Russia's Industrial Development Status and Future
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Russia's Industrial Development Status and Future

Russia is one of the four BRIC countries. The reason why Russia is listed as the BRIC is that Russia has a wealth of raw materials. Russia is easy to stand firm in the development of industrial production based on a balanced defense manufacturing industry foundation pace. But also because of Russia's abundance of raw materials, its export industry projects are too focused on fuel and energy products.
Published: Oct 28, 2020
Russia's Industrial Development Status and Future

According to Russia’s foreign trade statistics in 2018, its main export items include fuel and energy products (63.7%), metals and their products (9.9%), chemical products (6.1%), and machinery and equipment (6.5%) ), food and its production raw materials (accounting for 5.5%), wood and paper (pulp) products (accounting for 3.1%), etc.; and its import items are mainly mechanical equipment (accounting for 47.3%), chemical products (accounting for 18.3%), Food and its production materials (12.4%), metals and their products (7.2%), textiles and footwear (6.2%), fuels and energy products (1%).

Russia's economic and industrial development status

Judging from the economic growth rate in the past three years, Russia’s economic growth rate in 2018 was significantly good and stable. The average growth rate in 2018 was 2.25%, which is the best performance since the economic downturn in 2016. Among them, The growth rate in the fourth quarter of 2018 was as high as 2.7%, which is closely related to the growth of Russia's foreign trade.

The phenomena that contributed to economic growth in 2018, in addition to the growth of foreign trade, the stability of the financial market, the promotion of import substitution policies, and the promotion of digital economic development are all important factors that promote economic growth. Although Russia’s growth rate in the first quarter of 2019 was only 0.5%, according to the economic report released by the World Bank, Russia’s GDP growth rate in 2019 was 1.2%, and in 2020 and 2021, it will also grow by an average of 1.8%. The government’s planned growth rate of 1.5% is not far off.

The reasons for Russia economic growth in the past two years show that Russia has gradually deviated from the economic growth momentum driven by the production and export of raw materials, oil, and natural gas. Taking the first half of 2018 as an example, international oil prices soared by 23.1%, but Russia’s GDP grew by 1.9% during the same period, showing that Russia’s economic model of relying on energy exports to create foreign exchange sources has gradually been adjusted with the changes in Russia’s industrial structure. . According to the report of the Russian Presidential Academy of National Economy and Public Administration, the current high-tech industry contributes 22.3% of Russia's GDP, and practitioners account for approximately 36.6% of the total employed population.

In terms of the overall industrial structure of Russia, according to statistics released by the World Bank in 2019, Russia’s service industry output value contributed approximately 56.25% to GDP in 2017, industry approximately 30.48%, and agriculture approximately 3.55%. From the comparative analysis of the past ten years, the output value of Russia's service industry has increased significantly, while the output value of the industrial sector has changed between 2% and 3%, and it has risen to more than 30% in 2017. Looking at the proportion of labor in the tertiary industry, in 2017 Russia’s labor force in the service industry accounted for approximately 67.22% of the country employed population, industrial labor force accounted for approximately 26.95%, and agriculture accounted for 5.84%. The labor force ratio to the GDP contribution rate, Showing that the production efficiency of Russian industry is higher than that of the service industry and agriculture, highlighting the importance of industrial production to the overall development of the Russian country, and this has also prompted the Russian government to actively promote the balanced development of the industrial sector, and gradually reduce the impact on the agricultural and mining sectors and the energy sector.

Russia’s industrial development mainly involves 16 areas, including the energy industry, nuclear industry, chemical industry, metallurgy, defense industry, aerospace and aviation manufacturing, shipbuilding and marine machinery manufacturing, automobile manufacturing, and heavy transportation machinery manufacturing. , Agricultural machinery manufacturing, pharmaceutical, and medical industry, light industry, machine tool manufacturing, broadcasting electronics industry, etc.

First of all, due to Russia’s vast territory and rich mineral deposits, the industrial structure has been dominated by the production and processing of raw materials for many years, including ore mining, metallurgy, and diamond processing. The value is 2.8%, accounting for 10.2% of the total industrial production value.

