Page 50 - RusRPTJul22

companies from the Russian market led to a dramatic failure of imports. At its lowest point, it fell by almost 50% in annual terms, stabilizing slightly around 43-45% in May, follows from Dmitry Polevoy's estimates. Imports from Germany in March 2022 fell by 58.7% y/y, while those from France and the United States fell by 60.4 and 78.8%, respectively.
Countries designated “unfriendly” by the Russian government accounted for about 45% of trade turnover in 2021, the rating agency ACRA recalls in its latest report on sanctions. Machinery, equipment and vehicles accounted for 49.2% of total imports in 2021 (new car sales in Russia collapsed by 83.5% in May). According to ACRA estimates, by the end of 2020, the decline in total imports may be from 20 to 30% in value terms. Russia urgently needs to look for new suppliers of components, services and licensed software, rebuild supply chains, and quickly figure out how to make payments without the threat of secondary sanctions for partners, the ACRA report says.
So far, there are no signs of a significant recovery in imports - this is best evidenced by the dynamics of the ruble, tending to 50 per dollar. In the absence of economic reasons for strengthening, the Russian currency is holding at a height that, on the one hand, was able to slow down the rise in prices in the country (as of June 10, annual inflation slowed down to 16.7% after 17.1% in May), but has already led to three weeks of deflation. In the future, the ruble exchange rate will also depend heavily on the severity of external barriers to trade and internal restrictions on capital flows, Dmitry Kulikov, director of ACRA's sovereign ratings and macroeconomic analysis group, expects.
Restrictions on technology imports will reduce labor productivity in Russia: some activities may simply become impossible (for example, the production of microprocessors. - The Bell), and a significant part of the investments will be directed not to improving efficiency, but to changing the technologies used to analogues that are not subject to sanctions, says Kulikov. The technological isolation of Russia will lead to the fact that import substitution will be based on outdated technologies, that is, reverse industrialization will occur, Central Bank analysts warned, that is, the goods produced as a result will be worse and more expensive than imported analogues.
All this will reduce potential economic growth rates from the previous 1.5–2% per year to 0–1% in the medium term, follows from ACRA estimates. At the same time, import restrictions can be long-term and pronounced, Kulikov concludes based on a comparison of the sanctions regimes of Iran, Venezuela and South Africa. Technological isolation in general and reverse industrialization in particular will lead to a drop in the standard of living of Russians: equipment, cars, building materials, milk in tetrapacks will either be in short supply or will become unaffordable for most Russians because of the high price.
50 RUSSIA Country Report October 2020 www.intellinews.com