Negative mixed effect: a quarter of industrial enterprises took advantage of the “positive” effect of sanctions, but this will lead to an expansion of the sector of “stagnation” in industry in the future

The most advanced and innovative Russian companies, whose dependence on imports was higher, suffered the most from the sanctions. However, many of them also showed high activity in adapting to new conditions. Although the consequences of sanctions for two-thirds of enterprises were negative, every fourth company noted that they had a mixed (both negative and positive) effect, according to a study conducted by HSE economists based on surveys of enterprises. Sanctions have become a source of not only difficulties for companies, but also new opportunities, mainly due to reduced competition. This effect slightly improved the performance of Russian industry in 2022, but led to losses for consumers.

In turn, low dependence on both exports and imports determines the most passive market behavior and technological backwardness of about a third of all enterprises. And as a result of sanctions - due to reduced competition - this segment will only expand. The main problem of the economy remains the high dependence on imported technologies. It is impossible to significantly change this situation in a short time, which means that the risks of secondary sanctions against “friendly” technology suppliers remain very high for Russian industry.

Economic sanctions introduced in response to the Russian invasion of Ukraine affected 67% of companies surveyed by the Center for Structural Policy Research and the Institute for Analysis of Enterprises and Markets at the Higher School of Economics. At the same time, for 39% of the enterprises participating in the survey, sanctions brought only problems, for 3% - only positive changes, and for a quarter of all companies - both. Speaking about the positive effect of sanctions, 28% of enterprises indicated that they were able to use the new opportunities that had opened up in their business. Large enterprises were able to increase their share in their traditional markets (9%), found niches for new products (7%) and entered new markets (6%). Some small and medium-sized companies managed to attract qualified personnel against the backdrop of sanctions (this was reported by 4% of respondents).

Thus, for a significant part of enterprises, the sanctions effect was mitigated by the benefits associated with the closure of the Russian market and reduced competition. This significantly weakened the sanctions blow to Russian industry and improved its performance, but at the same time led to losses for Russian consumers, forced to switch to domestic analogues or technologically simpler products (more about this in our report “Worse than the crisis” ).

The extent to which sanctions impact businesses depends on their involvement in the global economy. According to the study, in 2021, 32% of Russian companies imported intermediate goods from so-called unfriendly states, and 17% imported equipment. The most successful and dynamically developing companies depend most heavily on imports. At the same time, a quarter of enterprises in the manufacturing sector in 2022 were in a situation where their imports had no real analogues either in Russia or in “friendly” countries. The highest dependence of Russian enterprises is on imported machinery and equipment (the absence of real analogues in Russia was noted by the heads of 40% of enterprises), parts and components (34%), as well as raw materials (31%). The situation is especially difficult for the pharmaceutical industry, whose representatives more often than others talk about the lack of alternatives to the imports they need.

In terms of firm size, large companies were most affected (77%), while among small ones, approximately half considered themselves to be affected (53%). The negative consequences of the sanctions were felt to the greatest extent (70–80% of enterprises) by representatives of such industries as metallurgy, pharmaceuticals, electrical engineering, automotive, chemical industry, as well as the production of rubber and plastic products. Less often (no more than 60% of companies) representatives of the textile, light and food industries spoke about the negative consequences of sanctions. The sector of repair and installation of machinery and equipment demonstrated the greatest resistance to sanctions: enterprises in this sector note the lowest among those surveyed, both negative and positive effects of the imposed restrictions.

Representatives of such medium-tech industries as the chemical industry, the production of electrical engineering, machinery and equipment, and transport engineering have discovered new business opportunities in connection with the sanctions. In the field of woodworking, as well as the repair and installation of machinery and equipment, new opportunities that emerged due to sanctions were least noted.

The researchers classified a third of the companies surveyed as passive, backward, and having a low technological level of production processes. These enterprises did not try to adapt not only to the 2022 sanctions, but also to the coronavirus pandemic over the previous two years. Low dependence on imports and lack of exports allowed them to suffer less from sanctions, but these same factors determine their technological stagnation. It can be assumed that the share of such enterprises operating in closed and low-competitive domestic markets in Russian industry will grow in the coming years.

In general, the authors of the study conclude that the dependence of the Russian economy on technology imports remains very high. The state-stimulated import substitution policy was aimed primarily at finished products rather than technology. It is impossible to seriously change this situation in a short time, the authors of the report admit. And this increases the potential risks for the Russian economy from the expansion of the practice of secondary sanctions against suppliers from “friendly” countries.

The study “Adaptation of Russian industrial companies to sanctions: first steps and expectations”, prepared by the Center for Structural Policy Research and the Institute for Analysis of Enterprises and Markets at the Higher School of Economics, was based on a survey of managers of Russian manufacturing enterprises, which was conducted from August to November 2022 in 71 subject of nine federal districts of the Russian Federation. In total, top managers of 1,860 companies were surveyed, with 75% of respondents being CEOs. The enterprises participating in the study met the criteria of representativeness, that is, the all-Russian distribution of enterprises by size and industry.