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Import replace does not want

Импорт замещаться не желает

The policy of import substitution in Russia failed miserably. The Russians are forced to buy imported goods, despite their higher prices due to the collapse of the ruble. This is evidenced by the monitoring of the economic situation of the Ranepa and the Gaidar Institute.

In the section “External trade of Russia: preliminary results of the past year,” the economists noted an atypical picture. In recent years, if the rate of the rouble slipped against the dollar immediately diminished, and the volume of imports: the citizens have started to save on expensive foreign goods. But in 2018, this pattern was broken.

As pointed out by economists, from January to October 2018 ruble against the dollar has fallen by about 14% 57,65 RUB/USD. in the beginning of January to 65,8 RUB/USD. in October. However, a symmetric reduction of import this was not followed — the index remained roughly at the same level. According to analysts, the demand was so strong that it forces companies and citizens to buy foreign goods, despite price increases.

We recall that the substitution was announced by President Vladimir Putin in 2014 — after the annexation of Crimea to Russia as a policy of increase of competitiveness of Russian products with the aim of introducing it on the world market. In this way it was expected to strengthen the domestic economy.

Campaign of import substitution began with the introduction of the anticyclonic prohibitions on the import of meat, fish, milk, vegetables and fruits. And food was not limited.

In the same 2014, the Russian government adopted a plan to promote import substitution in industry. The plan assumed that by 2020 the share of imports in machinery, electricity, civil aviation, machine-tool construction, oil and gas industry will fall sharply (in these industries it accounted for 50% and above).

According to the trade Ministry for this purpose by the end of 2016 was directed RUB 374.4 billion, of which 105 billion is direct government support. In may 2017, Prime Minister Dmitry Medvedev reported on the success: the share of imports in the electronic industry by that time had dropped to 54% instead of the planned 69% and imports of consumer goods at retail, according to Rosstat, decreased from 42% in 2014 to 35% in 2017 for the first deliveries from 34% to 22%.

But already then it was clear that the main objective of import substitution is not solved. It in may 2017 Vladimir Putin formulated at meeting in the government: it is necessary that our products ultimately become “competitive in price and quality, consistent with international requirements and standards”, although “to substitute anything and everything — there is no such goal we have.”

According to the Russian economic school (NES), import is still very necessary to the Russian companies, which want to modernize — the coefficient of wear of the main funds, the economy on average was 48.3% (data of April 2018).

In the first place for wear — more than 50% – mining industry, the second health, the third is manufacturing. As analysts of the NES, the equipment in these industries is very old, and all these industries are dependent on imported products — in Russia or not her counterparts, or the counterparts with less capacity and road operating costs.

In short, to buy domestic not ready, neither citizens nor Industrialists. Why is this happening?

— When the exchange rate falls, relative prices of import and domestic products is changing dramatically, says the President of the Union of entrepreneurs and tenants of Russia Andrei Bunich. In such circumstances, the import usually initially really reduced. At first glance, this creates good preconditions for the displacement of imported goods. The problem, however, is that over time the relative prices of imports and domestic products is gradually recovering. And import regains market position.

This happens due to the total growth of prices, which occurs after the collapse of the ruble. Expensive food, consumer goods — in short, everything. And in the end, the accumulated effect of this price increase negates the competitive advantages that some time is given to manufacturers of domestic products before importing.

Let me explain with an example. Moreover, it will be considered in euros rather than in dollars — our main trading partner is still Europe, not America.

The Euro exchange rate by the end of 2014 before the ruble collapsed — was little more than 50 rubles/Euro. Now the exchange rate is almost 76 rubles/Euro. It turns out, the Euro has risen by about 50%. At the same time, prices of consumer goods only 2015 jumped by 30-40%. And with time, you will notice the price increase did not stop.

The result is a paradox: on the 2014 products in EUR went up less than domestic goods. And import again profitable.

Such cycles of decline and recovery in import demand is observed after each session of the devaluation of the ruble.

“SP”: — Why in these periods still does not import?

Because, as practice shows, the effect of the devaluation of the ruble short. At some point — abruptly — it turns out that it is cheaper to produce goods in Russia, but it doesn’t last. Prices are not static, and that it paralyzes attempts to replace imports.

We have now, oddly enough, after two devaluations of 2008 and 2014, and the creeping devaluation of 2018 on most commodity items more profitable to import than even in the days when the ruble was at its peak, before the 2008 crisis.

To squeeze the maximum effect from the devaluation of the ruble, you need to prevent subsequent price increases. Plus to conduct a meaningful policy of import substitution — incentives should be prepared in advance and launched at the right time.

We have a government these mechanisms start failing. It collapses ruble, and the price of hop! — immediately increase. In this situation, anyone who makes investment in domestic production, will lose. Because very quickly back up the channels of imports, and the situation in the economy would return to their original positions.

“SP”: — But we are told that the import goes successfully in a number of industries, such as agriculture. Why is there this works?

In agriculture was a serious investment even before the Crimean events, in the framework of national projects. Then, these investments have been paying off. And, tellingly, the investments in agriculture after 2014 showed a very weak effect.

Notice, moreover, that in agriculture there is still considerable downside import: seeds, some feed and fertilizer are still purchased abroad.

“SP”: — So, attempts at import substitution in Russia — a Sisyphean task?

— Establish its own production — a difficult and lengthy process. But still, it should be done. In 2014 it became clear: if you leave everything as is, at some point, dependence on imports will be critical.

This is especially true of technology. It is clear that in the field of defense industry, which depends on the country’s defense, the substitution is carried out at any cost. But in other areas of the point is difficult. And it is not necessary to say that the import substitution achieved major effect.

The Russian authorities, I believe, should more strongly pursue a policy of import substitution. We need tough measures, including protectionist in nature. Moreover, they must be combined with measures to promote competition in the domestic market. From the state, it is necessary to do practically forced to give the opportunity to freely enter the market of new players. It immediately have a positive impact on employment and on the growth of the Russian economy.

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