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cyclicity. This is because machine tools are not just another primary input in the production process, but are used to produce other investment goods,” says Malmlöf. “It therefore suffers a double effect of the accelerator principle: when demand in final products decreases, demand for investment goods falls even more, and demand for machine tools falls the most.”
Given that a country like Germany has so many SMEs in this sector, cutting them off from the huge lucrative Russian market would be politically very difficult indeed.
For its part Russia has already been trying to actively break its dependence on EU and US machine tools. Now it now imports from over 70 countries, but all that has happened is Russia increasingly buys the low tech tools from developing markets while the share of the most sophisticated and most expensive tools from countries like Germany, Italy, Japan and the US has actually increased.
“From the late 2000s, Russia has diversified its imports of machine tools, either voluntarily or as a necessity, due to its deteriorating relationships with the [liberal Western countries],” says Malmlöf. “Yet in 2017, this group still provided 57% of Russian machine tool imports in the sample based on import value... The quantity of Russian import from potentially unfriendly countries has diminished significantly during
the ten years in the sample, at the
same time as friendly countries have increased their market share... Russia has substituted a noticeable share of
its import of high-end machine tools from the most advanced machine tool- producing countries for less expensive Chinese, Turkish and Belarusian machine tools.”
Point of no return?
What’s left of Russia’s machine tool business is mostly focused on the defence sector, as some military production is considered so sensitive that it is inconceivable that any foreign-tech would be allowed on the premises.
There have been a couple of attempts to revive the machine tool industry but it simply didn't get much attention during the first two decades following the fall of the Soviet Union. After comprehensive military modernisation programme was launched in 2011 that has changed, and a more serious attempt to revive the business is underway.
In the late 2010s, Russia’s machine tool industry accounted for 0.02% of GDP. This is a low figure compared to some of the leading producing countries: China (0.2%), Japan (0.33%) and Germany (0.37%).
According to the Russian Ministry of Industry and Trade, there were 80 domestic machine tool firms in total, and 29 tool companies, in 2017. The output of its top six companies accounted for 54% of Russia’s domestic production.
In June 2017, the Ministry of Industry and Trade, under Minister Denis Manturov, proposed a new comprehensive development strategy for the machine tool and tool
machine tool industry ought to focus on strengthening the position of a few strong market actors among current companies and turn them into national champions.
The state should also stimulate the emergence of new market participants in those market niches where the current companies are not active.
The purpose of state policy during this stage is thus to bring about intensive economic growth within the industry, to empower existing companies to fully exploit their potential, to develop
new technologies and to seize broad market niches.
During the second stage, 2022-2030, the industry should be capable of shifting towards extensive growth. Production volumes would increase as a result of the active state support during the previous stage.
The Ministry expects new actors
to enter those market segments for final products, sub-components and
“The trouble is sanctions on tool exports
to Russia would also have devastating effects on the European and US industries”
industries 2018-2030 that was based on a much more thorough study of the international business.
“The primary goal of the proposed strategy is to increase the competitiveness of the Russian machine tool industry and to restore their position on the home market,” says Malmlöf. “By 2030, the share of Russian machine tools on the domestic market should increase to 50% and the yearly growth rate should be 15%, on average, according to the proposed target indicators.”
According to the Ministry proposal, the strategy should be implemented in two stages. During the first stage, up to 2021, all state policies for the
instruments that the national champions have not already seized. Among them will be technology owners, modernised defence firms and companies from the nuclear industry.
The jury remains out on whether this programme will be a success. The Chinese have been pouring money
into its R&D sector and actively hiring “turtles” – Chinese workers that cut their teeth in foreign R&D departments, but have been lured home to develop Chinese tech. The Russian government has earmarked RUB63.5bn ($910mn) for the programme, with most of the spending frontloaded to be spent in the next two years. Added to that, Russia has never been a slouch when it comes to science.
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