07 April 2004 01:49
A map of Russia`s new empires: OLIGARCHS: The World Bank has revealed just how much power has been concentrated in the hands of an elite, writes Andrew Jack:
Russia's business tycoons first con centrated on accumulating their vast
wealth, then boasted about it, and have since tried to downplay it as they
fear a political clampdown against them under President Vladimir Putin. Now
the World Bank has made an important stab at calculating just how significant
their grip on the national economy really is.
In aground-breaking report published this week, the Bank's Moscow
office, in association with a team of Russian and foreign economists,
estimates that just 23 individuals or groups control more than a third of the
country's industry as measured by sales, and 16 per cent of employment.
They also hold 17 per cent of all banking assets.
There are no big surprises in the names that dominate the list (see table 1).
They mostly correspond to those politically influential oligarchs and their
business partners whose identities have become well known over the past few
years. Most of the individuals have been identified by previous estimates,
such as Forbes magazine's list of the world's richest.
But what is striking is that it confirms the weight of a few corporate
operators when seen in the context of the broader Russian economy, rather
than simply in a handful of quoted groups. For the first time, the World
Bank's researchers attempted to dig well beyond public information,
studying a sample of more than 1,300 companies in 42 sectors across the
country.
Those who benefited from the controversial cut-price, insider "loans for
shares" privatisations of the mid-1990s are all well represented. But
there are also some unexpected contenders high in the rankings, and
intriguing insights into the next group of people below the first dozen.
Those controlling Ilim Pulp, for example, come high on the list, illustrating
the significance of Russia's vast raw materials wealth even beyond the
oil and gas sectors. That helps explain why it has been the subject of heated
hostile takeover attention by Oleg Deripaska, the oligarch who first made his
name in aluminium.
Concentration of ownership varies widely between sectors. If ferrous and
non-ferrous metals, ore, aluminium, oil and vehicle sectors are all heavily
dominated by the oligarchic groups, others remain in different hands: in
construction, timber, milling, furniture and baking, for example.
But the data also show that while minority shareholders do exist even in
oligarch-controlled companies, they remain precisely that. Firmly
concentrated control remains the dominant model, and a culture of dispersed
ownership seems a long way off in Russia.
Oligarchs on average hold nearly 80 per cent of the shares in their
companies, a greater degree of dominance than for companies controlled by
other types of owner. But the proportion in the dominant shareholder's
hands remains above 70 per cent for businesses controlled by the public
sector, by foreigners and by other private owners alike.
It is difficult to put these figures into international context, since few
comparative studies on such a scale have taken place elsewhere. But one
important yardstick that emerges from a country that turned its back on state
planning 15 years ago is that alongside a few private owners, the Russian
state remains a highly significant controller of business.
That applies to the federal government, which accounts for a further 20 per
cent of industrial sales and 8 per cent of employment. It also applies to
some regions, notably Tatarstan and Bashkortostan, ethnic republics that
refused the privatisations launched nationally in the 1990s. Regional
governments account for a further 5 and 3 per cent of sales and jobs
respectively.
Most controversially, the study attempts to assess the economic value of
concentrated ownership. While the public perception of oligarchs is that they
unfairly seized control of assets too cheaply, many analysts have argued that
they at least provided a necessary force to resist the state and to push
through restructuring, creating a more competitive private sector as a
result.
The World Bank study concludes that companies controlled by oligarchs are
better managed than those held by federal and regional governments, as
measured by sales, profits and productivity. But there is no evidence that
oligarchs outperform the rest of the economy, and the study concludes that
they are less efficient managers of assets than smaller, more dynamic private
owners.
Oligarchic groups dominate investment flows, investing 30 per cent more than
other private owners. But that is largely because they control precisely
those sectors that provide large quantities of cash from high-margin export
sales, while investing less in the other sectors into which they have
diversified.
The oligarchs are not always as influential as they are made out to be. In
analysing the extent of "regional capture" of local authorities -
those companies that have secured disproportionate special tax concessions,
market privileges and financial aid packages - they rank collectively behind
businesses owned by regional and federal authorities and foreign investors.
However, the smaller number of oligarchs involved in "loans for
shares" privatisations prove the most effective lobbyists of all.
There are still imperfections in the data. It is impossible to gather
detailed ownership information, since control of most Russian companies is
hidden behind obscure corporate structures, often through offshore trusts.
The figures derive from assessments made by financial analysts, journalists
and bankers, based on their perceptions of control.
Nor is it possible to estimate accurately the oligarchs' true wealth.
Information on the profits, let alone valuations, of the companies they hold
is difficult to obtain. Analysts often raise questions about the full
financial disclosure even of those businesses that are quoted and audited.
Many of the oligarchs' interests are in private companies subject to no
external scrutiny.
Finally, at a time of significant acquisition and sales of businesses, it is
difficult to assess the true long-term impact of oligarch ownership, and how
far they may have acquired the worst-performing companies, and still be
working on turning them round. That will require follow-up surveys.
Overall, however, the study points clearly to an important policy conclusion.
If ownership concentration may have helped push through some necessary
restructuring over the past few years, or was at least a hindrance worth
tolerating by the state at a time when other economic priorities dominated,
it is now time to rein in the role of the oligarchs.
Antitrust policy to break up conglomerates and other measures to enhance
competition and encourage the development of small businesses is essential,
the authors argue. Such a move would mirror the way that the US curbed the
influence of the so-called "robber barons" at the end of the 19th
century.
That requires an ability by Mr Putin's new administration to build a
fairer, tougher regulatory system and a genuinely independent judiciary,
rather to launch politically motivated witch-hunts against selected targets.
But if today's oligarchs want to compare themselves to the latter-day
Carnegies and Rockefellers through their growing philanthropic activity in
Russian society, they will also need to accept negative consequences on their
own activities for the broader economic benefit of the country's
business sector as a whole.
The World Bank report is available at www.worldbank.org.ru
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