Import Substitution in Reverse: Russian Firms Now Buying More Foreign Equipment and Less Domestic

Paul Goble

            Staunton, April 9 – The Kremlin has called for Russian firms to practice import substitution because of sanctions: that is, Moscow wants Russian businesses to buy more equipment produced by Russian firms and less coming from foreign ones.  But ever more Russian firms are doing exactly the reverse, buying more abroad and less at home.

            That is the conclusion of statistics gathered in an 18-page report prepared by the Center for Conjunction Research of Moscow’s Higher School of Economics (issek.hse.ru/data/2019/03/21/1185187659/investment_activity_Russia_2018.pdf; summarized at iq.hse.ru/news/257492540.html).

            Thirty-eight percent of Russian industrial firms making investment now purchased machines, equipment and transportation goods from abroad in 2018, a figure up six percent from 2016. And even firms that did not purchase new equipment from abroad made use of foreign-produced goods that other Russian firms are no longer using.

            The appearance of new technology from abroad grew particularly in Russia’s extractive industries, rising from 43 percent in 2017 to 55 percent in 2018. Moreover, the study reports, “53percent of the leaders of enterprises intend to continue to increase the importation of basic equipment.” And they also plan to continue to use less domestically produced equipment.

            All these figures show, the experts say, that import substitution, much talked about by the Kremlin, isn’t happening.  And it isn’t happening for a reason: managers view foreign produced equipment as better made and more efficient than equivalent equipment produced within the country.  As a result, they work hard to acquire it, whatever the country’s leadership says.