The Straight Path to Import Substitution

Belarus will work with Russia on allocating additional funds for import substitution projects. This is the officially presented packaging of a new credit line that may soon be opened. Its real purpose is to “prop up” the Lukashenka regime amid increasing economic isolation of Belarus.

The new loan tranche from Moscow to Minsk for import substitution could amount to RUB 105 billion. This is exactly the same amount that was allocated under the agreement signed in November 2022, in response to a new wave of Western sanctions and expectations of future restrictions.

At the end of May, the Belarusian ambassador to Russia (now the head of the presidential administration) Dmitri Krutoy stated that after utilizing the previously issued state credit, Minsk expects an increase in funding for import substitution projects by 2-3 times. These expectations were not fully met: Moscow did not raise the stakes, stopping at the previous level of RUB 105 billion. In dollar terms, this is noticeably less: USD 1.2 billion compared to USD 1.5 billion a year and a half ago.

It seems that despite optimistic forecasts from officials, Moscow does not have much faith in the high returns from import substitution. As for the Belarusian side, it follows the principle of “if they’re giving, take it, and ask for more,” and is ready to utilize any Russian loans: stabilization loans, loans for the new nuclear power plant, import substitution, or anything else. The expediency of borrowing policy has never been particularly questioned – especially since Russia has always been flexible in debt repayment matters.

Lukashenka and Putin will likely sign the agreement for the new loan in the fall. It remains to be seen if a clear and coherent interim report on the previous grant will be provided by then. It is known that the previous loan has been fully utilized and divided into 24 small pieces (import substitution projects) with an average value of RUB 4.37 billion each. Some applicants have already started using the allocated funds, but what they have achieved is still unknown.

There is no detailed information about the new import substitution projects (rumored to be 30), except for one, which will apparently be implemented with the funds from the new loan. This is the production of the Belarusian-Russian aircraft “Osvei,” which is expected to be manufactured in Belarus at the Baranovichi aircraft repair plant. Additionally, officials are actively discussing the implementation of high-tech, complex projects, once again returning to the issue of producing component bases for microelectronics needs.

In general, the situation with import substitution can be described very simply: many desires – little money. There are fundamentally insufficient funds to achieve the officially proclaimed goal of replacing lost technological imports from Western countries and ensuring technological independence. However, these funds would probably be enough to launch a couple of years of noisy activity for the Union State media holding, which would actively broadcast the successes of the import substitution policy.

Amid the gradual reduction of foreign investments – including from Russian businesses – Putin’s regime increasingly defines itself as the sole primary investor in Lukashenka’s regime.