Strategic guidelines for import substitution in Russia in the context of systemic transformations

IntroductionThe basic idea of the founders of the mercantilist theory of import substitution and state protectionism is based on the position that it is necessary to sell more goods abroad and import less.

This way of economic development, according to one of the brightest representatives of this direction of economic thought, Jean-Baptiste Colbert, is the most effective in terms of ensuring sustainable economic growth ^[1]. If we present the position of mercantilists in a concentrated form, then its essence is as follows: it is necessary to create conditions for the inflow of money into the country and reduce the outflow beyond its borders. If the early mercantilists proposed solving this problem through administrative measures of regulation and restriction of money export, then later representatives of this school ^{[2, 3]} – through regulation of foreign trade. According to the position of the English mercantilist Thomas Man, "The usual means to increase our wealth and our treasures is foreign trade, in which we must always adhere to the rule that we sell our goods to foreigners annually for a larger amount than we consume their goods" ^[4]

This theory, undoubtedly, like, perhaps, any other, finds its opponents. It is enough, for example, to note that the founder of classical economic theory Adam Smith argued that the policy of protectionism is a consequence of the struggle for the interests of trade and industrial groups and is aimed only at defending their interests ^[4]. And, consequently, it does not contribute to the formation, as is now commonly said, of an inclusive development model when broad groups of the population are involved in economic growth. Later, the position of the classics also found its refutation from, first of all, the neo-Keynesian direction of economic thought. Representatives of this economic school were guided by the position according to which the role of the state in the system of organization of economic development processes should be significant, including in the framework of defending the interests of both the state itself and its individual economic agents and their groups ^{[5, 6, 7]}. Localization of unemployment, employment growth, consolidation the competitiveness of domestic enterprises, the growth of global competitiveness, ensuring national economic security and the necessary restrictions on the import of products are the result of the state policy of protectionism and regulation of economic processes ^{[8, 9, 10]}.

Many ideas of both early and late mercantilism are actively proclaimed and used as basic tools in the system of public administration at the present time. For the Russian Federation, they have received a noticeable boost in the last 7-8 years, and acquired particular relevance in 2022, when the sanctions confrontation between Russia and a number of Western countries has become almost ubiquitous, unprecedented in the modern history of Russia in its scale. In the first six months of 2022 alone, six packages of sanctions were developed and introduced against the Russian Federation, including restrictions on international trade, nationalization of assets, freezing of gold and foreign exchange reserves, restrictions on joint areas of scientific, technological and personnel development, etc. These and other factors have become weighty arguments in the direction of activating and increasing the policy of import substitution on the part of the Russian Federation within the framework of the development of national industries and the creation of alternative services and technologies that ensure the sustainable development of economic processes and the entry of the national economy into a new track of economic growth [11? 12].

The main partIt is important to note that the import substitution policy actively implemented by Russia is a consequence not only of the so-called external factors, but also largely related to the need to ensure the global competitiveness of the state in the era of the transition of the world economy to the sixth technological order ^{[13, 14, 15]}.

New technologies, mainly related to the development of the digital economy, largely expand the range of production opportunities, ensure the growth of labor productivity and efficiency of economic processes and, as a result, lead to an increase in the quality of life and global competitiveness and sustainable development of the national economy. It is no coincidence that many states today are focused on creating their own advanced high-tech products that replace imported supplies. The most striking examples include the protectionism policy of China (Made in China), India (Make in India), etc. ^[16]

In these new, emerging conditions of technological and institutional transformations, the observed systemic transformations caused by the sanctions pressure on the national economy of the Russian Federation, import substitution issues are being given the closest and increased attention today ^[17]. This is connected both with ensuring economic security and with the need to increase global competitiveness in the era of the fourth industrial Revolution.

It is important to emphasize that it is advisable to divide the import substitution policy into two types:

1. The policy of forced import substitution in the context of large-scale sanctions and restrictions on foreign trade relations ^{[18, 19]}.

2. The policy of export-oriented import substitution ^{[18, 19]}, which presupposes the creation of a type of national production that will be competitive not only in domestic markets, but also in foreign ones.

