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8 Feb, 2008 23:53

Increasing state influence in business: boon or bane?

During Vladimir Putin's presidency, the government has secured large stakes in a number of Russia's strategic industries, including oil and gas. This week Prime Minister Viktor Zubkov was nominated for the board of the country’s energy giant Gazprom.

Since Putin became president, the Russian government has accumulated stakes in most major sectors of the economy, including energy, arms, transport and the mass media.

In 2007 the market value of the state’s portfolio of assets reached nearly $US 470 billion. The companies with state involvement comprise up to 40 % of the country’s economy.   
“There are several large holdings which are doomed to constant attention from the government. We should take it just as a matter of fact. In my opinion, the influence of the government is increasing. The question is whether this influence will prove to be economically efficient,” said Igor Repin from Investors Protection Association .

On February 5 the government announced its candidates for board seats of state companies. There was little change to the names.

In recent years, senior state officials have overseen a large chunk of the economy, such as Igor Sechin at Rosneft, Viktor Ivanov at Aeroflot and Sergey Ivanov behind the Unified Aviation Construction Corporation.

Last week the Prime Minister, Viktor Zubkov, became the highest-ranking official to be nominated for Gazprom’s board.

However, opinions are divided on whether such a close relationship between business and the state is in the interests of either.

“State companies are a necessity dictated by a long period of degradation of the Russian economy. Top state officials who combine functions of mangers are exotic for Western countries, but at the current stage of the economic development it’s inevitable,” said Ruslan Grinberg, the Director of the Institute of Economy.
Some observers see state involvement in Russian business as a deterrent to investors. Others believe the phenomenon is a leftover from the days of the centrally planned Soviet economy. But with those days past they are looking for more managerial expertise at the helm of strategic sectors, not just links to those in power.

 “Management should be performed by managers. Management functions in companies which work in the business environment – be it a state or a private company – should be carried out by professional directors. Everyone has to do his own business. Government officials have to run the state not business,” Igor Repin believes.
With Russian economic growth continuing to attract strong levels of investment into a range of sectors, the issue of state involvement isn’t seen as a key factor in attracting investment.  

But with increasing focus on corporate governance and transparency, it’s expected that, over time, management expertise will become more significant – both for the state and the companies concerned.