Russia ready for complete switch to domestic IT infrastructure

The Russian government is implementing a massive policy of import substitution in the country’s domestic IT sector, with the support of domestic IT companies, ensuring demand for their products.

The move is designed to counter sanctions placed on Russia following its invasion of Ukraine.

In parallel, there is a boom in Russia for pirated software and IT equipment and technologies, with illegal downloading and installation increasing in recent months.

Amid the ongoing exodus of Western IT suppliers from the market, Russia faces a shortage of crucial IT technologies and systems, which poses a threat to the country’s state security. Supplies in the form of parallel imports have failed to fill the gaps.

As of now, the volume of parallel imports in Russian industry remains small, while the biggest shortage is currently being experienced in enterprise software and equipment, such as servers, storage devices and workflow tools.

The same situation also exists in legal imports, which have also dropped since the war began.

In this regard, the development of domestic IT solutions and products could be considered as the only way for Russia to support its industry.

To this end, the government is considering exemption of taxes for most domestic skilled IT experts, particularly those who will work for the military. Major benefits are also proposed for some leading local IT companies.

State plans include increasing the training of IT specialists, as well as strengthening the technical base of universities and research institutions that are working in this field.

Currently, the shortage of personnel in the industry is estimated at 170,000, but the state hopes this problem could be solved soon, according to Russian government figures.

There are also plans to attract some leading Russian state corporations to move into the field of IT, helping to at least partially ensure import substitution in the sector.

Vladimir Arlazarov, general director of Smart Engines, a leading Russian IT company, told the Vedomosti business paper that an example of this is the Russian state corporation Rostec, which is currently involved in developing online messengers for officials and corporations, as well as a platform for video conferences, which could be analogous to Zoom.

In the meantime, Russian nuclear power company Rosatom has also become involved in IT developments. As part of this, it is working on the development of software and IT technologies for personal authentication.

According to Dmitry Chernyshenko, Russia’s vice-prime minister and a state official responsible for the development of the IT sector, a switch to domestic software and IT technologies is very important to obtain licences and support. Typically, Russian companies have paid up to RUB200bn ($3.32bn) to foreign suppliers each year.

Under these plans, particular attention will be paid to the design of computing technologies and operating systems of Russian origin.

According to a study conducted by J’son & Partners Consulting, one of Russia’s leading consulting agencies in the field of IT, the Russian market for office software and IT technologies may reach RUB85.2bn by 2027, with the share of domestic developers increasing from the current 12% to 82%.

Most analysts and suppliers believe the Russian IT market will continue to grow despite the country’s ever-deteriorating economic situation.

Renat Lashin, executive director of the Association of Software and IT Developers, said the demand for Russian software and IT systems will continue to grow, mainly because of the withdrawal of foreign companies from the Russian market and the recent adoption of governmental legislation aimed at promoting domestic IT developments.

According to the governmental decree “On measures to ensure the technological independence and security of critical information infrastructure in Russia”, dated 30 March 2022, from 31 March, the purchase of foreign software by crucial infrastructural and other facilities without the permission of the regulator was prohibited. By 2025, foreign solutions and hardware and software systems should be out of service and replaced with Russian versions.

According to analysts, the main driver for the growth of the market in coming years will be the replacement of Microsoft and Apple systems by Russian analogue technology.

In the public sector, import substitution will happen morer rapidly, with almost complete replacement being conducted within the next one to two years.

In the meantime, supplies of IT technologies from India, China and other countries in Asia and the Middle East will be also probably be limited as Russia’s isolation continues.

This is reflected by the existing state plans to tighten legislation in the field of IT, particularly those that regulate the participation of foreign companies in domestic IT companies. In recent months, a number of investors from so-called “friendly” countries for Russia – such as China’s Tensent and South Africa’s Naspers – have expressed interest in acquiring stakes.

It is currently unclear whether Russian companies will be massively interested in domestic IT, which is also reflected by the current boom in pirated software and IT equipment and technologies acquired by illegal downloading and installation.