Russia’s Military Hope

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Russia's Military Hope

Original by Mikhail Melnikov published by Russkaya Planeta; translated from Russian by J.Hawk

All of Russia’s defense enterprises increased their standing in international ratings over the last year.

Stockholm-based SIPRI issued its annual arms market report. Its main part is the rating of top 100 arms manufacturers (excluding China, whose data is highly classified). The latest documents concerns 2014–one can’t say the Swedes were in a hurry to publish it. Nevertheless, it is of enormous interest. Russkaya Planeta undertook to study the report.

Second in the world

The first place is occupied by the legendary Lockheed-Martin, the combat aircraft and global bribery king. There’s no country without a Lockheed-gate of its own, with officials of all ranks from all over the world living off its handouts. 7 out of 10 top firms are American, plus one British, Italian, and simply European (Airbus Group). For half of them, weapons are their main product, for the other half, including Airbus, a secondary one. All of the Russian firms on the list, except of the Uralvagonzavod, military products are their core business.

Right after the first ten firms, comes the top-ranking Russian firm, Almaz-Antey which specializes in air defense weapons whose deliveries increased by 10% in 2014 over 2013. There are two more Russian holding companies in the top 20, United Aircraft Corp. and United Shipbuilding Corp, which took the 14th and 15th place, having risen by 1 or 2 spots just like Almaz-Antey. The three holding firms produced $21 billion. Almaz-Antey profits are unknown, the other two firms’ profits exceed $500 million. In other words, profits represent 4-5% of the overall volume of sales.

The 23rd place is occupied by Russia’s Helicopters which immediately after the rating’s publication received a new member of the board of directors, Anatoliy Serdyukov.

In the 24th place is the United Instrument Corporation, the 34 is taken by the Tactical Missiles, 38th and 39th by United Engine Corp. and High-Precision Systems. Sukhoi, judging by its volume of sales, shoudl have taken the 45th or 46th spot, but it was counted as part of the United Aircraft Corp. There are 10 Russian firms in the top 50, 9 of which are independent firms.

Our next representative is Uralvagonzavod which suffered considerable losses in 2014 but which still managed to increase its rating (from 80th to 61st). From then on Russian firms in the list are mainly subsidiary companies, the only corporation is the Radiotechnical and Information Systems which takes the 91st spot. The subsidiaries include Sozvezdiye, Irkut, Ufa Engine Manufacturing Corporation, Sevmash, Zvezdochka, and Admiralty Yards. Overall, Russia is represented by a more than respectable 18 firms. Less than the 44 US firms, but enough to win a solid second place.
One is especially pleased to see that all of the Russian firms, without exception, increased their rating in the last year which means they increased their share of the market. Still, if one is to judge by the top-100, while Russia represents 10.2% of total arms sales, the US has 54.4% of total sales. That gap is even larger if one is to consider firms outside the top 100. US has many tiny firms, while our export-oriented firms (over 700 in 54 of Russia’s regions) are united into holdings mentioned above.
But looking simply at money doesn’t provide the whole picture. Russian weapons are far cheaper than similar US ones, therefore Russia’s share of the market is considerably higher. In the 2010-2014 half-decade, Russia controlled 27% of the market in terms of number of weapons sold, behind the US only by 5%. Russia continues to specialize in air and air defense systems, which comprise more than half of its defense export. The main buyers are India and China.
Two thirds–domestic, one third–abroad
The main customer for Russia’s defense products is the Russian MOD. No detailed information on the defense procurement has been published, instead its spread throughout “general and special machine-building,” “transport equipment,” and other rubrics. But military officials don’t find it hard to name some actual numbers. Thus in 2014 defense orders totaled up to 1.7 trillion rubles. Russian firms sent weapons abroad worth 15 billion USD. With the average exchange rate of 37.97 rubles per dollar, it amounts to 570 billion rubles. Thus Russia exports only a third of military equipment it produces. Arms sales have a relatively moderate share of the overall Russian exports of 3%. But they are the mainstay of Russia’s high-tech exports.
Russia's Military Hope

One has to add that Russia’s share will increase in 2015 and 2016 especially. Only in the first 10 months of 2015 Rosoboroneksport received $18 billion of orders, which means a growth of 50% over all of 2014. Russian weapons, due to their low cost and simplicity, is wanted throughout the world, especially when tensions are high. The fall of the ruble also helped domestic manufacturers by allowing them to set extremely low prices for quality equipment and thus capture a bigger market share.

On Soviet yeast

USSR became a major exporter of arms in the ’60s, when the country’s economy recovered from WW2 and the world experienced a wave of anti-colonial movements. The newly independent states had few weapons and many enemies, including other newly independent states. The Soviet government came to their aid, willingly providing Kalashnikovs, grenades, and mines, in exchange for the country taking a turn toward socialist transformation. Naturally, nobody ever seriously expected these credits would be repaid. As a result, even though it had 40% of the world arms exports in the early ’80s, it had less than 10% of the profits. At first glance, its generosity was not profitable. There was no world revolution, adn the so-called allies dropped their socialist masks at the first signs of USSR’s collapse. Nevertheless, this firearm altruism had its pluses. Bu dumping, USSR established itself on many markets, trained local armies to use its weapons, and laid the foundation for continued military cooperation for many years to come. Rosoboroneksport collaborates with nearly 100 countries, largely thanks to the relationships established during the Soviet years.

Russian arms exports fell sharply in the ’90s due to the defense conversion which started already durin perestroika. The ill-advised reformers succeeded in destroying the defense industry without an increase in consumer goods. The lowest level of sales was recorded in 1994, at a mere $1.72 billion. Then the sales began to rise. By 1999 the sales doubled by comparison with 1994. But only after Rosoboroneksport was established in 2000 did the defense industry really begin to thrive. In the next five years the volume of sales doubled again (with the volumes being quite large by now), then they doubled yet again in the next five years, then there was another doubling after six years, and we can safely say that by 2011 they will double by comparison with 2011. And all the while Russian defense orders grew at an even more rapid pace.

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Therefore right now the defense industry is about the only seriously growing part of the Russian economy. There is also progress in agriculture, but not at the same rate fo growth. Russia’s industrial renaissance will be inextricably linked to the manufacture of weapons and dual-purpose goods. This stimulates demand for energy, metals, research, and each of these branches will pull several others behind it.

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