For the Russian defense industry, the outgoing 2017 was a rather fruitful year, which was not accompanied by scandals and disruptions in the delivery of military products. The Russian defense-industrial complex (MIC) is loaded with orders for many years, both within the framework of the implementation of the state defense order and the implementation of export contracts. In particular, on November 21, 2017, the head of the Federation Council Committee on Defense and Security Viktor Bondarev announced the volume of the agreed state armaments program (GPV) for 2018-2025: 19 trillion rubles will be allocated for its implementation.
Supply of weapons and military equipment as part of the implementation of the state defense order
According to Russian Deputy Prime Minister Dmitry Rogozin, the state defense order in 2017 will be fulfilled by 97-98%. On the air of the Russia 24 TV channel on Wednesday, December 27, he noted that in terms of numbers, the result would be no worse than the indicators of 2016. Earlier in February 2017, Deputy Minister of Defense of Russia Yuri Borisov in an interview with Rossiyskaya Gazeta said that more than 1.4 trillion rubles would be allocated for the fulfillment of the state defense order for 2017. According to him, the bulk of the funds, more than 65%, was planned to be used for serial purchases of modern types of weapons and military equipment.
We can already say that the large-scale state armament program until 2020 has seriously stimulated the development of the Russian defense-industrial complex. Over the past 5 years, the share of modern technology in the Armed Forces of the Russian Federation has increased 4 times, and the pace of military development has grown 15 times. On December 22, 2017, Russian Defense Minister Sergei Shoigu reported about this to the country's President Vladimir Putin as part of the final expanded collegium of the military department, which was held at the Strategic Missile Forces Academy. Currently, there is a systematic process of rearming the Russian army with new weapons, in 2020 the share of such weapons in the troops should be 70%. For example, in 2012, the share of modern weapons and military equipment in the troops was only 16%, and at the end of 2017 - about 60%.
As part of the final expanded collegium of the military department, the nearest plans for the rearmament of troops were announced. So the share of modern weapons in the nuclear triad of the Russian Federation has already reached 79%, and by 2021, Russian land-based nuclear forces should be equipped with new weapons at a level of up to 90%. We are talking, among other things, about missile systems that can confidently overcome even promising missile defense systems. It is planned that in 2018 the share of modern technology in the Russian army will reach 82% in the Strategic Nuclear Forces, 46% in the Ground Forces, 74% in the Aerospace Forces, and 55% in the Navy.
Earlier on December 22, TASS spoke about the main supplies of weapons and equipment to the troops at the end of 2017. Following the results of the outgoing year, enterprises of the Russian defense industry were transferred to formations and military units Western Military District (ZVO) more 2000 new and modernized models of weapons and military equipment (AME). Troops Eastern Military District (VVO) received more than 1100 units of weapons and military equipment. In particular, the re-equipment of the missile units with the new Iskander-M and Bastion missile systems is being carried out; as a result of these actions, the combat power of the district has increased by more than 10%. To military units and formations Southern Military District (YuVO) more than 1700 units of weapons and military equipment, this made it possible to bring the share of modern types of weapons and equipment in the district to 63%. Thanks to the arrival of new military equipment, the combat power Central Military District (CVO) over the past three years has grown by almost a quarter, in 2017 the troops of the district received about 1200 units of weapons and military equipment.
According to the Minister of Defense of Russia, in 2017, more than 50 ships are being built for the country's navy. The work is carried out within the framework of 35 state contracts, according to which 9 lead and 44 serial warships and support vessels are being built. In total, in 2017, the Navy included 10 warships and combat boats, as well as 13 support vessels and 4 coastal missile systems "Bal" and "Bastion". The composition of the naval aviation was replenished with 15 modern aircraft and helicopters. According to the minister, the Ground Forces received 2,055 new and modernized weapons, with which 3 formations and 11 military units were reequipped, and 199 drones were also delivered to the troops. As part of the Russian Aerospace Forces, a special purpose division and a military transport division were formed. 191 new aircraft and helicopters were received, as well as 143 air defense and missile defense weapons. In total, the Russian defense-industrial complex in 2017 produced 139 combat aircraft and 214 helicopters, Deputy Prime Minister Dmitry Rogozin spoke about this on the Russia 24 TV channel.
