The Progress of Privatization in Russia

CEIC Russia Data Talk: The liberalisation of Russias economy after the break-up of the former Soviet Union in 1991 was accompanied by a wave of privatization as the country revamped its economic model and ownership structure. Privatization is a controversial topic in Russia owing to the pervasive cases of fraudulence and unjust distribution of wealth surrounding it. At its peak, 42,924 state enterprises were privatized during 1993. However, the number of privatized enterprises has gradually been declining ever since, reaching a trough of only 217 in 2010. Most enterprises changed their ownership structure from 1993 through to 2002 during the height of the privatization boom. At the same time the amount transferred to the budgets from privatization receipts was inversely proportional to the number of privatized enterprises. In other words, most of the enterprises were privatized during the 1990s, while at the same time budgets received the least amounts from privatization during the same period, which exhibits a drastic disproportion of the whole process. Federal, regional and municipal budgets received most of their funds from privatization during 2003 to 2012, peaking in 2011 at a total of 200.258 billion rubles. The share of funds distributed from privatization between the federal, regional and municipal budgets was uneven from year to year. The federal budget received the largest share (on average 60-80%) of the privatization funds during each year from 1997 to 2004. Municipal budgets receipts dominated in 2007-2010 (50-60% of all privatization receipts), while regional budgets on average collected about 10-40% of the funds from 1993 to 2012. The distribution of the privatization share received by each budget correlated to the type of assets which had been privatized, namely federal, regional or municipal. The following regions benefited from the largest share of the combined budget receipts from privatization: City of Moscow, City of St Petersburg, Tumen Region, Moscow Region, Republic of Bashkortostan and Kemerovo Region. This distribution of funds reflected the location of the biggest enterprises and industries in the country as well as the centralized concentration of ownership control. The wide fluctuations in the inflation rate and the value of the ruble during the past two decades are two of the major causes of the significant discrepancies between the nominal values of the amount received from privatization between the early 1990s and the 2000s. The depreciated ruble boosted up the amount received from privatization after 1998, this was offset by the higher inflation during the 1990s, since it made the amounts received in real terms insignificant in the early 1990s compared to those in more recent years. Still, if normalized, the picture would show much higher and stable values from 2003 to 2012 compared to the lowest of 1993-1996. Overall, privatization was unprofitable for all budgets in the 1990s because most of the enterprises were sold significantly below their value. This effect was exacerbated by hyperinflation, which devalued ruble funds received from privatization. Privatization redistributed state-owned assets among the oligarchs, concentrating these immense assets in their hands during this process. Privatization assisted in changing the economic model and the new owners facilitated the development of their enterprises, making many of them profitable. More control over the privatization process during the 2000s reduced illegal activity and increased the proceeds. During the early stage of privatization politicians aimed for a quick transformation of state property by any means, while at the later stage the objective changed towards enhancing budgets. By Alexander Dembitski - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
11th September 2013 The Progress of Privatization in Russia