The CIS region in Doing Business Report 2017 and beyond

According to Doing business report 2017 (hereinafter – the Report), Russia holds the 40th position among 190 countries in the ease of doing business, falling behind the other members of the Eurasian Economic Union: Kazakhstan (35), Belarus (37), and Armenia (28). It might stem from the size of the country, which greatly effects red tape, or the big ‘improvements in their business regulations’ which led certain countries, including Kazakhstan and Belarus, to earn a special mention in the Report. 

Ranking CIS in Doing Business report 

Moreover, seven countries — Armenia, Belarus, Georgia, Kazakhstan, Lithuania, FYR Macedonia and Ukraine — improved their position across all Doing Business indicators. Kazakhstan, Georgia, and Belarus are regional leaders in the total count of reforms, implementing seven, five, and four reforms, respectively.

Kazakhstan introduced a single window system in the construction sector to facilitate the approval process of obtaining a building permit.

Armenia had made steps towards an easy access to credit: the parliament enacted a new law that establishes a unified collateral registry.

E-filing taxes: Tajikistan made paying taxes easier by introducing electronic invoices and expanding the electronic system for filing and paying taxes to include road tax. Road tax rates themselves were reduced, but land tax rates had seen an increase.

To comply with internationally accepted good practices, 19 economies strengthened the rights of minority shareholders in 2015/16. Georgia enacted amendments to the Law “On Securities Market” and the Law “On Entrepreneurs”. These amendments directly address shareholders’ rights with respect to preemptive rights, voting rights, ownership, and control. As a result, Georgia’s score increased from 6 to 7 on the extent of shareholder rights index and from 4 to 8 on the extent of ownership and control index.

In customs sector if some or all customs or other inspections take place at other locations, the time and cost for these procedures are added to the time and cost for those that take place at the port or border. In Kazakhstan, for example, all customs clearance and inspections take place at a customs post in Almaty that is not at the land border between Kazakhstan and China. In this case border compliance time is the sum of the time spent at the terminal in Almaty and the handling time at the border. Kyrgyzstan, by becoming a member of the Eurasian Economic Union, reduced time for exporting by 10 hours and the cost of exporting by $85. 

The Report doesn’t mention Turkmenistan at all, but Russia had been mentioned several times, and in a negative light: “For example, in the Kyrgyz Republic women cannot enter approximately 400 professions and in the Russian Federation women are barred from 456 specified jobs” (p. 94). The Report also indicates that Russia made enforcing contracts more difficult by mandating pre-trial resolution before filing a claim, thereby lengthening the initial phase of judicial proceedings.

Indeed, since June 1st, 2016, according to Paragraph 5 of Art. 4 of the Code of Economic Procedures, the pre-trial resolution is obligatory for almost all claims. However, a writ (“judicial order”) was introduced for speeding procedure of the recovery of money in cases up to 400,000 rubles and compulsory payments and fines up to 100,000 rubles (Article 229. 2 of the Code of Economic Procedures).

Discrepancy between Kazakhstan and Tajikistan in the Doing business ranking is striking since the Tajikistan government shows unwillingness to engage foreign investors in its economy. The French company “Total S.A.”, along with Chinese company “CNPC”, have filed for arbitration proceedings against Tethys Petroleum’s subsidiary, “Kulob Petroleum Limited” over a dispute concerning Tajikistan’s Bokhtar oil and gas field. Eventually, by December 2016 “Total S.A.” had left Tajikistan.  Another example from January 2017, a mobile network “Tcellwas fined for the so-called “un-realized revenue”. Recently many Tajik mobile telephony companies were obliged to pay to the state budget huge amounts for “tax evasions”. Unsurprisingly, Tajikistan stands at 128 in the Report, holding the last place among CIS countries.

The Report and our assessment confirm the importance of conducting a country risk assessment before investing into the country and running business activities in the CIS region. Risk Consulting provides this unique service.

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 Primakov Denis

February 7, 2017