Small forestry business development peculiarities in Komi Republic

Table 3. The volume of shipped timber products by municipalities in 2007, million rubles

The name of municipality	The total volume of timber production	The volume of small business included	The share of small business,%
The Republic of Komi	31 861,3	1 213,9	3,8
Syktyvkar	24 753,9	224,3	0,9
Kortkerosski	287,4	199,1	69,3
Priluzski	616,7	151,8	24,6
Troizko-Pechorski	162,2	150,7	92,9
Sysolski	394,7	136,2	34,5
Ust-Kulomski	602,7	119,3	19,8
Sosnogorsk	44,2	44,1	99,8
Syktyvdinski	357,3	41,8	11,7
Udorski	752,3	40,8	5,4
Koigogrodski	275,1	36,4	13,2
Ust-Vymski	2 848,9	35,8	1,3
Izhemski	15,8	15,8	100,0
Ukhta	133,2	7,8	5,9
Ust-Tsilemski	11,9	5,8	48,7
Usinsk	3,0	2,2	73,3
Pechora	1,4	1,2	85,7
Knyazhpogostski	599,5	0,8	0,1
Vyktyl	1,0	0,0	0,0

Figure 2. The volume of harvested wood by municipal districts of the Republic of Komi in 2007, thousand solid cu. m

Udorski

Ust-Kulomski

Priluzski

Koigorodski

Sysolski

Syktyvkar

Kortkerosski

Syktyvdinski

Troizko-Pechorski

Ukhta

Knyazhpogostski

Ust-Vymski

Sosnogorsk

Igemski

Ust-Tsilemski

Pechora

34,2

156,4

■   196,3

972,4

924,2

1026,3

501,1

■ 177,2

494,5

■ 269,3

484,5

257,9

362,2

56,3

312,5= ■

J           I 175,9

221,4

5,7

127,8 ]

1,1

115,6]

10,2

51,6

2,5

0,1 0,1

0     100    200    300    400    500    600    700    800    900   1000   1100

□ The total volume of harvested wood

□ Small enterprises included

sawn timber by small timber enterprises of Ust-Vymski, Troizko-Pechorski, Kortkerosski and Priluzski districts reaches 10 thousand cu.m and more. The enterprises of small timber sector of Kortkerosski, Izhemski, Ust-Tsilemski districts and Ukhta produce the total volume of sawn timber.

Problems of small timber business

On the one hand, small business enterprises are in more favorable conditions in comparison with large-scale businesses. They do not bear responsibility for the development of the social sphere of the enterprise, for financial support for their employees and old age pensioners in accordance with the concluded labour collective agreements, because most small enterprises have no collective agreements. Small enterprises built fewer logging roads.

Less money is invested in the enterprise development, less is the social burden, thus the production cost of one cubic meter of timber for small enterprises is 10-20% lower than the production cost for large enterprises. But in spite of all advantages, small timber business has a lot of unsolved problems.

The activity of most small enterprises is hampered by shortage of financial resources for business development and difficulties in getting borrow funds (e.g. loans for modernization and expansion of production, for paying off debts, for replenishing floating assets and salary payments) and unfavorable loan conditions.

High interest rates and short-term loans are also disadvantageous for small business enterprises. SMEs have no sufficient guarantee assets. They also have to follow a complicated procedure of getting the loans because a huge amount of different documents is required.

Nowadays the urgent problem of many timber enterprises is impossibility of getting the loans. Since December, 2008 banks have been closing loans and lines of credits and even if they give loans, the annual interest rates reach 20 – 23%. Unprofitable timber harvesting enterprises have no chances to improve their financial state at the expense of loans.

Financial resource shortage causes backlog of technologies. Outdated equipment and shortage of production spaces have a negative impact on small business performance.

Tax burden prevents small timber enterprises of Komi Republic from working efficiently. Enterprises, using standard tax system, suffer more then enterprises, using single tax on imputed earnings and simplified tax system.

Small timber business faces the problem of overcoming the administrative barriers that are created by authorities and administration at all levels. This problem has not been resolved as yet. Small timber enterprises have to follow a great number of rules and procedures, specified by legislative and normative documents, as well as rules forced by officials. SMEs also face such problems as frequent tax audit and inspection of a great number of supervisory and governing bodies, difficulties with documents when setting up a new enterprise. Small business was proclaimed to be the basis for the development of medium size business and the President of Russia proposed to prohibit inspection of SMEs without the prior approval of court or a prosecutor. In our opinion, such measure will help to solve the problem [3].

Large consumers of timber raw materials hold a monopoly on price-forming and purchases and under such conditions the seasonality of orders negatively affects the economy of small timber harvesting enterprises.

Small timber businesses need more state support. For 2007 – 2008 only 2 small enterprises managed to receive the financial support of state for working out business plans, 11 enterprises received interest rates subsidies on loans and one SME managed to use leasing. In total only 4 million rubles were allocated for small timber business support from the republican budget.

In 2006 the Government of the Republic of Komi changed the approach to small business support. According to the target republican program “Development and support of small business and consumers' cooperative society in Komi Republic (2006 – 2008)”, the amount of allocations from the republican budget will total 94,3 million rubles. Unfortunately, this money is allocated to support the whole small business of Komi. That’s why timber harvesting enterprises cannot expect a big state support.

New Forest Plan of Komi Republic presupposes distribution of the forest fund mainly to the leaseholders that presented priority investment projects in the sphere of forest development [4]. Hence, it will be difficult for small wood processing enterprises to receive the forest fund. Besides, it can cause a wave of illegal logging, because in some regions, as stated above, the majority of the population earns a living by working in forest business. The creation of enterprises that serve the leased forests (enterprises engaged in sanitary cuttings, forest thinning, forest plantations, building loggerroads and forest roads, forest protection activity) will partially solve this problem. In short, it’s necessary to look for new ways of creation of favorable conditions for small timber business development in the Republic.