OFF: Bendukidze - A different sort of oligarch
08/31/2004 | line305b
THE ECONOMIST
Face value
A different sort of oligarch
Jul 29th 2004
From The Economist print edition
Reuters
Having got rich in Russia, Kakha Bendukidze now wants to be the world's most capitalistic politician
FORGET eBay. If you want to buy a dysfunctional boiler house, an international airport, a tea plantation, an oil terminal, a proctology clinic, a vineyard, a telephone company, a film studio, a lost-property office or a beekeepers' regulatory board, then call Kakha Bendukidze, Georgia's new economy minister. His privatisation drive has made him a keen seller of all the above. And for the right price he will throw in the Tbilisi State Concert Hall and the Georgian National Mint as well.
Mr Bendukidze made his name and fortune as an industrialist in neighbouring Russia, putting together the country's biggest heavy-engineering group, OMZ, before returning to his native Georgia in June of this year with a mandate to reverse more than a decade of post-Soviet decay. He insists that he was taken by surprise when Georgia's president, Mikhail Saakashvili, and prime minister, Zurab Zhvania, nobbled him for a chat in the course of a private visit he made to Tbilisi in May, and then offered him a ministerial job the same evening. But having said yes, he is cracking ahead, doing everything that businessmen must dream of making governments do. He says that Georgia should be ready to sell “everything that can be sold, except its conscience”. And that is just the start.
Next year—if not sooner—he will cut the rate of income tax from 20% to 12%, payroll taxes from 33% to 20%, value-added tax from 20% to 18%, and abolish 12 kinds of tax altogether. He wants to let leading foreign banks and insurers open branches freely. He wants to abolish laws on legal tender, so that investors can use whatever currency they want. He hates foreign aid—it “destroys your ability to do things for yourself,” he says—though he concedes that political realities will oblige him to accept it for at least the next three years or so.
As to where investors should put their money, “I don't know and I don't care,” he says, and continues: “I have shut down the department of industrial policy. I am shutting down the national investment agency. I don't want the national innovation agency.” Oh yes, and he plans to shut down the country's anti-monopoly agency too. “If somebody thinks his rights are being infringed he can go to the courts, not to the ministry.” He plans, as his crowning achievement, to abolish his own ministry in 2007. “In a normal country, you don't need a ministry of the economy,” he says. “And in three years we can make the backbone of a normal country.”
Good luck, and he will need it. Mr Saakashvili's new government has taken over a country where half the population lives on less than $2 a day, relations with Russia are tense, and rebel regimes control two provinces. The previous president, Edward Shevardnadze, a former Soviet foreign minister, was driven out in November by huge public demonstrations against election-rigging and corruption.
Mr Bendukidze is the second minister plucked from the Georgian diaspora. The first, the French-born Salome Zourabichvili, was France's ambassador to Georgia until Mr Saakashvili made her his foreign minister. She wants to build political ties with the West, in order to help Georgia to fend off fresh attempts at domination by Russia. Yet at the same time, Georgia needs investment from Russia's booming corporate sector—and here Mr Bendukidze's experience should come in useful. Until May he was a prominent figure in the circle of top Russian tycoons known as the “oligarchs”, albeit a notch below the oil barons, such as the now-imprisoned Mikhail Khodorkovsky of Yukos and the soccer-mad Roman Abramovich of Sibneft and Chelsea Football Club.
A clever and likeable man, aged 48, Mr Bendukidze was a scientist until the Soviet Union collapsed, and never did seem to be one of nature's metal-bashers even at the height of his empire-building. He says now that he was preparing to retire from business some months before the offer came from Mr Saakashvili. Early this year OMZ looked set to merge with another Russian engineering company, Power Machines, though that deal now seems to be off. Still, Mr Bendukidze has put his shares in trust, and resigned as chief executive. He is a political liberal as well as an economic one, and thus no soul-mate of Russia's president, Vladimir Putin, says a western diplomat who knows him well. Asked whether he was retreating from Russia for fear that the persecution of Mr Khodorkovsky might turn into a purge of oligarchs in general, Mr Bendukidze will not be drawn, saying only that “we have had times [in Russia] harsher than this.”
He is frank about the failings of the chaotic and often rigged Russian privatisations of the 1990s which made him and other oligarchs rich. He snapped up most of OMZ's assets for peanuts— though, by the standards of the day, he subsequently earned his fortune, restructuring the company and halving its workforce. The lesson he drew from the Russian experience, he says, is to change the method of privatisation, not the principle of it. He promises public sales to the highest bidder, and cash only: “no conditions, no promises, no beauty contests”.
Georgia on my mind
He insists that Georgia is a more “individualistic” place than Russia, and thus more receptive to reform. Georgians may take some persuading. A knot of demonstrators blocks Mr Bendukidze's way to work each morning. Opinion polls show only lukewarm support for privatisation. Mr Saakashvili and Mr Zhvania claim to admire his radicalism, but they may yet feel obliged to curb it if they want to conserve political capital for sparring with Moscow or with rebel regions. To Mr Bendukidze, such problems are another argument for boldness: big improvements in business conditions are needed in order to offset big political risks and to keep investors coming. “Other governments make budgets,” he says. “We are making a nation.”
