TV Economics

At one fell stroke, Russia is all set to become a dynamic, economic powerhouse. No more of that old, tired and bloated state industry. Privatisation is the answer to all our problems…

It all sounded so positive, so upbeat, so liberal, so, well, you know, modern… There they all were, at the beginning of this week, on state TV, the heads of seven state-owned businesses sitting attentively around a lovely, big polished table in the Kremlin, talking like adults with President Putin and his economics team (he does have one…), earnestly discussing privatisation plans.

You remember, don’t you, those plans? The ones they first started talking about in 2009, the last time the oil price went into a nosedive, taking with it the Russian economy. Then-Prime Minister Putin was saying almost the same thing then that he said on Monday; and the funny thing is, talking about the same companies.

Actually, Mr Aeroflot, Mr Bashneft, Mr Rosneft, Mr Sovkomflot, Mr Alrosa, Mr VTB, and Mr Russian Railways, didn’t say that much. But the boss made it quite clear to them, and to us, hanging on his every word, how seriously he takes this matter, and, very importantly, how we shouldn’t have any doubts about the open and transparent way this multi-billion dollar free-for-all is going to be handled. Yes, these plans are so advanced, we even know how much money this is all going to raise – somewhere in the region of 500 to 800bn roubles ($6.5bn).

“All privatisation deals must strictly comply with the standards and requirements of the law, of course. We need to ensure the maximum transparency of these transactions both for their participants and the public. There shall be no sale of shares for a pittance or at knockdown prices.” Everybody nodded, but nobody said anything.

So far as we remember, the president didn’t use the word “reform,” but the idea was there, as he gave us all a lesson on TV about the beneficial economics of privatisation, which really is going to achieve all of the things the government has been talking about doing for the past 15 years: it is “the way to structural changes in the economy,” and because these are now so important, the state has to have a “clear understanding of what and to whom it is selling, and what consequences it will have for the development of entire industries and the entire economy.”

There were, perhaps, a few things that might give potential investors pause for thought. “The new owners of privatised assets should be in Russian jurisdiction. Grey schemes, the withdrawal of assets to offshore accounts, [and the] concealment of owners of the shares are unacceptable.” Again, nobody said anything. Perhaps they were thinking that those accommodating people in the City of London would surely find a way to make it seem as if the gravy train only stops at Russian stations.

As if to second that thought, at a press conference to publicise this groundbreaking initiative, presidential press spokesman Dmitry Peskov went out of his way to say that foreign investors would be welcome to buy shares in the sale of the century.

So much for the rhetoric. One can only marvel at how the privatisation of seven companies will “entirely” transform an economy in recession, still so dependent on oil and gas, and with a 2016 budget calculated on the assumption of a 3 per cent deficit based on crude prices averaging US$50 per barrel. Even as the meeting was taking place, Brent Crude fell 4 per cent to US$34.50. As it is, Prime Minister Medvedev’s government has announced a 10% cut in expenditure (not including defence and social payments), but, unless the oil price bounces back – looking unlikely this year – that won’t be enough.

The fact is, this talk of privatisation is just that – talk. There is no appetite for this type of reform, for it means an end to the lazy comforts enjoyed by Messrs Alrosa, Sovcomflot, Rosneft et al. Reform is never going to happen under this government; not unless, and until, the economy is in far worse shape. But the government must be seen to be doing something, to show to the public that there is light at the end of the tunnel. What we get, then, is not a coherent development plan, no, what we get is TV economics.