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Forecasts of Russian imports for the next three years have been significantly improved: the events of the last quarter of 2022 convinced the leadership of the Bank of Russia that this year it will be the same as in the “pre-sanctions” 2021. Does this mean that widespread import substitution, which has been talked about so much in recent months, is doomed? It all depends on what and where the Russian economy is going to import in the coming years in direct and indirect ways: in principle, the country’s dependence on foreign markets may eventually even increase, rather than decrease.

By the February meeting of the Board of Directors of the Bank of Russia, the Central Bank updated its macroeconomic forecasts and calculations for the balance of payments for 2023-2025. In theory, companies that are not involved in export-import operations on a large scale, as well as ordinary investors, in a set of numbers, economists of the Central Bank are usually only interested in data related to the forecast of the ruble exchange rate. After the start of the military operation of the Russian Federation in Ukraine, the introduction of the most severe retaliatory sanctions in the history of international relations by the G7 countries against the Russian Federation and the freezing of part of foreign capital in Russia, the mechanisms for the formation of the ruble exchange rate have been significantly simplified – the ruble exchange rate now, if we simplify the situation to the limit, depends mainly on the state ” balance of the financial account”: the less all foreign trade operations bring currency to the country in comparison with how much is spent on paying for the import of goods, services and on the reserve assets account, the more unstable the ruble is, the more likely it is to devaluate in the near future (and, as a result, , higher inflationary pressure).

And from this point of view, the changes that were made to the Central Bank forecast from October 2022 to February 2023 look positive. The October version of the balance of payments forecast assumed that in 2023 the current account balance would amount to a solid $123 billion, Russian exports would amount to $631 billion, and imports to $340 billion. to a rather dangerous minimum – $15 billion. For such a large economy as the Russian one, the $15 billion excess of exports over imports is very small, objectively, the Central Bank’s calculations assumed that over the next years the Russian economy would reduce exports – from a record $631 billion in 2022 ( military enterprises of the country allowed to earn, beyond expectations, about $ 80 billion in additional export earnings – mainly oil, if it were not for the restriction of non-primary and non-oil exports by sanctions, the excess would be about $ 120 billion) to $ 515 billion in 2023, $ 464 billion in 2024 and $431 billion in 2025.

This decline in October 2022 by the Central Bank was based on assumptions about two overlapping processes. The first is the reduction of Russian raw material exports to the G7 countries and its partial reorientation to India and China. The second is a reduction in (mainly non-commodity) exports due to increased domestic demand, the restructuring of a part of the industry that previously sought to export, to meet the needs of the economy within the Russian Federation. Yes, the government’s eternal talk about the need for import substitution over the past 15 years has assumed that any import-substituting production will also be stimulated to export. However, for the next three to five years, one way or another, the replacement of mechanically (sanctions) stopped imports from the EU, the USA and other G7 countries with what can be produced inside Russia left practically no export opportunities, except for food – Russia has been exporting it net for a decade .

But more important, oddly enough, in the new forecast of the Central Bank were non-export figures (an analysis of 2022 led analysts of the regulator to the assumption that one way or another, exports of goods and services from Russia in the coming years will remain at the level of about $ 500 billion a year – approximately 10% lower than in 2021) and imports. External analysts were very surprised that in January 2023, based on classified customs data, the Central Bank estimated imports for the last quarter of last year by $20 billion higher than it had expected a month earlier. This was already surprising: New Year’s consumer demand in the year ended was unsurprisingly weak, and what, in fact, could be imported into Russia for more than a trillion rubles and about 1% of GDP, no one had rational assumptions. But the forecasts of the Central Bank for imports in 2023–2025 have also changed. Already this year, according to the Bank of Russia, imports should return to the level of 2021 — $384 billion (in 2022 it dipped from this level by about $35 billion — this is mainly the consequences of EU trade embargoes under sanctions), and further, in essence, to remain at the same level or be slightly higher. From the point of view of the ruble exchange rate, this is the end of the alarm: the current account surplus should remain on the forecast horizon above $40 billion (although its estimate for 2023 by the Central Bank has halved to $66 billion, this is apparently enough for the stability of the national currency, even taking into account the “freeze » by the G7 countries of most of the foreign exchange components of Russia’s international reserves). But what is the Russian Federation going to and has already begun to rapidly import in quantities greater than in 2021-2022?

