BOFIT Viikkokatsaus / BOFIT Weekly 2020/33
At the end of July, president Vladimir Putin approved a law that gives the government the power to designate minimum domestic content in procurements of the public sector and state-owned enterprises (SOEs). The domestic-content rules had been on the table for a while as a part of Russia's import substitution policies. The new law increases the opportunities for the government to favour domestic producers. Certain imported products are already banned for public procurements under earlier legislation and domestically produced products already enjoy a competitive edge in SOE procurement.
It is still unclear which branches are affected or how much domestic content will be required. Deputy prime minister Yuri Borisov mentioned that the domestic-content for public sector and SOE procurements currently averages around 30 %. Sergei Chemezov, CEO of the state-owned conglomerate Rostech, estimates that the domestic content of high-tech procurements for SOEs is currently only around 3–5 %. The total value of public sector and SOE procurements last year was about 30 trillion rubles (400 billion euros), which corresponds to nearly 30 % of GDP.
Some observers see the domestic content quotas as largely an effort to support Russia’s electronics and IT sector, the segment of the economy where Russia has one of the most broad-ranging and ambitious import substitution goals. In recent years, the ministry of industry and trade has drawn up a series of proposals on ways to support the sector. This spring, a proposition was introduced whereby organisations that manage “critical information infrastructure” (e.g. government administration, financial sector and energy industry) would be compelled to migrate to domestically produced software by the start of 2021 and domestically produced hardware by the start of 2022. Companies in the financial sector have demanded at least a longer transition period. In order to support the electronics and IT sector, the government recently decided to grant tax breaks to firms and reduce their mandatory social contributions.