Next in line for the Presidency?
Russian Deputy Prime Minister Dimitri Medvedev

On May 25, the International Herald Tribune (the international edition of The New York Times) published an article titled "Russia Tries to Keep Politics Out of Business". In the second paragraph, the article says, "...economic growth in Russia has been defying critics who said the worsening political climate between the Kremlin and the West might stunt investment. In the first quarter of this year, for example, gross domestic product grew 7.7 percent; foreign investment is up 150 percent over the period a year earlier."

"Just in the first quarter of 2007, Russia has attracted $10 billion in foreign direct investment, according to the state statistics service. At this pace, Russia is likely, by the date of the economic forum in June, to surpass in just six months the total foreign direct investment into Russia in the entire decade of the 1990s under Putin's predecessor, Boris Yeltsin, which amounted to $16.6 billion, according to Peter Westin, chief economist at MDM bank in Moscow."

After revealing these very impressive statistics, the article goes on to give reasons for caution in the face of Russia's current round of economic exhuberance. These arguments were supported by a report issued nearly at the same time from a widely respected Russian think tank.

The Russian Center for Political Conjuncture, a non-profit public policy organization, has published one of its “Political Compass” series reports titled “Leading Russian Corporations and Authority: Interaction Technologies". Here are some highlights from the report that may be interesting to business people:

- Big business in Russia is not very powerful and does not want any confrontations with government authorities. On the contrary, it seeks compromise with authorities both at the regional and federal level. Large businesses in Russia are heavily involved in projects based on access to key state resources – this is the biggest motivation for business managers to forget about any political ambitions they might hold.

- Although the stock market is increasingly based on privately held assets, the driving force in the Russian economy remains state-owned enterprises with preferential access to natural resources.

Since the year 2000, there has been a drastic shakeup in the major political and financial groups in Russia. In the last six years, the financial/industrial power centers that emerged out of the chaos of the 1990s have been completely replaced by State-Nomenclature Alliances (FNAs) (Note: In the old Soviet Union, the word “nomenklatura” meant government personnel on special lists, people who were considered to be ‘untouchable’).

All FNAs are more or less under the Kremlin’s control.

The latest "Political Compass" report identifies seven key FNAs or “power groups” in Russia:

Russian Prosecutor General Yuri Chaika

- GAZPROM FNA – the ‘legal’ group led by First Deputy Prime Minister (and potential presidential successor) Dmitri Medevedev and Gazprom CEO Alexei Miller). The biggest assets of this group are their links to President Putin from their early careers in St. Petersburg. It has very potent media assets in the form of the Gazprom Media Group. Close allies are General Prosecutor Yuri Chaika and Natural Resources Minister Yuri Tutnev.

- ROSNEFT FNA – the first competitor to Gazprom, this is often referred to as the siloviki (security) or "power group". The leaders are President Putin's Deputy Head of Administration Igor Sechin and FSB Director Nikolay Patrushev. This group has strong ties to the Federal Tax Service, but does not control any media assets.

- ROSSIJA BANK FNA – this group consists of chairman Yuri Kovachuk and major Rossiya Bank shareholders who are good friends of the Russian President, plus the Surgutneftegaz company. They own several influential media assets, including St.Petersburg TV and formerly REN-TV.

- RZHD (Russian Railways) This FNA remains very close to the ROSSIJA BANK FNA, However, Russian Railways President Vladimir Yakunin has his own ambitions associated with railway transportation development. The group has some standing in the electorate among RZHD employees and their families.

- ROSOBORONEXPORT (Russian Defense Export Company) FNA – Its leader, Sergey Chemezov, is a close friend of President Putin and has a variety of allies in many Russian government structures. It is also boasts a potentially large electoral base in terms of defense industry workers and former military officers.

- BAZEL This FNA is led by the metals magnate Oleg Deripaska. The UK Guardian newspaper recently claimed that this year Deripaska has surpassed his partner in the metals business, Roman Abramovich, to become the wealthiest man in Russia. The BAZEL FNA has a good history of promoting “prestige” government projects, like the 2014 Winter Olympic Games in Sochi.

- Roman Abramovich FNA – similar to BAZEL, it participated in the major government program of developing the remote Russian Far East region of Chukotka. In the last two years, Abramovich sold his energy company to Gazprom while expanding his holdings in the metals business. Abramovich is probably the highest profile oligarch due to his ownership of the Chelsea Football Club in London.

A Russia Today TV video about Roman Abramovich, the richest man in Russia

You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and are reproduced here solely for educational purposes. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.