in the Russian Federation May 31, 2011

Transcription

1 Competition and Competition Policy in the Russian Federation DGLN Workshop May 31,

2 Plan of the presentation 1. Overview of implications 2. Comparison of Performance and Competition in Russia 3. Factors affecting competition levels within Russia 4. Characteristics of Competition and Regulatory Conditions in Selected Russian Sectors 5. CompetitionPolicy inaction: TheAustralian Experience 2

3 Economy wide interventions Topic Recommendations Expected Impact State aid and preferential treatments Broaden the mandate on state aids regulation in order to diminish state aid to particular firms and sectors. Eliminate preferential treatments to state or municipality owned corporations. Level the playing field. Reduce favoritism and increase transparency. Create an inventory of state aid by beneficiary and evaluate distortions of competition of state aid (including tax arrears). Potential ti collusive Guaranteeing open and efficient i tender process Rd Reduce possibilities of collusion and behavior and discretion in tender process and reducing possibilities of collusion by introducing Certificates of Independent Bidding Determination and prohibitions to contract and participate in public procurement if a firm has participate in a cartel. corruption. Reduce the cost of doing business in public procurement Spillover effect: Construction Sector 3

4 Sector specific interventions Topic Recommendations Expected Impact Selfregulations of business associations Transport Construction Provide specific prohibitions towards selfregulations that facilitate price fixing and limit entry, Eliminate price controls and government involvement in competitive sectors. Reduce direct participation ofthe state in the provision of goods Provide a unified database of land plots with complete information about ownership and usage status or potential restrictions on future use. Streamline the processes for registration, obtaining construction permits, and licensing schemes for each segment of the supply chain. Review the impact on competition of the requirement that certain construction firms must have prior experience for similar, large scale projects before they could bid for a new contract. Increase entry and reduce prices of services Increase competition Limit the benefits of informal relationships with local officials, currently possessed by certain construction firms Increases incentives for entry and increases the number of participants. 4

5 (II) Comparison of Performance and Competition of the Russian Federation: How does Russia compare to other economies in the region? 5

6 Even though significant progress has been made in the last few years, Russia still lags behind ECA countries in the intensity of market competition. Intensity of local market competition Extent of market dominance Russia Italy Greece Finland Portugal Slovenia Hungary Poland Switzerland Slovakia Estonia Norway Spain Denmark France Turkey Czech Rep. Austria Belgium Germany Portugal Russia Greece Hungary Slovenia Turkey Poland Estonia Slovakia Spain Finland France Norway Italy Czech Rep. Denmark Austria Belgium Switzerland Germany 6

7 The regulatory environment in Russia is also restrictive. State control is extensive Product Market Regulation (2008) Index scale of 0 6 from least to most restrictive Mean = State Control (2008) Index scale of 0 6 from least to most restrictive Mean = Netherlands Spain Slovak Republic Denmark Russian Federation Greece Turkey Poland Slovak Republic Czech Republic Luxembourg Slovenia France Austria Portugal Belgium Italy Germany Estonia Sweden Hungary Finland Switzerland Norway Denmark Spain Netherlands Russian Federation Greece Turkey Poland Portugal Slovenia France Belgium Luxembourg Czech Republic Sweden Italy Switzerland Austria Estonia Germany Hungary Norway Finland 7

8 and there are highbarriers to trade and investment. Barriers to Entrepreneurship (2008) Index scale of 0 6 from least to most restrictive Barriers to Trade and Investment (2008) Index scale of 0 6 from least to most restrictive Mean= Mean= Turkey Poland Greece Russian Federation Hungary Luxembourg Czech Republic Slovak Republic Belgium Estonia Finland Germany France Spain Norway Austria Switzerland Portugal Denmark Slovenia Italy Sweden Netherlands Russian Federation Slovak Republic Greece Austria Poland Czech Republic Turkey Italy Germany Denmark Slovenia Sweden Estonia Luxembourg France Portugal Finland Norway Netherlands Belgium Hungary Spain Switzerland 8