For the future of the defense industry, it is important to increase the output of civilian products
For the time being, Russian enterprises of the defense industry can count on a state defense order, but funds for the renewal of the armed forces will not be allocated indefinitely. The more the armed forces are equipped with new military equipment, the less it will be ordered by the army from the domestic defense industry. The economic and political situation in which Russia finds itself today also affects the financing of state purchases of weapons. As part of the discussion of the state armament program for 2018-2025, which has been going on since the end of 2016, the initial requests of the Ministry of Defense were reduced several times. Initial requests from the military department amounted to about 30 trillion rubles, but then were reduced by the government to 22 trillion rubles, and according to the latest data - to 19 trillion rubles.
In the near future, the Russian president sees spending on the country's defense in the range of 2.7-2.8% of GDP (in 2016, the figure was 4.7%). At the same time, it is planned to solve all the previously set tasks for the modernization of the Armed Forces and the military-industrial complex, according to the RT website in Russian. The Russian Ministry of Defense and the defense industry have two strategic goals. The first is to bring the share of modern military equipment in the Russian Armed Forces to 70% by 2020. The second is to bring the share of civilian products in the Russian defense industry to 50% by 2030 (in 2015 this figure was only 16%). Obviously, the second strategic goal directly follows from the first. The higher the rate of equipping the Russian army with new military equipment, the less products the military will order from Russian enterprises.
According to the forecasts of the Ministry of Industry and Trade of Russia, by 2020 the increase in the output of civilian products by the defense industry enterprises is planned by 1, 3 times. Most likely, such a significant jump in production is planned to be achieved through the mass production of new passenger aircraft of different classes. The Russian government is betting on the production of passenger aircraft MS-21, Il-114-300, Il-112V, Tu-334, Tu-214 and Tu-204. It is expected that by 2025 the number of passenger aircraft produced in the country will grow 3.5 times - from 30 to 110 aircraft per year. In the future, the basis for the financial stability of the defense sector of the Russian economy should be not only long-term contracts concluded within the framework of the program for state procurement of weapons. At the meetings devoted to the defense industry, Vladimir Putin repeatedly said that an industrialist should look for new sales markets, which is also relevant today for Russian arms exports.
It is worth noting that a partial reorientation of the defense complex to the production of civilian products is already underway in the regions, in particular, in Udmurtia, which is a recognized forge of Russian weapons. As the First Deputy Prime Minister of the Udmurt Republic Alexander Svinin told reporters on Wednesday, December 27, at the end of 2017, the republic's defense enterprises increased the output of civilian products by 10%. According to the official, bringing civilian defense industry products to the market is an important task for the government of the republic in the context of a declining state defense order. The Deputy Prime Minister noted that in 2018, meetings with representatives of large Russian companies will be held every two weeks, this work should help in solving problems in finding new sales markets for the products of defense enterprises. In December 2017, one meeting already took place, in which the head of Udmurtia and the heads of five defense enterprises of the republic, as well as the Chepetsk Mechanical Plant, met with the leadership of the United Aircraft Corporation (UAC). The meeting discussed the industrial potential of defense enterprises, which can be used in the aircraft industry.
Export of arms and military equipment
There are still no final figures for the export of Russian arms at the end of 2017. But already in March of this year, within the framework of the 14th international naval and aerospace exhibition LIMA 2017, Viktor Kladov, Director for International Cooperation and Regional Policy of the State Corporation Rostec, as well as the head of the joint delegation of the corporation and JSC Rosoboronexport, spoke to reporters about the fact that the export of Russian arms by the end of 2017 will exceed the indicators of 2016. At the same time, in 2016 Russia exported weapons and military equipment in the amount of $ 15.3 billion.
