06-04-04 Russia is dominated by a small number of business groups that are less efficient than other private sector owners and have captured a big slice of investment flows, says a World Bank report. Based on a detailed sample of more than 1,300 companies, the study concludes that Russia's 23 largest business groups control more than a third of the country's industry by sales and at least a sixth of its employment. The report is likely to rekindle the debate over the politically influential business "oligarchs", who built their vast wealth from the privatisations of the 1990s.
Christof Ruehl, chief economist for the World Bank's Moscow office, who co-ordinated the research, said: "Russia needs to do what the Americans did 100 years ago by introducing tough antitrust rules and anti-monopoly regulation to create fair competition."

The small number of influential Russian businessmen have disproportionately captured investment flows and in some case remain powerful lobbyists. Contrary to a widespread perception, the report concludes that collectively the businessmen are not more efficient managers, with companies controlled by foreign investors and other private owners reporting higher productivity.
Only companies owned by federal and regional governments are worse performers.

Anatoly Chubais, architect of the controversial insider "loans for shares" privatisations of the 1990s, defended the oligarchs. "When people say that the oligarchs have robbed the country and corrupted the political and judicial system, there is much truth in it," he said.
"But let us not forget that these same oligarchs have been the main engine of economic growth over the past few years; that they have restructured large parts of Russian industry and built effective management systems, and that they have paid taxes and started to fill state coffers. The oligarchs are not perfect, but they are much more effective owners than the state."

The oligarchs have come under fresh attack in recent months by the Russian authorities, seeking to stimulate competition and rein in super-profits. The study found that by sales -- based on 2001 data -- the oil group LUKoil dominates, followed by Millhouse, the holding company controlled by Roman Abramovich, the billionaire owner of Chelsea Football Club in London. Next in line are the oil group Surgutneftegaz, and Interros.
The World Bank study concludes that Russia has made substantial progress away from the planned economy, with wide-ranging economic restructuring, a thriving service sector and migration towards regions that were creating new jobs.

But it says Russia remains a "disorganised" economy with an inefficient allocation of resources, and that during the period of renewed growth in the past five years, restructuring has slowed down with many local governments subsidising precarious jobs in "non-market services".
It warns of the dangers of excessive dependence on oil and gas -- which account for 20 % of gross domestic product -- and calls for the elimination ofenergy subsidies to companies, greater investment in transport and education to help stimulate further migration, and health reform to reverse declining life expectancy.

Mr Ruehl also warned of the importance of secure property rights to stimulate investment and growth, and criticised criminal investigations into past privatisations that risked triggering fresh uncertainty.
"The state cannot continue to have guerrilla wars with companies," he said.