Experts consider restrictions on foreign purchases of transport equipment for state needs

3 march 2015

Experts of the Department for Competition Policy have examined the question of the ban on the purchase of transport engineering goods of a foreign production for state and municipal needs, which came into force on February 1, 2015. The measure is aimed primarily at import substitution in the public sector and stimulation of the demand for domestic civil engineering products. The bulletin analyzes effects and potential risks of the prohibition, as well as an assessment of its effectiveness and efficiency.

Despite the general aim of these measures to improve the situation of Russian suppliers of engineering products, their use is associated with a number of possible negative consequences, write experts. This is due to reduction of a number of alternative suppliers, the lack of full analogues produced in Russia, as well as switching from the procurement of products to the purchase of services, provided with the use of foreign technology. These effects are questioning not only the efficiency and effectiveness of the prohibitions imposed, but their usefulness, according to experts.

According to experts, while the ban on the purchase of foreign technology practically does not affect the cars and public transport market, the procurement of construction machinery may have negative effects. Firstly, according to the bulletin, the ban creates dependence of supply of goods for state and municipal needs on economic well-being of several companies. Secondly, traditional Russian manufacturers cannot yet offer a wide range of necessary equipment, especially of the universal mini-equipment. Third, low transaction costs of circumvent the ban through the purchase of non-specialized equipment and transport, but of services rendered with the use of any product regardless of the country of manufacture, reduce any expected effect of the measure.

Experts have estimated economic effects of the prohibitions on the purchase. The analysis of the structure of procurement has shown that the procurement of engineering goods for state and municipal needs under the Decree constitute an extremely small fraction of the total volume of such purchases, which does not allow to speak about the real support for domestic producers, as a result of the appropriate restrictions, and such a prohibition can only lead to an increase in government spending in the long run, including by switching from purchase of goods to purchase of services.

With regard to the regional dimension, then, having analyzed the situation in the 10 regions with the largest public procurement carried out in 2013, experts concluded that the greatest effect of the provisions of the Decree can be shown in Moscow, St. Petersburg and Moscow region, where costs of purchase of engineering goods for state and municipal needs amounted to 8163 million rubles, 4253 million rubles and 886 million rubles respectively (ie, more than half of the all-Russian purchases for state and municipal needs of this category of goods in 2014). However, written by experts, as well as for Russia as a whole, the effect can not be considered essential for regions, as the share of purchases, attributable to the products of mechanical engineering, is generally not more than 2% (in St. Petersburg - 2.01%). In addition, it remains possible to acquire services of vehicles and equipment or to lease them.

Experts concluded that, like any other restrictions for providers to access to markets of goods (works, services), the prohibition of purchases of machinery and transport equipment of foreign production for state and municipal needs can lead to restriction of competition between manufacturers, whose products are available for government organizations. Due to the limited number of alternative "allowed" suppliers, the limitation of purchases of imported products can pose risks of increase in the price of transport equipment in the long term, reducing its quality and reducing its range. In this case, the assessment is complicated by the fact that the enforcement of provisions of the Decree is carried out against a background of rising prices for metallurgical products, including for the machine builders.

Furthermore, the described ban on foreign purchases of transport equipment for state and municipal needs is unlikely to contribute to the achievement of its initial objectives - support for domestic manufacturers of transport equipment and import substitution. Firstly, purchases for state and municipal needs constitute too small volumes of purchases of products and, secondly, state organizations still have the ability to switch from the direct procurement of goods to the procurement of services with the use of these products, that can only lead to an increase in costs for providing state and municipal needs in the long run.

Read more in the bulletin on the development of competition number 9, "Restrictions on the purchase of foreign transport equipment for state needs" (in Russian)