Privatised city shows Russia the capitalist way

A MASS privatisation of 2,000 shops and other small businesses in the Russian city of Nizhny Novgorod, drawn up by the International Finance Corporation, has been so successful that it is to be extended throughout Russia.

The IFC, an offshoot of the World Bank specialising in financing the private sector, said yesterday that auctions of retail shops, food stores and commercial facilities owned by the city began in March and are now held weekly. They are open to all Russian citizens, and are attended by hundreds of potential buyers.

Workers' collectives initially had doubts about the programme but have bought many of the businesses, with the incentive of a 30 per cent discount. Shop employees also receive incentives to bid.

About 75 per cent of the workers in the auctioned businesses have been rehired, and part of the auction proceeds is used to help those who lose their jobs.

Transfer of control is two days after the auctions, with speed and transparency key objectives.

Sir William Ryrie, executive vice-president of the Washington- based IFC, said in London that the auctions in Nizhny Novgorod - formerly Gorky - had been a 'striking success,' and were being adopted as a model by cities throughout Russia.

The IFC's annual report showed that it invested only dollars 160m ( pounds 80m) in Eastern Europe last year. It has yet to spend money - as opposed to offering technical assistance - on members of the former Soviet Union, because they are only now joining the organisation.

Sir William said it took time to start up projects 'and we are beginning to see the money flow now'. He rejected suggestions that there was rivalry with the European Bank for Reconstruction and Development and its president, Jacques Attali. The EBRD also has a private-sector bias.

The IFC has looked at privatising defence industries in the city, but has failed to come up with good ideas.

A factory to produce MiG jets has lost all its orders, and has resorted to making a variety of low-tech goods instead. But there is no point in privatisation unless it can develop a proper business plan, Sir William said.

IFC plans investment growth of 15 per cent a year after a dollars 1bn capital increase this year. It spent or underwrote dollars 3.2bn in financing 167 projects worldwide in the year to June, against dollars 2.9bn in 1991.