At this point, it’s certainly not news that the Kremlin has been seeking to exert full control over what it regards as its national, Russian-only information space (информационном пространстве). For almost a decade – that is, since Putin returned to office for his third presidential term in 2012 – the Russian government has been unequivocal about aligning both its national segment of the Internet and its larger information infrastructure with its territorial-physical borders. Regulatory efforts taken by the Russian government have attracted a lot of scholarly attention and, as of 2021, most of its policies aimed at reinforcing state control over cyberspace have consistently been subject to close, sometimes critical reflection. Just to cite some examples, the infamous Yarovaya Acts of 2016, the Telegram ban debacle, the attempts at creating a separate DNS, or the Data Retention Law of 2014 – all have attracted heaps of attention. But there are aspects of this effort that have not been covered and that deserve greater attention if we are to properly assess the level of control the Kremlin has come to exercise over the Russian information space. This space encompasses not just the Internet and online applications, but all “information resources and infrastructures [located in or under the territorial jurisdiction of the Russian Federation] that ensure secure communication between and among the state, organizations and citizens” (vid. Kovaleva, 2018).
The Kremlin is keen on regulating not only what is said and done on its information space, but also the means of saying and doing. Therefore, the Russian government has been actively in trying to force the use of domestic software and hardware by all state bodies and, as of late, by all companies and individuals located in the Russian Federation. Explicitly framed for the first time as a security concern in the Russian National Security Strategy of 2015, Russia’s high dependence on imported software and hardware was – as pointed out in the same document – to be redressed by “implementing rational import substitution” and by making use of such substitutes de rigueur for all state bodies. Six years after their first implementation, it’s clear that policies aimed at drastically reducing dependence on foreign software and hardware have been far from successful. The use of domestic substitutes is scant. But why the hell did the Kremlin embark in such a moot policy?
The security leitmotif
Most commentators point out that the ‘import substitution’ (импортозамещение) schema started as a response to EU and US-imposed sanctions on both the Russian government and some of the country’s major companies after the Crimea events of 2014. But there’s room for thinking that the policy was already in the making when sanctions were applied. As Stadnik (2021) suggests, the Snowden revelations of 2013 might have prompted the import substitution rationale, insofar as it “showed the US National Security Agency’s ability to use vulnerabilities and back doors in software and devices for surveillance purposes”. Therefore, in the aftermath of these events, the Russian government may have found a solid pretext for pursuing a security-minded policy that was already hinted at in its Information Society 2011-2020 Program under the rubric of “ensuring technological independence of the [Russian] ICT industry”.
Certainly, it shouldn’t come as a surprise that Russian import substitution policies aimed at the ICT realm were posited, first of all, as security-boosting policies. The rhetoric of ‘securitization’ has permeated almost all state-led initiatives for a decade now and security apparatuses like the FSB or the Security Council of the Russian Federation forcibly steer the country on directions much to their own liking. When conflict arises with any differently-minded state body, the security apparatuses logics almost always prevail. Surely this wasn’t always the case before Putin returned to office for his third presidential term, since Dmitry Medvedev’s ‘Modernizatsiya’ agenda sort of played down the security rationale and weighed it against reasonings of a more liberal breed. But after Medvedev was ousted in 2012, the security obsession came to dominate all state action.
In the case of ICTs, this means that policies aimed at quite different ends, like those of spurring innovation or turning the Russian digital economy into a high-tech, capital-intensive global contender, have to face the constraints imposed by the security apparatuses and conform to their rationale. It’s no wonder then that, for instance, most documents with policy implications for the Russian Federation’s digital economy either stem from the security agencies or give them a huge role in the development and/or implementation of specific measures.
What’s import substitution all about?
In the 1950s, the Argentinian economist and then ECLAC head Raúl Prebisch believed that after World War II developing countries had a dim chance of achieving economic growth through trade, and hence he advised them to focus on promoting domestic industries and to correct their trade imbalances by cutting out on manufactured goods imports. Specifically, Prebisch advised developing countries to subsidize nascent industries and to cut imports of consumer goods but not capital goods. Widespread misunderstanding of his recommendations made this economic theory some sort of unconstrained endorsement for import ousting (Irwin, 2021). Funnily enough, Prebisch himself had to start calling out against import substitution in the 60s, seeing that his theory had become a façade for unapologetic and aimless protectionism.
