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How Did Russian Oligarchs Get So Wealthy?

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On Dec. 25, 1991, the USSR ceased to exist. About five minutes later, a group of business speculators began taking advantage of the chaotic situation and during the ensuing few years became the world’s newest cadre of billionaires.

Who are these mysterious born-again Capitalists and how did they pull of the financial trifecta of the century?

An even better question is why the process seems to be replicating itself in Putin’s modern-day Russia, where a new breed of oligarchs have replaced generations of tsars, dictators and party chiefs.

The “Beatles” of Russian Zillionaires: Usmanov, Prokhorov, Abramovic, and Berezovsky

The quick, weird history of how the Russian oligarch class came to be must include four names, the Fab Four of the nation’s moneyed class. Boris Berezovsky and Roman Abramovic (their real names), were the first two, the John Lennon (Lenin?) and Paul McCartney of the bunch.

The capitalized on the 1992 government “loans for shares” program, an idea so terrible that it could make people forget all about that Ivan guy.

But seriously, the loans for shares scheme let private banks loan money to the Russian government in exchange for shares in government-owned factories and corporations.

When the government predictably defaulted on the loans, Boris and Roman enjoyed the windfall of ownership in the country’s then-biggest oil company, Sibneft.

The two best pal-skys later began to argue over their unsigned “gentleman’s agreement” wherein Boris sold his shares to Roman at a bargain-basement price. When a Russian court ruled for Roman Abramovic at trial in 2013, Mr. Berezovsky summarily hanged himself.

Abramovic’s New Best Friend

The young (b. 1966) Roman Abramovic is currently the 11th richest person in Russia and the 139th richest on earth, with $9.1 billion in net assets. He speaks fluent English and resides in London and besides his key corporate entity, Millhouse Capital LLC, is the owner of the Chelsea Football (soccer) Club.

Mr. A, as he is known in Russia and elsewhere, is so close to President Vladimir Putin that the two speak as family members, using junior and senior Russian linguistic terms as would a father and son.

Usmanov and Prokhorov

Alisher Usmanov is the 66th richest person in the world and the 4th richest of all the Russian oligarchs. A metal, mining and investment guru, the billionaire ($14.7 billion in net worth) is personally close to both Putin and Abramovic, having once employed the latter’s wife. A walking contradiction (he is a practicing Muslim married to a Jewish gymnastics coach, Irina Viner), Usmanov is a former professional fencer who married his childhood sweetheart (Viner), and was instrumental in introducing President Putin to his current female companion, retired gymnast Alina Kabaeva, age 34. Usmanov spent six years in a Communist prison on a fabricated charge when he ran afoul of the Brezhnev dictatorship in 1980, a very bad year to be an independent business entrepreneur in Russia.

Mikhail Prokhorov is the second youngest of the Fab Four Russian oligarchs (Abramovic is the youngest by a year, born in 1966), having acceded to financial heights the same way the other three did, during the prikhvatizatsiya era (literally translation: “grab-ification”). His specialty is precious metal, and he currently owns large stakes in the nation’s nickel, palladium and gold industries. Prokhorov is also the only non-U.S. born owner of an NBA team, the Brooklyn Nets. He is currently listed as the 12th wealthiest oligarch, ranking 145th on the list of world’s wealthiest people, with net assets of $8.9 billion.

Not as close to Putin as the other oligarchs, he ran against the sitting president as an independent party member, but some say it was only to lend an air of “fair competition” to an otherwise rigged election. Nevertheless, he has had run-ins with Putin’s government from time to time and is not a member of the president’s inner circle as are many other oligarchs.

Survey Says…

A recent Levada Center survey reveals that at least 70 percent of Russian citizens believe it to be impossible to get rich without breaking the law and “cheating the system.”

In the same survey by the independent polling organization, nearly half of all Russians think that millionaires are inherently dishonest.

Those who put the survey questions together say it’s no surprise that average people distrust the wealthy. The country has a long history of bad attitudes toward the upper classes, one that is even stronger in light of the fact that the typical monthly salary for Russian workers is $700, far lower than in most developed nations, where the contrast between middle-classes and wealthy ones is not so extreme.

The Ranking of Oligarchs and Their Billions

Here’s some raw data from the official list of who has how much money in Russia.

Note that Russia, a country where the average monthly salary is just $700, boasts 15 of the world’s 200 richest humans. Here are the 15 names, formatted with world wealth rank first, name, net assets, and how they made their billions.

51     Alexey Mordashov              17.5 billion          steel, investments

57     Vladimir Lisin                       16.1 billion          steel, transport

59     Gennady Timchenko              16.0 billion          oil, gas

66     Alisher Usmanov                   14.7 billion          steel, telecom

74     Vagit Alekperov           14.5 billion          oil

75     Mikhail Fridman                   14.4 billion          oil, banking, telecom

77     Vladimir Potanin         14.3 billion          metals

89     Andrey Melnichenko            12.8 billion          coal, fertilizers

100   Viktor Vekselberg                 12.4 billion          metals, energy

138   German Khan                       9.3 billion            oil, banking, telecom

139   Roman Abramovich              9.1 billion            steel, investments

145   Mikhail Prokhorov               8.9 billion            investments

156   Viktor Rashnikov                 8.3 billion            steel

190   Dmitry Rybolovlev               7.4 billion            fertilizer

194   Alexei Kuzmichev                7.2 billion            oil, banking, telecom

As the once-richest person in the world, and the first billionaire, J. Paul Getty once said, “If you can count your millions, you’re not a billionaire.”

The Future of Russia Economy for Non-Oligarchs

What about everyone else? While it’s a sure bet that the fattest of the Russian fat cats will do well in any economic environment, how will the average person fare in the next decade?

According to the World Bank’s end-of-year analysis, looking toward 2018, Russia’s fortunes are directly tied to the world oil industry, and to domestic oil production. Both are expected to do very well in the short- and long-term.

Global prices for crude are rising, domestic production is doing the same, and Gross Domestic Product (a measure of national economic expansion) will likely hit 1.4 percent for each of the next two years.

Those seemingly low numbers are bright spots for a nation that has just pulled out of a two-year recession.

Another big boost to the economy and national psyche is the 2018 World Cup tournament, which Russia will host amid huge boosts to public and private investment.

The final bit of good news from the World Bank was the predicted inflation rate for the Russian economy for 2018, tagged at just 4 percent, well within the government’s targeted range.

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