Moscow is once again taking a hard look at its finances during this period of prolonged economic woe, this time considering privatizing some of Russia's large state-owned firms and entities. Such a plan could raise $12.5 billion, helping cover a possible shortfall of around $37.5 billion in the federal budget. Finance Minister Anton Siluanov, who has long criticized the government's control of the country's largest companies, is spearheading the proposal.
Siluanov has been blocked for years by many of the Kremlin elite who want to maintain control over their respective assets and companies. But as Russia's recession has deepened, Moscow has grown more willing to embrace some of Siluanov's economic suggestions. In recent weeks, he pushed through a mandatory 10 percent cut in the Russian budget across all sectors, excluding pensions, further tightening an already strained spending plan. The finance minister could be building support for a tougher economic program in the future, such as privatization.
But today's economic and political environment is worse than during Russia's previous attempts to launch privatization schemes. Russia is in a bitter standoff with the West following fighting in Ukraine. Both the United States and the European Union have political, financial and economic sanctions on many Russian firms. Investor sentiment toward Russia is sour at best; many Russian firms are no longer selling at a premium on the London Stock Exchange. Moreover, many Western firms are abandoning the Russian market. British consulting firm Global Council estimates that twice as many firms left the market since the Ukraine crisis began in 2014 than during the 2008 recession. The firm also estimates 60 large Western companies have left and dozens more could leave this year.
Consequently, Russia has reached out to potential non-Western partners, mainly from the Middle East and East Asia, and was able to secure $21 billion in investments in 2014-2015. However, most of this investment focuses on agriculture and will not spur the wider economy. More important, Russia's operations in Syria and severed ties with Turkey have complicated its relations throughout the Middle East. States such as the UAE, Qatar, Kuwait and Saudi Arabia are also conserving expenditures given low oil prices. Russia has hinted over the past year that it would sell a stake in Russian oil giant Rosneft to China. But even China is slowing its spending habits, and Beijing is already contracted to invest tens of billions into Russia's energy sector. In short, there is little interest in Russia's privatization scheme from either the East or West.
