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Viewing cable 09YEKATERINBURG3, ROUND TABLE REVEALS STRENGTHS, WEAKNESSES IN RUSSIA'S SMALL

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Reference ID Created Released Classification Origin
09YEKATERINBURG3 2009-01-26 12:19 2011-08-24 01:00 UNCLASSIFIED Consulate Yekaterinburg
R 261219Z JAN 09
FM AMCONSUL YEKATERINBURG
TO SECSTATE WASHDC 1243
INFO AMEMBASSY MOSCOW 
AMCONSUL ST PETERSBURG 
AMCONSUL VLADIVOSTOK 
AMCONSUL YEKATERINBURG
UNCLAS YEKATERINBURG 000003 
 
 
E.O. 12958: N/A 
TAGS: EIND ECON RS
SUBJECT: ROUND TABLE REVEALS STRENGTHS, WEAKNESSES IN RUSSIA'S SMALL 
BUSINESS SECTOR 
 
REF: 08 YEKATERINBURG 64 
 
Sensitive but unclassified.  Not for internet distribution. 
 
1.  (U) On January 20, Consul General attended a round table on 
small and medium enterprise (SME) in Nizhniy Tagil, 180 km north 
of Yekaterinburg.  The event was organized by the Sverdlovsk 
Oblast government and hosted by the recently elected maverick 
mayor of Nizhniy Tagil, Valentina Isayeva (see reftel). 
Counting the CG, about a dozen representatives of 
Yekaterinburg's diplomatic missions attended.  In brief remarks 
to the group, the CG outlined steps the U.S. government had 
taken to address the financial crisis and discussed how measures 
and policies put forth by President Obama support small 
business. 
 
2.  (U) The industrial center of Nizhniy Tagil is the second 
largest city in Sverdlovsk Oblast with a population of over 
375,000. Such internationally known giants as Nizhniy Tagil 
Metallurgical Combine and Uralvagonzavod, which manufactures the 
T-90S and T-72S tanks and various types of railway tankers and 
carriages, are major employers.  Large industrial enterprises 
provide over 95 percent of the industrial output in the city.  A 
small, but significant SME sector arose during the 1990s 
economic reform.  According to official figures, the city is 
home to 3,600 small and medium enterprises that provide jobs for 
about 37,000 people. 
 
3.  (U) Local officials gave presentations on the availability 
of business consulting and promotion services.  They expressed 
interest in attracting investors in solid waste processing 
(including waste recycling), logistics, food processing and 
public transportation.  They acknowledged, however, that a 
number of problems still plague the sector, including: complex 
business registration procedures; high cost and lack of 
available credit; poorly developed business real estate sector; 
undeveloped leasing sector; and lack of cooperation between 
large and small businesses. 
 
4.  (U) Despite these problems, we heard relatively optimistic 
presentations from a half dozen or so entrepreneurs in 
manufacturing, furniture-making, and food processing.  Though no 
statistics on the success/failure rate of small businesses were 
made available, we noted that three of the companies that made 
presentations provided products or services to the troubled 
heavy industry sector.  Still, most of the presenters were 
seeking new technology and equipment and it was clear they were 
not terminating their business development plans. 
 
5.  (SBU) On a regional level, according to media reports, 
Sverdlovsk Oblast has allocated RR 250 million (about US$ 7.5 
million) to support of SMEs in 2009.  But local businessmen view 
these government programs as ineffective.  According to one 
observer, when a similar strategy to support small business was 
implemented in the 1990s, much of the money was spent on 
administrative overhead or otherwise expended before reaching 
the target businesses.  In a recent conversation, a successful 
local businessman characterized as inadequate government efforts 
to address the issues of administrative barriers, favoritism in 
awarding government contracts, a burdensome and complex tax 
system, and lack of credit that plague the sector today.  He 
also criticized Delovaya Rossiya, a national business 
association that was established to support small and medium 
business, for what he called its overly bureaucratic approach. 
He commented that he was fortunate that his company had no debt. 
 Though he has had to lay off some workers, he was confident 
that his business, which is seasonal, would rebound with the 
resumption of construction projects in the spring. 
 
6.  (SBU) Comment:  Though local governments are allocating 
resources and expressing support for SMEs, their efforts may not 
be enough to overcome the administrative and structural barriers 
that currently exist, and that are being exacerbated by the 
Russia's financial crisis.  Companies that are free from debt 
and not tied to heavy industry are likely to emerge from the 
crisis in the best shape.  But in difficult economic times, the 
toll on small business is great, and it remains to be seen 
whether the mutual expectations of business and government will 
be met as the crisis deepens. 
 
SANDUSKY