Vladimir Putin visited the AvtoVAZ plant. He started off by praising the management of the plant, which is part of the ROSTEC group and headed by former transport minister Maxim Sokolov: «I see that the plant is developing and it’s great. Everyone predicted the demise of AvtoVAZ, but nothing of that sort happened,» he said. It is not entirely clear who and how could seriously «predict the demise» of Russia’s only major carmaker in the face of the departure of most of its competitors, but the statement fits well with Putin’s ultra-optimistic rhetoric. The Russian president constantly talks about how Russia is successfully overcoming sanctions and only getting stronger.
Some of the participants in the power vertical know how to play on Putin’s ultra-optimism for their own advantage. The management of ROSTEC and AvtoVAZ also know how to do it. The head of state reacted enthusiastically to the novelties of the domestic car industry, namely the Lada Iskra, which has not yet gone into mass production. The car can hardly be called new: it is built on a redesigned Renault platform (the Renault-Nissan company used to be one of AvtoVAZ’s owners). But Putin is quite happy with this form of import substitution.
Executives at Rostec and AvtoVAZ were able to capitalize on Putin’s visit. Top officials at the state corporation have long complained about the expansion of Chinese carmakers. Last April, Maxim Sokolov spoke of the «aggressive pricing» policy pursued by Chinese brands and accused them of being reluctant to build production facilities in Russia. «They are not interested and see no incentive to localize their production in Russia, which would have provided the Russian component industry with additional orders. Analysts note that a number of Eastern brands that have come to Russia have a shortage of spare parts, and car services have difficulties ordering parts for maintenance and repair,» Sokolov argued. In June, AvtoVAZ’s CEO pointed out that the Russian industry is in less favorable conditions due to the high key interest rate, while the Chinese car industry operates under conditions of a much lower rate. Last May, Rostec CEO Sergei Chemezov urged the government to introduce partial restrictions for the Chinese car industry.
The Kremlin and the Russian government will not accede to these requests, as this would contradict the policy of looking east and close cooperation with China. That is why Rostec found another way out and started lobbying for the compulsory purchase of its products for the public sector. Public officials and MPs are now expected to be driven around in Ladas instead of foreign cars (which does not prevent them from driving their personal imported cars after work). The company is going even further: workers, apparently well briefed by their superiors before the meeting with the head of state, suggested to Putin that employees of state companies be transferred to domestic cars and that taxi fleets be obliged to buy Ladas. «It would be good to introduce the same rules for state companies, state corporations and other state-owned enterprises, as well as for taxi services. So that they do not use cars manufactured abroad and assembled in Russia from large imported units, but drive domestic cars with a high percentage of local content, designed by our engineers and made from Russian components,» said one of the meeting’s participants. Putin responded by promising to clarify the legal definition of the concept of ‘localization of production" and to add state corporations to the list of obligatory customers of the domestic car industry. The head of state was more vague about taxis. «The state buys its own — it is quite natural. The same goes for taxis. Of course, we need to find a balance between the operators and the manufacturers. So we will definitely work on that, too,» Putin assured ROSTEC. This probably means that taxi fleets will be obliged to buy at least some of their cars from a «domestic manufacturer», while the cheapest economy class cars are only produced by AvtoVAZ.
Russian manufacturers close to the state are trying to survive in the conditions of high key interest rates and the expansion of Chinese goods, and are resorting to the good old-fashioned method of pushing their goods for state procurement. Of course, this does not contribute to the real development of technologies and improvement of product quality, but the management of state corporations will be able to show the Kremlin bosses high sales figures and possibly profits. The car manufacturers go even further, proposing the introduction of quotas for the purchase of domestic goods in industries with state supervision and regulation (which is practically all sectors of the Russian economy). This is a kind of blackmail, but companies (which the state can accuse of breaking the rules and suspend their work at any time) will not be able to resist such blackmail.
State tumor
The near-state sector continues to swell. State-owned Promsvyazbank wants to buy M-Video-Eldorado. M-Video is in trouble because of the central bank’s high interest rate and high inflation and as a result Russians are finding it increasingly difficult to buy electronics due to rising prices, and loans have become virtually unaffordable. The current owners of the retailer (the Gutseriev brothers and Bilan Uzhakhov, a businessman close to them) cannot be described as far removed from the state, but M-video is still a private, not a state, company. The purchase of the company by the state bank headed by Pyotr Fradkov, son of the former prime minister and former special services officer Mikhail Fradkov, seriously changes the rules of the game in the electronics market. A retailer owned by Promsvyazbank can obtain virtually unlimited credit, engage in predatory pricing, offer favorable loan terms and steal customers from smaller companies. The presence of such a player can deprive the electronics market of real competition.
In parallel, another story involving big business is unfolding. The Prosecutor General’s Office has filed a lawsuit against the Domodedovo Group of Companies and its beneficiary, Dmitry Kamenshchik, and the court has already seized all the group’s property, as well as shares and stakes in legal entities owned by the group’s beneficiaries, Dmitry Kamenshchik and Valery Kogan. Kamenshchik is suspected of illegally privatizing the airport. Unlike M-Video, Domodedovo has no financial problems, but the capital’s airport is not owned by the state (like Vnukovo) or members of Putin’s inner circle (like Sheremetyevo), but by Kamenshchik, a loyal but independent businessman. The state (or rather members of the power vertical) have been circling around Domodedovo like sharks for a long time, and now they have every chance of gaining control of it.
Economic hardship and the ongoing war help the state to expand its sphere of control. It is quite likely that we will soon see state monopolism in Russia. Private companies will either be squeezed by dumping at the expense of the state, or forced to sell their assets, or have them taken away directly. For the end consumer, this monopoly will lead to further price increases. The quality of services and goods will inevitably decline, but the Russian authorities do not seem to be worried about this. On the contrary, Vladimir Putin is emboldened by the growing role of the state and finds new reasons for his ultra-optimism.
