Russia’s Emerging Digital Economy, Software and Import Substitution
Russia likely to follow the China model as regards digital sovereignty
By Paul Goncharoff
Russian Prime Minister Mikhail Mishustin has urged Russian industrialists and software developers to join forces to create domestic systems to support the full life-cycle of products produced in the country. This is a two-pronged strategy: to allow Russia to move to a more self-sufficient manufacturing platform, and to refocus its supply chains to those with ‘friendly’ countries in the face of unprecedented sanctions from the West. Strategic planning sessions started two weeks ago – on Tuesday (November 7th) a summation was released.
Mishustin said that the Russian President had set a task to the country – to reduce Russia’s dependence on foreign, and primarily Western, software. To this end Russia is updating existing and approving new strategic directions in the digital transformation of key industries.
A union of the Russian government and its commercial sector should allow for the creation of deeply localized innovative products, while maintaining healthy market competition. Initially, Mishustin proposed establishing cooperation concerning what he termed large projects. This is an area in which a number of leading industrial entities are already actively developing certain elements of in-depth heavy industrial and engineering software.
In 2022 Russia’s industrial centers of competence were launched, with the goal of developing wholly localized software. Today there already are approximately forty such projects, involving Russian government grant funding of ₽40 billion (US$430 million), in addition to significant volumes of Russian private equity and other domestic investors.
The companies taking part are replacing foreign software solutions in the prioritized fields of:
- Aircraft manufacture,
- Rocket and Space industry,
- Automotive industry,
- General mechanical engineering,
- Motor manufacturing and
- Railway engineering.
Looking forward, and in the words of Mishustin, “About 200 significant projects have already been earmarked for a total funding amount required of about ₽230 billion (US$2.5 billion) most of which will come from private business investments. The amount of additional government grants from the state budget will also exceed ₽25 billion (US$270 million).”
The main costs of developing import-substituting software will be through financing by the private sector, while the government’s investments will be limited to supportive grants. For the success of the projects, the state and business will also have to agree on certain strategic issues, such as compatibility of data exchange formats. So far, what is happening in this area looks like a search for a consistent standardized concept that business will be willing to invest in.
To transition towards full import substitution of software solutions, as Mishustin explained, requires changes in technological and business processes. “At the national level it is necessary to agree on common rules and formats for data exchange, including the approval of new standards”. In sum, he called for an integration matrix for all Russian digital developments, which will simplify and ease the interaction of different platforms.
It is worth noting that the development of promising digital technologies is impossible without addressing the issue of data. According to several experts, it is necessary to form mechanisms of interaction between data producers and consumers, including regulating the processes of buying and selling, exchange of information arrays and their enrichment by market participants.
The strategic discussions showed that there is still no clear understanding of how a unified digital environment for Russia will be formed. Maksut Shadaev, the head of the Ministry of Digitization, noted earlier that Russia’s approaches to data regulation are close to the position of China, where the state believes that all data belongs to the state. Under these circumstances, if businesses do not want data exchange standards to be imposed on them from above, they will have to take a more proactive role and stand on this issue to set the unified parameters which ideally suit them.
To read the full text of Mikhail Mishustin’s speech at the strategic session on the industry’s transition to a domestic digital system for supporting the full life cycle of manufactured products, please click here (google translate may be required).
Paul Goncharoff is a strategic IT advisor to Dezan Shira & Associates. He may be followed on Linked In.
During these uncertain times, we must stress that our firm does not approve of the Ukraine conflict. We do not entertain business with sanctioned Russian companies or individuals. However, we are well aware of the new emerging supply chains, can advise on strategic analysis and new logistics corridors, and may assist in non-sanctioned areas. We can help, for example, Russian companies develop operations throughout Asia, including banking advisory services, and trade compliance issues, and have done since 1992.
We also provide financial and sanctions compliance services to foreign companies wishing to access Russia. Additionally, we offer market research and advisory services to foreign exporters interested in accessing Russia as the economy looks to replace Western-sourced products. For assistance, please email firstname.lastname@example.org or visit www.dezshira.com