Helping the Small

In an article published by the Russian Business Newspaper (Rossiyskaya Biznes-Gazeta), Alexander Shokhin, who is the President of HSE, the President of the Russian Union of Industrialists and Entrepreneurs, and a member of the B20 International Business Advisory Council (IBAC), discussed the recommendations the business community has for G20 leaders ahead of the G20 Summit in Turkey.

G20 leaders will meet in Turkey on November 15-16 during extremely unstable global economic conditions. Many countries are still experiencing sluggish economic growth, and new jobs are being created at a very slow rate. Because of this two-sided problem, which only worsened after recent fluctuations on financial markets, millions of people are losing hope for a prosperous future.

As members of the IBAC, which presents recommendations from the business community to the G20 group, we believe this situation needs to change, especially considering the difficulties it creates for a large number of people. We believe it is our duty to ensure that over the coming decades, everyone has the chance to progress and succeed. But business alone cannot guarantee prosperity and development. This is why a new agreement is necessary between G20 leaders, business, and civil society – one that is capable of renewing economic growth and one that contains the four simple requirements which, together, will create new jobs and ensure much needed economic development.

A top priority should be the ratification of the WTO Trade Facilitation Agreement (TFA). Facilitating trade might sound like a tricky concept, but nothing is more able to bring the world of trade policy closer to real international trade. The agreement is meant to eliminate unnecessary red tape and other delays when transporting goods abroad, that is, the same factors that increase global spending on international trade by 12%, according to preliminary estimates.

The agreement contains provisions that will allow for many administrative procedures to be sped up – procedures related to the movement of goods abroad and customs clearance, as well as procedures that establish measures for effective cooperation between customs authorities and other appropriate government bodies on issues that concern the simplification of trade procedures and compliance with customs regulations. Over the course of several years, the TFA was the subject of the business community’s attention within IBAC.

Small and medium businesses frequently encounter significant problems with gaining access to financing – financing that is essential for the growth of these businesses. It is necessary to create new regulatory conditions and a new regulatory atmosphere that improve financing procedures

Thanks mostly to the active position of entrepreneurs, the signing of the TFA was made possible within the WTO. According to estimates from the Organisation for Economic Cooperation and Development (OECD), the realisation of such agreements will lower costs associated with foreign trade by 11%-16%. Countries with emerging economies, including BRICS, will win more than developed nations. For Russia, costs are projected to fall by around 14.6%. The TFA will allow for new, significant opportunities to be created for entrepreneurs in developing countries, which is capable of creating up to 21 million jobs. Estimates from the International Chamber of Commerce show that global trade volumes should increase by $1 trillion per year.

The agreement is particularly relevant for Russia as there are excessive documentation requirements that are brought about by interagency discrepancies. These issues make transporting goods abroad a longer and more expensive process than in other places around the world. This leads to a drop in the ability of Russian exports to compete globally as import prices rise and Russia maintains a weak position on world ratings. Russia’s ratification of the TFA will make it possible to improve the regulatory framework of foreign economic activity, as well as the realisation of the concept of a ‘free window’ in foreign economic activities.

Currently, every WTO member has supported this agreement, but of the 107 countries (two-thirds of all members) that have to ratify the TFA for it to go into force, only 17 have done so, including G20 members such as the U.S., Australia, China, South Korea, and Japan. The Russian government has prepared a ratification bill that should be passed by the end of the year. We call on all countries that have not yet approved the TFA to do so now so that international trade can become a source of growth for everyone.

A second priority is to greatly improve small and medium enterprises’ access to financing. Small and medium businesses frequently encounter significant problems with gaining access to financing – financing that is essential for the growth of these businesses. It is necessary to create new regulatory conditions and a new regulatory atmosphere that improve financing procedures. Because of how important this issue is, all possible resources must be considered – from financing supply chains to crowdfunding and from P2P finance to direct investments in small and medium enterprises.

In Russia, support for small and medium enterprises is critical. The Russian Union of Industrialists and Entrepreneurs is actively working on ways of supporting medium companies that have the potential to grow, export their products, and replace imports. Together with other Russian business associations, we are evaluating and selecting high quality, well thought out projects that we will lobby at institutions such as the Industrial Development Fund, the Russian Direct Investment Fund, and others. It is necessary for businesses to come up with a common approach towards support as concerns project selection.

Thirdly, we have to improve labour markets in order to improve career opportunities for women and young people. Despite the fact that these groups remain the main sources of social and economic potential, they are nonetheless faced with unemployment and underemployment, and they hold less protected jobs. Such a lack of prospects not only weakens the economy, but it also prevents our societal development. Several G20 countries are particularly affected by youth unemployment, including in developing countries and members of the EU. In South Africa, for example, unemployment exceeds 50%, while this figure is over 40% in Italy. In Russia, despite fairly low unemployment rates overall, youth unemployment stands at nearly 14%, according to data from the International Labour Organization.

We believe that, together, the government, private sector, and civil society can do more. Many companies are already working with other interested parties on creating more opportunities for women and youth. The most successful of such approaches should be scaled and used broadly.

Finally, governments must prepare and publish clear strategies for developing the infrastructure needed for economic growth. The modern economy requires large-scale infrastructure in areas such as transportation, energy, water supply, and telecommunications. By 2030, the world will face global deficit spending on infrastructure of $15-20 trillion.

While the government can take the lead in eliminating this gap by making financial commitments – as well as approving clear, prospective, and comprehensive road maps – the private sector must play a major role in financing and completing specific projects.

All four of these initiatives will guarantee a solid foundation for more secure and sustainable economic growth in the long-term perspective – growth that will improve people’s lives all around the world. On behalf of the global business community, we are prepared and set on helping carry out this new agenda to create opportunities all around the world. We call on G20 leaders and the heads of international institutions to join us. Together we can build a secure future for the individuals and communities that are counting on our leadership.