Today in Russia there are nearly 200 strategic enterprises, which form 70% of GDP. Entering the list (which is formed by the Ministry of Economic Development) does not mean for the company that in the event of financial difficulties, it receives financial assistance from the state; it is only about state guarantees on loans. Practice of assistance to large companies is spread all over the world. However there is no consensus among the experts on what it should be.
Roman Maslennikov
State support of the companies important for the economy of a country or a region is a fairly common practice, especially in times of economic instability. One can, for example, remember the 2009 rescue of General Motors or AIG in the United States. In exchange for the financial support, the state received large stakes in the rescued companies that were later sold on the stock exchange. "The inverse example is the bankruptcy of the Lehman Brothers bank, that was not saved, which ultimately caused the worsening of the global financial crisis and market panic in the fall of 2008", says Basil Koposov, head of the department analysis of financial markets, "KIT Finance Broker".
Support makes sense if a company has a large market share, its failure could lead to a dramatic surge in unemployment in the region and the company generates a significant share of GDP or GRP. Last year, the Ministry of Economic Development published a list of backbone organizations. The list contains 199 companies, including holdings and vertically integrated companies, the profits of which generate more than 70% of the total national income, while the number of employees is more than 20% of total employment in the economy. During the crisis in 2009 a list of 295 backbone organizations was created.
Elena Ulyanova, Chairman of Saint Petersburg Economic Policy and Strategic Planning Committee noted that at the regional level the city has its own backbone enterprises - at this time the list of strategic Petersburg enterprises include 133 organizations.
Alexey Golovchenko, managing partner of the ENSO group of companies, said that the backbone enterprises exist in any country". It is, in fact, something which a country is associated with: for example, in the US it is IT. In Russia, a country of raw materials, the backbone enterprises are primarily mining companies "Gazprom", “LUKOIL”, “MMK," Norilsk Nickel"and others. These companies hold everything, the economy turns around them, it is the skeleton of the country: if the foundation starts to fall apart, the government does everything possible (and impossible too) to keep the enterprise afloat, if they collapse - the whole system falls. That is, government supports for backbone enterprises is the matter of survival for a state", he explains.
Experts point out that two kinds of backbone enterprises can be identified. The first one is of social or national importance – it is the defense, medicine, town-forming enterprises in single-industry towns. "In relation to them it is incorrect to discuss the need for government support during the crisis in general, since their return on investment and cost-effectiveness initially was not the purpose. Such enterprises have other tasks: they provide the public order, sovereignty and environment. The state even may not have the choice – it is necessary in any case to support the functioning of these companies in any economic conditions", Mr. Golovchenko emphasizes.
The second type of backbone enterprises is commercial organizations. They are important because one way or another all economic and business life of the country revolves around them. "The need for their support during financial instability, most likely, refers to them. It is worth to note here that if we are talking about big business, which has a huge impact on the economy in the country, to shake its foundation even in times of crisis is not so easy. If it swayed, then this is usually the result of not only economic, but also political unrest, the global redistribution, global shocks. Just the fact that we are now observing with "Gazprom": stories about shale gas and unfavorable company policies somewhat crippled positions of commodity giant. And if we talk about the real state support of these companies, only the populist measures are not enough ", Alexey Golovchenko believes.
When, in last year February, there was a list of companies - candidates for state support, MED officials explained: the document is oriented at the company participation in the formation of gross national income and the number of employees. "The criteria are too clumsy, do not take into account the real needs of business and the economy in general", Mr. Golovchenko is full of skepticism.
Mr. Koposov says: "In the Russian situation, taking into account the economic and political specificity, waiving government support for systemically important enterprises is virtually impossible. Most of Russian companies included in the list of backbone ones can be divided into four groups: companies that provide energy, food, transport security of the country; township-forming enterprises or companies that integrate city-forming enterprise, the suspension of the activities of which are fraught with social explosions, bursts of unemployment in a particular region and an increase in budget expenditures for minimizing the consequences of the identified problems; defense companies; the companies "too big to fail", i.e. companies which have a significant impact on the formation of the GDP, employment. According to our estimates, reducing the list of strategic enterprises is possible to be considered, however the maximum reduction will be only 10-15% of the companies on the list. "
Elena Ulyanova from the St. Petersburg Administration Committee on Economic Policy and Strategic Planning, says: "In response to the question of the validity of businesses support in financial difficulty, it would be desirable to clarify the concept of fairness. In relation to economic entities - competitors of backbone enterprises, the provision of state financial support to individual companies does not look fair. From the point of view of budgetary efficiency of the story is different. The state, in exchange for financial support ensures the preservation of work positions and incomes due to the tax on personal income, conserves unique manufacturing technology, maintains social stability. Is it fair from the point of view of the company's employees and owners, who invested millions of rubles in creation of the once successful company? I think so. In the world practice there are many examples of backbone enterprises state support. However, in fairness sake it should be noted that this support does not always allow to save a company from bankruptcy. Speaking of St. Petersburg, we provide our backbone enterprises basically not financial but administrative support, which is no less valuable in the context of crisis management. "
"Backbone enterprises should exist - they are the main taxpayers and employers in a region or an industry. Therefore, supporting them is needed even if at the moment the company cannot survive without the help of a state. Investments in the creation of new jobs, payment of social commitments will cost the state much more than a point injection in times of crisis", says Catherine Zaporozhchenko, Director of sales at Docklands Development.
