- Oct 3, 2018
- 3,165
| TYPE | Infrastructure |
| CLIENT | Russia |
| PROJECT | Import Substiution Subsidy Program |
| PROJECT COST | 3,250,000,000.00 |
| COMPLETION DATE | 01/06/2025 |
| PROJECT INFORMATION | Russia faces a significant challenges from global non-tariff barriers and unfair trade practices from both market and non-market economies. More importantly, import reliance has become a strategic liability in an era of enhanced economic competition from adversarial nations. Import substitution, while not a permanent solution, will allow Russia to respond to unfair trade practices that have advantaged foreign competition against domestic competition. Over-reliance on imports exposes Russia to external economic fluctuations and geopolitical risks. BRussia can mitigate these risks, ensuring stability in the supply chain and reducing vulnerability to international market volatilities through this project. In addition, it will encourage businesses to produce domestically through subsidies that will stimulate job creation across various sectors, particularly in manufacturing and related industries. This influx of employment opportunities will not only reduce unemployment rates but also foster skill development and enhance the overall productivity of the workforce. Furthermore import substitution retains revenue within Russia's economy, as opposed to outflows through import payments. This retention of financial resources can be reinvested domestically, further fueling economic expansion, infrastructure development, and social welfare programs. The Ministry of Finance and Economy has indicated that the number of businesses eligible for import substitution subsidies will increase from 3,875 to 6,332. Each eligible business will receive a subsidy of $500,000 to facilitate the transition towards domestic production. In addition it will expand total domestic production of consumer products, goods, manufacturing, and other worker-based industries to over 63,320,000 units per quarter, representing a substantial increase from current levels. Import substitution subsidies reduce production costs for domestic manufacturers, making their products more competitive compared to imported goods. This cost advantage encourages consumers and businesses to choose locally-produced items, thereby boosting demand and sales within the domestic market. For example, in Brazil, during the mid-20th century, import substitution policies led to the establishment of new industries such as automotive and electronics, which significantly increased employment levels and improved income distribution. This is because subsidies encourage diversification of industries by supporting the establishment of new businesses and the expansion of existing ones. This diversification reduces reliance on a narrow range of imported goods and enhances the resilience of the domestic economy against external shocks. For instance, countries like South Korea and ROC used import substitution policies in the mid-20th century to build robust manufacturing sectors that eventually became globally competitive in electronics, automotive, and other high-tech industries. During the mid-20th century, Argentina implemented import substitution policies to promote local industrialization. Subsidies and tariff protections encouraged domestic production of goods ranging from automobiles to consumer electronics, aiming to reduce dependency on foreign imports and strengthen economic independence. The Ministry of Economy and Finance, along with the Ministies of Trade and Industries will allocate a total budget of $3.25 billion to support 2,457 additional businesses in becoming eligible for import substitution subsidies. Businesses can use E-Russia to access import substitution subsidies which will be administered by the delegated agency by the Council of Ministers. Russia’s current effective production rate of 18.2% highlights inefficiencies in resource utilization, manufacturing processes, and supply chain management. This gap between theoretical and actual production capacity underscores the need for targeted interventions to enhance operational efficiency. The Ministry of Industry identifies resource inputs as a significant source of inefficiency. Factors such as inadequate infrastructure, outdated technology, and supply chain bottlenecks contribute to suboptimal production levels. Addressing these inefficiencies will be important to maximizing the impact of the proposed subsidy and investment strategy. While outside the scope of this project, further investment in capacity building programs and workforce training initiatives to enhance skills and knowledge within the manufacturing sector is necessary to compound the benefits from this project. This includes training programs focused on modern manufacturing techniques, quality control, and lean production practices. |
| ENCRYPTED | No |
