Tuesday, January 20, 2015

Moscow to Blame that Import Substitution Won’t Happen in 2015, Russian Businesses Say

Paul Goble


            Staunton, January 20 – “Import substitution” may be the most important new term to enter Russian discourse over the last year, but it isn’t going to happen in the next year, experts say, and the reasons for that are to be found in the actions and inactions of the central Russian government in Moscow.


            Dmitry Yepov of  the Siberian news agency, Globalsib.com, having surveyed expert opinion and members of the business community, concludes that Russia will be unable to achieve the import substitution that the Kremlin has called for to counter sanctions anytime soon and that Moscow’s own approach is to blame for that situation (globalsib.com/20994/).


            Given Russia’s reliance over the last two decades or more on many kinds of foreign products, the country simply cannot turn on a dime and create substitutes, the experts say. In many cases it takes ten years or more from a decision to produce machine tools or components and the first output.


            Moreover, they say, it is expensive and requires subsidies. But instead of helping, Moscow is getting in the way.  On the one hand, it has raised interest rates to the point that businesses can’t afford to borrow the money they need to change. And on the other, the central government is not subsidizing firms that produce for export as China does but restricting them, thus limiting the potential of such firms to engage in import substitution.


            This has led to “a paradoxical situation” in which Moscow is calling for import substitution and simultaneously making it impossible for firms to engage in it. And all this has been made worse, Yepov says, because Russia has suffered earlier economic crises and as a result, “from the production system which existed in the USSR not a stone remains on a stone.”


            Even the one bright spot casts a dark shadow, the Siberian journalist says. Military factories are producing more, but that is because for them, price is no object or limiting factor. Thus, they suck up money which might otherwise be devoted to the economy as a whole and promote import substitution as the government says it wants.


            The Russian government “must change its policy toward business” if it wants import substitution to happen. But few businessmen believe that it will anytime soon As a result, they expect in 2015 “an intensification of crisis phenomena,” little progress toward import substitution, and significant price increases.


            Given all that, the businessmen with whom Yepov spoke say, their main focus in the coming year will not be about achieving any strategic shifts but rather simply to survive and hope for changes in the future.

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