The “Made in Russia” strategy:a limited instrument for economicdiversification

Thanks to the efforts of the authorities, the diversification of the Russian economy is progressing, particularly

in certain sectors such as information technology, pharmaceuticals, the automotive industry and the agrifood

sector. In the latter case, the process was encouraged by Russian counter-sanctions adopted as a

response to Western sanctions. Economic diversification is regarded as a way to simultaneously reduce

the country’s dependence on imports and on hydrocarbons. However, the diversification faces structural

barriers. It is subject to the availability of inputs, the modernization of the productive apparatus and the

improvement of the business environment. The requirement to substitute local production for imports and/

or increase local content is limited by the availability and quality of local components. Additionally, the

development and modernization of local production chains very often require the import of machinery and

technology from Western countries. The current and, potentially future sanctions and counter-sanctions,

the business environment (rated B by Coface, 5thnotch on a scale of 8), the increasing political risk and the

lack of available workforce weigh on domestic and foreign investments. In addition, raw materials (including

hydrocarbons) still play an important role in the economy in spite of a weaker link between oil prices and

economic growth. This is a result of the new fiscal rule aimed at disconnecting the economy from fluctuations

in the oil environment and the growing influence of the political context on capital flows at the expense of

crude oil prices.