Just How Rich Are Russia's Billionaires?

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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In its 2013 Global Wealth Report, Credit Suisse assertsthat Russia's transition to capitalism failed the country's people, creating an economy with the world's highest level of wealth inequality. According to the report, 110 Russian billionaires command 35 percent of the nation's wealth, while worldwide, billionaires account for 1 to 2 percent of total household wealth.

"At the time of transition there were hopes that Russia would convert to a high skilled, high income economy with strong social protection programs inherited from Soviet Union days," the report said. "This is almost a parody of what happened in practice."

Much is wrong with Russia's blend of crony capitalism and a powerful public sector. But Credit Suisse's picture of wealth inequality is as much a data quality problem as a real issue.

The bank's Global Wealth Databook, which containsall the statistics underlying the much-quoted report, says the wealth estimates for Russia are based on household financial balance sheets provided by Unicredit Bank. Unicredit has a strong presence in Russia, and its numbers are based largely on official data from the Russian Statistics Committee and Central Bank. But those data cover only financial assets and debt.

Non-financial assets, particularly real estate, make up a large portion of the wealth of most Russian households. Credit Suisse acknowledges in its report that during Russia's transition from communism, "most of the housing stock was given away to residents," but it grossly underestimates the value of that housing. According to the Global Wealth Databook, there are 767,000 Russians with assets of $100,000 or more. In fact, there are millions of such people in the Russian capital alone.

In Moscow in 2012, there was 18.9 square meters of housing per resident, including children. According to independent real estate analysts Irn.ru, the average sale price of a square meter of housing this week was $5,114. Thanks to the free privatization of apartments, Russia's home ownership rate is a very high 84.7 percent. This suggests that the average real estate wealth of Moscow's 7 million adults should be about $140,000, and that it's pretty broadly distributed.

Now let's take a look at the top end of the wealth distribution. Credit Suisse's data on billionaires come from Forbes magazine's "rich lists," which do count110 in Russia. The magazine's wealth estimates, however, are necessarily imprecise. Many large Russian companies are not publicly traded, and Forbes journalists have to go with foreign peer comparisons and analyst estimates of their value. The estimates also include foreign assets, which are largely excluded from the calculations for ordinary Russians due to a dearth of data on foreign holdings.

Beyond that, the liability side of the net worth calculation -- what you own minus what you owe -- presents some unique difficulties in a place like Russia. It's never clear what the unwritten obligations of a Russian billionaire might be, either in the form of credit agreements or of debts to officials who helped them along the way.

In short, measuring wealth is an immensely complicated business. Credit Suisse makes a conscientious effort, but Russia's example shows how misleading even painstakingly calculated estimates may be.

Russia's inequality problem is relatively mild if measured in a more traditional way, by income rather than wealth. Accordingto the CIA World Factbook, it ranks 52nd in the world by Gini coefficient, which measures the unevenness of a country's income distribution. The U.S. is ranked 41st, China 29th, Brazil 17th.

As for the Russian billionaires, their high reported number is a tribute to the journalistic skills of Russian Forbes staffers. "Outing" them is a tough task in any developing nation.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at lbershidsky@bloomberg.net