For a healthy competitive environment

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In his speech on May 28, the President made it clear that the main reason for the low competitiveness of our enterprises is a weak competitive environment. He said: “There will be no competition – there will be no quality, the prices will not go down. The times change, but monopoly enterprises do not. We’re not on our way with them. It’s time to take strict measures. For us it is a matter of life and death of the economy”. 

As an example, the President cited the results of creating a competitive environment in the poultry and fish industries: the procurement of poultry meat over the past four years has increased from 100 thousand to 205 thousand tons, and fish – from 65 thousand to 122 thousand tons. “The results of demonopolization of the poultry and fish farming industries are being felt. Entrepreneurs have felt the freedom and compete. It is necessary to produce goods and services, the price and quality of which meet the needs of the market. If there is a competition, the population will have a choice, their purchasing power will grow, the people will be satisfied”.

Absolutely right. The next question: how to ensure a competitive environment? To do that, you have to understand what’s destroying it. In our particular historical context, it is:

1. High customs duties and artificial non-tariff barriers for the import of certain categories of products resulting in local enterprises being protected from competition and having great power over the market and the buyers. Let me remind: the last wave of increasing the barriers for the imports took place last year. The most protected from import competition today are: 

  • automobile industry (prohibitive customs payments give the country to complete loot by one company, and this looting has been going on for several decades already), 
  • production of certain types of the agricultural machinery (here the looting takes place over the farms who are expelled from the right to choose and are being put into the debts), 
  • production of household appliances (high customs fees, a 20% surcharge on the price of local products at government procurement, stricter quality standards for imports, requirements for suppliers to have service centers in all regions, etc.). 

They’re the leaders. And there are industries where competition with imports is artificially limited, but at a slightly lower level: sugar, confectionery and chocolate, chewing gum, ice cream, water, beer, wine, vodka and tobacco products, fermented milk products and cheeses, margarine, canned and processed fruit, vegetables and nuts (including juices), food for dogs and cats, hygiene and cosmetics, leather goods, wicker products, carpets, textiles (even children’s clothing is subject to 10% duty), footwear, ceramic and glassware, sanitary ware, precious metals and pearls, canteens and kitchenware made of ferrous metals, furniture, many types of construction materials, polymers, plastic and rubber products.

Accordingly, we are waiting for decisions on reducing the barriers for the imports in these sectors. Without it, a healthy competitive environment is unlikely to be created there. 

2. Individual benefits and privileges that individual companies receive: tax and customs exemptions, soft loans, monopoly rights to access material resources. Such privileges put enterprises in unequal conditions and allow to survive in the market not for the best, but for the tough ones. This, of course, negatively affects the competitiveness of our economy. 

Much has been done in terms of reducing the tax and customs exemptions over the past year. Plus, it is planned to abandon the practice of providing soft loans. But once again, it would be very useful to audit the existing benefits and exceptions and burn out all individual benefits with the red-hot iron.

3. Maintenance of artificial monopolies under the pretense of “natural monopolies”. It has long been proved in the world practice that in many industries referred to as “natural monopolies” it is possible and necessary to develop the competition. This applies, for example, to energy, transport and utilities. The demonopolization of these sectors has been announced more than once. But we were never presented with concrete and transparent mechanisms for the work of industries in the new conditions. And without them, it is impossible to create the healthy competition.

Moreover, the competition can and should be developed even in the social sphere: between public and private schools, hospitals, polyclinics – through the so-called voucher system. When the service consumer chooses the institution he or she wants to be served in. And the amount of public funding of this institution directly depends on the choice of the consumers: the more customers, the more funding.

Let’s hope that the President’s speech will give an impetus to profound reforms in this important area for economic development.

Author: Yuliy Yusupov.

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