Reducing to the 1800s: The Russian machinery market share drops to minimal 2%, leading to a reduced influx of imports
Machines, Money, and Troubles: A Glimpse into Russia's Machine-Building Industry
In 2024, the Russian market saw a stark decline in local machine production – a drop from 1 million machines in 2023 to 693,000. The majority of these machines were foreign-made, with 71% hailing from China – a staggering three-fold increase from China's market share in 2020-2021.
The domestic machine industry struggles to compete, with just 2% of machines coming from homegrown sources. Russia trails behind even countries like Turkey, which primarily functions as a base for re-export and has minimal machine manufacturing capacity.
The reasons behind this slump are multi-faceted. One significant factor is the slim profit margins in the Russian machine-building sector. Profits rest between 5-7%, but interest rates on existing loans are triple the profitability mark. Over the years, the government has attempted to turn the tide with four strategies, yet none have seen successful implementation. The latest strategy, the national project "Development of Industrial Robotics and Automation of Production," is underway since 2022.
Under this initiative, the Industry Development Fund offers low-interest loans, and the Ministry of Industry and Trade assigns subsidies. However, these resources pale in comparison to the value of foreign machines imported into Russia. In 2024, for example, China exported machines worth $1.61 billion, while Russian enterprises imported machines from India worth $55 million.
The Russian government aims to invest around 130 billion rubles (about $1.6 billion) between 2025 and 2027 into machinery modernization. However, depreciation rates of basic production funds hover between 63-65%, and over half of the technological equipment has been in service since Soviet times. Additionally, the once-thriving machine research sector has shrunk from 30 institutes in 1991 to a mere four today.
A silver lining comes from the boom in machine production between 2020 and 2024, as production more than doubled, reaching 11,360 machines in 2024. Yet, the majority of these machines are saddled with imported components.
The situation worsens as the Ministry of Finance slashes industry funding and research and development budgets, impacting automotive, aerospace, technology sectors, and limiting investments in science, innovation, and applied research. Simultaneously, the Central Bank raises loan rates, making it increasingly difficult for industries to borrow and modernize.
Under these conditions, machine-building enterprises, particularly those focused on exports, struggle to survive. Modernization remains out of reach, and launching new productions seems like a distant fantasy.
Experts voice concerns that this state of affairs bodes ill for Russia's industrial future. The quest for technological sovereignty may well remain a distant dream, drowned in policies that strangle industries from both ends.
- The struggle of the domestic machine industry in Russia, as shown by the 2% of machines produced locally, is a concern for many, especially considering that neighboring countries like Turkey have a more substantial presence in the machine-building sector, both in terms of production and export.
- The machine-building industry's financial situation in Russia is precarious, with slimmer profit margins (5-7%) compared to high-interest rates on loans (triple the profitability mark), making it difficult for businesses to invest in modernizing machines, a necessity for maintaining a competitive edge in the global industry.
