Difficulties of doing business in the Arctic and Northern regions of Russia

Abstract

The northern and arctic regions generate about a quarter of Russia’s GDP at the expense of large commodity corporations, while the territory is characterized by unfavorable natural conditions. For many years, the question of the prospects for the development and diversification of the economy of these regions through new non-primary businesses has been discussed. The purpose of the study is to identify the features and opportunities for the development of small and medium-sized enterprises (SMEs) in the northern and Arctic regions of Russia using cartographic and econometric methods. The article shows that the costs for small businesses in the Arctic and the North are indeed higher, but not only because of natural conditions, but also because of institutional features: “northern allowances” and a less favorable business climate. This leads to a truncated development of entrepreneurial networks, low density and insufficient diversity of small business, weak interaction, its greater dependence on large companies and the state. Such entrepreneurial ecosystems are more vulnerable to crises, and their recovery, on the contrary, is delayed. However, in monopolized local markets with high consumer demand, the productivity and profitability of existing (surviving) enterprises may be higher than the Russian average; especially the rate of return is high in large corporations. In conclusion, some public support measures and prospects for the development of northern entrepreneurship are described.