Import Substitution is ... Import Substitution Program


The Russian economy today is experiencing not the most stable times. This is largely due to the large dependence of individual sectors of the national economy on foreign suppliers. In this regard, in the economic development of the country, import substitution becomes especially relevant. What is this process? For which branches of the Russian economy is it especially necessary?


Import substitution is, according to a common interpretation, a process at the level of the national economy, in which the production of goods necessary for the domestic consumer is ensured by manufacturers operating inside the country. This process can be proactive or reactive. In the first case, import substitution goods are issued in such a way as to keep competing foreign suppliers from entering the market. In the second, foreigners are being squeezed out from the corresponding segments.


In turn, both variants of import substitution can be carried out on the basis of mainly market mechanisms or through administrative intervention of various political structures. In the first case, successful import substitution is a fair result of competition. A domestic manufacturer thus proves to its buyer that it produces goods better and cheaper than a foreign supplier. However, it is possible that this process will be carried out due to administrative bans on the conduct of activities imposed on foreigners.

Russian script

The economic situation in Russia today is such that in our country import substitution is necessary, as many analysts believe, in several key sectors at once. At the same time, in some segments the corresponding process may take place under more or less market conditions, in others Russian manufacturers will have advantages due to the administrative factor. Thus, import substitution in Russia is likely to occur under both scenarios, depending on the specific industry.


The food embargo against Western European suppliers of agricultural products is the most active impetus to the development of domestic businesses in the relevant field. Russian farmers received an unprecedented chance to implement large-scale import substitution. The list of goods that have been banned from import is very wide. This includes dairy products, vegetables, fruits, meat and nuts. The market capacity of some segments of the trade turnover between Russia and Western countries in the agricultural sector is estimated by experts at billions of dollars.


Of course, there will be competition in this area: in particular, deliveries of products from the countries of Asia, South America, Africa, and also from the states of the Customs Union can be carried out to Russia freely - there are no sanctions for relevant activities. But, despite the availability of an alternative to European suppliers of agricultural products, for Russia import substitution in agriculture is among the top priorities in economic development in the near future. Experts believe the main question is how effective the interaction of farmers and outlets will be in practice.


Regarding this area, the need for an alternative product of foreign suppliers among Russian consumers arose mainly due to the depreciation of the ruble. Imported goods have become more expensive. In many segments of the industry, this also predetermined the increase in prices for manufactured products within the country. When importing, say, machine tools or some electronic components, the Russian manufacturer was faced with significantly increased costs, which in many cases became possible to compensate for by increasing prices for domestic consumers.

At the same time, import substitution in industry, if we talk about the Russian scenario, can be far from being only forced. The fall of the ruble has played, in the opinion of many experts, a certain degree of a positive role for the economy. The fact is that after the depreciation of the Russian national currency, many production costs, as well as wages in dollar terms, as well as, by the way, relative to most other major world currencies, have decreased very significantly. As a result, it became profitable to invest in Russian industry.


If you look at the reports of the Ministry of Finance for 2014 regarding trends in the economy, you can see that industrial production in the Russian Federation has significantly increased by about 1.4%. While GDP, according to preliminary estimates, in 2014 grew by about 0.6%. Some experts also note: even in a number of completely uncharacteristic, it would seem, for our national production segments, import substitution occurs. The list of goods that are actively produced in Russia is formed, in particular, by household appliances, electronics, while most of the ordinary people are used to the fact that it is produced in Asia. Although there is a version that such figures are caused by a situational surge in demand for a particular product. And so you need to wait to verify the fundamental nature of this trend.

Import substitution in the Russian industry is thus expressed in two aspects. First, it is the desire of consumers to have access to cheaper products. Secondly, it is the attractiveness of the Russian economy in terms of production costs.

Industry: dependent spheres

In which areas of the industry of the Russian Federation is the most urgent need for import substitution? The machine tool industry is among the most dependent on external supplies. According to some analysts, the share of imports in it is about 90%. In heavy engineering it is not much less - about 80%. Light industry is also heavily dependent on imports - the numbers in some of its segments also go up to 90%. In the pharmaceutical industry, in the food industry dependence is comparable.

Regarding production, experts believe, a large-scale import substitution program is needed, largely supported by the state. Work in this direction is generally being conducted. If it is successfully implemented by the competent departments, then in the coming years it is quite possible, as some analysts believe, to reduce the dependence of each of the industries by about 30%, and maybe more.

IT industry

The Russian IT industry is one of the fastest growing in the economy. You can also note the fact that many IT-products from the Russian Federation are well known abroad. And because our IT-school is quite competitive. At the same time, as some analysts calculated, the dependence of the Russian sphere of information technology on Western solutions is very significant. About 70% of the software used by users, both private and at the corporate level, is supplied by foreign developers. And this is despite the fact that in many software segments there is a Russian alternative, which, as many experts believe, is not inferior to foreign models in terms of functionality and quality.


