Russia is overcoming the economic recession.

21.04.2011

Chambers Global 2011 – Russia Overview
Contributed by Goltsblat BLP

The 2008-2009 worldwide economic crisis hit Russia rather hard. Some sceptics believed it would take a long time to recover. Yet, owing to timely government measures, optimisation of corporate activity, and the restraint demonstrated by the Russian people, business stability in Russia was preserved. During 2010, the economy revived and regained or even slightly surpassed the pre-crisis level in a number of industries. World prices normalised for traditional export items such as oil, gas, metals, mineral fertilisers and wood; capital outflow from the country dwindled; the bank system generally held its ground; capitalisation of Russian companies improved; the number of bankruptcies fell, though private debt did not shrink considerably; and unemployment went down, while consumption increased.

The state of emergency caused by the natural calamities of 2010, however, removed any euphoria generated by the economic growth and led to sober assessments of certain unfeasible ventures and unrealistic expectations. The crisis illustrated the problems associated with a raw materials-based economy, the critical need for technical modernisation of the country, efficient use of resources, energy efficiency, and renovation in science and education. The Russian government is focusing its efforts on these areas, for example by passing federal laws on the creation and operation of the Skolkovo Innovation Centre and the Russian Research Centre 'Kurchatov Institute', developing the activities of the Rosatom Nuclear Energy State Corporation, reorganising the Russian Corporation for Nanotechnologies and attracting foreign scientists and experts to Russia.

During the economic recession, competition in the legal services market became much fiercer, thus promoting higher-quality services. Although this market has in general expanded, it has still not regained its pre-crisis level. Economic conditions are not yet good enough to attract many outside experts, or to release the pressure on prices or the restraints on the scope of outside legal help. However, the country's movement towards scientific and technical regeneration opens up new prospects for the legal profession.

Legislative developments

The Russian legal system consists of the Constitution of the Russian Federation and other federal laws; constitutions and other legal acts of the 83 constituent entities of the Russian Federation; and municipal laws. It also includes the generally accepted principles and rules of international law and international treaties to which Russia is a party. Court judgments are not sources of law, yet they  create case precedents.

Under the current difficult conditions, the government is using legislation to concentrate budget resources in the country’s most important areas of development, increase the social burden on business, and reduce its obligations. The legislation on the privatisation of state and municipal property has been amended and an extensive programme has been proposed for reducing state ownership, including of commercially attractive enterprises.

At the same time, measures are being taken to create a favourable business climate, lift administrative barriers in the economy, and attract foreign investment. Federal laws have come into effect to ensure access to information regarding the activities of state authorities and local government bodies and organise the provision of state and municipal services. The Economic Development and Integration Government Commission, the Working Group on Creation of the Financial Centre in Russia, and the Foreign Investment Advisory Council have stepped up their activities. A federal law on facilitating access for foreign capital to business entities in 42 strategic industries in Russia is scheduled for approval.

Russia's membership in the Customs Union of Russia, Belarus and Kazakhstan, which began functioning in July 2010, and subsequent ratification of the International Convention on the Simplification and Harmonization of Customs Procedures have led to a liberalisation of the customs regime.

To stimulate business, the rules on acquiring, using and disposing of land are being revised and requirements on construction are being eased. However, these areas of legal regulation are far from harmonised.

Company law is being developed. Shareholders'/participants' agreements have been permitted and it is proposed to introduce much more stringent rules governing the liability of members of management bodies towards companies and their shareholders for losses caused. Legislative barriers are being set to prevent unlawful raids on companies through pseudo-lawful or unlawful actions.

Amendments to the legislation on insolvency (bankruptcy) are aimed at a real financial restructuring and preservation of viable businesses. In a number of cases, we see policy liberalisation with regard to those guilty of administrative and criminal offences in entrepreneurial activities.

Legislative amendments are being introduced with respect to the Russian securities market. Their purpose is to internationalise this market and improve turnaround. One notable new piece of legislation is the act on combating the illegal use of inside information and market manipulation.
Activities to protect competition have also been stepped up, yet the anti-monopoly authorities do not always apply the relevant legislation consistently. For example, it is not all that effective with regard to the leading Russian oil and gas companies.

Much attention is being devoted to approving technical regulations, implementing the federal law on energy saving and raising energy efficiency.

Specifics of the business environment

Considerable legislative and organisational efforts to improve the Russian business climate are yielding results, but the situation is not changing for the better as fast as one might wish. For this reason, Russia is not always perceived as a favourable place for making investments and doing business.

Some unnecessary administrative barriers remain in the country’s economic life - too many approvals, permits, reports, and audits are required, though efforts are being made to combat them.

The development of Russia's legislation on intellectual property, including its alignment in 2010 with the rules applied within the World Trade Organisation, which Russia has long been eager to join, changes the conventional assumptions concerning its inadequacy.

The legal framework and the practice of dispute resolution in the Russian Federation are being improved. A federal law has been adopted on alternative dispute resolution by involving an intermediate party (mediation). A federal law has taken effect on providing information about the activities of courts in the Russian Federation; appeal courts of general jurisdiction are to be set up, and the court procedures for considering commercial disputes ('class' actions, 'electronic' justice, etc.) are being improved. A federal law has come into effect on compensation for infringed rights to judicial proceedings or enforcement of a court act within a reasonable time. Yet cases of improper court proceedings and issue of unjustified or biased court judgments are rightly noted. There is much to do to improve enforcement proceedings and the work of court enforcement bailiffs. Even so, the country is undoubtedly striving towards true justice.

Corruption remains an open problem, even though its scope is shrinking as a result of the measures taken to prevent it. A programme of anti-corruption measures has been adopted and is being implemented in Russia.

In any event, precise and sustainable compliance with the legislation of the Russian Federation and renunciation of attempts to get round it should ensure any businessman in Russia success from the legal angle.

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