Russian Economic Reform

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It’s time to sack Andrei Belyaninov!

Published on July 15 2012
Posted by: jeff

At a forum last week, Prime Minister Medvedev was questioned by a German businessman about Russia’s notoriously bad customs procedures.

Medvedev replied:

«Когда я разговариваю с руководителем нашей таможенной службы [Андреем Бельяниновым], он мне задает вопрос, на который не так просто отвечать, он говорит: вы сами определитесь, чего вы от нас хотите, чтобы мы просто контролировали порядок ввоза и вывоза товаров, чтобы законы соблюдались — это одна цель, или вы хотите, чтобы мы зарабатывали для государства большие деньги — это другая цель, и мы [сейчас] этим занимаемся».

“When I talk with the head of our Customs Service (Andrei Belyaninov), he asks me a question that is not so easy to answer when he says: you decide what you want from us; that we just control the order of entry and export of goods so that the laws are respected – this is one aim; or do you want us to earn big money for the state – this is another aim, and we are (now) doing that.”

Medvedev went on to say Russia needs to get the “proportions” right between “opening the road for business” and raising revenue. While too much can be read into Medvedev’s choice of words, I am tempted to ask whether the choice being offered by Belyaninov is really between enforcing the law or acting as a “by any means” revenue raiser for whoever can get their hands on it!

Last week I was in the office of the CEO of a medium sized company operating in the Russian health and beauty sectors. I noticed an interesting looking diagram on a white board, and asked what it was about. The CEO explained that it compared some equipment costs of his company with the costs of a competitor. The costs of the competitor for the same equipment were much lower because “corruption” was allowing it to avoid both import duties and VAT.

I did not ask how exactly this was done, but a “Vedomosti” article quotes Anton Danilov-Danilyan of “Business Russia” – a business lobby group – on the issue of exempting “innovation equipment”  from  customs duties and VAT, which leads me to assume that the trick is to get a “friendly” inspector to reclassify the imported equipment.

Some Customs officials are obviously earning “big money” for themselves at the expense of the Russian budget.

Belyaninov presents Medvedev with a false choice. Sure, there is a certain “choice” involved, but other countries manage to handle the situation without being so black and white about the trade-off possibilities. The World Bank’s “Doing Business 2012” report gave Russian an “overall” ranking of 120 out of 183 countries, a ranking of 105 for “paying taxes” and a ranking of 160 for “trading across borders”.

Andrei Belyaninov has headed Customs since March 2006. That is, in six years he has not managed to undertake some quite simple reforms which other countries seem capable of. Danilov-Danilyan says that the Customs is much worse than the Federal Tax Service (which is showing signs of improvement) because there are many more ”procedures, nuances and uncertainties”.

The Russian Government is in the process of introducing a KPI system for senior officials, after a failed attempt several years ago. Belyaninov’s proposed KPI covers the period 2012 to 2018. It has such goals as limiting the number of export and import documents, reducing processing times, increasing the use of electronic lodgment and approval, and increasing “business satisfaction” with the performance of the Customs Service.

KPI’s are easily manipulated (as I can attest from personal experience in several large organizations). However, I smell a new method of manipulation: make the “performance” period so long – ie 6 years – that a large number of “exceptional circumstances” will inevitably arise to justify non-achievement.

Despite his – now considerable — experience in government, Medevedev sometimes seems to have an excessively academic (and even “babe in the woods”) approach to issues. He should sack Belyaninov now, install a new head of Customs, and drastically reduce the KPI period — with an outer limit of no more than three years!