Import substitution

How efficiently is the government program of import substitution implemented, and should it be refused in case of the removal of sanctions

After almost three years since the adoption of the government program on import substitution experts have differed in assessments of its effectiveness and continuation.

The root of all evil. Increasingly in recent times it has been spoken about the possibility of removing the anti-Russian sanctions, and optimistic predictions, concerning the domestic economy, are heard in this regard. Together with the strengthening of the rouble exchange-value and the rise in oil prices it is supposed that the removal of sanctions will improve and restore the health of our falter economy. However, a deeper analysis shows that not the sanctions prevent its stable development. Belated reforms of the Government, imperfect legislation, as well as the volatility of the economic policy have led to prolonged stagnation of key domestic industries and markets. Thus, the sanctions have only showed us the weakness of the economy, first of all, of its financial sector, which has turned out to be unable to provide the real sector of long cheap money. It is becoming apparent that the importance of the government program on import substitution is not caused by active sanctions, but by the need to overcome the economic crisis.

Wanted the best. On the need for economic reforms it has been spoken much earlier than imposition of sanctions, and it confirms once again the importance of the government program on import substitution calculated up to 2020. However, recent reports of various ministries and agencies point to that in its present form it has practically ceased to deliver benefits, the implementation of its capacity is at a very low level. Only a few companies were able to take advantages provided by the program, in general the business continues to look for ways out of the crisis by itself. The strengthening of the rouble is cited as one of the reasons of poor implementation of the program: the growth of real incomes of population has caused the return of consumers to imported goods. The short-term advantage, which was received by a number of export-oriented sectors from the weakening rouble and the imposition of sanctions and counter sanctions, was not supported by reforms, which would become the basis of stable growth in the long-term period. However, it is wrong to write off the failure of the program only on the national currency. The legislative initiatives themselves aimed at import substitution have turned out to be deficient.

The course is new, purposes are old. The economic growth won’t follow just behind the removal of sanctions, because there are no conditions created for this within the country. The course of import substitution adopted by the Government needs to be continued, because its main aim is the formation of these conditions. However, this course needs to be adjusted, and the policy of import substitution should not be dictated by sanctions, but by the interests of economic development. The most important factors of the economic growth are labor and capital, which are at an extremely low level, and continue to go down, both in quantity and quality. The workforce does not meet the requirements of the modern economy; no investment in production, therefore, there is no infrastructure. In addition, the events of recent years have shown the imperfection of our tax laws. It should not be the same for all, because different sectors have different costs and profitability. It is necessary to remove the tax burden from the industries, whose development is a priority, to speculative types of activity, to financial in the first place. But perhaps the most important for the success of the program of import substitution will have the consistency, transparency and predictability of the work of the Government (previously we have already written about it – s. Article from 26.01.2017). Sudden and quick movements, volatility are unacceptable in the economic policy. This policy should be long-term, meant for many years. Each decision should be balanced, measured and thought through. Because only in such conditions business can plan its activity effectively and implement intended targets.

Requirements to state procurement participants became stronger

At the end of 2016 the legislation on procurements was amended. Details of the essentials are stated below.

  • The Federal law №474-FL as of 28.12.2016 «On amendments to certain legislative act of the Russian Federation» has expanded possibilities of participation in procurement of goods, works and services by certain federal state unitary enterprises.

This is about enterprises essential for ensuring the rights and legitimate interests of citizens of the Russian Federation, defense and security of the state. As agreed with Russia's Presidential Executive Office, the list of the enterprises was later approved by the Russian Government Executive Order №2931-r as of 31.12.2016 «On approval of the list of Federal state unitary enterprises, which are essential for ensuring the rights and legitimate interests of citizens of the Russian Federation, defense and security of the state».

Conclusion of civil law contracts by these enterprises on supplies of goods, works and services now falls within the scope of the Federal law №223-FL as of 18.07.2011 «On procurement of goods, works and services by certain types of legal entities» and is released from the Federal law №44-FL as of 18.07.2011 «On the contract system in state and municipal procurement of goods, works and services».

It was also stated that the effect of law does not extend to procurement of goods, works and services made by the Central elections commission and elections commissions of the RF subjects during elections to the federal authorities.

The law has come into force since January 1, 2017.

  • The Federal law №489-FL as of 28.12.2016 On the amendments to Article 31 of the Federal Law “On the contract system in state and municipal procurement of goods, works and services has expanded the list of obligatory requirements to participants of procurement provided by the Article 31 of the law and uniform requirements to the participants were set.

One of the most important requirements is that participant (natural person, executive, members of collective executive body, chief accounting officer of a legal entity) must have no criminal records for economic crimes. This norm does not cover persons with expired and expunged criminal records. The same is about cases when criminal records are not connected with deprivation of right to hold specific positions (to be engaged in certain activities) or disqualification related to supplies of goods, performance of works, provision of services being an object of procurement.

Another requirement is absence of criminal records for offenses under articles of the Criminal Code for illegal participation in entrepreneurial activities, taking or giving of bribe, or mediation in bribery. When criminal record is expired or expunged, the limitations will not be applied.

The list was also added with the requirement for participant (legal entity) not to be brought to administrative responsibility under the article of the Code of the Russian Federation on Administrative Offenses on illegal gratification on behalf of a legal entity.

  • The Federal law №500-FL as of 28.12.2016 “On the amendments to Article 93 of the Federal Law “On the contract system in state and municipal procurement of goods, works and services” specifies cases of conducting sole supplier procurement.

The law sets that customers acting on the territory of foreign state (diplomatic missions, consular offices or trade representation of the Russian Federation, etc.) at procuring are released from limitations regarding making of the contract price, not exceeding one hundred thousand.

Full range of information on procurements is available in the Information and Analytical system Globas-i. «Procurement analyses» section contains services for analyses of information on procurements. Using tools and filters developed by the experts of the Information agency Credinform it is possible to organize data on procurement participants, goods and prices. The information produced after analyses will assist in searching for counterparty, choosing marketing strategy and forming pricing policy.