Most entrepreneurs in Russian regions finance their investment projects with their own funds. They believe the main problems for investments are high taxes and charges, and unavailability of soft lending.
Such a conclusion is based on a poll of 138 companies conducted by the Department for Investments and Innovations Facilitation of the Chamber of Commerce and Industry of the Russian Federation.
In April and May 2018 the Department surveys regional business community in order to assess efficacy of the investment projects funding mechanisms. 138 entities which are members of regional and municipal chambers of commerce and industry of 29 Russian regions took part in the survey.
Over 85% of the survey participants were business entities with under 200 employees (75% of them had 100 or less employees) and annual revenue of not more than RUR 800 mio ($12 mio) (84% of them had yearly revenues under RUR 120 mio). 34% of the survey participants had some investment projects underway; about half of them were at stages of erecting a facility or installing machinery, whereas 23% had already launched production.
Total budgets of over 50% of investment projects (whether anticipated or already in the process of implementation) were below RUR 100 mio, or below RUR 500 mio (over 20% of all projects), while 10% of the polled entrepreneurs had investment plans worth over RUR 1 bln. Life of most projects is two to four years, whereas projects requiring large funding are to be implemented within seven years.
Over half of the investment projects are implemented (or expected to be implemented) through expanding current production, and about a quarter envisages setting a new company, including registration of a new entity.
How are those projects financed?
Under 20% of the polled entrepreneurs have approached banks for the purposes of project financing. Most businessmen planning or implementing investment projects, finance them with both their own funds and attracted (whether credit and/or investment) resources.
Most polled entrepreneurs invest in the projects 30% to 50% of their own funds, while 20% plan to invest over 50% of the anticipated budget. Majority of the survey participants (42%) intends to use bank loans to finance their projects, whereas one third hopes to get a government support via development institutions. Some entrepreneurs employ other mechanisms of attracting resources, including issue of corporate bonds and project financing. Yet the main problem for project financing is lack of their own funds, poor understanding of the specifics and potentials of such mechanisms, absence of guaranties, reluctance of banking institutions to engage in project financing.
Over 25% of the survey participants would favor lower taxes and tariffs, broader taxation preferences for small and medium business. 23% find appropriate developing long-run most favored lending to production businesses. Slightly less than 20% of the poll participants state there should be less government control. Many business people note government control starts growing if government financial support is provided (regardless of the support scope). According to the polled entrepreneurs, in order to enhance efficiency of interacting with development institutes, procedures of requesting and being granted government support should be simplified, existing assistance programs should be expanded, transparency of companies selection and decision making procedures should be increased, and а broader informing of businesses of the existing support programs should be ensured.
By Konstantin Frumkin