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Doing business in Russia
Transcript of Doing business in Russia
Starting A Business
The Law on Protection of Foreign Investment and the Law on Investment Activity , collectively the “Foreign Investment Laws”, provide the legal framework for foreign investment in Azerbaijan.
Foreigners can invest in a business venture in Azerbaijan in a number of ways, such as:
• Establishing a fully owned subsidiary
• Acquiring shares in an existing company
• Establishing a joint venture with Azerbaijani companies and individuals
• Entering into other acceptable forms of investment agreements
Types of business presence
• Open and closed joint stock companies (JSCs)
• Additional and limited liability companies (LLCs)
• General and limited partnerships
Russian Federation stands at 88 in the ranking of 189 economies on the ease of starting a business.
starting a business in Russia requires 7 procedures, takes 15.0 days, costs 1.3% of income per capita and requires paid-in minimum capital of 1.2% of income per capita.
In 2014, Russia made starting a business easier by abolishing the requirement to have the bank signature card notarized before opening a company bank account.
Registering property in Russia requires 4 procedures,
takes 22.0 days and costs 0.1% of the property value. Russian Federation stands at 17 in the ranking of 189 economies on the ease of registering property.
In 2014, Russia made transferring property easier by streamlining procedures and implementing effective time limits for processing transfer applications.
Starting a business there requires 3 procedures, takes 7.0 days, costs 1.0% of income per capita and requires paid-in minimum capital of 0.0% of income per capita. Globally, Azerbaijan stands at 10 in the ranking of 189 economies on the ease of starting a business.
In 2014 the country has major reforms that made starting a business a lot easier by setting up one stop shop for completing registration and making it free registration online and eliminating pregistration formalities.
Registering property in Azerbaijan requires 4 procedures, takes 11.0 days and costs 0.5% of the property value. Globally, Azerbaijan stands at 13 in the ranking of 189 economies on the ease of registering property.
2009 Azerbaijan introduced a new unified registry reducing the number of procedures from 7 to 4. The State Register Service also introduced the option of expediting 2 out of 4 procedures, it is now possible to register property in 11 days
Doing business in Russia & Azerbaijan
Russia’s economy is growing at a very fast pace and it has an enormous potential for the international enterprises. Although Russian market has a huge potential for international enterprises but at the same time it has challenges and pitfalls that need to be addressed before getting into the Russian market. Often international enterprises fail in Russia due to the reason that they are not fully aware of the challenges and difficulties of the market.
Azerbaijan is a country with wide range of investment opportunities and is undoubtedly one of the most attractive destinations for foreign direct investments (FDI) in the region.Baku is the centre of Azerbaijani economy and the home for most of Azerbaijan's industrial enterprises. Petroleum extraction and refining, metallurgy, aluminium processing, petrochemicals, chemical production is located close to this city and its satellites
The aim of this report is to identify the main challenges of the Russian and Azerbaijani markets that
MNCs can face while entering their markets and also how to compare between the two markets which is easier in doing business and what impact do they have on FDI. The report also deals with the importance of how theory affects practical.
-The largest country in the caucausus region
-Oil industry accounts for 51.7% of GDP
-Service industry accounts for 26.3% of the GDP
-Located in the northen Euroasia
-It has the 8th largest economy in the world
-6th largest PPP
STARTING A BUSINESS
WHAT THE STARTING A BUSINESS INDICATORS MEASURE
Procedures to legally start and operate a company (number)
- Preregistration (for example, name verification or reservation, notarization)
- Registration in the economy’s largest business city
- Post registration (for example, social security registration, company seal)
Time required to complete each procedure (calendar days)
- Does not include time spent gathering information
- Each procedure starts on a separate day (2 procedures cannot start on the same day).
- Procedures that can be fully completed online are an exception to this rule.
- Procedure completed once final document is received
- No prior contact with official
Cost required completing each procedure (% of income per capita)
- Official costs only, no bribes
- No professional fees unless services required by law
Paid-in minimum capital (% of income per capita)
- Deposited in a bank or with a notary before registration (or within 3 months)
What the indicator measure:
- Procedures to legally transfer title on immovable property (number)
- Time required to complete each procedure (calendar days)
- Cost required to complete each procedure (% of property value)
The economy has a score of 5 on the depth of credit information index and a score of 3 on the strength of legal rights index. Globally, Russian Federation stands at 109 in the ranking of 189 economies on the ease of getting credit.