Export deliveries are the strong point of the Russian defense industry and the entire industry of the country. Russia's positions on the world arms market are traditionally strong. In terms of the export of weapons, our country ranks second in the world after the United States. The arms and military equipment market today looks like this - 33% are in the USA, 23% - in Russia, China is in third place with a serious lag - 6.2%. At the same time, according to experts, by 2020 the capacity of the world arms market may grow to $ 120 billion. The trend in the international arms market is an increase in the share of purchases of military aviation, including helicopters, and the demand for air defense systems and naval equipment is also growing. At the same time, by 2025, in the structure of arms purchases by countries of the world, according to military experts, aircraft will already account for 55%, followed by naval equipment with a serious lag - about 13%.
As the newspaper Gazeta.ru writes, Rosoboronexport's portfolio of orders today exceeds $ 50 billion (with the term of execution of the concluded contracts from 3 to 7 years). The five main customers of Russia are as follows: Algeria (28%), India (17%), China (11%), Egypt (9%), Iraq (6%). At the same time, about half of the supplied products are already accounted for by aviation, another quarter by various air defense systems. At the same time, experts note an increase in competition for Russian weapons from China, India, South Korea, Brazil and even Belarus.
If we talk about the most important export contracts of 2017, then they include the signing on August 10, 2017 of the Russian-Indonesian agreement on the conditions for the acquisition of 11 Russian-made Su-35 multifunctional fighters by Indonesia. According to the agreement signed by the parties, the cost of purchasing 11 Russian fighters will amount to $ 1.14 billion, of which half ($ 570 million) Indonesia is going to cover the supply of its own products, including palm oil, coffee, cocoa, tea, oil products, etc. …This does not mean at all that the goods will physically arrive in Russia, as a rule, in such cases we are talking about exchange-traded goods that can be easily sold on the markets.
The second very important contract for Russia in the defense sphere concerns Turkey and its acquisition of the S-400 Triumph anti-aircraft missile system. This deal has become the main news item for a long time. At the end of December 2017, the head of the Rostec state corporation, Sergei Chemezov, revealed some of the details of this transaction in an interview with the journalists of the Kommersant newspaper. According to him, the benefit of Russia from the supply of Turkey with the S-400 anti-aircraft missile system lies in the fact that it is the first NATO country to buy our latest air defense system. Chemezov noted that Turkey bought 4 S-400 divisions for a total of $ 2.5 billion. According to Chemezov, the Turkish and Russian Ministries of Finance have already completed negotiations, it remains only to approve the final documents. “I can only say that Turkey pays 45% of the total amount of the contract to Russia as an advance, and the remaining 55% are Russian loans. We plan to start the first deliveries under this contract in March 2020,”Sergey Chemezov said about the terms of the deal.
Also in December 2017, the Stockholm International Peace Research Institute (SIPRI) published a ranking of the Top 100 largest military-industrial companies in the world in terms of sales in 2016 (both in domestic and foreign markets). The total volume of arms sales by Russian companies included in this rating increased by 3.8%; in 2016, they sold weapons worth $ 26.6 billion. The top twenty companies include: United Aircraft Corporation (UAC) - 13th place with an estimated sales of $ 5.16 billion and United Shipbuilding Corporation (USC) - 19th place with an estimated sales of $ 4.03 billion. On the 24th line of this rating is the "Concern East Kazakhstan region" Almaz-Antey "with an estimated sales volume of 3.43 billion dollars.
Pros and cons for Russian arms exports in 2017
2017 brought both positive and negative aspects for Russian arms and military equipment export prospects. The positive aspects include the successes of the Russian army demonstrated in Syria. The fighting in Syria is a very strong advertisement for Russian and still Soviet weapons. In the war in Syria, even outdated Soviet-made weapons and military equipment showed themselves well, reaffirming their high combat qualities, as well as an excellent level of reliability.
