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Weak Ruble Is Fueling Surge in Domestic Production

Manufacturing and import substitution are on the rise in Russia

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My forecast for Russia's growth in 2015 is very far from the consensus of western and Russian analysts and you can read more about it here. One of the main differences in my model was the role domestic manufacturing and import substitution will play this year. This week we have seen some strong evidence that these are well under-way.

Food production
Partly as a result of Russia's sanctions on the west and partly because of the ruble exchange rate, domestic food producers have been ramping up production. This January saw meat production up by 21%, preserved vegetables by 47%, cheeses by 35% and fish by 7%. Elsewhere in the sector Finish yogurt company Valio was forced to switch its production from Finland to Russia as a result of the sanctions. Consequently, the import of meat in January fell by 5 times. The number of different Russian food brands grew by 8% in 2014 and their market share grew between 2 to 10% depending on the segment—for instance the number of Russian cheese brands grew by 12.8%. 

<figcaption>Sir, would you like some Russian Parmesan with your import substitution?</figcaption>
Sir, would you like some Russian Parmesan with your import substitution?

The number of Russians opting to partake on a domestic holiday rather than traveling abroad will increase by 30 to 50%—that is an extra 10 to 20 million according to the government tourism agency. Meanwhile, the number of outbound Russian tourists fell by 30% to 50% in January. 

Nissan have announced today that they have started the process of exporting Russian produced cars to Scandanavia. This follows local producer AvtoVaz's plans to increase production by 39% in 2015, and truck maker Kamaz announced that they doubled exports in the 4th quarter and expect the trend to improve further in 2015. Meanwhile Gaz group have announced they will start their first exports to the Balkans in the 2nd quarter of this year. Chinese auto-producers currently have projects to build factories with capacity of more than 450,000 cars produced annually in Russia underway.

These are just some of the stories that have hit the headlines.


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