"The construction industry is a good example, which together with the adjacent production provides about 10% of all jobs in St. Petersburg. Mortgage State Support Program really helps sales, from 40 to 70% of housing in the different projects are acquired with the help of a mortgage. Lack of state would be a serious blow to the mortgages and developers", says Roman Miroshnikov, chief executive of the UK" Ecumene "
But there are skeptics among the experts too. "The presence of Russian-French corporation" Auchan", the German company" Metro Cash and Carry" in the list of backbone enterprises looks very strange. It is not quite clear about the Russian networkers "Dixy Group", "Seventh Continent", "Okay", X5 Retail Group. Retail has its own proven methods of survival in crisis conditions, when the costs are covered by the price increases. Many manufacturing enterprises (including agricultural or food ones) has no such opportunity. And there are not so many food manufacturers in the list of Russian backbone enterprises" Mr. Golovchenko laments.
In fairness sake it should be noted that many companies on the list said they did not need state support. And in the Ministry of Economic Development made it clear that getting into the list of backbone enterprises is not a guarantee of state support.
The main measure of state support for strategic enterprises in Russia today is provision of state guarantees for credit debts. In developed countries the state support programs are more diverse. For example, in Brazil two types of support for strategic sectors of the economy operate. One program provides affordable loans to the production of export goods and services: a business can get a loan up to 100% of the amount requested for 5-6%.
In Japan multi-level support system exists by which business, working for export, can count on a wide range of assistance, from financing solutions to diplomatic issues.
Canada has developed a set of programs which allow, in particular, Bombardier company to take a leading position in the world for the production of aircraft and railway equipment. Thus, the Export Agency of Canada has allocated 400 million of Canadian dollars for the organization of export of Bombardier aircraft in the United States. Canadian technological partnerships invested in research development at Bombardier up to 30% of project costs. Finally, the Economic Development Agency of Canada provides a range of services, greatly simplifying the matter for manufacturers. For example, conducts an export markets study, prepares companies to enter the world market, forms marketing plans.
Many Russian enterprises did not dream of such measures of support. During the 2008 crisis, the list of backbone enterprises was slightly wider – then it consisted of 295 companies. As a result, only 37 have received grants from the federal budget, 10 companies were provided with government guarantees, 11 – with budget investment. "In any case, the price of state support in Russia is sometimes unreasonably high for the business", Alexey Golovchenko said.
In exchange for the support of the state, owners sometimes give part of the business to government - shares or stakes, or take on additional commitments for social obligations. In return for state support, the business can be bade responsible for the construction of large public facilities or the support of unprofitable enterprises in the mono-cities, provision of residents with work and income.
Other market participants believe that the transfer of shares to the state for support is just a fair action.
"It is important that the current inefficient owners suffered damage in terms of loss of share in the business perspective. It will lead to a reduction of the amount of unduly risky projects in the corresponding industry", said Timur Nigmatullin, financial analyst group of companies "Finam".
Blazej Bernard Reiss, CEO of TPV, says: "I’m deeply convinced, that the Russian economy should be developed on the basis of the backbone industries rather than individual companies. Then the fall out of one participant, that appeared weaker, from the system will not affect the viability of the whole system. Products will be manufactured and qualified personnel will have employment opportunities in similar enterprises in their field. As for the government anti-crisis support, I think it is the last thing to do trying to pour money into companies that are already in the state of crisis. Through the example our Chinese TPV corporation, as well as many other European ones, China and the European Union provide substantial assistance at the moment of start. Such money allow harmoniously develop the business from all directions, not saving, for example, on the infrastructure or IT. And then "the crisis will happen". And it’s not the shares that are to be given back (who needs them, if the company is "down") but real money, and with interest".
Director General of the MC Rocket Group Boris Latkin agrees with Mr. Reiss’s opinion: "A private enterprise must independently deal with the difficulties. Crises mobilize companies, make them more effective. If a company is unable to cope with the crisis, it will be bought and made effective. If a company is socially important, the state can act as such a buyer on a common basis at market price. Thus, a company can get help from the state only in the form of full or partial nationalization. But the result of the nationalization should be reorganization and increased efficiency. Further, after the restructuration, the asset can be sold at higher or at the same value, and investments can be returned to the treasury".
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