World Economy

Kremlin Wants Big Business to Spend $120b to Build Economy

Kremlin Wants Big Business to Spend $120b to Build EconomyKremlin Wants Big Business to Spend $120b to Build Economy

The Kremlin is leaning on Russia’s oligarchs to spend $120 billion on new investments by the end of Vladimir Putin’s term after shelving plans to hike taxes on big business.

That’s an increase of 15-20% and part of the Russian leader’s plan to take overall investment to a quarter of gross domestic product—the highest level since the Soviet era. If the Kremlin succeeds, it could also leave less money for shareholders because the bulk of capital spending in companies is funded from profits, Bloomberg reported.

But with the economy stuck in a rut as western sanctions cut off foreign capital and technology, the Kremlin is running out of alternatives to jump start growth and meet Putin’s pledges to boost living standards.

“Compelling companies to invest in specific projects or confiscating sums are things of the same order,” said Natalia Orlova, chief economist at Alfa-Bank in Moscow. “For companies, this means the profitability of their business becomes less predictable.”

The iffy economic outlook, along with western sanctions and an often-unfriendly business climate, has kept companies cautious about committing new capital, frustrating Kremlin hopes of an economic breakthrough. Now officials are turning up the pressure for cash.

“Firms are slowing or putting off investments, so all instruments have to be used,” said Vladimir Salnikov, deputy director of the Center for Macroeconomic Analysis and Short-Term Forecasting, a Moscow think tank. “This may not be the best stimulus, but it works.”

Last month, a top Kremlin aide shocked investors and tycoons with a proposal to raise taxes to capture 500 billion rubles ($7.4 billion) in “excess revenue” earned by some of its biggest mining, metals and chemicals companies—even including estimates for individual firms.

The finance ministry is targeting 8 trillion rubles of additional investment under the new mechanism through 2024, when Putin’s current term ends, according to ministry spokesman Andrey Lavrov.

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