Kremlin Tightening Grip on Business
In the past five years, the Russian economy has become more centralized, with Kremlin loyalists topping the ranks of the country’s largest state-owned industries, the Financial Times reported on February 7th. Under the presidency of Vladimir Putin, a row of private companies were re-nationalized, and the state increased its share of public holdings. The state now controls some 40 percent of the stock market, or the equivalent of $469bn (€320bn, £239bn) worth of publicly traded assets, up from just 24 percent in 2003. Private business, which accounted for 50 percent of the market in 2004 now holds a 33 percent share.
The momentum for a new wave of national industries began with the arrest and trial of Mikhail Khodorkovsky, Russia’s richest man, in 2003. Khodorkovsky is now serving an eight year sentence for tax evasion and fraud in Siberia. His oil company, YUKOS, was systematically dismantled and reformed as Rosneft, a national monopoly.
The precursor to current reforms was a series of rapid privatizations started by Boris Yeltsin in the 1990s. Under Yeltsin, many state-owned corporations were quickly sold, often under suspect conditions that created a new class of super-wealthy oligarchs. Putin has publicly chastened this group. Under his administration, business empires have been re-taken, and some high-profile oligarchs have been either imprisoned or exiled abroad.
Yet for all of the president’s fiery rhetoric, Russia’s wealthy elite has actually prospered under his rule. The number of billionaires in the country is now 53, up from 7 in 2002. Once the CEOs and chairs of huge private corporations, a new style of oligarchs now heads Russia’s national companies.
As the country approaches a presidential election on March 2nd, Moscow seems set on filling the boards of its state corporations, from Rosneft, the oil giant, to Aeroflot, the national airline, with officials loyal to Putin.
Viktor Zubkov, Russia’s Prime Minister, has been nominated to become chairman of Gazprom, the natural gas monopoly. The position is currently held by Dmitri Medvedev, Putin’s chosen successor who will almost certainly become the next president. Since Putin has pledged to become Medvedev’s Prime Minister, the three have entered a simple rotation.
Gazprom presents a revealing example of the result of Putin’s nominations. 10 of the 18 members of the current board hail from St. Petersburg, considered a Putin stronghold, and 3 of them worked directly with Putin in the St. Petersburg mayor’s office. Two more previously worked for the presidential administration.
Gazprom has also been accused of using its resources for political reasons, and has cut off gas shipments to neighbors in the dead of winter.
As Vladimir Putin prepares to leave the office of president, he is leaving a structure of individuals loyal to him personally among the top ranks of the nation’s largest corporations. Whether he will manage to keep that loyalty, and whether Dmitri Medvedev will continue a path to re-nationalization remains to be seen.