BOFIT Weekly Review 2016/19
Russia’s import substitution commission reviews progress
At the import substitution commission meeting at the end of April, the commission’s chairman, prime minister Dmitri Medvedev, noted that by now the goals of Russia’s import substitution programme are defined and the main processes for import substitution outlined. The means for supporting import substitution include such measures as import restrictions and provision of state financing. Medvedev noted that the share of imports in consumption has fallen in many branches, although mostly due to the ruble’s devaluation.
Most of Russia’s import restrictions currently apply to public procurements, but there are plans to extend them also to state-owned enterprises. Public procurements are currently subject to import bans (97 products in the branches of defence and national security, machine-building, light industry and software), import restrictions (46 products involving the medical technology and pharmaceuticals branches) and preferential treatment for domestic products (278 products enjoy a 15 % price advantage if originating in the Eurasian Economic Union). In addition, Russian countersanctions restrict all food imports.
State financing has been granted to support import substitute producers. The government last year handed out over 70 billion rubles (€1 billion) in financing and this year a similar amount is planned. Russia’s total fixed investment in 2015 was about 17.7 trillion rubles.
The import substitution commission emphasised the need for supporting demand for import substituting production. Measures mentioned include coordination of branch- and region-specific import substitution plans and the procurement plans of state-owned enterprises, as well as setting of new national standards. Various agencies continuously come up with their own proposals to support new domestic production with varying success. These include e.g. a value-added tax to foreign firms providing services online (a “Google tax”) currently under discussion in the Duma and a “mandatory surrender” of certain foreign medicine licences.
Import substitution policy has been criticised in Russia as it hurts competition and supports some domestic firms at the cost of the rest of the economy. Consumers and firms needing imported inputs must settle for narrower selections and lower quality products, while paying higher prices. Russia’s economy ministry estimates the cost of public procurements has risen 40 % due to import substitution policies. The economy ministry would like to see a reduction in import restrictions, while the industry ministry wants more.