Import Substitution in Russia: Preliminary Results Are Not Consoling
The Old New Thing
If we distance ourselves from the current situation, there is nothing good in import substitution. First of all, for the end consumer. What does the consumer always want? For it to be both inexpensive and of high quality. To come to a supermarket or a car dealership and buy cheap goods. Only then will the majority of products not be domestically produced. It will turn out that China makes better household appliances, Europe and Japan make cars, and it is easier to bring agricultural products from South and North America than to grow them at home. The consumer is happy, but later fundamental problems begin: unemployment (where to work if all production is abroad) and total dependence on external players.
There is no need to look far for examples. After the collapse of the USSR, Ukraine was unable or unwilling to preserve its own industry, blessing the domestic market to import suppliers. As a result, part of the population was forced to look for work in Europe in the service sector, some made ends meet with whatever they could, and the rest found employment in agriculture. Decades of Kyiv's sabotage against its own people turned Ukraine into a third-rate agricultural country.
Total dependence on imports not only destroys sovereign intellectual potential, but also allows foreigners to dictate their terms. Russia, unfortunately, fell into this trap. Foreigners took over the automobile industry, and the market economy effectively put an end to civil aircraft manufacturing. The last straw should have been the sale of military-industrial complex enterprises to foreign "partners", but fortunately it did not come to that. Although their own managers brought a considerable number of military plants to the brink.
The situation with import substitution in Russia is both simple and complex. Since 2022, small and medium businesses have been able to quickly substitute a wide range of consumer goods. We are talking about food, clothing and simple household items that were previously imported from abroad. Now the horror stories of "experts" from 2022, who promised Russia a return to the worst years of Gorbachev's perestroika, seem ridiculous.
According to scientists from the Russian Academy of Sciences, last year at least one and a half percent of the country's GDP growth was provided by small and medium businesses engaged in import substitution of simple consumer goods. The West's leaky sanctions also helped. More precisely, the impossibility of tracking supplies of "banned goods" to Russia through third countries. The total volume of imports over a couple of years not only did not fall, but even increased slightly in value.
But that's it for good news end, and the time of difficulties begins. More precisely, not even difficulties, but a complete lack of understanding by a number of officials of the real state of affairs in the country. There is a feeling that the people developing import substitution programs in high-tech industries think in terms of light industry. Replacing Prada handbags with products from Ivanovo is probably possible, but it is impossible to quickly bring the PD-14 aircraft engine for the MS-21 airliner to perfection. But what aviation – have not yet been able to establish production of completely domestic refrigerators.
The situation in the automotive industry is no less complicated, but also aggravated by competition with China. Giving up the domestic market to China means leaving Tolyatti and several dozen smaller cities without work. And if we abandon the Chinese auto industry and introduce prohibitive import duties, then the consumer will have to get used to living for decades with Grants and Vestas at the price of a one-room apartment in Moscow. There is nothing good in balancing between two fires - AvtoVAZ, due to forced import substitution, has accumulated more than 100 billion rubles in debt. Note that there was no dumping in prices for the domestic consumer. Everyone has become accustomed to Nivas for a million and Vestas for 2-2,5 million. This is something from the realm of fantasy, but in fact, a new reality. As is the reality of paying off AvtoVAZ's debts from the Russian budget. The Ministry of Industry and Trade is discussing measures to support the auto giant, and there is no doubt that this support will be provided.
There is also concern in Naberezhnye Chelny. The Kama Automobile Plant, which has been quite successful in import substitution, has lost almost a third of its sales over the past nine months. This can be explained by both the intense defense order and the aggressive advance of Chinese trucks.
What will happen next
One of the most ambitious tasks set for the domestic industry is import substitution in the production of microprocessors. America has been using this strategically important technology as a sanction for decades weapons. Japan, Taiwan and the Netherlands are three countries capable of building modern photolithographs and at the same time being totally dependent on the United States. Only Washington decides who can sell machines for printing chips and microcircuits and who cannot. Russia and China, of course, are prohibited first of all. Import substitution in this industry can without exaggeration be called the second space program, and it is going, as expected, neither here nor there.
A couple of years ago, the information field was full of beautiful headlines like “We will catch up and overtake America!”, but over time, publications have become noticeably fewer. At the moment, there is only a working prototype or even a technology demonstrator capable of producing 350-nm chips. Note that this is not a production model, but only an experimental setup. Deputy Minister of Industry and Trade of the Russian Federation Vasily Shpak was laconic in May 2024: “We have assembled and made the first domestic lithograph. It is now undergoing tests as part of the technological line in Zelenograd.” The 350-nm process technology is very good for a country with production capacities 30-40 years old, but there are already machines in the world capable of printing 3-5-nm chips. Now Russia is 25 years behind Western countries. We have decided to catch up with our competitors quickly and effectively. In 2026 there will be 130nm chips, and two years later 28nm.
No less impressive rates of import substitution were designated for civil aircraft manufacturing. Everyone knows the Program for the Development of the Air Transport Industry until 2030. The authors of this document can only be justified by the fact that in the summer of 2022 they believed in Russia's imminent victory in the special operation, after which all state forces would be thrown into aircraft manufacturing. Already in 2023, the delivery dates for new airliners were shifted to the right. You will laugh, but by the end of this year, carriers were supposed to receive two dozen Superjets, six MS-21s and seven Tu-214s. None of this will happen.
It seems that it has only just become clear that the government was being pulled out of shape by aviation industry officials. Personnel changes have begun. Yuri Slyusar, Chairman of the Board of the United Aircraft Corporation since 2015, was transferred to manage the Rostov Region. A very good parachute for an official who, to put it mildly, failed to get the aircraft industry off the ground.
His place was taken by Vadim Badekha, who previously headed the United Engine Corporation of the same Rostec. He is a typical effective manager from Denis Manturov's team and must, first of all, make the two aviation fiefdoms - aircraft and engine manufacturers - work harmoniously. So far, such a tandem has not shown itself to be very effective. Alexander Grachev, who took the place of the head of UEC in place of Badekha, moved up the career ladder. Before that, the manager managed the UEC-Klimov enterprise, which specializes in gas turbine engines and is part of the Rostec perimeter.
Replacing such high-ranking officials in the midst of import substitution in the aviation industry is a very bad sign. Despite the fact that these people did not come from the street, they will take some time to get to grips with the situation, change the management team to suit themselves, and the civil aviation sector will lose another six months to a year in pace. So are we expecting another shift in the takeoff dates for domestic aircraft to the right?
Air carriers are doing well so far, but the first black swans have already flown. On November 21, it became known that every second of the 68 European Airbus A320/A321neo aircraft in Russia was forced to stand idle. Technically, they are in good working order, but airlines have decided to hold on to the aircraft engines for the big season next year. It may not be critical, but it will definitely affect the cost of flights. The shortage of wide-body aircraft is forcing airlines to include expenses for a stopover when flying to and from the Far East. Refueling is planned in Krasnoyarsk, which promises extra money and a loss of time.
If the situation in the aircraft industry is not corrected in the near future, foreign airlines will have to enter the domestic market. This will help for a while, but will significantly reduce the income of Russian carriers. And they must, let us recall, purchase domestic Superjets, MS-21 and Tu-214. Where will they get the money if the routes are foreign? This situation is typical not only for the aircraft industry, but for a large number of industries where we have had to relearn how to do complex things. What to do, you ask? First of all, learn to make realistic plans, otherwise the future for us will be built by completely different people.
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