Trade-survive – Newspaper Kommersant No. 59 (7504) dated 04/06/2023

Experts from the Higher School of Economics assessed the process of Russian companies adapting to sanctions — by the end of 2022, they managed to quite successfully realize the potential of “easy” import substitution in areas where there was a choice of technologies and suppliers, but problems of critical import dependence remain. Experts suggest that they be solved in the next two years by supplies from “friendly” countries and by the forces of production facilities already existing in the Russian Federation, while increased protectionism and coercive measures to purchase only domestic products can lead to the distribution of state resources in favor of inefficient companies. So, last year, a third of companies did not take any measures to adapt to sanctions at all, as during the pandemic — such enterprises are characterized by the fact that they are not included in the global market and are less subject to restrictions, but, as a result, are inactive in the markets and lagged behind technologically.

A team of authors led by Yuri Simachev, Director of the Center for Structural Policy Research at the National Research University Higher School of Economics, and Andrey Yakovlev, Chief Researcher at the Institute for Industrial and Market Analysis of the National Research University Higher School of Economics, studied the behavior of Russian enterprises under sanctions. The authors state that by the end of 2022, companies were increasingly using their adaptive potential and were less likely to report the negative effects of sanctions. The study also confirms that companies involved in international trade turned out to be more vulnerable to restrictions, while enterprises less dependent on imports and not included in export activities were almost not affected by restrictions.

This also explains the reaction of enterprises to restrictions: in total, in the manufacturing industry, 56% of enterprises have implemented certain adaptation measures (more often they switched to new suppliers, and less often Russian than foreign, 18% and 22%). A third of the companies did not take any adaptation actions at all. At the same time, the authors draw attention to the “rut effect”: companies that were active in trying to adapt to the sanctions behaved in a similar way during the coronavirus crisis, while passive ones did not take any measures in 2020–2021. “Such “stagnant passivity” is an additional risk of reallocation of state resources in favor of inefficient companies and a decrease in the effectiveness of the state’s anti-crisis policy,” the authors write.

This observation is important from the point of view of the effectiveness of state support for industry – the measures discussed on Tuesday by officials at the State Council are largely aimed at further strengthening protectionism, limiting import supplies and additional preferences for domestic suppliers, which provides advantages to inefficient industries and limits the possibility of producing competitive products, increasing the technological gap. (see “Kommersant” dated April 5).

As the study showed, the adaptation success of companies in 2022 is explained by the fact that companies have tapped the potential of “easy” import substitution — imports were replaced by already available Russian counterparts.

The problems of critical import dependence could not be resolved: a quarter of processing companies in 2022 had no analogues to imports either in Russia or in “friendly” countries. At the same time, enterprises continue to use foreign products due to higher quality or novelty – this is important for 70% of firms.

The authors themselves recommend relying on supporting the actions of companies to adapt to sanctions restrictions without imposing “priorities” from above – not to limit, but to help build supply chains from “friendly” countries, including parallel import schemes, or to attract existing Russian production.

In the medium term, it is already being considered the creation in Russia of production facilities for the necessary materials and components with the attraction of investments from “friendly” countries, as well as the launch of such production facilities in these countries to increase the efficiency of production. Systemic support is associated with the stimulation of digitalization and export activities of companies – this allows them to more flexibly adapt to gaps in the chains, including through the diversification of suppliers.

Diana Galieva