With a fortune approaching $24 billion, Donetsk industrial titan Rinat Akhmetov has pulled away from the pack in Dragon Capital investment bank’s latest rankings of the nation’s 50 richest Ukrainians. The elite list, meanwhile, keeps pulling away from the rest of Ukraine’s 46 million citizens, about one-third of whom are economically destitute and desperate. Many see the wealth disparities as unhealthy for the nation’s future, especially since many of these fortunes came from acquiring Soviet assets rather than creating new wealth.
The good times are back for Ukraine’s richest, after the country’s top 50 saw their collective net worth jump by 57 percent compared to last year’s crisis-hit group.
Added up, Ukraine’s richest 50 had a combined net worth of $67 billion – slightly less than half of the nation’s estimated 2010 gross domestic product.
The 2010 rich list, compiled by leading Kyiv investment bank Dragon Capital, found that one man has soared through the crisis better than anyone else, and now stands above all others in terms of wealth – industrial titan Rinat Akhmetov.
In Ukraine, the capitalist entrepreneurs win out, so you have disparities in income distribution, plus trade and labor unions play no role.”
-Vasily Astrov, an analyst for the Vienna Institute for International Economic Studies.
Akhmetov’s net worth was estimated at $23.6 billion, far ahead of the trailing pack.
His dominance was most prevalent in metals and mining.
He accounted for 61.3 percent of that sector’s sales.
He also prevailed in the energy sector, with 25.1 percent of sales.
He also has interests in banking, machine building, media and perhaps his favorite asset, the Shakhtar Donetsk football club.
Alone, Eastern Europe’s richest man accounted for a quarter of the nation’s industrial output and was 103 times richer than the 50th richest Ukrainian -- carmaker Tariel Vasadze, at $230 million.
While the enormous growth in net worth is a sign that the country is recovering from the financial meltdown, most in the nation have not prospered as well as the super set.
“This is typical for a country of Ukraine’s level of development,” said Vasily Astrov, an analyst for the Vienna Institute for International Economic Studies based in Austria. “The situation resembles Latin American countries where there are few rich and many poor people. In Ukraine, the capitalist entrepreneurs win out, so you have disparities in income distribution, plus trade and labor unions play no role.”
FDI is the way to go to bring in innovation and for the government to harness the Ukrainian business groups who are interested in export markets like in agriculture, which has huge potential for the country.”
-Vasily Astrov, an analyst for the Vienna Institute for International Economic Studies.
According to the State Statistics Committee, 12 million out of a population of 46 million have an average income below the minimum subsistence level of just over $100 per month.
Moreover, economists noted that – although the companies of many on the list had impressive revenue growth in the last year – reported profits were either miniscule or non-existent.
In theory, low profit margins mean companies have little to re-invest. And there’s little to tax from narrow margins.
Experts say much of the cash generated by the country’s wealthiest ends up abroad, owing to tax-avoidance schemes with holding and off-shore registered companies.
Partly as a result, the nation’s coffers have fallen short of revenue targets.
Moreover, Ukraine remains dependent on loans, including a $15 billion credit from the International Monetary Fund.
Ukraine’s estimated government debt is $53 billion, according to BG Capital., including nearly $13 billion to the IMF.
Analyst Astrov said one way of achieving more equitable wealth and income distribution is to attract foreign direct investment (FDI), but he said the government must step in and play an enabling role to promote this.
“FDI is the way to go to bring in innovation and for the government to harness the Ukrainian business groups who are interested in export markets like in agriculture, which has huge potential for the country,” Astrov said.
The richest list is dominated by lawmakers or people with strong ties to government. Consequently, they are sometimes seen as having such a strong stake in the status quo that economic competition is blocked – hence, Ukraine’s low rate of foreign investment.
Not everyone is in the same basket, but there are many oligarchs who want to keep out competition."
-Vasily Astrov, an analyst for the Vienna Institute for International Economic Studies.
“Not everyone is in the same basket, but there are many oligarchs who want to keep out competition. Many markets are dominated by cartels or virtual monopolies. This leads to price agreements and markups at the expense of the labor force, but this isn’t exclusive to Ukraine,” Astrov said.
This could explain why heavy Soviet-era industries of metals, mining, energy, oil and gas, machine building and chemical are the dominant sources of fortunes.
Agriculture and food production are increasingly present, with at least 10 people engaged in this sector in the 2010 richest club.
It’s still a man’s world at the top: only two women made the list – vodka producer Olha Nechytayilo-Ridzhok and pharmaceuticals maker Filya Zhebrivska, who are worth $471 million and $238 million, respectively.
Wealth inequality, Astrov noted, is fueled partially by government corruption and weak tax collection.
A 2006 U.S. Agency for International Development report on corruption, which still holds true today, stated: “In elite cartel countries such as Ukraine, top political and business figures collude behind a facade of political competition and colonize both the state apparatus and sections of the economy.”
Seventeen on the richest list are either in government or are elected officials, 12 of whom are members of parliament, including Akhmetov.
Ukraine is a closed insider economy run by an elite network that limits foreign entry, including Russian business interests in many sectors of the economy.”
- Volodymyr Lanovy, a former economy minister.
The 22nd richest, Valeriy Khoroshkovsky, worth $568 million, for example, has been a member of parliament, has served a number of advisory roles in government, was first deputy head of the presidential administration, the economy minister, head of customs and today, leads Ukraine’s state security service. Until recently he sat on the High Council of Judges that appoints and fires the nation’s judges.
“Ukraine is a closed insider economy run by an elite network that limits foreign entry, including Russian business interests in many sectors of the economy,” said Volodymyr Lanovy, a former economy minister and president of the Center for Market Reforms. “The way it functions is it creates obstacles for real economic growth and integration with the world economy.”