Will state stop to be threat to competitive economy in Russia?

Russian Federal Anti-Monopoly Service (FAS) proposed the Russian President Vladimir Putin to decrease the level of the state’s participation in the economy, including through reducing the market share of state and municipal companies, Vedomosti writes.

According to the newspaper, a draft presidential decree envisaging a ban for the state-owned companies on buying new assets has been finalized and submitted to the Russian government.

The presidential decree proposes endorsing a national plan on promoting competition in 2017-2019. 

The document proposes decreasing the level of the state’s participation in the economy, including through reducing the market share of state and municipal companies. Under the draft, the government should bar the state companies from purchasing new assets - either directly or through their subsidiaries. The state-owned companies should also get rid of assets, including non-core ones, Vedomosti writes. According to the paper, the state companies will be forced to develop the respective programs.

Deputy Head of the Russian Federal Anti-Monopoly Service (FAS), Sergey Puzyrevsky, said that if a company is efficient and the state as the owner does not deteriorate the conditions for competition on the market, the asset may be retained.

"The activity of state-owned companies on the market of mergers and acquisitions is a pressing issue, the federal official said. Since 2006, the number of companies with state participation fell 2.5 fold to 1,627 joint-stock companies as of mid-2016. However, at the same time the number of the state companies’ subsidiaries grew," TASS cited the FAS deputy head as saying.

The Russian anti-monopoly watchdog also suggests introducing a ban on creating unitary enterprises on competitive markets and to eliminate this form of business ownership by February 1, 2018, Vedomosti writes.

Advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house, economist Sergey Hestanov, speaking to Vestnik Kavkaza, noted that now a very significant part of attractive assets had already bought by the state companies. "We can safely say that the state is holding at least 70% of economy. Due to this the ban on the purchase of new assets by state companies would be rather formal and will not bring much benefit," he expects.

At the same time Sergey Hestanov pointed that the officials themselves recognized the emergency nationalization of Russian economy. "Everyone is aware of this problem and it has been well studied, but, unfortunately, it is not yet possible to solve it. I think that in the coming years, the high share of government in the economy will remain one way or another, and the situation will not change, until there is a real improvement of business climate. Now the level of tax and administrative burden is so high that it discourages private investors to come in the Russian economy. It is encouraging that the executive power understands it, but the problem is still far from being solved," the expert believes.

According to him, the state is not to hurry to solve this problem. "Typically, the solution of serious problems is postponed as long as a state has sufficient reserves. While Russian reserves are significant, the state prefers to gradually spend them and maintain the status quo. As soon as the reserves are exhausted, then all the reforms will be started fairly quickly. Considering all the factors, it is unlikely that there will be significant developments before 2020-2022," the advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house predicts.

The head of the department of stock markets and financial engineering of the Faculty of Finance and the Banking Business of RANEPA, Konstantin Korischenko, in turn, noted that the mechanisms for the implementation of the ban on the purchase of assets are yet unclear. "A simple example: VTB, which is a bank in state ownership, issued a credit, where the pledge is shares of a private company, then the credit is not returned and VTB receives the shares - it is a form of the acquisition of marketable assets by the state-owned company. Other options, more complex, are also possible, so it is not so easy to implement the ban," he explained.

the economist suggested an alternative option to halt the state’s increasing participation in the economy. "The main issue is that public corporations that support one or other kind of business are still created. The basic form of the state’s increasing participation is the creation of new companies that depend on it, therefore, I think that we should start with the suspension of this process, and then take the necessary steps for the privatization of some of these companies. The ban on the purchase of assets can be an accompanying measure," Konstantin Korischenko said.