Ruble exchange rate and import substitution

Import substitution, i.e. forgoing appreciated raw materials and machinery and switching to similar Russian-made products, could have been the second effect of such growth in prices of goods purchased by Russian industrial enterprises. However, the scope of such measures of Russian industrial enterprises has been narrow so far.

First, only 14% of Russian industrial enterprises reported that they began to purchase less imported raw and other materials in response to increase in their ruble-denominated prices. Eighty two per cent of them managed to (had to?) retain volumes of such purchases, and 4% reported growth in physical volumes of their purchases. There is a great deal of enterprises (24%) in the Russian industry which have forgone imported machinery and equipment because of price rise.

Second, only 15% of enterprises deliberately increased the demand for domestic raw and other materials amid growing ruble-denominated prices of imported domestic raw and other materials. As a result, the increase corresponds more or less to the scope of forgoing imported raw and other materials (14%) in the industry at large. Only 7% of Russian plants began to buy more Russian machinery and equipment in response to the Central Bank's foreign exchange rate policy, much smaller than the scope of forgoing imported machinery (as a reminder, it is 24%). Therefore, less enterprises tend to forgo imported machinery and equipment than those switching to Russian-made machinery and equipment for the time being (which is described by investment curtailment).

In-depth analysis shows that buying less imported machinery and equipment doesn't imply a similar demand for Russia's raw and other materials, machinery and equipment. Only 25% of the enterprises reporting their weakening demand for imported raw and other materials confirmed that they began to buy more Russian-made equivalents. Russia's machinery and equipment markets are facing even worse situation (in terms of import substitution). Only 3% of enterprises reported that they began to buy more Russian-made machinery and equipment because of forgoing imported ones.

Sergei Tsukhlo, Phd in Economics, Head of Gaidar Institute's Business Surveys Laboratory