Fear, uncertainty cast pall over Russian business

DAVOS, Switzerland (Reuters) - Russian businessmen at the World Economic Forum in Davos struck a gloomy note this week, with many uncertain about the country’s direction and others warning a climate of corporate fear could hamper growth.

The wealthy businessmen who ran Russia 10 years ago under President Boris Yeltsin lost their political influence during Vladimir Putin’s presidency in 2000-08.

During the global economic crisis, many have gorged on state bailouts.

The state now controls about 60 percent of the economy and President Dmitry Medvedev’s call for modernization to lessen the dependency on oil is falling on deaf ears as entrepreneurs are too scared to show initiative after years of what they see as state bullying.

German Gref, CEO of Russia's largest lender Sberbank SBER03.MM, was the only Russian in Davos who spoke openly about the mood of fear gripping the private sector since the state takeover of oil major YUKOS several years ago.

Gref, who also sits on the board of Russia's largest private oil firm LUKOIL LKOH.MM, said that since the YUKOS affair, "the main issue on LUKOIL's agenda has been not development, but self-preservation."

“For me, it was a shock to learn that,” Gref told an audience of investors, as LUKOIL’s head and shareholder Vagit Alekperov looked on. Gref then called for a push to privatize state assets, suggesting a start with the bank he heads.

YUKOS assets were nationalized and former CEO Mikhail Khodorkovsky jailed for tax evasion after a protracted legal battle that has become a symbol of the fear and uncertainty governing business is Russia.

Even the word YUKOS is taboo and officials and other businessman rushed to play down Gref’s words.

"It is for the government to decide," about bank privatization, said another state banker Andrei Kostin, CEO of second largest bank VTB VTBR.MM. Finance Minister Alexei Kudrin said that the sale was "too early to even talk about."

“It was very bold of Gref to say that,” said another businessmen, who declined to be identified.

Gref, a prominent political and business figure, drafted the liberal reform program for Vladimir Putin’s first presidential term. His plans were implemented but then partly reversed during the second term, with the YUKOS takeover seen as a turning point toward more authoritarian policies.

Prime Minister Putin, whose speech in Davos on the state of the global economy last year was met with skepticism by international investors, did not come to the gathering this year -- but even in his absence the businessmen did not talk freely.

“There is no modernization. To carry out modernization you need leadership and there is no leadership,” said the head of a large Russian company. He declined to be identified, saying he did not want to put his business at risk.

“I have thousands of people working for me.”


The depth of Russia’s economic troubles last year brought new reform plans, with officials loudly talking about a new wave of privatization and even political liberalization, but rising commodity prices have put those ideas on the back burner.

Anatoly Chubais -- the architect of Russia’s first wave of privatization who now heads a state firm tasked with developing the hi-tech sector -- was among those issuing a stark warning.

“It is either modernization or degradation. There is no middle way for Russia,” Chubais told Reuters.

Conversations with Russian delegates at Davos showed there was no common vision of what the modernization should mean.

“It is your ability to compete in the market which tells how “modern” you are. But I would first concentrate on cutting excess costs,” Oleg Deripaska, CEO of the world’s biggest aluminum firm UC RUSAL, told Reuters.

Deripaska, whose business empire was bailed out by the state, was humiliated by Putin in front of TV cameras during the prime minister’s visit to one of his factories last year.

"I think that the best modernization is the construction of roads," said Mikhail Shamolin, CEO of the country's biggest telecom company MTS MBT.N.

Finance Minister Alexei Kudrin offered his own plan of reform at Davos, focusing on improving the efficiency of state spending to achieve 20 percent in real term savings within two years. He was vague on details.

To compensate for their fears at home, however, Russian businessmen descended en masse to a Ukrainian presentation -- where most felt free to crack jokes about messy politics across the border.

Editing by David Cowell