registration forms. There are 30 different kinds of licenses for a business start-up. In the WB-RAS survey, 12% of the firms indicated that in the past year they had applied for a new license but had been unsuccessful. The survey also found that firms that are part of unregistered FIGs are more likely to fail at obtaining a license than firms that are part of registered FIGs. Thirty four percent of the surveyed firms indicated they were forced to obtain a license that in their opinion was not legally required, and 13% indicated their enterprises paid license fees in excess of what is legally required. Against this backdrop, it is not surprising that the licensing process is fertile ground for corruption (see more below). An anecdote that one entrepreneur paid $7,000 equivalent for a license, of which only $800 equivalent went to government, is not atypical. Firms that specialize helping new businesses navigate the registration process have become a new growth industry. On average to start up a new business in Russia an entrepreneur must spend from 5,000 to several 100,000 New Rubles.

_Warehousing and Distribution Networks._ While private entry has taken place in retail and commercial activities, the state owned sector still plays a major role in distribution. Moreover, outside the major 2-3 Russian cities, there are either very poor or non-existent warehousing facilities. The situation is particularly acute for refrigeration facilities, placing severe handicaps on transshipment of perishable products across regions. The physical condition of inter-city roads is significantly poor, often far below that found in other countries in the region, making long-haul trucking an extremely expensive and difficult mode of transportation. Railroad freight rates have traditionally been high in order to subsidize rail. passenger traffic. Potential entrants in the distribution and warehousing sector confront not only the usual licensing and other policy-induced start-up difficulties facing any new business in Russia, especially entry barriers posed by neighboring local administrations, but also must deal with organized crime, which is quite active in this sector.

_Corruption._ Surveys indicate that corruption as a barrier to entry in Russia is pervasive; virtually all firms pay bribes to tax inspectors, customs officers and a host of local bureaucrats.<sup>9</sup> Indeed crosscountry evidence suggests that Russian SMEs operate in a business environment that may be worse than most transition economies. On average it takes four times as long to establish a small enterprise in Moscow than it does in Warsaw, that Russian SMEs are subjected to twice as many yearly inspections than their Polish counterparts, and that the number of regulatory agencies involved in SME development in Russia is half again as many as there are in Poland. A recent OECD survey reveals that SME managers in Russia are subject to manipulation by local authorities of 40 to 50 tax rates and deductions. But official taxes are not the only levies new Russian businesses have to pay. Many small enterprises have to pay the mafia to survive. The local press is replete with stories of entrepreneurs paying for a "roof' _(krysha)_ for protection. One story reported that mafia levies commonly start from 5% of profits but are often higher, and are usually collected as a flat monthly fee. There is also the threat of violent crime against entrepreneurs: in the WB-RAS survey, 16% of the General Directors indicated they are "very worried" about becoming a victim of violent crime.

_Capital Barriers to Entry._ In almost any country it is difficult to persuade banks or other financial institutions to back a start-up business; in transition economies, where capital market imperfections are pronounced and institutions that internffediate savings into investment capital are typically nascent, the problem is particularly acute. Like many other countries in the region, in Russia bank loans for new businesses-if they are available at all-are short-term, typically for 6 months term, and expensive. As a result, most SMEs are started from personal savings. According to the State Committee on Small Business, only 15% of small businesses in Russia in recent years have received bank credits. Mortgages are not widely practiced and there are only initial steps in leasing equipment. The emergence of FIGs in Russia can be interpreted as a response to capital market imperfections; 6