(Bloomberg) — Russia’s reliance on foreign software to run its factories, farms and oil fields is turning into one of the biggest headaches for domestic industry as more IT providers pull out of the market in response to President Vladimir Putin’s invasion of Ukraine.
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International sanctions and tensions over the war have forced industrial manufacturers from Siemens AG to SMS Group GmbH to wind down operations in what was once one of their biggest markets. Their computer programs might be missed more than their machines.
Sourcing software for computer-aided design and manufacturing is turning into a major issue that will be a drag on development, according to Elena Semenovskaya, a Russia-focused analyst at IDC.
“Russian analogues in this area are much weaker and the need is high,” Semenovskaya said. “But for now the approach is to rely on piracy and outdated copies, which is a dead-end and not sustainable.”
Foreign software is often baked directly into industrial machinery and controls high-precision processes. Equipment makers closely guard their intellectual property and in many cases don’t give clients access to the codes used to run their plants, Sergey Dunaev, the chief information officer of Severstal PJSC, said in an interview.
In steelmaking, which can require accuracy within a few hundredths of a millimeter for high-value products, even small deviations can render output worthless, according to Dunaev.
While the Russian economy, helped by high commodities prices, has fared better than most forecasts since the war began, it is facing a period of structural adjustments pushing it into recession. Steel production nationwide is down 25% to 30% since the invasion, Severstal’s owner, Alexey Mordashov, said this month.
The Russian government has emphasized import substitution since many industries were hit by an earlier wave of US and European sanctions after the 2014 annexation of Crimea, but its ambitions failed to take into account how modern facilities rely on programming.
The steel industry alone invested about 3.2 trillion rubles ($59 billion) in the last two decades to rebuild capacity after its post-Soviet decline, according to the Russian Steel Association. Much of that was spent on equipment supplied by foreign companies like Siemens, SMS Group and Danieli & C. Officine Meccaniche SpA to increase the sector’s efficiency.
“All industries are facing the same problems,” Dunaev said. “Many processes in modern units are controlled by software.”
The exodus is a challenge for the nation’s oil and gas industry, where domestic software accounts for only 5% to 10% of industry-specific tools and is often “suboptimal,” according to First Deputy Energy Minister Pavel Sorokin.
The situation is made worse with the depletion of Russia’s traditional oil deposits, forcing producers to tap hard-to-recover reserves that require more complicated equipment and programs if the country wants to maintain output at current levels.
“Super-sophisticated software for seismic, for modeling layers, drilling and hydraulic fracturing won’t be needed if we won’t have equipment for all those processes,” Sorokin said earlier this month at the St. Petersburg International Economic Forum.
Even local food production, where Russia made strides in domestic farming in recent years, is facing challenges. Meat processing facilities at Ros Agro Plc, one of the country’s biggest agricultural holdings, rely on imported manufacturing execution systems, or MES.
“We are critically dependent on European companies in terms of MES, and we do not yet know what to do if something happens,” Maxim Basov, chairman of Ros Agro Plc, said at the St. Petersburg forum.
If software crashes lead to equipment failure, plants could require replacement parts that are difficult to source and increasingly expensive, Severstal’s Dunaev said. To avoid such delays, he proposed industry players cooperate to create a database of spare components that can be shared as necessary.
It’s not just industry that’s affected. SAP SE and Microsoft Corp. are due to stop updates and services for Russian companies in August, leaving businesses and government services that rely on their software potentially vulnerable to security breaches and viruses.
Russia’s ambitions for a 5G mobile network have also been upended by the war, raising fears the economy will lose its competitiveness as it struggles to maintain existing services while other countries upgrade their infrastructure.
New systems won’t appear overnight. It took nearly a decade and around $100 million to create Russia’s domestic alternative to Microsoft Office, according to Dmitry Komissarov, the developer of MyOffice.
“It is necessary to take a look at inventory and determine what solutions are missing, and then start developing them,” Komissarov said.
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