The Kremlin’s data localization law will cost Russia billions of dollars

A new law on data, which requires Russians’ personal data to be stored on servers located within Russia, costs about 286 billion rubles ($5.7 billion), according to estimates from the European Center for International Political Economy (ECIPE). This makes up about 0.27 percent of the Russian economy.

ECIPE’s report also notes that other BRICS states, like Brazil and India, have put their data localization proposals on hold, while Russia is moving in the opposite direction, towards costly legislation.

The numerical results of this analysis do not fully capture the longer term adverse effects of regulations of data flows on technological progress, competitive behavior and Russian firms’ innovative capacities. Since these factors are the main drivers of long-run economic output growth, our results are likely to significantly underestimate the economic losses arising from data localization requirements.

ECIPE

• In July 2014, Vladimir Putin signed a law that will require websites and businesses to store all Russians’ personal data on servers located inside Russia. The law was initially supposed to come into action in 2016, but the Duma accelerated the process last year. The law now takes effect on September 1, 2015.
• In early April 2015, the US-based Internet companies eBay and PayPal agreed to transfer the personal data of their Russian users to servers based in Russia.
• Representatives of businesses that store user data have repeatedly criticized the data-localization law, saying it’s an excessive, impractical restriction that could lead to the disappearance in Russia of many popular Internet services, including airline ticket purchasing.
• In May 2014, the European Center for International Political Economy published the results of its study on costs of data localization laws in Brazil, China, Vietnam, and other countries. Data localization cost 0.2 percent, 1.1 percent, and 1.7 percent of GDP in each of these states, respectively.