State sector already controls half of Russia’s economy

According to an article in the Russian business daily Vedomosti on 6 November 2012, the state is increasing its control of Russia’s economy. The article is based on a BNP Paribas report authored by Yulia Tseplayeva and Yury Eltsov. In 1998-1999 the state controlled 10 per cent of the oil production sector. This has risen to 40-45 per cent (and will probably be higher after the closing of the TNK-BP acquisition by Rosneft).

The state also accounts for 49 per cent of the banking sector and 73 per cent of the transport sector. Even according to data from the Ministry for Economic Development, the state accounts for up to 50 per cent of GDP, compared to a global average of 30 per cent.

Rosneft and Gazprom are key players in this game where the state accumulates an increasing share of the economy. In fact in some cases they appear to be discharging the state’s social policies, with Rosneft investing up to USD 1 billion a year in social projects in areas where it operates.

Meanwhile Gazprom is a major investor in the 2014 Sochi Olympics and also spent RUB 300 billion on the APEC Summit.

Meanwhile in banking (putting to one side Gazprom’s banking interests), VTB owns a real estate company (Hals-Development), while Russian Railways came to the rescue of KIT Finance in the banking crisis.

it goes without saying that the increasing state control of the Russian economy is having an adverse impact on investments, as the rules of the game are changed and competition favours companies with state guarantees and political assistance, and other forms of leverage.

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