Import substitution in the oil and gas sector runs into problems

8 november 2018 | Neft Rossii

Why is this happening? What do we need: technologies, investments, competent state governance or private business initiatives? Alexander Kurdin, Head of the Research at the Department for Fuel and Energy Sector of the Analytical Center, talked about the issues with Oil of Russia magazine.

Alexander Kurdin
Alexander Kurdin
Department for Fuel and Energy Sector

- Mr. Kurdin, in your opinion, what percentage of import substitution would you regard as optimal? Do we need to find domestic substitutes for everything or a certain synthesis is possible?

- From the point of view of economics, import substitution is not the most effective way. Furthermore, some experts regard import substitution as being harmful for economic development and note that countries that have focused on promoting exports have usually achieved greater success. One such success story that often gets cited is South East Asia. However, what they usually forget is that early in their economic development those countries offered some very serious support to their nascent industries, and those strategies finally gave the results. Thereafter, this allowed them to open their borders and take advantages afforded by globalization. When we talk about import substitution in Russia, there is always a risk that the issue will be taken to extremes. This happens a lot, actually. That's why, I don't really like the expression "import substitution". In my opinion, we should instead be talking about how our industries producing equipment and materials for the oil and gas sector must be competitive in all key aspects. So, I believe the term "import independence" to be more suitable. What it implies is not clumsy attempts by the state to exclude specific competitors but rather deliberate efforts to create potential for our companies that could then carve out decent niches for themselves in the domestic market in the event of sanctions or some other negative externalities. So, we need to make sure enough competitive technologies get introduced in Russia for the sustainable development of the energy sector.

For more details see the Alexander Kurdin interview in Oil of Russia magazine.

Photo from open sources.