9 The World Bank s Trade Restrictiveness Index also ranks Russia s trade policies as highly restrictive Over All Trade Restrictiveness Index Index Scale 0 1 ( 1 Most Restrictive) Agri Trade Restrictiveness Index Index Scale 0 1 (1 Most 0.70 Restrictive) 0.25 Mfg. Trade Restrictiveness Index Index Scale 0 1 (1 Most Restrictive) Mean = Mean= Mean =.05 Ukraine Russia Kazakhstan Norway Turkey Moldova Chile Azerbaijan Armenia Macedonia Kyrgyz Rep Georgia Norway Kazakhstan Russia Turkey Chile Ukraine Macedonia Moldova Armenia Georgia Azerbaijan Kyrgyz Rep Ukraine Russia Kazakhstan Turkey Moldova Azerbaijan Chile Macedonia Armenia Kyrgyz Rep Norway Georgia 9

10 Prices for selected consumer products are higher than comparable prices in other countries within the region, controlling for GDP per capita, time effects and trade costs Empirical results for the period January 2005 July 2010 indicate that, on average, prices in Russia are approximately 20% higher than CIS counterparts. Differences in GDP per capita and import costs do not capture the dff difference in the level lof prices. Countries with larger GDP per capita and higher import costs are associated with a higher price level in the economy for the products under analysis. Russianfirms exhibit higher levels of price cost margins compare to firms in the Region in manufacturing sectors. 1.5 Density pcm2 0 1 Russia=1, Selected ECA countries=0 10

11 Russian firms register larger PCMs compared to the average of the region in every manufacturing sector except for food, garments and chemicals Average Other manufacturing Average Esto onia Lithu ania Se erbia Czech Repu ublic land Po Rom ania Textiles FYR ROM Kazakh stan Tur rkey La atvia Ru ussia Hung gary arus Bel Bulg garia Bo osnia Slov vakia Electronics Average

12 (III) Factors affecting competition levels within Russia 12

13 Compared to Moscow city, price variation across Russian regions is substantial after controlling for both GRP per capita and distance. 130% 110% 90% 70% 50% 30% Moscow City Vladimir Tver Voronezh Tula Ryazan Belgorod Kursk Bryansk Khabarovsk Sakhalin Sakha JAR Kabardino Ingushetia Karachay StPetersburg Murmansk Vologda Arkhangelsk Karelia AltaiRep Krasnoyarsk Khakassia Irkutsk Altai Rostov Astrakhan Kalmykia Khanty Yamalo Kurgan Samara Perm Ulyanovsk Mordovia Udmurt MariEl Saratov Central Far Eastern North Caucasus Northwestern Siberia Southern Ural Volga 13

14 Price variation is also product specific and varies among regions, suggesting that price levels are influenced by local conditions beyond the level of GRP per capita, population and distance from main markets. Price variation among regions for selected products 250% Product: Gasoline Sector: Other 160% Product: Mobile Connection Fees Sector: Communication 200% 140% 120% 150% 100% 80% 100% 60% 50% 40% 20% 0% 0% Chukotka Magadan Yamalo Irkutsk Kaliningrad Arkhangelsk Kursk Ingushetia Pskov Rostov Ivanovo Stavropol Adygea Bashkortost MariEl Voronezh Saratov Tomsk Penza Orenburg Bryansk Sakhalin Tuva Primorsky Magadan Kamchatka Vladimir JAR Tula Ivanovo Penza Orenburg Ryazan StPetersburg Nenets Belgorod Mordovia Bashkortost Kaliningrad Vologda Novgorod Adygea *adjusted for GRP per capita, distance to district center, average household consumption, and time fixed effects 14

15 Firm qualities differ in sectors with higher PCM in Russia Firms in sectors where Russia registers it higher h PCMS than regional counterparts tend to be: older larger in size less likely to export Invest less in R&D more likely to operate in local markets (in some cases) less likely to operate in a competitive market structure Breakdown of manufacturing sectors according to market structure characteristics in Russia,# Fragmented 0.46 Average Average Average R&D PCM Size intensity High Differentiated 0.50 chemicals 0.38 plastics & rubber % fabricated metal products % Low Differentiated 0.40 textiles % garments % Segmented 0.48 High Differentiated 0.49 machinery and equipment % electronics % Low Differentiated 0.48 other manufacturing % food % non metallic mineral products % basic metals % 15

16 The analysis of market structure within Russia at the geographic and product market ktlevel lalso reveals a high h degree of concentration. ti Number of dominant firms in regional markets Kaliningrad Kursk Penza Perm Tver Khanty Smolensk Magadan Altai Belgorod Chelyabinsk Novgorod Arkhangelsk Irkutsk Adygea Kemerovo Kabardino AltaiRep MoscowCity TransBaikal Ingushetia Source: Register of Dominant Firms FAS 16