This question is hardly idle.

Analyzing the structure of Russian imports at the end of 2022, it would be possible to get an answer to it – if these data were available, but they are not. In general terms, these forecasts could greatly disturb those who intended to earn something on import substitution.

There is no weak ruble, parallel import channels somehow work, domestic demand is more or less stable – if all Russian imports are expected to recover, then, in fact, where is the place for this import substitution? It is just as presumptuous to assume that Russian companies will compete exceptionally successfully in the domestic market in the first years with foreign goods that returned “through the back door”, fell under sanctions or were officially withdrawn from the market by foreign companies that left the country, just as presumptuous as to expect that former imports will be replaced by goods from China, India, Southeast Asia, Latin America. Finally, the poor expectations of economists for investments in 2023-2025 also speak against this: from the middle of 2022, extremely little investment imports have been imported into Russia (and, we note, the collapsed auto imports, rather than machine tools, production lines and electronics, were largely suitable for such imports ) indicate that the increase in imports from the end of 2022 is both / or massive consumer imports, including parallel ones, and / or “semi-underground”, at least without noise, the accumulation of stocks of critical imports by Russia on a more or less Homeric scale — in fear of further tightening of sanctions.

Both the first and second options for “import substitutes” are problematic in different ways. On the one hand, the process looks more or less natural: if we do not talk about electronics, parts of the automotive industry, power engineering and aircraft manufacturing, which the Russian economy will replace imports extremely actively and uncompromisingly (it is believed, and not without reason, that it is in these sectors that the potential the entire economic structure with long-term sanctions), then importing – albeit at new increased prices, and with expensive and poor logistics, and without global support from manufacturers – is still more reliable for any product, from a nail to a TV, than getting involved in import substitution. In any case, this is a slightly worse business than in the pre-Covid era – and, apparently, more reliable than import-substituting domestic production, where it is necessary not only to achieve the production of a competitive product, but also to do it cheaper than foreign competitors, no matter if they are “friendly” Chinese or “unfriendly” Dutch, whose products will still be brought here through the same China by the same Chinese, who know how to make money this way and that way. On the other hand, if state structures (and, it seems, it is they who) create and will create large, many times larger than in the “pre-Covid” era, stocks of imports, it is precisely in this part that import substitution will not be required de facto, but predicted in advance, what will “leak” through the sanctions cordons better, and what is worse in the coming years, apparently, is impossible. Let me be curious about what exactly you are going to replace imports – are you sure that your product at the new facilities launched in 2024 will be at your prices (calculated for a market isolated from competitive imports) for someone in the Russian Federation?

But for now, these concerns are somewhat premature. Most likely, both options are correct, and besides, the general economic pessimism in the country, which, at least for now, has not become much, radically poorer, and some rather important, but so far subtle changes in the budget structure of 2022 (the numerous “incentives” of Bely at home, the state order, the change in the oil cut-off price during the formation of the NWF) led to the fact that the “natural” level of imports in such circumstances increased, and did not fall.

Moreover, it would not be too surprising if, to a large extent, both the $20 billion of additional imports at the end of 2022 and the additional $40–45 billion per year of imports in 2023–2025 in the Central Bank’s forecast compared to previous versions are an expectation that particularly successful there will be no import substitution in the Russian Federation in the next years, and the country’s dependence on imports, including those going in dark, non-obvious and costly ways, will generally even grow. And there is a blessing in disguise: only those import-substitution projects will survive in this situation that have something really strong inside: a team, technology, idea, product, that is, everything that would have played even without military operations, sanctions, a pandemic, and agitation and patriotism. campaigns.

And in this, to be honest, I see some strange justice.

Dmitry Butrin