Recently, the distorted version of Prebisch’s import substitution theory seems to be back in style. For a couple of years now, administrations all over the world – including that of Donald Trump – have pursued import substitution in varying degrees and with differing outcomes, so the Kremlin attempt at it shouldn’t come as a surprise. Furthermore, the import substitution schema has come hybridized with a certain strain of mercantilist thinking that posits that the economy is a zero-sum game in which, like it or not, all nations compete. Thence, should we expect further protectionist entrenchment and the deepening of economic rivalries? That’s not mine to say. But if we are to read these signals with the mercantilist mindset, I think we’d do good by thinking with Friedrich List – author of the influential The national system of political economy – that protectionism fulfills its role and is no longer needed when a state’s industries turn mature, giving ground to a happy scenario in which trade-as-usual can be resumed. Certainly, a states’ own decision on when to judge that industries have turned mature isn’t always guided by a rationale strictly based on their output, and all too often protectionist measures are retained for a long time after industries have reached maturity. In many such cases, vested interests and political clienteles sprout, turning an economic development opportunity into a sweet deal from which only a band of handpicked individuals profit. So, would that be the case for Russia?
If we are to believe Vladimir Putin, the Kremlin’s aims with import substitution are much more benevolent. When talking about the program, in 2015, he said that it was in Russia’s best interest to pursue such a policy, because the country deeply lagged on most economic sectors. “We need to learn how to produce quality, competitive goods that will be in demand not just here in Russia, but on the global markets too”.
Made in Russia
Programs aimed at import substitution were first implemented in Russia during the spring of 2015. Almost a year after the Crimea events – lets recall here, the events that led the EU and the US to impose a motley of sanctions on both the Russian government and most of the country’s economic sectors – the Russian Ministries of Industry and Trade (also known as Minpromtorg), Telecom and Mass Communications (Minsvyaz), Agriculture (Minselkhoz), Transportation (Mintrans) and Energy (Minenergo) developed a comprehensive plan comprising more than twenty programs aimed at achieving full-fledged import substitution. As Tolkachev and Teplyakov (2018) note, the goal of these programs was to cut imports by 50-60% by 2020. But if we take a minute to look at data retrieved by the Observatory of Economic Complexity (OEC), we’ll see that far from achieving the goal of drastically reducing imports, most product areas experienced a substantial increase for the period 2016-2019. Nevertheless, shutting his eyes to evidence of the programs failings, President Putin claimed in 2019 that import substitution “had achieved very serious and positive results,” making it “a very big step in increasing [Russia’s] economic and technological sovereignty”.
In order to pursue the import substitution goals in the field of ICT, one of the first moves the Russian government made was that of creating a register of domestic software designed to replace foreign solutions. Since 2016, the Minsvyaz – now known as the Ministry of Digital Development, Communications and Mass Media, or Mintsifry – regularly updates the list and, as of 2021, the register contains more than 11,000 items. As Semenov and Baranova (2018) comment, software included on the list has to be based, “if not entirely on Russian software solutions, then on open source solutions that do not involve foreign [made] software”. But how does the Kremlin manage to guarantee that Russian software solutions are really Russian software solutions? For starters, it only admits on the list programs for which the exclusive rights belong to the Russian Federation or its citizens, to a non-profit organization managed without the assistance of foreigners, or to a commercial organization with a total Russian share of more than 50%. Still, stringent as these requisites may sound, more than 11,000 software solutions have already made it to the register list. But here we’d do good to ponder that appearing in the Ministry’s register does not imply that a certain piece of software is preferred over, say, foreign-based solutions.
Even though starting in 2016, use of domestic software listed on the Minsvyaz/Mintsifry register was to be mandatory for all state agencies and state-run firms, the adoption of Russian solutions has been meager. In November 2019, Ilya Massoukh – director of the Russian Competence Center for Import Substitution in Information and Communication Technologies (CICT) – estimated that locally-produced software solutions only accounted for 10% of the software employed by state-run companies. This would seem to make software substitution policies a fiasco, since even in tightly controlled state companies the use of locally produced software looks awfully low. Data on (strictly) private companies’ use of such substitutes is nowhere to be found, but one would expect that, in all likelihood, percentages go even lower. So where are those “very serious and positive results” Putin blabbed about? In all certainty, the low penetration of domestic software on both state-led and purely private companies runs counter to the objectives set by the Kremlin in, for instance, the National Security Strategy of 2015 (§.68) or the Doctrine of Information Security of 2016 (§.25), so Putin shouldn’t be bragging about positive results.