From 2009 to 2014 Russia hasn’t made any reforms concerning getting credit.
Summary of scoring for getting credit indicator in Russia
Indicator Russia / Europe (average)
Strength of legal rights index (0-10) 3/7
Depth of credit information index (0-6) 5/5
Public registry coverage (% of adults) 0.0/33.9
Private bureau coverage (% of adults) 59.2/48.2
The economy has a score of 5 on the depth of credit information index and a score of 6 on the strength of legal rights index. Higher scores indicate more credit information and stronger legal rights for borrowers and lenders.
Azerbaijan stands at 55 in the ranking of 189 economies on the ease of getting credit.
In 2011, Azerbaijan improved access to credit by establishing an online platform allowing financial institutions to provide information to, and retrieve it from, the public credit registry.
Summary of scoring for the getting credit indicator in Azerbaijan
Indicator Azerbaijan / Europe (average)
Strength of legal rights index (0-10) 6/7
Depth of credit information index (0-6) 5/5
Public registry coverage (% of adults) 23/33.9
Private bureau coverage (% of adults) 0.0/48.2
What the indicator covers:
Strength of legal rights index
Depth of credit information index
Public credit registry coverage (% of adults)
Private credit bureau coverage (% of adults)
These scenarios assume that the borrower:
Is it a private, incorporated, limited liability company?
Has its headquarters and only base of operations in the largest business city.
Has up to 100 employees.
Is 100% domestically owned, as is the lender.
-Foreign investments are regulated both on fedral and regional levels.
-There are certain limitations when it comes to foreign investments in Russia such as health , right & lawful interests of citizens or state defence & security measures
-The most common forms of corporate structures in russia are , limited liability companies and joint stock companies.
-The economy scored : 6.7 on the Strength of the IPI
-Azerbaijan rank 22 out of 189 economies on IPI
protecting investors indicators in Azerbaijan
Indicator Azerbaijan Europe & Central Asia average
Extent of disclosure index (0-10) 7/ 6
Extent of director liability index (0-10) 5/ 5
Ease of shareholder suits index (0-10) 8 /6
Strength of investor protection index (0-10) 6.7/ 5.7
-Russia scores : 4.7 on the strength of IPI
-Globally russia ranks 115 out of 189 Economies on the strength of IPI
Summary of scoring for the protecting investors indicators in Russia
Indicator Russia Europe & Central Asia average
Extent of disclosure index (0-10) 6 / 6
Extent of director liability index (0-10) 2 / 5
Ease of shareholder suits index (0-10) 6 / 6
Strength of investor protection index (0-10) 4.7 / 5.7
-What the indicator measures
-Measures the strength of minority shareholders, protection against directors, use of corporate assets for personal gain.
-It measures transparency of transaction.
-it measures liability for self dealing .
-Measures minority shareholders access to evidence before and during trial.
REAL FACTS (CASE STUDY)
Difficulty of Doing Business in Russia: First-Person Perspectives
“We had to get between 45 and 50 different documents in order to open a terrace” (lawyer, Finland, resort and retail)
The fear is rooted in the fact that bureaucratic prescriptions are unknown and unexplainable. On the one hand, a huge amount of importance is given to paperwork: “When we submit papers to financial authorities, we rent a van, and when we have to submit quarterly accounting reports, huge heaps of paper appear in the office” (finance manager, Germany, transportation)
On the day IKEA’s first store near Moscow was due to open, the top management, including the company’s legendary founder Ingvar Kamprad and hundreds of special guests, were shut out because at the last moment a regional bureaucrat decided that the building had not yet passed inspection.
Businesses and their leaders can become victims of the Russia’S penal code, fueling fears of state intrusion in business affairs.
One example was the case of oil giant Yukos, which was privatized in 1996 and later accused of tax evasion in 2004. The company's chief executive, Mikhail Khodorkovsky, was convicted of fraud and jailed. The Russian state then bought the company and its assets at a knock-down price, prompting widespread accusations that the charges were politically motivated.