The first type of import substitution policy is aimed at preserving and maintaining the development of the labor market and maintaining the stability of socio-economic dynamics in conditions of limited supplies of foreign components and services. The second is aimed at strengthening the country's competitive position in the global economic arena. Based on this, the answer to the question regarding the mechanisms of implementing a protectionist economic policy aimed at replacing imported domestic products should lie in the plane of two dimensions under study: "forced import substitution - export-oriented import substitution." This is due to the fact that the difference between these strategic guidelines implies a different set of tools justifying the need for their implementation and justification of effectiveness (Figure 2).

Figure 2 – Strategic guidelines for the policy of import substitution and produced tools for assessing the effectiveness (compiled by authors)

Undoubtedly, the choice of the import substitution policy, regardless of which of the two types it is largely have to rely on sectoral/regional characteristics and existing competitive advantages. In this regard, it is important to examine the structure of foreign trade turnover in the sectoral and regional breakdown, as well as to identify the vulnerability of individual industries to localize imports. Only then can you develop a prioritization policy of import substitution as from the point of view of the degree of variability and adaptability to the business environment, and priorities of national economic significance (figure 3).

Figure 3 – the Priorities of the policy of import substitution sectors of the economy (compiled by authors)

In the context of the above, it should be noted that the policy of forced import substitution currently being actively implemented in the Russian Federation, provoked by large-scale sanctions, does not so effectively contribute to breakthrough development in the field of economics and technology, improving the quality of life, structural transformations, etc. Its main goal, at least at the first stage of implementation, is to replace the resulting the emerging niches in terms of replacing foreign products, technologies and services leaving the markets. In other words, the priority is to maintain the stability of the processes of functioning of production complexes in conditions of limited import supplies of final or intermediate consumption products.

The study and identification of these niches, their scale and criticality from the point of view of sustainable economic development, is today an extremely urgent and in-demand task.

According to the Federal Customs Service of Russia, in 2021, imports to the Russian Federation increased by 26.5% compared to the previous 2020 and amounted to $296.2 billion ^{[20, 21]}. At the same time, it is important to note that such an impressive dynamics was largely due to the effect of the low base formed in 2020, as part of the unfolding coronavirus pandemic and the large-scale cross-country restrictions in the field of trade communications caused by it.

In general, 2021 was marked for the Russian Federation by the release of imports to the pre-crisis level of 2015, when there was a large-scale drop in imports as a result of geopolitical tensions and the introduction of large-scale sanctions against Russia (Figure 4). At the same time, it is important to note the fact that such a noticeable increase in 2021 was largely due to dollar inflation, which could not but affect the price indices of imported products.

Figure 4 - The volume of Russian imports, billion US dollars.

Source: Data of the Federal Customs Service of Russia, EMISS ^[22]

In 2022, the situation looks like it will repeat itself and the scenario of reducing imports will largely resemble 2015. At the same time, apparently, there are risks of more serious falls in the volume of foreign trade, due to unprecedented restrictions imposed by a number of Western countries in relation to the Russian economy and the mass withdrawal of foreign companies from the Russian market. Given that statistics revealing the specifics of the import movement in Russia in 2022 have not yet been released, it is not possible to demonstrate emerging new trends. However, judging by the large-scale "curtailment" of the activities of foreign companies in the Russian Federation, there are substantial grounds to believe that the import of final and intermediate consumption goods will decrease at a record pace for Russia.

It is important to note that according to the results of the last few years, the main share of imported products in the Russian Federation falls on the countries of the so-called far abroad (89.3% according to data for 2021 ^[22]), among which China dominates (24.8%). It is followed by the so-called unfriendly countries: Germany (9.3%), the USA (5.8%), Japan (3.1%) and a number of Western European countries (Figure 5).

Figure 5 – Structure of Russia's imports by country, in % ^[22]

In the context of commodity groups and their correlation with importing countries, Table 1 shows the main suppliers of imported products.

