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Russia’s economy minister puts focus on markets

17.01.17

Russia needs competitive markets more than further privatisation, the country’s new economy minister has said as he laid out ideas for faster growth.

“If you simply privatise a large state-owned company that dominates a particular market, you won’t improve the competition situation and there won’t be a significant positive impact on growth,” said Maxim Oreshkin.

In his first interview with foreign media since taking office in November, Mr Oreshkin said he did not want the state to play a bigger economic role. “But first of all we need to concentrate more on the level of competition in the different markets.”

The minister’s remarks contrast with the position of Alexei Ulyukaev, his predecessor, and reflect an awareness of the political problems of reforming Russia’s economy after arguments over previous privatisations.

Mr Ulyukaev was fired by President Vladimir Putin after being put under house arrest in November on charges of extorting a bribe from Rosneft, the state-owned oil group, in connection with its acquisition of Bashneft, another state-owned group.

The former economy minister was one of a group of liberal market advocates who have been shaping Russian economic policy since the early 1990s. He had initially opposed Rosneft’s acquisition of Bashneft but in doing so incurred the wrath of Igor Sechin, a long-term close aide of Mr Putin.

Mr Sechin is considered a driving force in the president’s inner circle in favour of the state’s central role in the economy.

Mr Oreshkin’s line is also softer than that of Alexei Kudrin, a top economic adviser to Mr Putin. Reducing the state’s role is a key component of an economic reform plan that Mr Kudrin is due to present within months.

Privatisation has had a bad name in Russia since the 1990s, when two waves of state asset sales following the collapse of the Soviet Union left the lion’s share in the hands of a small group of oligarchs. Since Mr Putin’s second presidential term, many formerly privatised assets have been renationalised.

According to the Federal Anti-Monopoly Service, the state and state-owned companies accounted for 70 per cent of gross domestic product in 2015, up from only half that level a decade earlier.

Pressure from falling oil revenues last year prompted the government to line up a number of state firms for privatisation. Last year, the government sold an 11 per cent stake in Alrosa, the diamond miner, while this month oil trader Glencore and the Qatar Investment Authority closed a deal to acquire 19.5 per cent of Rosneft.

But the impetus for asset sales has petered out as oil prices have regained ground and the economy emerges from a two-year recession.

Mr Oreshkin, 34, was previously the deputy finance minister and has been a high-flyer in Russia’s economic bureaucracy since he was appointed to head a Central Bank department while a university student. Executives and bankers respect him as one of the best economists in the government but observers say it is unclear how much political clout he can develop.

Analysts said Mr Oreshkin’s caution about tackling state-owned companies was pragmatic.

“It is better to focus on what you can achieve,” said Oleg Kouzmin, Russia economist at Renaissance Capital. “When you start talking about privatisation, you may suddenly start facing obstacles in other areas. Privatisation is good, but if you go there, people treat you as an enemy.”

Mr Oreshkin denied that a slight recovery in oil prices had weakened the authorities’ determination to undertake long-delayed structural reforms. But he said growth would pick up only if businesses believed macroeconomic conditions would remain stable and reform policies were transparent and predictable.

Tackling Russia’s growing grey economy was a priority, Mr Oreshkin said. “We will be fine-tuning the tax system in order to support those working legally, those who invest, those who innovate, those who export, those who would be helping achieve higher growth rates,” he added.

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