Face value
A different sort of oligarch
Jul 29th 2004
From The Economist print edition
Reuters
Having got rich in Russia, Kakha Bendukidze now wants to be the world's most capitalistic politician
FORGET eBay. If you want to buy a dysfunctional boiler house, an international airport, a tea plantation, an oil terminal, a proctology clinic, a vineyard, a telephone company, a film studio, a lost-property office or a beekeepers' regulatory board, then call Kakha Bendukidze, Georgia's new economy minister. His privatisation drive has made him a keen seller of all the above. And for the right price he will throw in the Tbilisi State Concert Hall and the Georgian National Mint as well.
Mr Bendukidze made his name and fortune as an industrialist in neighbouring Russia, putting together the country's biggest heavy-engineering group, OMZ, before returning to his native Georgia in June of this year with a mandate to reverse more than a decade of post-Soviet decay. He insists that he was taken by surprise when Georgia's president, Mikhail Saakashvili, and prime minister, Zurab Zhvania, nobbled him for a chat in the course of a private visit he made to Tbilisi in May, and then offered him a ministerial job the same evening. But having said yes, he is cracking ahead, doing everything that businessmen must dream of making governments do. He says that Georgia should be ready to sell “everything that can be sold, except its conscience”. And that is just the start.
Next year—if not sooner—he will cut the rate of income tax from 20% to 12%, payroll taxes from 33% to 20%, value-added tax from 20% to 18%, and abolish 12 kinds of tax altogether. He wants to let leading foreign banks and insurers open branches freely. He wants to abolish laws on legal tender, so that investors can use whatever currency they want. He hates foreign aid—it “destroys your ability to do things for yourself,” he says—though he concedes that political realities will oblige him to accept it for at least the next three years or so.
As to where investors should put their money, “I don't know and I don't care,” he says, and continues: “I have shut down the department of industrial policy. I am shutting down the national investment agency. I don't want the national innovation agency.” Oh yes, and he plans to shut down the country's anti-monopoly agency too. “If somebody thinks his rights are being infringed he can go to the courts, not to the ministry.” He plans, as his crowning achievement, to abolish his own ministry in 2007. “In a normal country, you don't need a ministry of the economy,” he says. “And in three years we can make the backbone of a normal country.”
Good luck, and he will need it. Mr Saakashvili's new government has taken over a country where half the population lives on less than $2 a day, relations with Russia are tense, and rebel regimes control two provinces. The previous president, Edward Shevardnadze, a former Soviet foreign minister, was driven out in November by huge public demonstrations against election-rigging and corruption.
Mr Bendukidze is the second minister plucked from the Georgian diaspora. The first, the French-born Salome Zourabichvili, was France's ambassador to Georgia until Mr Saakashvili made her his foreign minister. She wants to build political ties with the West, in order to help Georgia to fend off fresh attempts at domination by Russia. Yet at the same time, Georgia needs investment from Russia's booming corporate sector—and here Mr Bendukidze's experience should come in useful. Until May he was a prominent figure in the circle of top Russian tycoons known as the “oligarchs”, albeit a notch below the oil barons, such as the now-imprisoned Mikhail Khodorkovsky of Yukos and the soccer-mad Roman Abramovich of Sibneft and Chelsea Football Club.
A clever and likeable man, aged 48, Mr Bendukidze was a scientist until the Soviet Union collapsed, and never did seem to be one of nature's metal-bashers even at the height of his empire-building. He says now that he was preparing to retire from business some months before the offer came from Mr Saakashvili. Early this year OMZ looked set to merge with another Russian engineering company, Power Machines, though that deal now seems to be off. Still, Mr Bendukidze has put his shares in trust, and resigned as chief executive. He is a political liberal as well as an economic one, and thus no soul-mate of Russia's president, Vladimir Putin, says a western diplomat who knows him well. Asked whether he was retreating from Russia for fear that the persecution of Mr Khodorkovsky might turn into a purge of oligarchs in general, Mr Bendukidze will not be drawn, saying only that “we have had times [in Russia] harsher than this.”
He is frank about the failings of the chaotic and often rigged Russian privatisations of the 1990s which made him and other oligarchs rich. He snapped up most of OMZ's assets for peanuts— though, by the standards of the day, he subsequently earned his fortune, restructuring the company and halving its workforce. The lesson he drew from the Russian experience, he says, is to change the method of privatisation, not the principle of it. He promises public sales to the highest bidder, and cash only: “no conditions, no promises, no beauty contests”.
Georgia on my mind
He insists that Georgia is a more “individualistic” place than Russia, and thus more receptive to reform. Georgians may take some persuading. A knot of demonstrators blocks Mr Bendukidze's way to work each morning. Opinion polls show only lukewarm support for privatisation. Mr Saakashvili and Mr Zhvania claim to admire his radicalism, but they may yet feel obliged to curb it if they want to conserve political capital for sparring with Moscow or with rebel regions. To Mr Bendukidze, such problems are another argument for boldness: big improvements in business conditions are needed in order to offset big political risks and to keep investors coming. “Other governments make budgets,” he says. “We are making a nation.”