A heavy roof

Private businesses and entrepreneurs also face demands from officials and others for bribes and out-and-out protection money.
A senior manager at a successful privately-owned service firm on the outskirts of Minsk says that members of the militia – one of the bodies which enforces economic regulations – have for years demanded cash for their protection, locally called a “roof.” He declines to have his firm identified, saying that public criticism in the past has led to reprisals against the company and its suppliers and customers.
Unlike many such rackets, the primary weapon of intimidation isn’t violence, but the application of some particularly damaging financial or administrative penalty. Businesses are vulnerable to the threats because it is essentially impossible to comply with the existing body of regulations.
These include not just crippling taxes – such as a turnover tax of 4.8%, regardless of profitability – but rigid controls on everything from R&D to the amount a firm can legally deduct for advertising expenses. (One half of one percent of turnover.)
In fact, says the executive, even with a stable of accountants and advisors, his company doesn’t know if it is in compliance at any given point. And this, he says, is no doubt the point.
“If you look at it from the perspective of someone wanting absolute power, it makes complete sense,” the executive says, adding that the low-level rent seeking is simply an attendant consequence of a broad and deliberate program of criminalizing the private sector. “The goal is to control, not develop.”
Unfortunately, for many businesses, the goal is less to control than destroy.
Because the unbearable tax and regulatory regime leave essentially all public and private enterprises in violation of a number of laws – most companies keep two sets of books – the authorities are easily able to benefit favored enterprises and sectors at the expense of helpless competitors.
According to Romanchuk, a survey last year by the state found that 95% of all audited bodies were not in compliance. “And the other 5% were really in violation,” he laughs.
One very unfunny result is that the authorities can quickly dispose of any enterprise deemed to be a political challenge. For example, late last month, operatives of the State Committee for Financial Investigation seized 400,000 copies of a special election issue of a leading newspaper from a private printing plant. The supposed reason was the printing plant’s failure to file appropriate documents.
While public and private enterprises putatively operate on a level playing field, all it takes is the willingness of control officials to look the other way when the state firm is found in violation.
If there is a violation of tax law by state firm, for example, the penalties can be postponed or abated. “Wherever there is a gray area, state-owned enterprises would get the benefit of the doubt, especially if they are considered important for a region,” Romanchuk says. “And there is always a clause that the council of ministers can make an exemption to any rule.”
Often, state or local authorities simply prevent any competition with publicly owned enterprises.
“If a businessman wants to buy a store and use it as a bakery, the local official may say ‘we have enough bakeries, do something else,’” explains one leading analyst of the country’s small business sector.
Meanwhile, any enterprises which chooses to challenge an administrative action in the courts will face a judiciary appointed directly by Lukashenka, and dependent on the state for every aspect of his or her well being. Even the country’s notaries are under direct control of the state.
Dagenhart says the combined weight of the regulatory leviathan and other negative factors makes Belarus one of the hardest places in the world for a private business to succeed. And the country’s entrepreneurs are voting with their feet: over the last several years the number of registered businesses has decreased, while the number of individuals working as licensed peddlers and engaged in other such activities has increased.
“It’s not the way that the majority of small and medium business in a country should be run, under a tent,” he says.