Russian government supports investment in production focused on import substitution

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/23

The state Industry Development Fund has selected its first candidates for financing support. The projects to be financed include companies operating in the machine-building branch, pharmaceuticals and scientific research. The firms involved in machine-building include those making diesel engines, railway cars, automobile parts and farm equipment.

Over 900 companies so far have applied for loans from the fund. The fund grants loans for up to seven years at 5 % interest. The loan can represent 15–74 % of the total value of the project. On average, about a third of the project is financed with fund credit.

The loans are an extremely good deal for borrowers, given that Russia’s current inflation rate is about 16 %. Industry minister Denis Manturov said the fund loans are most important in terms of economic development, because long-term financing for new investment projects has dried up for Russian companies.

Many observers doubt domestic production can fully make up for the loss of imports, however. Implementation of a modern production base usually requires huge investment, not to mention the fact that profitable production requires also export capabilities, i.e. attaining internationally competitive quality and price. The fund capital is also rather small; currently just 20 billion rubles or about €345 million.

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