The Light Goes Up

- Why did the government stake on light industry?

- Light industry has the huge potential for growth. It has a number of advantages over the other branches of economy. Let"s take the social aspect. Many people are employed in the light industry, including large enterprises, small and medium-sized businesses. Furthermore, when one person is employed, five or six new jobs are created in related sectors – such as retail, logistics and financial sphere. Another advantage is the fast capital turnover (about 6 months) – and that is far less than in other industries. Light industry has a relatively small entry threshold: 50-100 million USD is enough to establish a competitive enterprise. There are no special conditions in a small town for setting up a modern sewing or textile enterprise – even on a world scale. In addition to this, Russia has a good resource base to meet the needs of the light industry.

- Why can"t then the domestic light industry retake the Russian market from Chinese and Turkish competitors? As is known, about 80 percent of clothing sold in Russia is imported from abroad – mostly from China.

- The main problem which prevents the Russian light industry from developing is an excessively high smuggling share. It all began in 1990-s when shuttle traders started bringing goods from Turkey and China. Today the consumer market is more civilized, it changed its format, it spread into retail networks and specialized shops. But smuggling activity has hardly decreased. More than 50 percent of import comes to our market illegally - the custom value is artificially made lower, goods are declared under another code, so entrance duties and VAT decreases significantly. In their homeland foreign companies, that are exporting goods to Russia, compensate VAT, and in Russia they manage to save on duties and taxes. In addition to this, wages in China are low and the quality of materials is quite poor. That’s how we get cheap low-quality Chinese consumer goods. Our government, of course, can"t influence the wages in China but it can definitely fight the smuggling activity.

- What do you mean?

- I think one of the most effective ways to fight smuggling is reducing the VAT for the industry up to 10% . The situation we have today is as follows – all goods produced in Russia are subjected to 18% VAT from a total price. Meanwhile the imported goods cross our border (and not always legally) with an excessively low documented cost. Thereafter all taxes and duties on such import (and this makes about 40-50% of all imported goods) are kept back at best from the half of its real cost. Reducing the VAT rate can be a very helpful measure both for the Russian light industry and for the national treasury. Smuggling schemes will become less attractive, most of the import will turn to legal accounts, tax collection will increase as will the competitiveness of the Russian goods (domestic goods will get cheaper and low-quality imported goods will rise in price), investment attraction of the Russian light industry enterprises will rise, and new jobs will be created.

- What does the Ministry think about this idea?

- There are intelligent people in the Government and the Ministry today who are ready to consider all the proposals and able to turn the economic situation for the better. Certainly the 10 % VAT reduction for the light industry won"t have an immediate stunning effect. But in a strategic 3-5 years’ plan this measure will provide for favorable conditions for rapid growth of both the branch and our economics at large. Look at the Chinese example. Today the economics of this country holds the second place after the American by its value. And this Chinese “economic wonder” started right after the revolutionary development of light industry.

- Is it possible to implement the Chinese experience in Russia?

- In fact everything depends on competitive environment. If it becomes more even, if the Russian manufacturers are not suppressed by the import, which is brought to our country at an understated price and is subsidized by the country it comes from, then the progress of our domestic light industry is possible. One more vital problem of the industry is a strong necessity for investments to buy the modern equipment which is, unfortunately, not produced in our country. We have to put up with it and buy modern Japanese and German equipment to produce the goods which can compete on the global market. We have designers and technologists. If we add the modern equipment and raw materials, we will get everything for the future success of the Russian light industry.

- A year ago Russia joined World Trade Organization. Did you notice any changes as of your business?

- To tell you the truth, nothing has changed yet. The reason is that the light industry has been already living according these rules. Unlike Russia, other countries protect their markets from foreign manufacturers. They have many ways to do that, and I think everybody knows them: starting from licensing up to regular quotas and lobbying. If we look at the tenders that were held in Russia in the last 15 years, we’ll easily see that the State institutions mainly purchase imported goods. These are clothing, workwear, fabrics, home linen. About 90% of these are made in China, India, and other foreign countries. But certainly this issue is much more talked about today Possibly in the future our state institutions will buy only Russian goods, thus supporting their native economy.

-Ministry of Industry and Trade announced a competition in creating a quality mark "Made in Russia". What is your opinion on this?

- I consider it to be a good idea since it aims at promoting of Russian goods. Customers turn to domestic consumption and put their money into Russian economy, voting for the Russian, but not for Chinese or Turkish. And in case this mark is granted to goods that are competitive not only on the Russian, but also on the global market, there is a chance for “Made in Russia” to become a renowned international brand.