Is it possible to make Russian industry domestic?
We are already accustomed to the phrases “our industry”, “Russian industry”, “domestic industry”. In fact, the industry that is located on the territory of the Russian Federation is only about half Russian, domestic.
Firstlybecause the products that come out of Russian industrial enterprises and which say “Made in Russia” to a large extent consist of parts and components that come from imports. A significant part of industrial enterprises located on the territory of the Russian Federation can rightly be called “assembly shops” or “screwdriver production”, etc.
Secondlypart of the raw materials from which Russian enterprises manufacture industrial products also enters the country by import.
Thirdlya significant part of the production assets of industrial enterprises operating in Russia is made up of imported machinery and equipment.
I will give calculations from the material “New contours of industrial policy» (HSE report, 2022). The authors of the report calculated the import component in the cost of products of the entire manufacturing industry of the Russian Federation and a number of its industries and industries as of 2018. The import component includes the cost of parts and components, raw materials, depreciation costs associated with the use of production equipment. The import component highlights that part of the costs associated with the supply of parts, raw materials and equipment from Western countries. These shipments separately take into account goods coming from the countries of the European Union (at that time 28 states, including the UK), the USA and Canada. There are 30 states in total.
So, the import component in the cost of products of manufacturing enterprises operating in the territory of the Russian Federation in 2018 amounted to 45.9%. Including the import component due to supplies from Western countries – 18.1%; due to supplies from other countries – 27.8%. In the “other countries” group, the main role, as the authors of the report note, belongs to China.
And here are the values of the indicator of import dependence for individual industries and manufacturing industries (in brackets – the part that falls on the supply of goods from 30 Western countries;%):
Food industry – 26.9 (9.8)
Textiles, textile products, leather and footwear – 74.8 (14.3)
Wood and wood products – 25.0 (13.5)
Paper and printing products – 30.5 (18.1)
Coke and oil products – 11.2 (4.6)
Chemical products – 31.1 (22.1)
Pharmaceutical industry – 53.0 (34.5)
Rubber and plastic products – 48.1 (24.6)
Other non-metallic products based on mineral raw materials – 22.6 (10.9)
Base metals – 10.0 (7.4)
Metal products – 31.5 (14.8)
Computers, electronic and optical equipment – 68.9 (17.6)
Electrical equipment – 57.8 (23.7)
Other machinery and equipment – 62.0 (40.0)
Motor vehicles – 56.3 (28.3)
Other transport equipment – 45.5 (26.6)
Other industrial production, repair and installation of machinery and equipment – 47.6 (20.1).
Thus, the range of import dependence by branches and industries of the manufacturing industry is very wide: from the minimum in the production of basic metals (10.0%) to the maximum in the textile industry (74.8%).
In my opinion, the import component of the cost of the final industrial product is somewhat underestimated in the report’s estimates. It follows from the report that the internal (domestic, national) component in the value of products of manufacturing enterprises operating on the territory of the Russian Federation in 2018 was 54.1%. However, in many cases, the so-called domestic component contains considerable import impurities. Such “internal” products are often created on the basis of foreign equipment. Today in our country you will not find a production facility that does not use imported equipment (this applies to almost all sectors of the economy). Without stretch, it can be argued that the import component in the cost of the final products of the industry of the Russian Federation in 2018 was not less, but rather more than 50 percent.
The highest import dependence took place in the textile industry, the production of computers and electronic equipment, mechanical engineering and the pharmaceutical industry (more than 50 percent).
In terms of dependence on imports from Western countries, the pharmaceutical industry, the production of motor vehicles and transport equipment, and the production of other machinery and equipment were in the most critical condition.
For some sectors and industries, the importance of the import component in deliveries from Western countries does not seem to be extremely critical. Thus, in the position “Computers, electronic and optical equipment”, the import component in Western countries was 17.6%, in other countries – 51.3%. In fact, import dependence on the West was critical. However: since some components from Western countries could not have a very large share in the cost of the final product of the electronics industry, these components were unique. It was difficult and even impossible to replace them with supplies from “other” (non-Western) countries.
