Restructuring of the Russian Manufacturing Sector under Sanctions

The article analyzes structural changes in the Russian manufacturing sector under the dual pressures of the pandemic crisis and post‑2022 sanctions. Focusing on gross value added (GVA), investments, and production trends across Russian industries compared to the U.S., the study employs purchasing power parity (PPP) methodology for cross-country comparison. Key findings reveal that while the share of manufacturing in Russia’s GVA remained stable (2019–2024) and construction declined, physical output in these sectors grew faster than the economy-wide average. This paradox stems from lower price deflators in manufacturing (155.7%) and construction (138.7%) compared to services, curbing inflation and redistributing value to less productive sectors. Pre-crisis (2015–2019), Russia’s manufacturing growth (2.76% annually) outpaced the U.S. (0.09%). Post-sanctions, Russian manufacturing accelerated sharply (5.18% annually in 2020–2024), whereas U.S. output remained below 2017 levels by 2023. Sanctions thus acted as a catalyst, driving import substitution and structural adaptation. Investment trends shifted markedly: pre‑2020, Russian capital inflows lagged behind the U.S., but post-sanctions, annual growth surged to 8%, exceeding U.S. rates (2.4%). However, by 2024, investment momentum slowed due to skilled labor shortages, technological isolation, and financial constraints in foreign transactions. Despite challenges, Russia mitigates labor deficits through automation and high-tech job creation, while import substitution, supported by trade surpluses and adaptive business strategies, reduces technological dependence. Sanctions exposed systemic weaknesses but also stimulated production growth and industrial restructuring. Sustainable development requires scaling production capacities, enhancing efficiency, and fostering institutions tailored to modern challenges. Crucially, state regulation must transition from directive control to creating innovation ecosystems, balancing market mechanisms with strategic planning. The study underscores the need for qualitative governance reforms over expanded intervention, prioritizing domestic producers and technological self-reliance amid geopolitical turbulence.