A few weeks ago, Russia’s president Vladimir Putin announced a new plan to make self-sovereign identity the cornerstone of their system. The move is seen as an effort by the government to completely eliminate online fraud and increase trust in all aspects of life.
Russia’s push for self-sovereignty is a major concern to the West. Russia has been actively trying to increase its influence on other countries in order to gain more power. Read more in detail here: russian ruble.
To protect its economy from Western sanctions, Russia spent years attempting to wean itself off foreign commodities.
Due to a scarcity of foreign components, sectors of Russia’s auto industry are being shut down. The engine and other essential components for the country’s showpiece handmade passenger plane are sourced from international vendors. Pet food and medications from other countries have vanished from shop shelves.
“Import substitution has failed to fulfill its purpose of making Russia less susceptible to sanctions like these,” said Janis Kluge of the German Institute for International and Security Affairs, a Russian economic expert. “Russia’s aspirations were unachievable to begin with since a tiny economy like Russia’s cannot create complicated and high-tech items on its own.” It’s just not going to happen.” He noted that replacing the imported items may take years.
Import substitution aims to replace imported items with homegrown alternatives. Despite the fact that most economists feel that constructing things locally is expensive and inefficient, the Kremlin has adopted the plan to counteract sanctions imposed after its 2014 seizure of Crimea. It was part of a multiyear strategy nicknamed “Fortress Russia” by analysts to preserve the economy.
In Moscow, a McDonald’s restaurant. The fast-food chain’s activities in Russia have been halted.
Photo credit: EPA/Shutterstock/Maxim Shipenkov
However, Russia’s reliance on imports has become worse over time. In 2021, 81% of firms reported they couldn’t locate Russian copies of the foreign goods they wanted. More over half of respondents were unsatisfied with the quality of domestically produced goods. Both percentages were the highest since the Gaidar Institute for Economic Policy started collecting data in 2015.
According to a research by Moscow’s Higher School of Economics, imports accounted for 75% of nonfood consumer goods sales in the Russian retail industry in 2020. The survey revealed that in several industries, the ratio was much greater, reaching 86 percent for telecommunications equipment. In 2020, imports were roughly a fifth of GDP, compared to 16 percent in China and greater than other major countries like India and Brazil.
The scarcity of imported components, such as computer chips, has impacted Russia’s automakers particularly hard. In televised statements on Wednesday, the chairman of Russia’s Tatarstan region warned that truck producer Kamaz might face a 40 percent decline in output and that 15,000 of its workers could be let off unless the company’s supply-chain concerns are handled.
The leader’s remarks, according to a Kamaz spokeswoman, were a worst-case scenario, and the firm was transitioning more of its manufacturing to truck lines constructed with Russian components.
Technology items, such as semiconductors, computers, lasers, and sensors, are among the most vital things cut off by the sanctions. Meanwhile, the ruble has depreciated in value, rising the cost of products that Russia can still import.
Wheat harvesting in southwest Russia. Russian officials have pushed for self-sufficiency as sanctions bite.
EDUARD KORNIYENKO/REUTERS/EDUARD KORNIYENKO/REUTERS/EDUARD KORNIYENKO
Russia’s oil business is another high-risk area. Russia’s outdated oil and gas reserves rely on Western technology. Earlier restrictions drove Russian energy businesses to postpone or abandon projects, despite the fact that indigenous technology has often proved insufficient, according to experts.
Russia was strongly interwoven in the global economy until last month. It will take time and effort to untangle itself from multinational supply networks.
President Vladimir Putin of Russia has recognized the difficulties that lie ahead.
“These new realities will need profound structural adjustments in our economy, and I won’t sugarcoat it—they won’t be easy,” Mr. Putin said on Wednesday.
Russian leaders claim that the scenario will favor domestic businesses. “Previously, producing some things inside the nation was unprofitable, but today it is becoming more intriguing for enterprises,” said central bank governor Elvira Nabiullina on Friday. She did recognize, though, that this would come at a price, namely higher inflation.
Some imported goods are intricately intertwined with business activities. According to Maria Shagina, visiting senior fellow at the Finnish Institute of International Affairs, up to 90% of Russian banks and corporations use Western software.
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“It was possible to replace low-tech items like pipes, things that don’t require a lot of know-how and R&D investments,” said Ms. Shagina. “But anything that is high-tech is still very much reliant on Western technology, Western software, Western know-how.”
Even high-profile projects hailed by the Kremlin as instances of Russian industry’s comeback have shown to be reliant on imports.
The Sukhoi Superjet 100 was presented in 2007 in an attempt to resurrect the country’s ailing civilian aircraft manufacturing industry. However, Russian authorities claim that imported components account for almost half of the cost of the Superjet. Because of Western sanctions, Safran SA, a French aerospace company that makes the plane’s engines, landing gear, and engine covers, has announced that it would cease all operations in Russia.
Officials have said that a proposed version of the aircraft built nearly entirely of indigenous materials would not start commercial production until 2024.
Sanctions have also harmed customers who rely on imported goods. Foreign pet food and medication have grown more difficult to come by, according to Svetlana Ryabova, a 36-year-old Moscow resident who helps manage a stray cat rescue program. Some brands, such as Monge, have vanished from shops, while vaccinations supplied by foreign pharmaceutical firms, such as Nobivac and Purevax, are in limited supply, she added.
Ms. Ryabova expects that the shortage will be made up by local producers. “Of course, we have them,” she said, “but people are panicking and buying up everything.”
Since Russia’s invasion of Ukraine at the end of February, the United States and its allies have slapped harsh sanctions on the country. Shelby Holliday of the Wall Street Journal examines how the sanctions are hurting everyone from President Vladimir Putin to ordinary Russians. Associated Press photo/Pavel Golovkin
Russia began its import substitution campaign by prohibiting numerous Western food imports. Cheeses from France, ham from Spain, and other luxuries enjoyed by the country’s wealthy urban elite vanished from shop shelves. Later on, the import substitution campaign spread to other areas, such as medicine and technology.
Over 2.9 trillion rubles, or $27 billion, was committed to the import substitution program between 2015 and 2020, accounting for 1.4 percent of total budget expenditures.
However, the approach did not help Russia’s economy, which was already reeling from sanctions and low oil prices. Since 2014, Russia’s GDP growth has been slower than the global average, and Russians are poorer than they were before the invasion of Crimea: by the end of 2020, real incomes had decreased by 9.3% from their 2013 level.
According to a 2019 research published in the Russian Journal of the New Economic Association, although Russia achieved certain gains, such as the growth of dairy and meat businesses, the food ban drove up costs, costing consumers 445 billion rubles ($4.1 billion) every year.
China is a major unknown. Beijing, which is already a significant Russian economic partner, has the potential to replace the United States and Europe as a supplier of numerous products. However, this might jeopardize the country’s already strained trading ties with the West. China also lacks some of the semiconductors and other technological items that Russia need.
Russian officials have gone to considerable pains to emphasize self-sufficiency as sanctions bite, even glorifying the Soviet economy.
Mr. Putin said earlier this month that the USSR “really survived under sanctions, flourished, and achieved incredible achievement.”
Others aren’t so sure. Mr. Kluge said, “The Russian economy will be considerably more rudimentary today.”
Georgi Kantchev and Alexander Osipovich may be reached at [email protected] and [email protected], respectively.
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Russia has been pushing for self-determination since the fall of the Soviet Union. With a new president, Vladimir Putin, Russia is now becoming more independent from the US. Reference: russian stock market.
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