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SOE State-Owned Enterprise

Russia defines a state-owned enterprise as a business in which the government owns at least 25 percent. State-owned enterprises could be subdivided into four main categories: unitary enterprises (federal or municipal, that are fully owned by the government), of which there are 3,719; other state-owned enterprises where government holds a majority stake such as Sberbank, the biggest Russian retail bank (over 50 percent is owned by the government); natural monopolies, such as Russian Railways; and state corporations (usually a giant conglomerate of companies) such as Rostec and Vnesheconombank (VEB). There are currently eight state corporations.

FAS announced in October 2016 that the Russian government and state-owned enterprises (SOEs) accounted for 70 percent of Russias economy. The number of government-owned unitary enterprises has tripled in the past three years. The total number of SOEs exceeded 24,000 as of 2016.

SOE procurement rules are non-transparent and use informal pressure by government officials to discriminate against foreign goods and services. The current Russian government policy of import substitution mandates numerous requirements for localization of production of certain types of machinery, equipment, and goods.

The Russian government and its SOEs dominate the economy. Due to federal budget constraints in 2016, privatization plans became a higher priority. In 2016, the Russian government sold 10.9 percent of diamond company Alrosa in July, 50.08 percent of Bashneft in October, and 19.5 percent of Rosneft in December. The government approved in early 2017 a new 2017-19 plan identifying state-controlled assets of Sovcomflot, Alrosa, Novorossiysk Commercial Seaport, and United Grain Company for privatization. The plan would also reduce the states share in VTB, one of Russias largest banks, from over 60 percent to 25 percent plus one share within three years.

State-owned enterprises (SOEs), and state-supported enterprises (SSEs) or "National Champions," were emerging to become serious global competitors. UNCTAD highlighted this trend in its 2011 World Investment Report, in which it noted that investment from emerging and developing economies now accounts for a 29 percent of global foreign direct investment outflows. SOEs comprise 11 percent of this, and 19 of the worlds 100 largest multinational enterprises are SOEs.

Fortune magazines Global 500 list has reflected this as well. The 2005 Global 500 included 67 SOEs; by 2011 the number had risen to 106. State capitalism can also claim some of the worlds most powerful companies. The 13 biggest oil firms, which between them have a grip on more than three-quarters of the worlds oil reserves, are all state-backed. So is the worlds biggest natural-gas company, Russias Gazprom. But successful state firms can be found in almost any industry. China Mobile is a mobile-phone goliath with 600m customers. Saudi Basic Industries Corporation is one of the worlds most profitable chemical companies. Russias Sberbank is Europes third-largest bank by market capitalization. Dubai Ports is the worlds third-largest ports operator. The airline Emirates is growing at 20% a year.

SOEs and SSEs in several cases have gained domestic and international market share in large part because they are enjoying financial support, tax preferences, regulatory privileges, and immunities not generally available to their privately-owned competitors. These privileges are often reinforced with discriminatory government market access or purchasing policies. Together, they give SOEs and SSEs a competitive advantage over their private sector rivals -- advantages that are not necessarily based on better performance or innovation, but on government policies and practices that distort competition in the market.

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Page last modified: 23-07-2018 13:38:28 ZULU