Fact is, the Kremlin has few reasons for celebration. It has successfully commissioned IBS with the creation of the Automated Information System “Tax-3″ software – aimed at substituting Dell’s VMware in the Russian Federal Tax Service – and it has found an alternative to Oracle’s SAP by widespread use of Galaktika’s ERP software. Furthermore, it has triumphantly avoided some of the economic sanctions imposed on the country by using an alternative for the SWIFT payment system and software named SPFS that is spreading to some countries in the Russian orbit. But that’s pretty much it. Besides these successful, top-down commissioned software substitutes, locally-produced solutions haven’t been much rewarding.
Seeing that the development of homegrown alternatives for well-liked foreign software is sort of a dead end when individual users or enterprises are left to decide whether to use them or not, the Russian government has recently shifted its focus to forcing the pre-installation of certain programs on computers, smartphones and smart TVs. Therefore, starting January 2022, all smartphones will have to include, for example, the Yandex app bundle (browser, maps and cloud), the Mail.ru service and its voice assistant Marusya, the MirPay app, Kaspersky Internet Security, the social network Vkontakte and Applist.ru (an all-Russian app store developed by Russia’s own Mintsifry). Smart TVs will have to work with Yandex’ search engine by default and add a roster of online video apps from local providers such as IVI, OKKO, More.tv or Wink. Computers, in turn, will get a much smaller chunk of pre-installed software and will only have to include the MyOffice suite and the Yandex browser.
At this point, it would be useful to remember that in 2015 President Putin framed the whole import substitution endeavor as one of learning “how to produce quality, competitive goods that will be in demand not just here in Russia, but on the global markets too”. But where’s the demand Vladimir was talking about? At least for software, data shows that neither individuals nor companies seem eager to use Russian substitutes, and shoving down their throats bags of pre-installed programs isn’t likely to change that. The main takeaway here is that software import substitution wasn’t ever about learning how to produce and compete, but about enforcing the lurid security principles the Kremlin has pledged full-allegiance to. For starters, forcing the use of apps from Yandex, Mail.ru, and other acquiescent Russian companies, eases the way for the Kremlin’s permanent aim at tighter control and monitoring of user behavior. And further on, it helps the Russian government on its quest to reduce – if even slightly – the share of foreign software users and companies rely on for their daily needs. This, obviously, is a far cry from making the country’s software development scene any more diverse or thriving; it resembles more closely a payment for companies that abide by the Kremlin’s security imperatives. But let’s leave this aside for a minute now, so to focus on the other pillar of the ICT import substitution strategy: equipment.
Bankrolling the SOEs
Even though declaring that the replacement of ICT equipment was, security-wise, one of the main goals in import substitution, the Russian government certainly did little to materialize these ambitions for, at least, the first four years of the program. Only from 2019 on do we start seeing some attempts at cutting back imports and fighting the laggardness (sic) in the development of ICT equipment that the Kremlin sounded so concerned with in its National Security Strategy of 2015 (§.56) and in its Doctrine of Information Security of 2016 (§.17). However, as Anna Lowry (2021) notes, Russian efforts have almost come to naught, since the country still is “critically dependent” on the import of ICT equipment. Furthermore, the situation might have turned worse during the last couple of years, with imports in most ICT equipment-related categories going up instead of declining. Available data would seem to confirm this much, with last year’s imports in categories such as computers going up by 10.6%, integrated circuits by 7.6%, or mobile devices by 3.9%.
One has to wonder, then, what is it that the Kremlin has been really aiming for. The whole point of an import substitution program is, well, to drastically cut imports. Undoubtedly, this would seem to be far-off in Russia’s ICT equipment case, so what’s the Russian government been pushing for? Short answer is that it has opted out from correcting systemic imbalances and from redressing the country’s most crushing dependences, and instead it has focused on developing what a band of security-obsessed officials regard as their golden ticket for boosting national-security: all-Russian 5G networks. First introduced in 2019 as a policy proposal by state-owned enterprises (SOEs) Rostec and Rostelecom, the effort at making the country’s 5G networks free from foreign equipment was officially endorsed by Mintsifry and Minpromtorg in November 2020. For starters, the policy aims at suppressing all reliance on equipment made by Huawei, Ericsson and Nokia, the three companies that until recently provided the country with almost all 5G solutions. Plus, it aims at making Russian equipment a substitute for these and other brands, so to bolster the country’s high-tech exports.
