Russia imposes new procurement restrictions on the public sector and state enterprises

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/39

Most public sector food procurement (including fish, meat, milk and rice) must now favour domestic producers (Eurasian Economic Union members are considered as domestic here). Existing import restrictions on public sector procurements already cover e.g. some machinery products, medicines, clothing and software. A 15 % price advantage is also applied to domestic producers. The restrictions on public procurements have been extended this year to cover state and municipal unitary enterprises such as Russian Post. At the moment, the law on public procurements affects roughly 260,000 organisations whose purchases this year so far amount to 3.3 trillion rubles (€45 billion). The value of public procurements in recent years has averaged around 9 % of GDP. 

The 15 % price advantage granted to domestic producers in public procurement will be extended at the start of next year to apply also for the purchases of SOEs carried out through competitive bidding. The actual impact of the law remains unclear, because according to the economy ministry only 5 % of SOE procurements this year have been subject to competitive bidding. The law on procurements of state-owned enterprises does not precisely specify those cases where procurements should be subject to competitive bidding. SOEs were already earlier subject to certain domestic content requirements in the case of large investment projects. The overall value of SOE procurements in recent years has corresponded to about 30 % of GDP. 

The restrictions on procurements of the public sector and SOEs are part of Russia’s import substitution policy. Unsurprisingly for many observers, prime minister Dmitri Medvedev stated in his recent article that import substitution will remain a focal point of Russian economic policy in coming years, regardless of geopolitical conditions or sanctions.

Russia has also extended its food counter-sanctions to a ban on salt imports from November 1. The salt ban affects the same group of countries (e.g. the US, EU, Norway and Ukraine) and will remain in force with earlier import bans until the end of 2017. The ban mostly affects Ukraine, which last year provided half of Russia’s salt imports.

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