I think that the United States, as the main organizers of the sanctions war of the collective West against Russia, probably carried out its own calculations of the import dependence of Russian industry (similar to the calculations presented in the report “New Contours of Industrial Policy”). It is known for certain that the monitoring of the import dependence of Russian industry and other sectors of the Russian economy is carried out on an ongoing basis by the US financial intelligence, specifically the agency FinSEN (Financial Crime Network) within the United States Department of the Treasury. And this monitoring data is used to plan and make decisions on sanctions against the Russian Federation. It would seem that the economic departments of the Russian Federation, all the more, should conduct such monitoring and, on its basis, make proactive decisions. However, according to my data, there is no such monitoring.
True, a section appeared on the Rosstat website “Indicators for assessing the state of Russia’s economic security“. More than five years ago, by decree of the President of the Russian Federation (dated May 13, 2017 No. 208), the document “Economic Security Strategy of the Russian Federation until 2030”, in which Rosstat was instructed to develop a system of indicators for assessing economic security and publish them regularly. In pursuance of the decree, a set of 40 indicators appeared on the Rosstat website, but most of them have nothing to do with economic security.
As an example, I will give the last five indicators of this list: 36. Retail trade turnover. 37. Distribution of the number of people employed in the economy by level of education. 38. Decile coefficient of funds. 39. The share of the number of employees with wages below the subsistence level of the able-bodied population in the total number of employees. 40. The level of crime in the economy. Some indicators are hopelessly outdated. For example, indicator number 2 “Gross domestic product per capita (purchasing power parity)”. Rosstat gives its value for 2011. And here is the indicator at number 3 “The share of Russian gross domestic product in world gross domestic product (purchasing power parity)”. Rosstat offers us the value of the indicator for 2017. And we are already at the end of 2022.
Only two indicators are related to Russia’s import dependence: 33. “The share of machinery, equipment and vehicles in total imports.” 35. “The share of imports in the volume of commodity resources of food products.”
And where are the indicators that characterize the dependence of the economy and its industries on the import of parts and components, raw materials, machinery, equipment and other investment goods? Rosstat does not publish anything like this and, according to available information, does not even try to calculate. Instead of Rosstat, specialists from the American financial intelligence and individual independent Russian experts are engaged in calculating indicators on the import dependence of the Russian economy.
An even more critical situation is observed in relation to the coverage of final demand in various types of goods, both consumer and investment. Domestic demand is still covered mainly by imports of finished products. And this is despite the fact that since 2014 various resolutions have been adopted and all kinds of import substitution programs have been launched.
A year ago, the Center for Economic Expertise of the Institute of State and Municipal Administration of the National Research University Higher School of Economics published a report “Imported products: share in retail sales“. It contains the results of calculations of the level of coverage of the needs of the population in industrial consumer goods through imports (as of 2020). The share of imports in everyday products (excluding automotive fuel) was 75.8% in 2020, and before that it had been around this level for five years. Those. there was no progress in import substitution. Some decrease in the indicator (up to 73.5%) was in 2019; the authors of the study associate it with such an opportunistic factor as a “pandemic”.
In 2020, imported products accounted for 95% of the consumption of auto parts in Russia, 92% of games and toys, 87% of footwear, 86% of telecommunications equipment, 82% of clothing, 73% of textiles and haberdashery. The most “prosperous” were such commodity groups as products of perfumery, cosmetics and detergents (57%) and sports goods (48%). “Although even in these categories, since 2017 there has been a slight but steady increase in the share of imports,” the authors of the study note. For some consumer goods belonging to the category of household appliances, indicators of import dependence are very moderate. Thus, for refrigerators and freezers – 43.6%, for washing machines – 19.0%. But the fact is that without exception, all samples of the so-called Russian household appliances have a very high import component in the form of parts, components and production equipment.
I will continue talking about the import dependence of the Russian economy, which has reached a critical level, in the next article.
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