Read more: Russia's Progress in its Privatization and Modernization Plans | STRATFOR

The Russian government will present Russian President Dmitri Medvedev a revised list of state companies to be privatized and strategy for privatization by Aug. 1. [...]

Moscow changed its economic strategy in late 2009 after nearly a decade of economic consolidation during which the Russian government took over most strategic industries. This created state champions in every sector from energy to telecommunications. The goal was to oust foreign and anti-Kremlin influence from Russia while the country strengthened internally after a decade of chaos following the Soviet Union’s collapse. The state champions ended up in the hands of a group of former KGB or current Federal Security Service elements who were more concerned about the political and security aspects of the Russian economy than its efficiency. This is not to say that such a move was unnecessary; however, it did not foster a modern or strong economy. Cracks began to show in this economic model in 2008, when Russia was deeply affected by the global financial crisis.

As Russia strengthened internally and grew more confident of its influence in its periphery, the Kremlin became less concerned with non-Kremlin influences in the economy and more concerned about organizing the economy in order to plan for a strong future in Russia. This led to a far-reaching strategy to modernize and expand the state companies while attracting massive investment. The plan was twofold. First, the Kremlin launched its modernization program to update and expand its seven strategic sectors: energy, space, information technology (IT), military, telecommunications, transit and nanotechnology. Second, Russia reversed its stance on state monopolies and allowed foreign and non-Kremlin-aligned groups to invest in the firms.


Russia’s modernization efforts have been under way since early 2010, when Medvedev went on a series of foreign tours to rally support and strike deals for foreign firms to begin sending billions of dollars and modern technology into Russia. It is unclear how much money the Kremlin will spend and how much it is attracting from foreign partners, but the interest from those foreign firms has been great.



The privatization program, set to expand in August, had three goals when it began. The first emerged from the financial crisis, during which Moscow took on thousands of failing assets and businesses. The Russian government simply could not keep these assets, as they drained the Kremlin’s coffers. The privatization program is a venue for Moscow to sell off the approximately 5,000 nonstrategic assets, such as ports, industrial plants and small banks, it acquired during the crisis.

The foreign interest in Russia’s privatization plan has been so great that the Kremlin decided to expand it, roughly doubling the number of strategic state monopolies to be partially privatized. The new list that will be submitted to Medvedev by Aug. 1 will include at least 15 strategic state firms.

The Foreign Policy of Modernization and Privatization

Though many parties are involved in negotiations to invest or gain a stake in the privatizations, most of them are from a very short list of countries: Germany, France, the United States, Finland, China and South Korea. The Kremlin has used its privatization and modernization programs as a foreign policy tool in order to strike larger deals and strengthen relationships. In some cases, Russia has simply needed technology and has had to make political concessions to gain the technology it wants. In other cases, Russia has been after political deals and allowed a foreign partner to participate in the modernization and privatization process as a sign of good faith. The Russians are preventing some foreign countries, like Sweden and Japan, from taking part in the privatization and modernization drives because politically the countries are at odds with Moscow.