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privatization. Not without reason, at a working breakfast organized by Sberbank at the Sochi-2015 The first is the share of state financing. On average, for 55 projects
international investment forum, most of its participants, among them were a hundred highly that received loans from the Industrial Development Fund in 2015,
respected economists, businesspersons and politicians, chose competition as the main recipe it is 25.2%. The rest is the applicants ’own funds, loans, and
for diversifying the Russian economy. private investments. Moreover, although the fund can in some
This myth was born from the idea that each SPIC, guaranteeing a government order to a cases finance up to 70% of the project’s budget, it rarely enjoys
contract participant, makes it impossible for manufacturers of similar products to fight for it. In such a right, supporting primarily those projects where the risk
fact, nowhere in the regulatory documents, starting with the law on industrial policy, does it say of failure is distributed more evenly, control is carried out from
that the SPIK participant will necessarily monopolize the entire volume of the state order. And in several sides at once and no squandering takes place.
those cases when the demand generated by the state is large enough, the SPIK participant will The second factor is the chosen methods of decision-making
simply not be able to cover it, which will leave enough room for other players to compete. But on the selection of import substitution projects and disclosure
the state will gain confidence that imported products will be at least partially replaced by SPIK of information about the companies that received loans. The
participant’s products, even if other Russian competitors suddenly refuse to participate in the Industrial Development Fund is conducting an initial screening of
tender or to execute an already concluded state contract. Much depends on the quality of project applications that do not fit its mandate. Then, the fund’s apparatus
expertise, it is possible to minimize the risk of monopolization when deciding on each SPIC and and specialized experts carry out a comprehensive examination, including scientific, technical,
to prevent a decrease in competition. Moreover, it can be argued that competition during import legal and financial-economic. Selected projects are submitted to a meeting of the expert council.
substitution will only increase, because thanks to it new production will be created, part of These are 15 people, almost none of them is an official, these are representatives of leading
the intellectual resources will remain in Russia, new players will appear on the market without business associations, major banks with extensive experience in investment and analytical work.
administrative crowding out or restriction of old ones, and the variety of products will increase. A positive decision of the expert council is a necessary and sufficient condition for obtaining a
loan after fulfilling all covenants and requirements agreed with the applicant.
Myth 5: import substitution is a waste of taxpayer funds The third factor is the type of financing. The maximum liability of the recipient arises
The bias of this statement is obvious, but it is difficult to refute it, especially if we consider when the funds are issued to him on a repayable basis, with payment of at least the minimum
only state financing of import substitution. Private investors monitor their spending more closely, interest, and for debt-covering collateral, in respect of which a qualitative market assessment
providing on average greater efficiency of private ownership compared to state ownership. has been made and the loss of which would be very painful for the borrower.
However, even in the private sector, the squandering of resources by managers is an ordinary The described mechanism, implemented in the activities of the Fund for the Development
phenomenon, the subject of constant and painstaking control work. of Industrial Development, could be used by other state development institutions, as well as
Adherents of the fifth myth are uninteresting to the problems of private investors and the by some of the main managers of budget funds for many parts of state programs and budget
solutions they found, as well as the experience of control work in other countries, any initiative items of expenditure.
that concerns budget funds and potentially causing corruption, is rejected immediately by them
from the position of ‘‘presumption of guilt‘‘. Meanwhile, the efficiency of spending financial Myth 6: import substitution is the imposition of poor quality goods on Russian
resources in the implementation of import substitution projects depends on several factors. consumers
In Soviet times, domestic products, especially consumer goods, were indeed almost always
much worse in quality than imported ones. Since then, much has changed, but stereotypes that
have become conscious, periodically reinforced by separate negative examples from the current
life, lead to the reproduction of such myths. On average, Russian products are now produced at
a very good quality level, especially in highly competitive markets. The consumer simply would
not buy it if the properties of the product did not live up to his expectations. Therefore, many
Russian factories survived and developed substantially even at a time when the country had no
‘‘Import substitution, which has financial opportunity to provide them with any kind of state support.
spontaneously developed over the Unfortunately, this does not apply to all sectors and activities, and above all because of
past 20 years in certain sectors, at a the economies of scale that negate the individual competitive advantages of Russian production.
certain moment, has become state The introduction of additional incentives for import substitution (for example, a rate of 5%
policy. Accordingly, with this topic per annum on loans of the Industrial Development Fund) allows equalizing the conditions of
connected many dangerous competition and does not affect the quality of manufactured goods.
misconceptions. Not to The second element of this myth is associated with the word ‘‘imposition.‘‘This is a
respond to them means to typical use of the ‘‘presumption of guilt‘‘.
give them the opportunity The state is accused in advance of what it did
to take root in the public not do, or simply could not have done. For
consciousness.‘‘ example, there has not yet been a case when,
Anton Danilov-Danilyan, when considering a project in the Industrial
Gleb Nikitin. Development Fund, the applicant proceeded
from the fact that the consumers of his
Gleb Nikitin, First Deputy Minister products were ‘‘bent‘‘, ‘‘forced to buy‘‘, etc.
of Industry and Trade RF, Ph.D.
Anton Danilov-Danilyan, Chairman Development (‘‘Performance Management organizations Such a project would simply not be allowed to
Council Expert Council industry co-chair of in the interests of the owner‘‘, Moscow, be considered by an expert council. The active
‘‘Business Russia‘‘, Ph.D. (‘‘Economic and 2007). development of import substitution in Russia
mathematical analysis of inflationary trends in
mechanical engineering‘‘, Moscow, 1991). would have led to the emergence of not tens
and hundreds, but many thousands of projects
and to ensure that millions of consignments of

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