BOFIT Viikkokatsaus / BOFIT Weekly 2017/02

Official inspections and Russia's new security-related laws were focal topics last year. Mikhail Abyzov, minister charged with improving administrative transparency, said that Russia annually conducts 2 million official inspections that cost the equivalent of 5 % of GDP. Inspections generate considerable paperwork and tie up company employees for processes that often last several weeks.

Inspections are numerous, but ineffective. As an example, Abyzov noted that deaths from alcohol poisoning in Russia are 20 times higher than the OECD average. In December, nearly 80 people died from poisoning in the Irkutsk region from drinking bath liquid, which, despite its labelling, contained methanol. Following the tragedy, the local deputy director for consumer protection was arrested and a national month-long ban was put on retail sales of several high alcohol-content products not intended for human consumption. Cosmetics boutiques and pharmacies criticised the breadth of the ban and its ineffectiveness in dealing with the problem.

Official inspections can be scheduled or unscheduled. A survey of the Russian union of industrial firms found that about 90 % of firms experienced scheduled inspections conducted in 2015, but about half of firms also experienced at least one surprise inspection. Some 14 % of surprise inspections had been "requested" by competing firms and about 20 % by officials. A new study from the St. Petersburg European University finds a negative relationship between the number of inspections and corporate profitability, even when companies can prepare themselves for planned inspections. Inspection problems have been discussed for years, and the government is trying to solve them with a priority project.

The costs of legislative amendments relating to national security have also raised discussion. Russia's tighter anti-terrorism legislation (the Yarovaya laws) approved in July, includes a requirement that firms offering telecom and data transfer services retain managed data and turn over on request such data to security officials. While estimates on the storage costs vary, an expert group estimate given to the government says they will cost firms about 5.2 trillion rubles (€70 billion). The law should enter into force in June 2018. Another law that came into force recently requires that firms handling personal data must store the data in Russia, creating more costs for firms, especially foreign firms. At the end of 2016, Russian officials shut down the LinkedIn website after inspectors declared it out of compliance with the law.