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Russia's Small Business Gradually Expands

Moscow, May 31 (RFE/RL) -- After a few days in the Russian capital, any visitor will notice that building and reconstruction works are booming. The same can be seen in Moscow suburbs, where entire neighborhoods are under construction. Although major projects are carried out by large companies, often in joint-ventures with Finnish, German, Turkish and Yugoslav firms, many architectural designs are drafted by small-sized workshops.

Timur Bashkaev, head of the "AB Reconstruction" architectural firm, says he and his seven employees "not only design their own projects, but have a data base of small companies that can take care of any kind of construction works, at competitive prices." He says that his clients like this approach, because they do not have to deal with getting necessary licenses and it makes it easier to find efficient builders and quality construction materials.

"Nobody says it is easy" says Bashkaev, who started his firm three years ago, after leaving one of the large Russian construction companies, the Aeroproekt. He adds that "it has become increasingly possible in the last two years to make a profit by working efficiently since by now small businesses start feeling the beneficial effect of decreasing inflation rates." Bashakaev's company confirms the continuing rise of small firms, a story that has gone little noticed in recent Russian official statistics. The government data show that the number of Russia�s small firms -- employing less than 200 people -- was rising in the early 1990 only to slow in 1995. But Bashkaev and constructor Viktor Cherkasov say that the slowdown may be misleading. Many small firms have simply chosen to develop their business in the gray area of "informal economy," where they are harder to get victimized by both the mafia and the taxman. Cherkasov, who heads a renovation workshop that in 1991 employed 25 workers but now has the crew of only four, says that "it was impossible to pay for construction materials and salaries, not to mention taxes, when growing inflation was eating one�s profit even before completion of a contract." And he says that small, specialized workshops are thriving, provided that clients do not want a receipt for the work performed. In this way, the small firms can avoid paying taxes. Official figures published this month by Britain's "The Economist" show that employment in Russian small businesses has grown from 6.5 million in 1994 to 8.8 million in 1995. About half of Russia�s small firms are in trading and other services and 21 percent in construction. Only 12 percent are manufacturers. The main problem for small firms is finding capital. Russian banks practically do not have lending plans for private investments, so small firms tend to operate with few fixed assets and without advertising. Bashkaev says that "if a company works well, its name will reach prospective new clients by word of mouth." Asked to name the biggest obstacles to their work, heads of small firms cited vague and contradictory tax legislation and fear of rising inflation. Russian president Boris Yeltsin, eager to win support from every possible constituency in the presidential election, recently signed two decrees, promising small firms investment credits and a slice of future privatization revenues.

Bashkaev and Cherkasov say that Yeltsin's decrees are "nice promises, but no one counts on them." And they say that "voting for Yeltsin, after the fighting for survival of the last years, is mainly a choice taken to continue one�s work. Despite all the difficulties, nobody wants to return to a situation in which the state fully controls the economy."