be signed, according to which companies and enterprises with annual revenue exceeding 500 million rubles (currently 1 billion rubles) will be classified as "largest." "It is assumed that the introduction of this norm will increase the number of largest state-owned companies from the current 419 to 1,596," said Alexander Braverman.

"The list of specific state-owned companies to be classified as largest is planned to be formed in February 2018." Under the draft, the minimum procurement quota from small and medium-sized businesses for those classified as "largest" state-owned companies should increase from the current 10% to 18%.Alexey Egorov, General Director of the pharmaceutical company "AVVA RUS," emphasized the importance of lowering the procurement threshold. "What happens," he says, "is that a tender is announced for very significant amounts, for example, over 1 billion rubles. So what? Which medium or small enterprise can handle participation in such procurements? That is precisely why lots need to be broken down to 400 million and below, which is what Braverman is talking about.

"There is a special roadmap, "Expanding Access of Small and Medium-Sized Businesses to Procurement by Infrastructure Monopolies and Companies with State Participation," reminds Irina Kapitanova, a member of the presidium of "Opora Russia." The document provides for increasing the share of procurement from SMEs from 10% to 25% and raising the share of direct procurement from 2% to 10%.