EM News: Russia’s Privatization Program


By Gordon Platt

Faced with a widening budget deficit in the wake of its economic stimulus program, Russia is rolling out the red carpet to foreign investors with a $39 billion privatization program. The government will sell minority stakes in state-controlled companies, including oil producer Rosneft and two major banks, VTB and Sberbank.

Although the offerings will attract inflows to Russia, a number of obstacles will limit the success of the program, according to analysts at Roubini Global Economics. The decision to sell minority rather than majority stakes means that corporate governance and decision-making will remain in state hands, they say. “Combined with a high degree of corruption and inadequate rule of law in the resource sector, foreign investors may continue to be wary of Russian assets,” the RGE analysts say. “These risks make the timing of, and proceeds from, privatization extremely vulnerable to shifts in global risk appetite.”

Igor Shuvalov, Russia’s first deputy prime minister, was recently named as the government’s investment ombudsman, responsible for helping to identify and remove obstacles to investment and entrepreneurship in Russia. He says this task will require structural economic reform. “Sometimes people doubt progress is taking place,” Shuvalov says. “But, step by step, things are starting to change.” Red tape is being removed in every sector, and procedures for obtaining permits to build industrial facilities are being streamlined, he observes.