As the two main advocates for banning non-Russian equipment from 5G networks, both Rostec and Rostelecom have cut sweet deals with the government. The former is to mesh the development of all the equipment the country is to use for its 5G networks through its subsidiary corporation Spektr, while the latter has been given the mission of attracting Russian private telecom operators Megafon and Vimpelcom to a joint-venture – for which Rostelecom will no doubt get to call the shots – aimed at operating the still-to-be-created networks. Indeed, we don’t know yet how many millions the Kremlin will give the joint-venture to make network operations run smooth. But we do know that, as of June 2021, it gave Rostec 21.46 billion rubles – approx. 306 million US dollars – to ensure the ‘rapid’ development of a network core and of a big batch of all-Russian 5G base stations. A goal that the state corporation expects to meet by 2024, even though commentators such as Janis Kluge (2021) point out that the development, testing and distribution of such equipment will likely take Rostec a lot longer. Will the corporation deliver? Only time will tell. For now, the only sure thing is that Rostec has secured a lucrative deal for which it has no competitors.
In light of all that’s been brought up, first thing I can conclude is that the high-hoped, overly optimistic ICT import substitution strategy envisaged by the Kremlin has been a fiasco. The Russian government has failed on its promise to drastically cut on foreign software and ICT equipment and, furthermore, it has failed on learning “how to produce quality, competitive goods that will be in demand not just here in Russia, but on the global markets too”, as President Putin so much expected. Russian ICT-related exports have experienced practically no growth for these past few years and the country’s exports still consist almost entirely of oil, gas and coal briquettes (about 57% of the country’s total exports, in 2019). Sadly, the Kremlin’s inability to diversify the composition of its exports will most likely make the country’s oil curse more severe, therefore clamping the Russian economy in a situation of outright dependence on oil and gas prices. But was it ever that ICT import substitution was the best way to tackle these problems? Surely the country needs to diversify its economy, but it doesn’t seem like embarking in a ‘comparative advantage distorting’ (CAD) strategy would be the best choice here, as Richard Connolly and Philip Hanson (2016) so convincingly put it. Following a CAD strategy – that is, one based on allocating large amounts of money on economic sectors in which a country does not possess any existing capabilities – will most likely “be expensive, unlikely to succeed and [will] result in the misallocation of increasingly scarce resources”.
One has to wonder, then, whether the Russian import substitution schema was ever anything else than – and I’ll make use here of Antonio Gramsci’s words – an “arbitrary, rationalistic and willed” program aimed at fulfilling the country’s security imperatives without a single concern for its impact on the country’s overall economic performance. Security-minded state apparatuses like the FSB or the Security Council of the Russian Federation have gotten their way, using the import substitution schema to – even if mildly – tighten their grip over Russia’s civil society. And SOEs like Rostelecom and Rostec have used the program to make some lucrative, far-reaching deals. But aside from these well-positioned players, no one else seems to have gained much from the Kremlin’s venture at ICT import substitution. For starters, the country’s software and hardware development scenes don’t look any more thriving. Non-Russian programs and ICT equipment are still the norm and domestic substitutes rarely dwindle their market share. If anything, as Shagina (2021) notes, the development of homegrown technology has been successful in low-tech sectors, but “the substitution of high-tech items and advanced equipment has largely failed”.
Will the Kremlin turn the tide? We’ll see. In the meantime, let’s just say with Alena Epifanova (2020) that even if the Russian government wants to keep pouring money and resources on the development of domestic ICT solutions (like those of the all-Russian 5G networks the Kremlin seems so fond of), it’d still have a hard time filling “the tech gap between Russia and countries that have systematically developed their tech sector over decades”. Technoeconomic miracles don’t happen in a day. And having a couple of fat, tech-focused SOEs is not the same as having a thriving tech sector. The second, obviously, requires a lot more effort.