Russia's leader, Vladimir Putin, is creating a new generation of Russian billionaires. A third wave of would-be oligarchs is emerging: tycoons chosen by the president to own and manage assets confiscated from Western companies. They are more familiar with business and still as loyal to the Russian leader as their predecessors, reports Reuters.
From the beginning of his first term, the Russian president first silenced the country's oligarchs from the era of the 1990s, then "anointed" a new generation of tycoons - often chosen from among his old colleagues in the Russian intelligence services.
The original oligarchs amassed their fortunes during privatization in the early 1990s under then-President Boris Yeltsin. Some have been allowed to continue managing their vast wealth as long as they obey Putin's dictates. Such is the case with Vladimir Potanin, owner of the metallurgical giant "Norilsk Nickel" worth $24 billion, as well as Oleg Deripaska, head of a vast industrial empire based on his assets in the aluminum business.
Some of this first generation of oligarchs are not doing so well, according to Reuters. Boris Berezovsky, owner of companies related to oil, cars and media, has had a rift with Putin. As of now, the businessman is dead. Mikhail Khodorkovsky, founder of the former oil giant "Yukos" and once Russia's richest man, spent 10 years in a Siberian prison for trying to meddle in politics. Others have transferred most of their wealth abroad but maintain good relations with the Kremlin, such as former oil tycoon Mikhail Fridman, whose assets are now managed by his Luxembourg-based holding company "LetterOne".
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Vladimir Putin is thought to have little reason to worry about the second wave of millionaires or billionaires he has raised since becoming president. These "friends and former colleagues" from his days as a KGB agent and local bureaucrat in St. Petersburg, Russia's second-largest city, have been called "siloviki" (a person who started a political career after being part of the army, police or security services). They benefited from the Russian leader's redistribution of state energy assets more than 20 years ago. Among them is Igor Sechin, whom Putin appointed deputy prime minister before putting him in charge of state oil giant Rosneft. in 2012 Nikolai Tokarev, another KGB agent, became president of Transneft, the world's largest pipeline company, in 2007 Alexei Miller, head of Russian gas giant Gazprom, is another member of this group.
Although the older generations have not lost their influence, it seems the time has come for a change. A few months ago, few outside of Russia had heard of businessmen Alexander Varshavsky or Alexander Govor. The former, the owner of Volkswagen dealerships, is now the owner-operator of a plant that the German car group has long operated in northern Russia. Additionally, it has taken over the assets of "Hyundai", the Korean automaker. The seized assets, which Varshavsky now manages, generated nearly $7 billion in revenue in 2021, according to Russian independent news site The Bell.
Govor was the owner of the branches of "McDonalds" in Russia. Together with his partner Arsen Kanokov, he inherited the chain of restaurants, as well as branches of "Starbucks" and "Domino"s Pizza". These assets generated about $3 billion in annual revenue before the invasion of Ukraine began.
The list of expropriated assets could grow in the coming months as companies scramble to leave Russia. About 1,679 Western companies continue to operate in the country, according to the latest statistics from the Kyiv School of Economics.
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This new wave of would-be oligarchs differs from their predecessors in many ways. Most of them have business experience. They have even displayed some competence in their respective fields, being as familiar with the fundamentals of profit and market competition as they are with "corrupt architecture" of the system. Taimuraz Boloev, the new head of the former Carlsberg Baltika division, may have been chosen because of his long-standing friendship with the Russian leader. He previously managed the brewery for 13 years - until 2014.
There are also exceptions. Yakub Zakriev, the nephew of Chechen warlord Ramzan Kadyrov, thanks to Putin, inherited the Russian assets of the French food giant "Danone", although he has no experience in the sector.
Another difference with the billionaires of the 1990s is that they work in the consumer goods, services and retail sectors. The mineral resources and energy that the Russian leader has taken control of have already been distributed among the older generation.
The main distinguishing characteristic of the new generation is that they work in a radically new context. Previous business elites depended on a local economy participating in world trade and immersed in the global financial system. Russia has been cut off from foreign credit, and the country now has access to a whole range of consumer goods that it once imported or produced only domestically under Western rule.
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Last year, the president imposed a 50% discount on assets sold by companies leaving Russia if they found a buyer. Last month, Putin launched more sweeping measures that will take effect if Western industrial powers agree next month to use Moscow's $300 billion in frozen assets to help Ukraine, according to Reuters.
The new business magnates in Russia do not participate in power, as the previous oligarchs did. None of them has reached a weight that would allow them to compete for influence in the Kremlin. In the short term, they can grow rapidly, benefiting from the prosperity of the war economy, with wages as well as pensions or welfare benefits boosted by government spending. Beyond that, they are limited by the isolation of the economy.
Their ambitions will also be limited by the danger that whatever is handed over can be taken away by Putin. They will not be able to balance, as their predecessors did, the dictates of the Kremlin with the demands of the free world market. Instead, they will have to operate in a system where most resources are mobilized for the war effort, with the rest of the economy having to share the remaining resources.
Given the war in Ukraine, sanctions and the exodus of Western investors, Vladimir Putin probably has no choice but to embrace the new generation. If Russia develops industries that will help it shake off its overdependence on oil and gas exports, the new tycoons may even help the economy. Sanctions imposed on the country in previous years, especially after the invasion of Crimea in 2014, have even helped Russia become self-reliant in terms of food consumption.
Additionally, on May 23, Russian President Vladimir Putin signed a new decree directing his government to identify US property, including securities, that can be used as compensation for losses incurred as a result of the seizure of frozen Russian assets in the US . The decree states that a Russian legal entity can ask a Russian court to determine whether its property was unjustifiably seized and seek compensation.