After a decade of asset stripping and capital flight the Russians are finally investing in their own economyby Arkady Ostrovsky / April 20, 2001 / Leave a comment
Russian business tycoons are acting very strangely. Some of the most notorious “oligarchs” associated with looting and theft have been spotted investing in their companies, improving infrastructure and even paying wages to their workers.
Consider Vladimir Potanin, who controls Norilsk Nickel, the world’s largest nickel producer and one of Russia’s notorious oligarchs. He has recently had warm bus shelters built in Norilsk, one of the coldest and darkest of Russia’s towns, built in the 1930s by the prisoners of Stalin’s labour camps. Heated and glazed, the shelters look encouragingly out of place, surrounded by the remains of Stalin’s barracks.
The shelters provide comfort not only to the workers, who until recently had to wait for a bus in temperatures dropping to –500C, but to the whole economy. For the first time since the collapse of the Soviet Union, domestic investment in fixed assets increased by about 18 per cent last year. That included $500m which Potanin invested in Norilsk’s mines.
The investment is not prompted by a sudden surge of morality, but by high commodity prices which make production more profitable than asset stripping. Potanin, and others like him, still shows little respect for the rights of minority shareholders or the rules of business as practiced in the west.
Nevertheless the tycoons are developing a sense of ownership. Says Potanin: “The period of initial accumulation of capital is over. The emphasis has shifted from accumulation of assets to sorting them out and to managing the business. Norilsk Nickel is the company we are planning to live with for a long time, investing in it, developing it and capitalising it.”
In contrast to the early 1990s, Russians are putting more money into their business than they are taking out of the country. A recent report by Morgan Stanley Dean Witter says the first half of 2000 saw a big decline in capital flight. There is even some reinvestment of Russian offshore capital.
Economists, politicians and entrepreneurs all say Russian capitalism is entering a new phase. Yegor Gaidar, the former prime minister who played an important role in the initiation of Russia’s market reforms, believes that the roots of the country’s 7 per cent economic growth lie deeper than high commodity prices and the devaluation of the rouble. He says: “Russia has made a journey which other eastern bloc countries made three to four years ago. Market institutions and property rights…