The major FIGs in Ukraine have dominated the economy over the past two decades through their ownership of vertically integrated businesses across multiple sectors, including agriculture, banking, energy production and transmission, media, mining and steel. These are systema’s primary stakeholders. Despite their privileges, the companies controlled by the FIGs are less productive and slower to increase growth and create jobs than are non-politically connected companies. Preservation of this model has depended on keeping a large section of the economy in state hands. This has allowed the stakeholders to benefit either by managing state-owned enterprises (SOEs) to extract gain through preferences granted to them by the state, or by working closely with SOEs to do so. Not surprisingly, corporate governance reform has held little appeal for these groups, while privatization has advanced at a snail’s pace, and discriminatory conditions have often excluded foreign investors. Three decades on from the collapse of the Soviet economy, Ukraine still has around 3,700 SOEs.
With the notable exceptions of PrivatBank and the national oil and gas company Naftogaz, the business operations of the FIGs have proved sustainable, despite the costs to society, because they have continued to create value for their owners.
The FIGs compete with one another for influence and access to rents, but have a strong motivation to coexist according to a set of informal rules. The Yanukovych ‘clan’ violated these rules in its dash to place rent seeking under its centralized control. In the process, it destabilized systema and forfeited the support of other players who concluded that they were better off without it despite the disruption of revolution. Some were quick to find their balance again in the post-revolution world in which systema still held sway, others less so.
Rinat Akhmetov, one of Ukraine’s wealthiest business figures, was able to find an accommodation with President Poroshenko after 2014 that allowed him to rebuild his business after suffering serious losses because of the conflict in Donbas. His business interests do not appear to have suffered under Zelenskyy’s presidency, and his television channels have shown the president in a positive light.
Ihor Kolomoisky, one of Akhmetov’s rivals at the top table of business owners, initially allied himself with the Poroshenko administration, and as governor of Dnipropetrovsk region he played a key role in 2014 in mobilizing resistance against Russian efforts to destabilize southeastern Ukraine. He left the country following a rift with Poroshenko, only to make a triumphant return after Zelenskyy’s election, determined to contest the nationalization of PrivatBank, the centrepiece of his business empire, that had taken place under the Poroshenko administration.
Analysts were quick to point to the influence of the major FIGs in the parliament that was elected in 2019. Volodymyr Fesenko, one of Ukraine’s top political commentators, noted in September of that year that Kolomoisky could count on the support of up to 30 MPs, Dmytro Firtash, a prominent player in the energy and chemicals sectors on 15, and Akhmetov on six. It is widely believed in Kyiv that Akhmetov’s direct influence on the government has increased since the 2019 elections, even if he controls far fewer votes in parliament. Prime Minister Denys Shmyhal previously held a senior position at Akhmetov’s energy company DTEK, while Olha Buslavets, the acting energy minister from April–November 2020, had a professional background in Donetsk’s coal industry, which is dominated by Akhmetov. She denied reports of having ties to DTEK. Meanwhile, the influence of Firtash appears to have waned, as demonstrated by the recent decision of Ukraine’s Security and Defence Council to impose sanctions against him. Kolomoisky’s influence in parliament may have diminished in recent months, after the US authorities imposed sanctions, in January 2021, on his close associate in parliament Oleksandr Dubinsky. The earlier fracturing of Zelenskyy’s parliamentary majority had allowed Kolomoisky to control closer to 40 votes from the Servant of the People party.
Below these top-level FIGs are smaller groups that operate according to the same principles of rent seeking, but whose owners are not as visible and as networked in politics at the national level. They tend to have a local presence and to own local media outlets. Some of the bigger players in the agricultural and pharmaceutical industries fit into this category. Similarly, the biggest beneficiaries of Ukraine’s unreformed customs system, for example, are lower-level companies that avoid paying taxes through smuggling. They use some of the same mechanisms as the entities involved in large-scale rent seeking: penetration of the government system, including through collusion with law enforcement bodies, support in parliament, and use of the media to attack reformers.
