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some progress. However, between 2015 and 2019, imports actually increased. “We can speak with confidence about import substitution only in the manufacturing sector, and not in the economy as a whole,” wrote the report’s author, economist Vladimir Salnikov. “Even then, we are talking only about a short period in 2014-15.” He has not changed his mind since: he told The Bell on Friday that import substitution has only been a success in the agriculture, chemical and defense sectors.
Analysts at the Gaidar Institute, a Moscow think tank, independently reached the same conclusion. From mid-2015 through 2018, the number of companies intending to implement some form of import substitution dropped to just 10 percent, according to a Gaidar Institute survey of executives. “The scale of import substitution was not great and over time it began to fade,” a subsequent report stated. In 2019, the think tank ceased monitoring all together “due to the clear picture we obtained and the end of further illusions.”
After the war started in February, CMASF reviewed imports from countries officially labeled ‘unfriendly’ by Moscow and found that imports from these countries made up 48.2% of Russia’s pharmaceuticals, 44.7% of chemical products and 32.2% of vehicles.
There are still sectors where import levels have barely changed from the numbers Medvedev announced in 2015. For example, Russian-made radio-electronics products have just a 12 percent share of the domestic market, equipment for producing baby food is at 3 percent and automatic gearboxes are entirely imported.
CMASF chief analyst Dmitry Belousov (brother of Deputy Prime Minister Andrei Belousov) reached a paradoxical conclusion in a report published last week about import substitution: while Russia is attempting to reduce dependence on imports to produce goods that can compete internationally, it finds itself completely dependent on imports. “As a result, during the import substitution program, our technical dependence in our most successful industries has actually increased,” he concluded.
Why the world should care: Russia’s biggest economic problems since the invasion of Ukraine are not connected with Western-imposed restrictions on exports (it’s clear that, at least for the moment, the Kremlin is earning more money from exports than before the start of the war), but result from bans on the high-tech imports without which Russian industry cannot function.
Putin evidently continues to believe in import substitution — so much so that he has even thrown his daughter into the struggle. “We need to be one step ahead, creating our own competitive technologies, goods and services that can set new world standards,” he claimed last month at the St. Petersburg International Economic Forum. But the paradox noted by Dmitry Belousov suggests the opposite: Russia cannot build competitive industries without competition. All that remains is for the country to fall back on outdated ideas of economic autarky — exactly what Putin said he did not want to do a decade and a half ago.
This article first appeared in The Bell.
20 RUSSIA Country Report October 2020 www.intellinews.com