17 which varies by region and sector Karelia Tomsk oblast Irkutsk oblast Tatarstan Voronezh oblast Rostov oblast Perm Krai Tver oblast Saint Petersburg Moscow Textiles Highly concentrated : Moderately concentrated: Unconcentrated: <1500 Irkutsk oblast Tatarstan Tver oblast Tomsk oblast Perm Krai Voronezh oblast Rostov oblast Saint Petersburg Moscow Electronics Highly concentrated : Moderately concentrated: Unconcentrated: < HHI concentration index Karelia Tatarstan Rostov oblast Voronezh oblast Tver oblast Tomsk oblast Irkutsk oblast Perm Krai Saint Petersburg Moscow Plastic and Rubber Moderately concentrated: t Unconcentrated: < HHI concentration index HHI concentration index Source: Spark 17

18 State control and government participation State ownership in Russia appears to be twice as large as in the EU 10 countries and state owned enterprises command about 17% of the employment National, state, or provincial government controls at least one firm in 16 economic sectors State ownership is pronounced in infrastructure/network industries Even though privatizationofof state run companies is in the government s agenda, the government still controls the largest producers in many key sectors Meanwhile, the government s dominance on the above industries is likely to continue given the existing barriers to trade and investment 18

19 Government actions limiting competition (I) An analysis of State aid and preferences data indicates that the use of aid by regional authorities varies widely across Russian regions. 60 No. of Property State Aid Application Approved (2008) 35 Distribution of Tax Arrears by Region as a % of tax revenues Numb ber of regions Tyumen Irkutsk S verdlovsk Murmansk Kursk Tatarstan Tula Approved Khanty Mansiysk Yamalo Tomsk Kaluga Moscow Voronezh Conditional Approval % 20% 30% 40% 50% 60% 70% More Source: FAS Source: FTS 19

20 Government actions limiting competition (II) Distribution of Tax Arrears by Industry as a % of tax revenue 2011 Agriculture, Forestry, Hunting Retail and Wholesale Trade Construction Machinery Equipment Finance Food and Beverages Manufacturing Electrical and Optical Equipment Electricity, Gas and Water Metals and Fabricated Metal Real Estate Transport Hotels and restaurants Mining Oil Refinary Tobacco Products 0% 10% 20% 30% 40% 50% Source: FTS Stavropol Krai Republic of Mordovia Ulyanovsk Oblast Penza Oblast Samara Oblast Perm Krai Republicof Tatarstan Kemerovo Oblast Novosibirsk Oblast Irkutsk Oblast Omsk Oblast Tomsk Oblast Voronezh Oblast Moscow Oblast Tver Oblast Yaroslavl Oblast Moscow Kaluga Oblast Murmansk rmanskoblast Republic of Karelia Kaliningrad Oblast Saint Petersburg Leningrad Oblast Rostov Oblast Volgograd doblast Khabarovsk Krai Sakha Republic Sverdlovsk Oblast Yamalo Nenets Autonomous Okrug Khanty Mansi Autonomous Okrug Tax Arrears in Selected Regions % tax revenues 2010 North Caucasian District Volga District Siberian District Central District North Western District South District Far East District Ural District 0% 20% 40% 60% 80% 100% 20

21 Government actions limitingcompetition (III) Ati Actions of government bodies at the regional level also influence competition conditions in domestic markets. In the case of procurement 60% and tender processes, the FAS 50% detected that 60% of the violations for the period % 90% 80% 70% 40% 30% 20% 10% 2009 were conducted at the 0% regional and municipal level Anticompetitive practices in tendering processes have been targeted to foreclosure of new entrants and participants to the biddings Competition Cases 2009 Anticompetitive Actions of Government vs. Anticompetitive Practices Irkutsk Pskov Arkhangelsk Government actions average RF: 51% Tatarstan Volgograd Kalmyk Smolensk Tver Krasnodar Krasnoyarsk Total cases: Actions Gov Kurgan Primorsk Stavropol Yaroslavl Kursk Chuvash Tyva Source: FAS Private cases include cases initiated under articles 10 and 11; Government cases include cases initiated under articles 15 and 16 21

22 (IV) Characteristics of Competition and Regulatory Conditions in Selected Russian Sectors 22

23 TRANSPORT No. of Transport tsegments with SOE 12 A government entity controls at least one firm in theoperation in: transport infrastructure air and rail passenger transport services air, rail, and road cargo transport services. Influence is extensive through fares, cargo fees, infrastructure, and complementary markets Mean = 7 Turkey Russia Mauritius Pakistan Lithuania Moldova Vietnam Namibia Zambia Mongolia Peru Kenya Chile Honduras 23