Table 1 - The main imported goods and their suppliers (compiled according to ^{[22, 23]})

Considering that the share of unfriendly Western European states, the USA and Japan accounts for about 28.5% of imports to Russia (Figure 5), restrictions on further supplies of goods from these countries pose serious risks to the sustainable socio-economic development of the Russian Federation in the short term (for reference: the main commodity items imported from these countries are cars, engines, measuring instruments, equipment, chemical industry products (including pharmaceutical products), vehicles, metals and products made from them, plastics, rubber, rubber and food products). This is not only due to the fact that many reproduction processes in the national economy are embedded in the international value chain and, accordingly, restrictions on the supply of imported raw materials and components can lead to the suspension of production processes. But also with the fact that a number of imported financial services and products from unfriendly countries are of strategic importance for maintaining the stability of the financial system of the Russian Federation and their restrictions can lead to significant shocks in the financial markets of the country (disconnection of the banking sector from the SWIFT system, restrictions on access to the placement of securities on the OFZ markets, freezing of gold-currency assets, etc. In addition, restrictions on the inflow of imports also entail serious consequences for the sustainable development of the national economy within the framework of the neo-Keynesian concept of the accelerator. According to the conclusions obtained within the framework of the conducted economic and statistical modeling, an increase in imports by $ 1 million leads to an increase in the national GDP of Russia by 417.2 million rubles (Equation 1, Table 2, 3). Undoubtedly, in the context of regions, this parameter has a very differentiated order of values, since the subjects of the Russian Federation are to varying degrees integrated into the international value-added system.

GDP = 6389008+417.18*Im (1)

where:

GDP – gross domestic product, million rubles.;

Im - import of goods (according to customs statistics), million dollars.

Table 2 – Statistical significance of the equation (compiled by the authors)

Table 3 – Statistical parameters estimating the sensitivity of Russia's GDP to import volumes (compiled by the authors)

The presented coefficients of sensitivity of the GDP of the Russian Federation to imports reveal the role and importance of this factor in ensuring the process of formation of macroeconomic dynamics. It is not difficult to assume that any slowdown in import flows, not to mention their large-scale reduction (as it is observed in 2022), will have very adverse consequences for economic growth. At the same time, it is also important to note the fact that a significant increase in prices this year for energy resources, which are the main part of Russia's exports, largely compensate for the noted losses, as a result of which, most likely, there will be an increase in the trade balance.

Returning to the question of the dependence of the Russian economy on imports, it is also important to understand what the structure of these imports is. According to Rosstat data, in 2021, as well as in the last few years, Russian imports were dominated by such types of products as machinery and equipment (49.2%), chemical industry products (18.3%) and food products (11.6%) (Figure 6).

Figure 6 - Commodity structure of imports of the Russian Federation for 2021, % ^{[22, 23]}

Thus, it can be argued that the priorities of the policy of implementing forced import substitution should be precisely those areas that are most vulnerable. At the same time, it is necessary to understand that the unification and implementation of a unified system of mechanisms and tools in this area for all regions of the Russian Federation would be a mistake due to the differentiation of their potential and capabilities. As previously noted, in the regional context, the identified features of the structural organization of imports and its impact on the stability of macroeconomic dynamics are not very unified. Of course, everything depends on the structure of the economy and its involvement in global reproduction processes.

ConclusionIn conclusion, it should be noted that in Russia, import substitution issues are given the closest attention.

Suffice it to note that after the entry of Crimea into the Russian Federation in 2014 and the subsequent sanctions not only exacerbated the problem of import substitution with Russian analogues, but also formed a stable basis for the development of large-scale measures in this area. In this regard, a number of strategic state planning documents in the field of import substitution were adopted. This is, first of all, the state program "Development of Industry and increasing its competitiveness" ^[24] launched on April 15, 2014, where among its main tasks is the need to reduce imports of finished products and replace them with domestic analogues. An equally significant place in the number of import substitution programs in the Russian Federation is occupied by the Program of Scientific and Technological Development, the most important goal of which is the creation and subsequent replication of domestic technologies for the production of foreign analogues. A wide range of laws and draft laws have been developed to protect domestic businesses and the population under sanctions restrictions.

These and many other import substitution mechanisms aimed at protecting business institutions and the population in the face of sanctions will undoubtedly lead to concrete results in the near future. This will ensure the structural transformation of the national economy and its regions and create conditions for the active integration of Russia into the sixth technological order and the formation of a new structural organization of the economic environment, which will ensure the growth of the global competitiveness of the national economy in the medium term.

At the same time, it should be emphasized that the ongoing systemic transformations caused by sanctions restrictions and the departure of foreign companies from Russia form the need to implement priority "fire" measures to replace imported products with analogs. This, in turn, determines the appropriate priorities in choosing a policy of forced import substitution. The effectiveness of its implementation will ensure the solution of many current strategic tasks, which will subsequently allow us to enter the track of export-oriented import substitution and strengthening of the Russian economy on a global scale.