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Privatization. Scope and effectiveness of the public sector

16 January2019
Privatization. Scope and effectiveness of the public sector

January 16, the 10th Gaidar Forum hosted Expert Discussion “Privatization in Russia: 30 years later. Scope and effectiveness of the public sector”.

Russia is experiencing a steady growth of the share of public sector in GDP. The growth in the public sector in the 2000s is mainly due to the companies with state participation and the public administration sector. There is a contradiction of formal progress (the number of objects owned by the state is steadily declining) and the real contribution of the public sector to the economy. Dualism is getting increasingly evident: de facto state capitalism and the strategy of denationalization.

“Competitive markets provide the most solid foundation for the prosperity of business,” Dmitry Pristanskov, member of the Board of Directors of Sheremetyevo International Airport, Head of the Federal Agency for State Property Management (2016-2018) said.

The main evaluation criterion of expediency of privatization today, in contrast to the first stages of the 1990s and 2000s, is not the political, social and fiscal motives, but the issues of optimization of the public sector in general and economic efficiency.

State-owned companies lag far behind private businesses in terms of return on equity (ROE) and dividend yield. Thus, in 2016, the median value of ROE of 16 largest state-owned companies was 6.4%, while in 133 private companies it was 11.4%. The average dividend yield of state-owned companies was 2.1% compared to 4.3% for private players.

“The scale of the public sector concerns not only economists, but also market participants. State holdings in Russia control entire industries and have actually become ministries,” Peter Lanskov, President of the self-regulatory organization Professional Association of Registrars, Transfer Agents and Depositaries, said.

Alexander Radygin, Director of the Institute of Applied Economic Research at RANEPA, said: “Privatization is not a dogma, but it must be present for the normal operation of the state mechanism.”

Privatization is a tool for creating a competitive environment, improving the efficiency of companies and reducing presence of the state as a direct participant in market relations. The effect of external sanctions that complicate privatization in Russia not only fails to take off from the agenda the issue of privatization of large companies in 2019-2024, but also makes it more relevant.

Evsey Gurvich, Head of the Economic Expert Group, Head of the Center for Budget Analysis and Forecasting at the Research Institute of Physics and Engineering of the Ministry of Finance of the Russian Federation, noted: “The state constantly sets ambitious goals to reduce the volume of state property, beginning from the economic program of Herman Gref (was adopted in 2000), but since then the public sector has only increased.”

Oleg Vyugin, Chairman of the Supervisory Board of the Moscow Exchange, said that it is better to create conditions under which all forms of ownership operate on an equal footing. In his opinion, in this case, privatization may become self-propelled, and state-owned companies will begin to change.

Many participants of the Gaidar Forum spoke about the need to reduce the weight of the public sector in the economy. Reducing the role of the state will lead Russia to the top five economies in the world, Alexei Kudrin, Chairman of the Accounts Chamber of Russia, says.

“Independent agents are actively involved, plus they are more mobile. An independent agent is interested in maximizing profits, which undoubtedly directs the work in the right direction. Privatization can not go in isolation from all the reforms,” Alexander Radygin said.

Anna Dityakina, RANEPA

All records of live broadcasts from the Gaidar Forum 2019

10th Gaidar Forum Organizers:

The Russian Presidential Academy of National Economy and Public Administration (RANEPA);
The Gaidar Institute for Economic Policy (Gaidar Institute);
The Association of Innovative Regions of Russia (AIRR).

The general partners of the Gaidar Forum are Gazprom and Gazprombank; strategic partners include Prosveshcheniye publishing house, Coca-Cola, Pharmstandard group, ACIG Group of Companies, the Russian Textbook Corporation, SANOFI, Novartis, Johnson & Johnson, Russian Railways, MSD, and Mastercard; EY, Cisco and Russian Direct Investment Fund are partners. This discussion’s partners are Philips, Cherkizovo and RVC.

The general information partners of the Gaidar Forum include the Rossiya 24 TV channel, Forbes global media company, RBC and TASS news agencies. The official information agency is Rossiya Segodnya. The general radio partner is Business FM. The strategic information partners are Kommersant Publishers, the RT TV channel, Interfax and Gazeta.RU. The main information partners are Profil weekly, FederalPress news agency, and Invest Foresight online magazine. The international information partners are Sputnik and Cision. Other media partners include PRIME news agency, Rossiyskaya Gazeta, RNS news agency, Radio Ekho Moskvy, News.Ru, Polit.ru, Parlamentskaya Gazeta, the PRO BUSINESS TV channel, Strategia magazine, AK&M, BRICS, Ekonomika i Zhizn weekly, National Banking Journal, Expert Tatarstan magazine, the Smart Country information platform, Financial One, Naans Media, and the Public Administration scientific political journal.

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