24 BANKING Out of the ten largest banks in Russia, six are state owned The asset share of foreign owned banks in the Russian banking sector is much smaller compared to that t in neighboring countries Bank Percentage of Ownership banking assets Sberbank 23.7 State VTB 8.0 State Gazprombank 4.7 State 40 Rosselhozbank 2.9 State Bank of Moscow 2.8 State Alfa Bank 2.5 Private domestic Percent UniCredit Bank 2.1 Private foreign 10 Raiffeisenbank 2.1 Private foreign VTB State Rosbank 1.7 Foreign Russia FSU, Average Source: Kalyuzhnova and Nygaard (2011) 24

25 CONSTRUCTION Dealing with Construction Permits 4,500 Construction ti is an important t 4,000 sector in the Russian economy, with the growth potential 3,500 remaining high 3,000 There are however 2,500 competition constraints, in 2,000 particular in the lack of level 1,500 playing field between incumbents and new entrants 1,000 Construction markets have 500 characteristics prone to collusive and cartel behavior while licensing scheme for the operation in each segment of the supply chain is cumbersome apita) of Construc ction (% of in ncome per c Cost Cost (% of income per capita) Source: World Bank Doing Business Indicators Average 25

26 (V) Competition Policy in Action: The Australian Experience 26

27 The Australian Experience What... Developing a political consensus among Australia s regional governments Pressure from the business sectors exposed to international competition (agriculture and large enterprises) pushed for reforms of nation wide infrastructure (energy, ports). Establishment of a formal Council of Australian Governments and continuous meetings with all levels of government in special Premiers Conferences => creation of a formal institutional setting for cooperation on the reform agenda => recognition of the importance of nationwide competition as a driver of enhanced productivity and higher living standards. Australia s competition oriented reforms happened in three waves: 1. Increasing exposure to international market (early 90s) 2. Development and Implementation of a National Competition Policy (NCP) (based on the landmark Hilmer Report mid 90s) 3. Regular updates of the National Competition Policy (late 90s onwards) Comprehensive reforms coordinated across all levels of government aimed to: Rf Reform all legislation l i that restrict competition ii Implement aculture of continuous improvement in regulatory quality Implement competitive neutrality for all govt. businesses Provide third partyaccess access to significant infrastructure facilities 27

28 ... and How The NCP s incentive payments (I) NCP competition i payments made from federal to state governments that implemented specific reforms Pecuniary penalties imposed on slow reformers (with reduced or delayed budget transfers from the central government) Payment represent the State s share of additional revenue arising from the NCP AU UD mil State government NCP payments and penalties Actual payments Penalties The NCP has reduced barriers to entry and exit and improved competition Itisestimated to haveincreased GDPby 2.5% (excluding dynamiceffects) 28

29 The NCP s incentive payments (II) Most states have met reform goals in competition policy on time but some cases of pecuniary penalties for slow reformers exist. Queensland (2003) Failure to address anticompetitive restrictions in liquor licensing. 5% permanent deduction penalty of Queensland s competition payments Western Australia (2005) Uncompleted plans for water systems 5% suspension penalty of Western Australia s competition payments Reform goals were finally met in 2007 and suspended payments disbursed 29

30 Australia s s Current NationalReform Agenda (NRA) The NRA aims to build a seamless national economy by harmonising key regulations across jurisdictions ETCR 6 Result: Australia is a model reformer Restrictiveness of Regulation in energy, transport and communications sectors Focused on energy, transport, regulatory reform, infrastructure, climate change and human capital Renewed focus on State partnerships with National Partnership Payments to incentivise state reforms (AUD450 mil) restrictive trictive more Three payment types: Project: support specific projects Facilitation: initiate reform in a specific area Reward: based on achievement of reform benchmarks less res Australia New Zealand US UK Euro-zone 30

31 Economic Development: A General Conceptual Framework Institutions/ Incentives Governance, Rule of Law and Competition Thegovernment can affect competition through: Entry and exit regulations Red tape and access to state aid (rivalry); Input Markets: Labor, Capital, Technology, Land Firm Productivity Other Factors: Geography (Location, Climate), Natural Disasters; Civil Wars; Other External Shocks FDI and Trade Policy (International and Potential competition) Regulation of Infrastructure and Service Sectors 31