In total, during the period from 2015 to 2017, during the hostilities in Syria, the Armed Forces of the Russian Federation checked and tested more than 200 samples of weapons and military equipment in combat conditions. Mostly all tested weapons confirmed the tactical and technical characteristics declared by the manufacturers. Of course, the operation in Syria has become a real benefit for modern Russian aviation technology and combat helicopters. For example, many countries are seriously considering purchasing a modern Russian front-line bomber Su-34. However, different types of weapons have shown themselves well in Syria. For example, in Syria, a modernized high-precision 152-mm Krasnopol projectile was used, a video of the use of these shells can be found on the Internet today, this high-precision ammunition may also be of interest to potential customers.
For its development, the Russian defense-industrial complex must remain competitive and look for new export markets for its products. In the context of a decrease in the state defense order, this is especially important and relevant. Of course, Russia in the foreseeable future will not lose the second place as an exporter of arms in the world, but the struggle for sales volumes in monetary terms will only increase. New players of the "second echelon" are entering the market, with a well-developed high-tech industry. For example, in the published SIPRI rating, the growth in the indicators of the military-industrial companies of South Korea, which in 2016 sold military products by $ 8.4 billion (an increase of 20.6%), is highlighted. Russian enterprises should be prepared for the fact that competition in the international arms market will only increase.
With a minus sign for Russian arms exports, and therefore for companies in the domestic military-industrial complex, we can consider the news that appeared at the end of October 2017. Under pressure from Congress, the administration of US President Donald Trump has named a list of 39 Russian defense companies and intelligence agencies, cooperation with which could lead to company and government sanctions around the globe. At the same time, how seriously the American leadership will approach the implementation of the new sanctions package can only be seen in the future. Experts note that the Trump government has an opportunity to both deliver a truly tangible blow to the export of Russian arms and sabotage the introduction of tough restrictive measures.
Almost half of the newly published sanctions list was made by the enterprises of the state corporation Rostec, which is the monopoly agent for the export of Russian arms to the international market. According to the experts of the Atlantic Council in the field of economic sanctions: “The inclusion of new Russian companies in the military-industrial complex in the sanctions list will increase the potential risk for any state and any company that has business relations with them, forcing them to make a choice: either to do business with the United States, or with these Russian structures”. Washington may use the new sanctions as a possible blow to the main competitor in the international arms market. With the help of new sanctions, the US authorities will be able to put pressure on third countries, their governments and companies. Therefore, the Russian military-industrial complex will have to work taking into account the possibility of these risks and increasing sanctions pressure, which will not disappear anywhere in the foreseeable future.
As Ruslan Pukhov, a well-known expert in the field of weapons in Russia, director of the Center for Analysis of Strategies and Technologies, noted in an interview with AiF journalists, Russia is not even one of the 10 leading countries in the world in terms of economy and GDP, but the country ranks second in the arms trade. It is already very difficult to increase sales volumes further: “own” sales markets are saturated (Russia has already armed half the world with “Cornets”, “dryers” have been delivered even to Uganda), and sanctions are also affecting. Therefore, we need to focus on keeping our second place - and the task is very difficult, new approaches are needed. “I see two options. The first of them is the struggle for unconventional budgets: not the defense ministries of potential customer states, as is generally the case today, but the police, the Ministry of Emergency Situations, the border service and other departments, where there may still be reserves for the products of the Russian defense industry. The second is the struggle for non-traditional sales markets, that is, for states where Russia practically did not work on military equipment. One of these states is Colombia, which has always been considered an American “vegetable garden,” noted Ruslan Pukhov. It should be noted that at the beginning of December 2017, Rosoboronexport took part for the first time in the Expodefensa 2017 exhibition in the capital of Colombia. This exhibition fits into the strategy of searching for new sales markets for Russian military products.