One of the key arguments in favor of using domestic IT solutions, analysts say is the need to ensure the security of software deployment in most business segments. The work of many enterprises is connected with the transfer of secret data. Many of the leaders of Russian companies tend to have doubts about the use of foreign software in such cases. Also, the work of many companies is connected with the need to maintain exclusively uninterrupted operation of server systems, which can sometimes be provided only by those suppliers who are located directly in the Russian Federation.

Experts believe that the relevant import substitution program in Russia has all the resources for successful implementation. Even in such technologically complex segments of the IT industry as the development of operating systems, programmers from the Russian Federation have something to offer as an alternative to Western suppliers.

Thus, import substitution is a process that can affect any industry. We have identified several key. The economic situation in Russia requires the earliest possible import substitution in many segments of the national economy, but it is not always easy to implement it in practice. Why? Consider the main nuances associated with the realities of the relevant work.


Import substitution is a multifactorial, difficult in terms of practical implementation process. Its successful implementation depends on the solution of a number of problematic nuances characteristic of the Russian economy. What, for example?

First of all, this is very limited, as many experts believe, access of Russian businesses to loans. The fact is that the sanctions imposed by the EU and the USA against many companies from the Russian Federation do not allow for loans abroad, which in many respects helped out in the past. In turn, loans in Russia are not very profitable now: the Central Bank’s refinancing rate is now 15%, and the company will most likely be able to get a loan with interest that is not less than this value. To develop production with profitability, which will allow to close loan payments under such conditions, will be problematic.

What could be a possible solution to the problem of credit availability? Some experts believe that many Russian businesses could get used to the project financing market or, for example, in the field of venture investments, thereby gaining access to loans on a more profitable basis or to capital on condition of concessions on shares in the company.


Such a prospect, of course, does not suit all businesses, but this is probably better than waiting for some news from the Central Bank. There are options with government subsidies for some projects. Also, many businesses can develop areas related to the production of new goods under contracts in the framework of public procurement.

Another problem that accompanies import substitution in Russia is the lack of qualified personnel in a number of industries. In 1990, many citizens of the Russian Federation, choosing a profession, focused on the humanitarian industry, on services. Engineering, working specialties were not too popular. As a result, in many segments there is now a shortage of personnel.

This problem can be solved in different ways. The most accessible is retraining. Fortunately, in Russian educational institutions, in general, a developed research and production base has been preserved, which can be used to train specialists in various sectors. Another option is to attract people from abroad, which, however, can be complicated due to the low exchange rate of the ruble: not all cases in Russia it will be more profitable for a person to work. At the same time, the government of the Russian Federation is taking significant steps to facilitate immigration into the country. In particular, a program of obtaining simplified citizenship is open for people who have significant ties with Russia - related, linguistic, cultural.

International aspect

Another possible barrier to successful import substitution is the commitment of the Russian Federation within the framework of membership in the WTO. The fact is that due to the signing of international treaties with other countries of this structure, Russia does not have too many options for intervening in the economic processes of government structures, which can be used, for example, to protect the national market in terms of trade with foreign suppliers.


Therefore, the government of the Russian Federation does not have many options in order to obtain more powers. There is a completely radical - to leave the WTO. At the same time, as some experts note, the states, within the framework of the current norms prescribed in the WTO agreements, are endowed with a generally significant amount of tools to protect the interests of domestic producers. The question is to correctly use this resource. For example, in 2015, Russia, as some analysts say, may use the right to adjust tariff obligations so as to protect a number of segments of the domestic market in an effective way without violating the current WTO rules.

Success factors

The policy of import substitution in Russia, despite the difficulties noted, has excellent chances for success. This is due to a large number of factors. First, in most cases, Russian enterprises have no problems with access to the necessary raw materials, natural resources. Secondly, production costs when opening production in the Russian Federation in many cases will be lower than abroad, in fact, due to the relative cheapness of some natural resources. Also in Russia is quite cheap electricity. We have already mentioned the salary benefits arising from the depreciation of the ruble. Thirdly, Russia has a tangible technological potential. So far, it is being implemented in practice in a small number of industries - mainly in the military-industrial complex, in space exploration. However, if necessary, as many analysts believe, one can always translate this or that military experience into the civilian industry.

The role of the state

How successful an import substitution plan in Russia will be in this or that industry depends largely on the position of the state. To what extent are the Russian authorities ready to perform a function that is so necessary for the country's economy? In general, the Russian government is in the matter of import substitution seriously enough.

In particular, in August 2014, a Resolution of the Government of the Russian Federation was issued, in accordance with which a new structure was created - the Industry Fund. The key task that this institution will perform is the provision of necessary loans to businesses. It is assumed that the conditions in the framework of these loans will be more profitable than when the company applies to a commercial bank.


The import substitution program developed by the state also includes a number of other notable initiatives. For example, in June 2014, the Government developed a new law “On Industrial Policy in the Russian Federation”. According to experts, the provisions contained therein can become the basis for the implementation of key strategic directions in the development of the industrial sector in the country. The industrial program of import substitution in Russia, thus, will be implemented with a significant participation of the state.

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