Russia’s emerging digital economy, software and import substitution

Russia is likely to follow China’s model of digital sovereignty

Per Paul Goncharoff

Russian Prime Minister Mikhail Mishustin called on Russian industrialists and software developers to join forces to create domestic systems that will support the entire life cycle of domestically produced products. This is a two-pronged strategy: allow Russia to move to a more self-sufficient production platform and redirect its supply chains to those of ‘friendly’ countries in the face of unprecedented sanctions from the West. The strategic planning meetings started two weeks ago – on Tuesday (November 7).th) the total was published.

Mishustin said that the Russian president set a task for the country – to reduce Russia’s dependence on foreign, primarily Western, software. For this purpose, Russia is updating existing and approving new strategic directions in the digital transformation of key industries.

The union of the Russian government and its commercial sector should enable the creation of deeply localized innovative products, while maintaining healthy market competition. In the beginning, Mishustin proposed the establishment of cooperation on what he called large projects. This is an area where a number of leading industry entities are already actively developing certain elements of deep software for heavy industry and engineering.

In 2022, Russian industrial centers of competence were launched, with the goal of developing fully localized software. Today, there are already approximately forty such projects, involving a Russian government grant of ₽40 billion (US$430 million), in addition to significant amounts of Russian private capital and other domestic investors.

Participating companies replace foreign software solutions in priority areas:

  • Shipbuilding,
  • Aircraft production,
  • Rocket and space industry,
  • Car industry,
  • general mechanical engineering,
  • Engine production i
  • Railway engineering.

Looking ahead, according to Mishustin, “Around 200 significant projects have already been identified for a total required amount of financing of approximately ₽230 billion (US$2.5 billion), most of which will come from private business investment. The amount of additional government support from the state budget will also exceed ₽25 billion (US$270 million).”

The main costs of developing import-substituting software will be through private sector financing, while government investment will be limited to grants. For the success of the projects, the state and the economy will have to agree on certain strategic issues, such as the compatibility of data exchange formats. So far, what is happening in this area looks like a search for a consistent standardized concept in which businesses will be willing to invest.

To switch to a complete replacement of the import of software solutions, as Mišustin explained, changes in technological and business processes are necessary. “At the national level, it is necessary to agree common rules and formats for data exchange, including the approval of new standards”. In short, he called for an integration matrix for all Russian digital developments, which will simplify and facilitate the interaction of different platforms.

It is worth noting that the development of promising digital technologies is impossible without solving the data issue. According to several experts, it is necessary to form mechanisms of interaction between data producers and consumers, including regulation of the buying and selling process, exchange of sets of information and their enrichment by market participants.

Strategic discussions showed that there is still no clear understanding of how a single digital environment for Russia will be formed. Maksut Shadaev, the head of the Ministry of Digitization, previously noted that Russia’s approaches to data regulation are close to China’s position, where the state believes that all data belongs to the state. Under these circumstances, if companies do not want data exchange standards imposed on them from above, they will have to take a more proactive role and face this issue to set unique parameters that ideally suit them.

To read the full text of Mihail Mishustin’s speech at the strategic session on the transition of industry to a domestic digital system to support the full life cycle of manufactured products, click here (google translator may be needed).

About us

Paul Goncharoff is a strategic IT consultant at Dezan Shira & Associates. He can be followed on LinkedIn.

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