Magomedov Brothers Aim High, But Shoot Blanks

Dagestani billionaire Ziyavudin Magomedov and his older brother and junior partner are highly ambitious. Their forays into telecommunications infrastructure, gas, oil, construction, and port logistics have thus far succeeded wildly across the the Caucasus region. These victories are enormous, to be sure, catapulting Magomedov’s net worth to over $2.1 billion in the period between 2009 and 2013 alone. However, as many know for certain, success on the shores of the Caspian is simply not possible without a little help.

One can be forgiven for being a billionaire, but when there’s skepticism in the air, money becomes less important than intent. Millions flowing from the ever-richer Magomedovs are appearing in surprising places all over the globe, and though everything looks calm on the surface, dealing with the Magomedovs requires that one look deeper.

Forging the Bonds of Nepotism

The enormous profits made by Magomedov and Summa Group directly coincide with the rise of Russian President Dmitry Medvedev. As private resources became state resources, and the volatility of the conflicts in the Northern Caucasus lessened, President Medvedev looked to rebuild the area’s infrastructure. With better roads, systems and services, he argued, the people would be happier and less likely to tolerate further fighting. It might even bring tourism to the region.

Significant funds went through Russian channels towards Magomedov, who is largely responsible for taking on the huge projects meant to alter the face of the region. This made him and his company, Summa Group, very wealthy. Many of these projects failed in spectacular fashion, however, while others simply petered out before completion.

One of the most well-known examples is attributed to Magomedov through his associate and cousin Akhmed Bilalov, who was contracted to build infrastructure for the Sochi Winter Olympics in 2014. While on a tour of the facility, President Putin commented on the lack of progress, and inquired if costs had risen. They had, he was informed. The proposed price for construction of the Olympic ski jump had shot from $40 million to $265 million, and was significantly delayed. Putin was dismayed, and his relationship with Magomedov suffered accordingly. Tensions remain to this day.

Another famous overreach that was proven without wings was the Rotterdam Port oil terminal. The Netherlands’ Prime Minister signed a contract with a company called Shtandart TT B.V. to build and operate a new crude oil terminal in the port in 2011. It would potentially open trade opportunities across the continent. Shtandart, 75% of which is owned by Magomedov’s Summa Group, demonstrated lackadaisical construction efforts and other issues. It was terminated in 2015, after Netherlands officials suspected the delays to be an ongoing money-laundering scheme conducted by Magomedov on behalf of Russia.

Staying in the Loop

Recently, Magomedov has expressed interest in investing in startups. His company Caspian VC Partners, founded in 2013, exists to disburse as much as $300 million to promising startup projects. The one that has gained the most press is Hyperloop One, a California-based transportation startup based on designs by Elon Musk.

The project plans to build a cross-state high-speed train using new technology, and Magomedov wants the same for Moscow’s transportation system. He has bigger plans as well, and imagines the Hyperloop train connecting faraway markets like China with greater Europe. While this could revolutionize existing trade routes and lead time on shipped goods, investors and partners are taking Magomedov’s solemnity with a grain of salt.

Given his pockmarked record of unexpected delays, inflated construction costs, and other potentially disruptive elements, this comes as no surprise. While no one is pointing fingers, doing business with Russia and their cadre of made-men requires thorough research before a contract can be safely signed. With Magomedov it is no different, and though many of his projects have been astounding successes, it is difficult to predict which ones Russia has a hand in.

The Wild West-like financial markets and property ownership laws of Russia, alongside its government’s dubious relationships with the country’s underworld, make the United States and Western Europe one of the only safe places for acquired wealth. The richest men, men cut from the same cloth as Magomedov and Vladimir Putin, have much to gain from maintaining ties to legitimate ventures. Regardless of the number on the check, Western businessmen know that investments are only well-spent when the final product emerges.