chapter  16
The rise of conglomerates in Ukraine: The Donetsk case
ByHANS VAN ZON
Pages 20

In the change from a centrally planned economy, two private conglomerates emerged in Donetsk that today control the larger part of the regional economy, especially the steel and coal industries. The Industrial Union of Donbass (IUD) and System Capital Management (SCM) did not emerge in a context of free competition but in a clan economy in which the assets of the regions were divided among the strongest players, while competitors were pushed aside with unfair and often criminal methods. Access to and control over public authorities was crucial in this process. The merging of political and economic power led to a situation in which the prices and allocation of main products were manipulated by the Donetsk clan structures, which constituted a quasi-monopoly. The way business was done was very much reminiscent of Soviet times, with parliamentary democracy until recently a façade for a non-competitive authoritarian regime that differs from those in most other Ukrainian provinces. The question is to what extent the Orange Revolution and the regime change that followed can change the situation in Donetsk. The influence of Donetsk in Kyiv has diminished drastically, and it seems that the cohesiveness of the Donetsk clan has been undermined through the new power configuration in Kyiv. Expansion is now sought through the acquisition of assets, mainly steel enterprises, abroad.