May 6, 2022
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Attack of market zombies: In the Russian Federation, the number of companies living from loan to loan may increase

Attack of market zombies: In the Russian Federation, the number of companies living from loan to loan may increase

Photo: Vladimir Astapkovich / TASS

In recent years, there has been a marked increase in the number of “zombie companies” in Russia, as economists call companies that spend the lion’s share of their income to pay off debt. According to a study by National Credit Ratings (NKR, part of the RBC group) and the Rescore service, in the pandemic year 2020, there were 7.7% of the total number of enterprises in Russia, or almost 6,000. will change as a result of recent changes in the economy caused by anti-Russian sanctions of the West.

The term “zombie companies” appeared in the lexicon of Western economists who analyzed the situation in Japan in the 1990s. In the Land of the Rising Sun, there were then a large number of corporations that generated financial resources that were barely enough to pay debts, including salaries to employees. According to American experts, before 1993 in Japan there were from 5 to 15% of such companies, and after 1993 their share sharply exceeded 25%. This impressed the observers so much that, in the wake of their emotions, they came up with such a colorful definition for such enterprises. Later it turned out that any major economic downturn, including the 2008 crisis, the pandemic “hole” in the global economy, actualizes the problem of “zombie companies”.

As far as the NCR study is concerned, the problem category included enterprises with a coverage ratio of less than one for at least two years in a row. The main share of “zombie companies” is small businesses with revenues of 100-300 million rubles – among the total number of “zombie” their share in 2020 reached 64% (in 2018 it was 43%).

As noted General Director of the National Institute for System Research of Entrepreneurship Problems Vladimir BuevThe study carried out has a rather significant feature.

– It includes not only small enterprises, but also micro-enterprises, given the amount of profit taken into account – from 100 to 300 million rubles. The lower bar indicates that the category of companies that falls under the definition of micro-business with up to 15 employees was also taken into account.

“SP”: – Is there any peculiarity in the sectoral distribution of companies?

– As you know, the lower the turnover of an enterprise, the lower the likelihood that this enterprise is involved in industrial production, often it is part of the sphere of trade and some kind of domestic services. Here we see that most of the “zombie companies” are in trade, followed by construction, as well as property management. We have seen a significant increase in the number of “zombie companies” during the pandemic. It can be said that current events have not yet greatly affected the overall picture – perhaps an increase in the share of such companies in the catering industry. Another thing is that the departure of foreign companies from Russia will affect the situation with unemployment – in one way or another, about two million people were involved in working with them (directly, indirectly or participating in logistics).

“SP”: – In what other areas will the current situation affect?

– Most likely, at enterprises in the provinces, in regional, even district centers, where enterprises were engaged in trade, they were involved in logistics chains. Often they are tied to counterfeit products, which, as you know, are now actually legalized in connection with the government’s decision to recognize “parallel imports.” Such import, which, as you know, means the sale of products without the manufacturer’s sanction, is, in fact, the legalization of counterfeit products. In the future, this, apparently, will vaguely resemble the “shuttle trade” phenomenon that took place in the 1990s. At that time, merchants dragged various goods – after all, the task was to somehow dress, shoe and feed the population. It is possible that such a “half-gray” zone will appear in trading soon.

“SP”: – In your opinion, this year the number of “zombie companies” will increase?

– I don’t think. Perhaps even it will remain at the same level. Or even slightly reduced – such an option is possible. Another thing is that later their number may grow again due to one-day firms that will be recorded as “zombies” according to statistics. They can be used to withdraw capital, conceal profits and other dubious transactions.

“SP”: – You mentioned some phenomena reminiscent of the phenomena of the dashing 1990s. Can we expect something like that time?

– Unlikely. I wouldn’t draw any historical parallels. Still, any analogy is conditional. Figuratively speaking, at that time they dragged everything they could to the market and sold it. There were no special prohibitions in a certain sense. There was no talk of taxes back then. Today, however, the situation in the economy is different. Let’s say, from the point of view of regulation, there are now established rules.

SP: Is it better or worse?

– In general, of course, the situation is not easy, because if we were dependent on imports somewhere in one or two directions, then, as they say, we would pile on, spend money and plug the gap. But we see that our economy is quite tightly integrated into the world economy – the same AvtoVAZ seems to produce domestic cars, but it is very dependent on imported components. And therefore, there are fears that a strong technological lag awaits us. Moreover, according to some reports, IT specialists are quite actively leaving – without specialists in the field of high technologies, the introduction of technical innovations is difficult. Theoretically, departing foreign companies are vacating niches, but whether our entrepreneurs will be able to occupy them is hard to say.

President of the Russian-Asian Union of Industrialists and Entrepreneurs Vitaly Mankevich recalls that in Russia, on average, the number of “zombie companies” was often less than in other countries.

– Largely due to the fact that our interest rate is higher than in the West. In the US, there are about 9-10% of such enterprises, according to the Fed, in China there are about 6%. An increase in the rate and new outward shocks are likely to increase their number. The moratorium on bankruptcy will also have an effect, as well as the growth of debt servicing costs as a result of the increase in the key rate of the Central Bank.

“SP”: – Can the top three industries where there are most of these companies change: trade, construction, real estate management?

– Probably, the trio will remain, because as a result of the crisis, companies oriented to the domestic market and whose business depends on the dynamics of real incomes of the population will suffer the most. Industries providing services to the population may be added to the number of outsiders.

“SP”: – How will things be in this regard in the US and Europe? Will the percentage of “zombie companies” change there?

– In the US and Europe, with an increase in the rate (almost inevitable), the number of “zombie companies” can grow by one and a half times, which, without decisive measures of support from the government, can lead to a significant increase in unemployment.

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