Import Substitution and the Economic Crisis (in the Automotive Sector)

On October 16, 2015, Professor Rudolf Traub-Mertz (Germany) presented his report on Import and Economic Crisis (by the example of the automobile sector). The speaker noted that over the past 23 years, Russian GDP grew only by 22%, or 0.3-0.4% per year. In addition, the professor noted that the exchange rate policy pursued in Russia after 2000 led to a lack of growth in the Russian manufacturing industry. According to Professor Traub-Merz, in the 2000s Russia faced the so-called "Dutch disease". The rapid development of one of the branches of economy (in the case of Russia - the fuel and energy branches), exports enables inflow of foreign currency into the country. Strengthening of the national currency leads to a decrease in the competitiveness of the manufacturing industries. The speaker noted a decline in the share of manufacturing sector in GDP, an extremely low number of patents granted by Russian residents, compared to the developed countries. In the mid-2000's in the there was an import boom in the automotive sector. According to the European Bank for Reconstruction and Development data, imports of cars rose by 177% between 2005 and 2007, and thus covered half of the domestic market. This could lead to the collapse of the domestic automotive industry, but the Government of the Russian Federation focused on import substitution in the automotive industry. Customs duties on the imported production equipment and auto components were reduced, income tax rates for sold products were reduced, and land, water, and electricity charges were reduced. In order to take advantage of these benefits, it was necessary to comply with a number of conditions, for example, a gradual reduction in the share of imported components. As a result of implementing the policy of import substitution in Russia, Renault, Volkswagen, Ford, Kia, Hyundai, Nissan, and other brands of cars started assembling in Russia. As a result, the production of cars covers Russian demand by 80%. As negative trends Prof Traub-Mertz mentioned low interest of manufacturers to introduce the latest technologies in the production and therefore low competitiveness of domestically-made cars.