Privatization in Russia

Privatization in Russia

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Privatization in Russia

As a result of privatization in Russia, tens of thousands of state-owned enterprises - from small retail shops to major industrial enterprises - have been transformed into privately owned companies. Millions of Russian citizens became owners.

The privatization is guided by the special government program which operates on different administrative levels: federal, regional and municipal. The authorities on any given level are authorized to privatize only those assets transferred to their ownership.

Large-scale privatization

By July 1994, 15,052 medium and large enterprises, employing more than 80% of the industrial workforce, had been privatized in a voucher-based privatization scheme. The second (post-voucher), cash-based phase of privatization is under way now. Government blocks of shares will be sold primarily to strategic investors in special investment tenders. The list of Çstrategic enterprisesÈ, including energy, defence and utilities, majority state ownership is to be retained for at least two to three years. In the second stage of privatization, enterprises will be able to buy the land and buildings they are associated with.

Farm privatization has made limited progress so far. More than 80% of agricultural land is owned by large farms with some form of collective ownership and 10% remains state property. Only 6% is in the hands of private farmers and urban dwellers with small household plots own 4%. Property rights over agricultural land remain subject to heavy restrictions.

Small-scale privatization

By the end of 1995 more than 100,000 state-owned small-scale businesses (with less than 200 employees) had been transferred to private hands. The overwhelming majority of these were in the retail trade, public catering and consumer services sector, where private entities account for 80% of activity.

The size of the private sector

The non-state sector, including all corporatized enterprises irrespective of the share of state ownership, accounted for 70% of GDP and 60% of employment by the end of 1995.

Forecast for 1996

Financial assets will be the main instrument of privatization in 1996. The share of facilities sold at auctions and commercial and investment tenders and privatized by the redemption of leased property and sale of immovables and land will grow.

The development of the stock market will be based lagerly on demand from Çstrategic investorsÈ interested in high profitability for their investments and the gaining of control over enterprises.

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The sale of land and immovables to enterprises will be a new feature of privatization.

According to estimates, the number of enterprises which will have changed their form of ownership will be 124,600 in 1996. Their aggregate output is estimated at 844 trillion rubles (accounted for 31% of GDP) and their combined personnel at 21 million (31.6% of employment).

The creation of an effective bankruptcy mechanism and work with insolvent enterprises will be a major factor in enhancing economic efficiency. The legal base of bankruptcy is to be improved and effective bankruptcy procedures to be elaborated in 1996. This presumably is to facilitate the reduction of inter-enterprise debts. Adoption of international bookkeeping principles and audit standards can help solve many problems related to enterprise insolvency, restructuring, improvement and support.

Next year's privatization process will be determined, to a considerable degree, by the state of the market. In 1996 it should acquire all the basic characteristics of the capital market, and its main task will be an effective inter-industry and inter-regional re-distribution of investment resources.
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