Problems with Western machines and components turned into a rise in costs

The Gaidar Institute (IEP) has published the results of the second wave (February 2023) of surveys of industrial companies on the consequences of stopping import supplies and leaving Western manufacturers from the Russian Federation. The first wave of surveys in April 2022 was conducted to predict future effects.

“The most massive and accurately predicted … was the growth of costs, intensified (or formed) in the conditions of world inflation. This was expected and then confirmed by 64% of enterprises,” the IEP notes. Respondents reported that in February (for the first time since May 2022) they raised prices for selling products, and the balance of expectations of price changes changed in favor of their growth in September, and in January-February 2023 it stabilized at plus 20 points.

The second place in the list of problems was the lack of alternative suppliers and manufacturers in the Russian Federation, but its scale between surveys decreased by 9 percentage points (pp) to 53%. The third place in the list of consequences of problems with imports was given by the industry to “a strong change in technological chains due to the lack of Western components.” The importance of this problem decreased slightly, by 3 percentage points, to 38%. “Not all Western supplies could be painlessly replaced by Russian or Chinese counterparts,” the IEP believes.

The mention of the problem “stopping or replacing imported equipment due to the impossibility of servicing” decreased from 40% to 22% over the year, which may indicate an increase in parallel imports. The growth of import-substituting demand (see chart) turned out to be quite a bit below expectations: 33% against 36% in April 2022. Investments for import-substituting demand showed the most significant growth compared to April 2022.

According to specially overestimated estimates by the IEP (companies that do not use them are excluded from the calculations), “normal supply” of imported components still remains at the level of the beginning of the sanctions war (35% of enterprises reported this state), “insufficient” — for 64%.

Artem Chugunov