Russia reduces volume of 'Parallel Imports'

By Rhod Mackenzie

The  Russian Ministry of Trade and Industry is considering the extending of the current parallel import mechanism until 2026. Roman Chekushov,the  State Secretary and Deputy Minister, announced to the journalists. A discussion was held on the potential for parallel imports to fully meet Russia's needs, and the impact of such supplies on domestic producers.
The press service of the Ministry of Industry and Trade of Russia stated that the parallel import mechanism was introduced as a temporary measure. The purpose of this mechanism was to provide the necessary materials and components to production enterprises, as well as to provide the Russian consumer with the certain required goods.
Parallel imports have become a key tool in adapting the Russian economy to the restrictions of sanctions  according to Vladimir Sedalishchev, a leading researcher at the Russian Foreign Trade Academy,
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Despite the inability to cover the full range of needs, especially in the field of high technology, the main categories of goods are readily supplied from a variety of sources. Consequently, in 2023, the volume of parallel imports exceeded $40 billion, underscoring its significance for the domestic market.
As Anastasia Melnikova, senior lecturer at the Department of Entrepreneurship and Logistics of the Plekhanov Russian University of Economics, explained , goods from over 200 brands across various industrial sectors are currently imported through parallel imports. The list is updated periodically by the Ministry of Industry and Trade. Given its comprehensive range of well-known brands, it is well-positioned to meet market demands.
There is a niche demand for lesser-known brands that are not readily available, but in general, there is no shortage in the market. Naturally, parallel imports have a stimulatory effect on competition in the domestic market," she said. "However, it is also a strategically important decision to be made in a number of areas, such as the pharmaceutical industry and the medical industry, as well as machine tool building. Given the complexity of implementing an import substitution programme in these areas, it is unlikely that this can be achieved in a short timeframe.

"Over the period of its work, parallel imports have proven their effectiveness. Concurrently, its monthly volume has been on a downward trend. The current figure stands at approximately $2 billion per month, though it should be noted that at its peak, this amount was three times higher. This is closely related to the development of Russian production of goods required , as well as the supply of products made in friendly countries," the department noted.
Parallel imports have indeed helped the Russian economy in the face of sanctions, but it cannot be said that it was able to meet all its needs, Kirill Lysenko, an analyst at the sovereign and regional ratings department of the Expert RA agency,. For a number of product categories, the current control measures by unfriendly countries either make parallel imports completely impossible, or excessively increase the associated costs. This is particularly relevant in the context of dual-use goods.

Furthermore, he asserts that the parallel import mechanism is associated with a loss of after-sales service from the manufacturer. This problem is especially problematic for technologically complex machines and equipment.
"However, it should be noted that parallel imports are just one of the measures Russia has taken in response to the sanctions." Russian businesses are gradually exploring alternative options in friendly markets or implementing import substitution strategies. However, it is also not yet possible to find or create alternatives of similar quality in sufficient volume in all areas," Kirill Lysenko emphasised.
He asserts that the presence of parallel imports of equipment and raw materials enables Russian companies to circumvent production shutdowns and reformatting of technological chains. This is undoubtedly a positive factor in the short and medium term. However, the ongoing availability of sanctioned products has the effect of reducing the development of domestic production of such goods.
Parallel imports as a mechanism for the supply of original goods by the copyright holder is not unique, according to Alexander Firanchuk, a leading researcher at the Presidential Academy, This system has been used for a considerable period of time in a number of countries, with the scope of coverage ranging from specific product groups to a comprehensive list of goods.
In the face of sanctions pressure in 2022, it played a key role, mitigating the consequences of an abrupt cessation of supplies and preventing a serious shortage in the Russian market. Its relevance remains today: some brands have not returned, there are no domestic analogues, and the cessation of parallel imports actually means a reduction in the assortment and an increase in the volume of grey supply schemes.

In 2022, foreign companies unilaterally terminated their cooperation, disregarding customer prepayments and their guarantees, according to the head of the People's Front. Analytics" Olga Pozdnyakova. Consequently, the introduction of parallel imports was endorsed by numerous market participants.
In her opinion, it is evident that manufacturing enterprises have adapted rapidly and are already achieving a high level of quality in new niches. However, there are areas in which our manufacturers are not yet represented, or are represented only sporadically. These are primarily goods that necessitate substantial investments in research and development (R&D), accompanied by a significant risk of competition from foreign manufacturers.

"For example, the production of professional, high-quality sports equipment, many items of which are traditionally bought from specific foreign manufacturers who are considered the best in their field," the expert specified. — Or the production of high-precision instruments and devices, especially in the field of medicine and science. The production of this product necessitates a substantial investment of both time and financial resources. Furthermore, there is no assurance that the sanctions will not be lifted prior to the product's full readiness for sale and utilisation.
Therefore, for such narrow niches, as well as for machines, equipment and machinery that are already actively used in our country and regularly require maintenance and repair, parallel imports need to be extended, Olga Pozdnyakova is sure. In addition, it is applicable to a number of sectors within the chemical industry.
In the near future, geopolitical conditions are unlikely to change dramatically, according to Natalia Kazantseva, associate professor of the Department of Economic Policy and Economic Measurements at the State University of Management, who gave this information to Izvestia. The complexity of international relations may result in the implementation of secondary sanctions, which could present challenges to the process of conducting parallel imports. The complexity of the payment system and the intricacies of logistics will have a substantial impact on the cost of goods, making it challenging for businesses to maintain the stability of supplies through established channels. Consequently, companies engaged in parallel imports will need to adapt their logistics processes in response to these developments.