There is also the energy oil and gas industry. This sector was the main source of Russia’s economic growth from 2000 to 2010. It was also a tool for Russia’s diplomacy and participation in international politics. Russia once used the policy of stopping the supply of natural gas to EU countries in response to the EU. The country’s boycott strategy against Russia has also used the expansion of the oil and gas industry to try to influence international oil prices. It has also actively developed Siberia and Sakhalin oil and gas fields and built pipelines to transport oil and gas to East Asian countries, changing the situation in which East Asian countries rely on Middle Eastern countries for oil and gas output. Under the current situation that countries are still highly dependent on traditional energy sources, although the oil and gas industry’s contribution to Russia’s economy is slowly decreasing, it is still a powerful tool for Russia to implement foreign policy and participate in international politics.

Russia's third-largest industrial project is the defense industry, aerospace, and nuclear energy industry. Since Russia has undertaken the defense and aerospace industry chain after the collapse of the Soviet Union, Russia has become one of the major producers of this industry in the world. In the defense industry, Russia has a complete production system for land, sea, and air weapons and equipment, including fighter planes, naval vessels, and tanks. The Russian military can manufacture and export capabilities. In terms of the aerospace industry, following the energy of the aerospace competition between the Cold War and the United States, Russia continues to promote the "Rocket and Aerospace Industry Development Plan", and plans to double the production of rockets and aerospace industries in 2020 compared to 2011. , And increase Russia’s share of the world’s aerospace technology industry to 16%.

Although Russia has the industrial foundation of the Soviet era, the decade after the collapse of the Soviet Union was the most sluggish period of Russia's economy and industry, destroying Russia's foundation for the development of other industrial fields. From 2000 to 2008, Russia actively promoted many policies to restore the momentum of economic development in Russia, including tax reforms and relaxation of SME development policies. During this period, Russia’s economic development relied on the export strategy of oil and natural gas, so that Russia had sufficient financial resources. Funds promote industrial innovation and development. Besides, the most important key lies in the successful implementation of the "Military-to-civilian" enterprise development policy. The promotion of this policy has allowed Russia's original military-industrial base to successfully shift to private enterprises, and then develop the people's livelihood technology industry. Lay the foundation for the development of the technology industry and the diversification of the industry.

Import substitution policy drives diversified industry development

The Russian government has been promoting the industrial import substitution policy since 2014 and has formulated import substitution indicators for some industrial sectors. For example, the import rate in the programming field will drop to 75% by 2020, and the import rate of automatic transmissions in the automobile manufacturing industry will reach 2020. The import rate of light-duty diesel engines will be reduced to 50% by 2020, and the food industry machinery manufacturing industry will also significantly reduce the import rate. For example, the import rate of bread cutting and packaging equipment will be reduced from 100% to 50%. , The import rate of vegetable dryers dropped from 90% to 40%.

This import substitution strategy is not only to enhance Russia’s industrial independence but also to respond to the sanctions policies of the United States and European Union countries. The import substitution policy covers 19 industries, more than 2,000 projects, and as many as 800 products. The Russian government has implemented regulations to increase local content requirements to encourage local production activities.

In addition to promoting industrial import substitution policies, to reduce the dependence of local industrial activities on imported products, Russia introduced special investment contracts as one of the preferential measures to encourage enterprises to (1) build new production facilities or improve existing facilities; (2) Localize advanced technology; and (3) Manufacture products that do not have similar substitutes locally. According to the special investment contract, investors can receive preferential treatment from the Russian government in taxation, supervision, and support.

Russia has also actively promoted the "Special Economic Zone" policy. Through the special economic zone policy, it encourages domestic and foreign companies to invest in them and promote local employment opportunities. Russia also provides land and infrastructure support for international companies. At present, the country has 25 special economic zones, offering several generous concessions to attract international investors in priority industries such as high-tech industries to develop locally. These special economic zones have been granted special legal status by the Russian government. Enterprises in the zones can enjoy tax concessions and duty-free treatment, and they can also be provided with land with ready-made infrastructure, and they can also connect to energy facilities for free. Taken together, these measures can help companies save on average 30% to 40% of costs.

