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bne October 2019 Cover story I 31
rights that go with them means that his underlings are playing the same game.
As Putin increasingly concerns him-
self with only the biggest projects, the heads of the biggest state owned enter- prises are engaging in empire-building. State-owned Sberbank dominates the banking sector and in the crisis years was responsible for the entire sector's profits. Now it is snapping up technol- ogy companies and building e-com- merce marketplaces that will dominate Russia's retail trade as well. Likewise, its sister bank VTB has taken over the Post Office bank that gives it access to a nationwide network of branches as well as the massive pension payments busi- ness. More recently it has targeted grain trading and bought up several players to make it the dominant player in this $25bn a year business. And Igor Sechin, CEO of Russian oil major Rosneft, has built his company up from a minor player into a global oil powerhouse.
The rapacious nature of the state owned companies means that private sector oligarchs are selling up, or at least not investing in the development of their companies, to the detriment of Russia's development. Fixed investment remains below par, locking Russia into a maximum of 2% growth for the foreseeable future. Equity investors are ecstatic as Russian
stocks are currently paying the highest dividends in the world – more than twice the level of the benchmark MSCI EM average – but that is a bad thing: it means private sector oligarchs are simply taking their money out of their companies as cash instead of reinvesting it into their companies.
Zelenskiy faces the same set of problems and seems to be getting ready to make the same mistakes as Putin. The fight against “corruption” has been a top priority and progress has already been made, but no attention has been paid to the oligarchs' influence. Indeed, what is so unsettling is he has barely commented on Kolomoisky, who is left to walk about at liberty despite a growing number of scandals surround- ing him and PrivatBank.
So far the issues with Kolomoisky involve his possible harassment of Gontareva and the state owned Privatbank. But so far no money has changed hands. No compensation has been paid. No real damage has been done. With the Inter- national Monetary Fund (IMF) breathing down Zelenskiy's neck it will be very hard for him to hand over hundreds of millions of dollars to Kolomoisky and not derail the new IMF programme that is currently under discussion.
However, the problem is bigger than that. Zelenskiy not only has to manage
his relationship with his personal friend Kolomoisky, but the state's relationship with all the oligarchs. In the rough and tumble of Ukrainian politics Zelenskiy is doing what all new presidents in Eastern Europe do: consolidate power. Some of the constitutional changes
on the table – like moving more of the security agencies out from under parliament's control and putting them directly under the president's con- trol – will move Ukraine away from
a parliamentary democracy and towards a presidential republic.
And maybe that is necessary. Ukraine's oligarchs have had an extra decade to entrench themselves compared to their Russian peers. Even Putin shied away from open warfare with the oligarchs
in 2000, preferring to compromise and then work to build up his own power slowly. It's not clear if Zelenskiy is of the same political calibre as Putin. It's not clear if he is prepared to be as ruthless. It's not even clear that he is not simply
a client of Kolomoiskiy's.
Since the Zelenskiy administration has not included it, it seems now that it is up to the country's international donors to start advancing a robust anti-trust agenda as part of the conditions its attaches to its loans, along with the laws and infrastructure to make them effective.
Ihor Kolomoyskyi - Ukrainian oligarch. Shutterstock.com
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