Ikea managers exit puts Russian business corruption in focus

IKEA’s sacking of two managers over bribe payments has put Russian corruption back in the spotlight. Fighting it is a government priority, but all too often businessmen are under pressure to pay.

Ikea’s Samara store, its 12th in Russia, has stood empty for more than a year, with local officials saying it violates numerous safety regulations. Ikea has vowed not to pay bribes – a common means for businessmen to get around regulations – meaning it could stay empty.

The St. Petersburg store, which led to the sacking of the two Ikea managers, has been operating more smoothly. But as the Swedish homeware giant now admits – with bribery involved.

Some businesspeople think kickbacks are unavoidable in Russia, others disagree. Dominique Fache, General Director for Russia and the CIS at Italian energy giant, Enel, which took a controlling stake in Russian wholesale generator OGK-5 in 2008, says Enel has taken steps to deal with corruption.

“We don’t pay any bribes. When we arrived in the OGK-5 company there was a certain situation and we are cleaning the place.”

But it isn’t always easy. Businessmen complain of numerous inspections by police, fire, and health officials. Then there is a sea of bureaucrats monitoring compliance on taxes, permits, and licences, in an environment where regulations are often confusing, invariably complex and sometimes conflicting between various Ministries and Departments. This provides a fertile environment for officials seeking payment to offer to overlook possible regulatory infractions for a fee, or to apply regulations with added venom, or at a business killing slowness if there is no fee paid. Street level corruption consumes time and money. Corruption in the judiciary inhibits individuals and businesses from taking up their rights, and makes contract laws fraught with doubt. Presidential aide Arkady Dvorkovich admits it’s the country’s main problem.

“Certainly anti corruption policy is the first one. With all its sides – the police and judicial system.”

Last year Ikea said it could stop investing in Russia because of what it called unpredictable administrative processes. Aleksandr Malis, President of Russia’s largest mobile retailer, Euroset, says the company knows how to deal with them – with planning administrative processes in advance and firmness in the face of officialdom.

“In Russia an official cannot refuse forever, but can drag out the process for years. If you are building a factory, you have to think in advance. Start to deal with government officials as early as possible, before your bulldozers even level the field. Second, don’t grovel before officials; you have the right to go to the prosecutor’s office if needed. The third option is to go to court. Repeat the cycle if necessary.”

The businessman says the number of inspections has fallen significantly since President Medvedev took measures to cut red tape half a year ago. Still, he says, the country misses out on dozens of big investors. He knows companies that won’t enter Russia’s market until it’s not just lucrative, but also civilized.