In addition to special economic zones, the Russian government has also stepped up the development of industrial parks throughout the country. These industrial parks are mostly established by local agencies or private enterprises, equipped with industrial, transportation, storage, and administrative facilities required for manufacturing activities. Besides, to develop the Far East and Siberia, the Russian government especially proposed the Advanced Special Development Project (ASDZ) to promote the development of the vast Far East.

Actively promote scientific innovation policy to enhance industrial production capacity Scientific innovation policy is one of the important policies of the Russian government to promote the transformation of industrial structure. In the post-Soviet era, after Russia promoted the industrial restructuring policy of converting military to civilians, it created a large amount of foreign exchange through the production and output of energy and raw materials and enhanced Russia’s economic growth. At this stage, Russia is actively using science The introduction of innovative energy to strengthen the development of its industrial structure, and this policy is also complementary to the import substitution policy. Russia proposed the "National Technology Initiative" in 2014.

Russia proposed the "National Technology Initiative" in 2014.

The Ministry of Economic Development of the country also proposed “R&D for Priority Areas of the Development of S&T Complex of Russia for the 2014-2020", encourage scientific research institutions and private companies to develop local technologies comparable to imported products, and strengthen cooperation with foreign countries through bilateral or multilateral mechanisms to strengthen Russia’s local R&D capabilities; also proposed in 2016 "Strategy for the Scientific and Technological Development of the Russian Federation", to formulate a blueprint for the continuous promotion of economic growth through science and technology, and to plan for Russia to import strategically significant technologies to strengthen the country’s scientific and technological capabilities, and to increase R&D activities in the GDP to implement import substitution policies.

Russia's foreign economic and trade policy and the current situation

According to data released by the Russian Customs Administration, Russia’s foreign trade volume reached 692.6 billion in 2018, an increase of 17.6% from 2017; of which export value was US$452.1 billion, a growth of 25.6%; import value was 240.5 billion, a growth of 5.1%; trade surplus amounted to 2,116 Billion. In terms of regions, Russia and the European Union accounted for 42.7% of total foreign trade, the Independent National Association accounted for 11.7%, the Eurasian Economic Community (EAEC) accounted for 8.1%, and the ASEAN accounted for 31%. EAEU is a free trade agreement dominated by Russia, consisting of Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. EAEU was established in 2015 based on the customs union of Russia, Kazakhstan, and Belarus. In 2016, EAEU signed a free trade agreement with Vietnam, making Vietnam an important base for Russia to strengthen economic and trade relations with Southeast Asian countries.

To strengthen its foreign economic and trade structure, and to respond to the impact of economic sanctions imposed by the United States and some EU counterparts, Russia hopes to break through the restrictions of economic sanctions through economic and trade links with Southeast Asian countries. Therefore, since 2012, Russia has used the opportunity of hosting APEC meetings and held a leadership summit in Vladivostok to declare its determination to strengthen economic cooperation with East Asian countries. The Russian government believes that its economic and trade links with Southeast Asian countries can expand business opportunities to neighboring countries and serve as a platform for economic and trade cooperation between Eurasia.

Prospects of Russian industrial development

The status of Russia’s BRIC countries should be expected under the Russian government’s continuous promotion of import substitution policies and technological innovation policies; however, challenges to Russia’s economic development still exist, including reliance on energy and raw material exports remains heavy, The development of industrial infrastructure and domestic independent innovation still needs to be strengthened, and the economic sanctions of some countries in the United States and the European Union. These problems require the Russian government to continue to promote relevant policies to respond and overcome. From the perspective of foreign trade in 2018, under the economic sanctions policy, Russia’s foreign trade is still growing, especially the United States, which still ranks sixth among Russia’s trading partners with a growth rate of 7.9%. There is still certain importance internationally. Judging from recent Japan’s trade policy ban on the export of hydrogen fluoride to South Korea, Russia has actively promoted its domestically produced hydrogen fluoride materials to South Korea, highlighting Russia’s enthusiasm for expanding its domestic products, and strengthening the strategy of diversifying domestic industrial exports. It shows that Russia is also actively expanding its trade products under the framework of promoting import substitution policies.

Published by Oct 28, 2020 Source :maonline

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