Will domestic enterprises of the military-industrial complex suffer from structural changes in the supply of military equipment?
The operation of the Russian aerospace forces in Syria has increased interest in domestic technology on the world arms market. At the end of November, it became known that China had purchased Su-35S fighters (24 units for a total of $ 2 billion), in early December, Indonesia bought similar aircraft (12 units for $ 1 billion). After the deals were concluded, Russia's order portfolio exceeded $ 53 billion. However, there are serious concerns that the situation will change for the worse in the coming years. Some military analysts see conceptual changes in the market, which in the long term may lead to a decrease in the attractiveness of Russian weapons for potential importers. We are talking about this with the Deputy General Director of the Center for Analysis of Strategies and Technologies Konstantin Makienko.
Myth 1. Armored vehicles are a thing of the past
One of the most popular myths is the possible refusal of most buying countries to purchase armored vehicles. If in 2003 - 2010 the share of this segment in the world arms market was 13.4%, then in 2011 - 2014 it was only 8.8% (data from the Center for Analysis of World Arms Trade). Buyers are increasingly abandoning the purchase of tanks and infantry fighting vehicles (BMP) in favor of purchasing aircraft and missile systems. Therefore, in the expert community there was an opinion that the best times of the armored vehicles market remained in the 20th century, and in the near future it is destined to decline. If this scenario comes true, the Uralvagonzavod corporation (UVZ, Nizhniy Tagil) and Kurganmashzavod (KMZ) will suffer the most. They are the only Russian manufacturers of tanks and infantry fighting vehicles, respectively.
Konstantin Makienko- Konstantin Vladimirovich, to what extent do these fears correspond to reality?
- In my opinion, they are completely unfounded. The situation on the global tank market in the past 15 years indicates that the demand for this type of weapon remains, although it has decreased compared to the 90s. Its structure has undergone an interesting transformation. In the 90s, Western manufacturers dominated the market for new production tanks. For example, the United States supplied Abrams MBTs to Egypt, Kuwait and Saudi Arabia, France fulfilled an export contract for 388 combat and two Leclerc training tanks in the UAE, the United Kingdom produced 38 Challenger 2 units for Oman. In the 21st century, the situation has completely changed. Russian UVZ has become the absolute leader in this sector. The Americans and Germans went into the supply segment from cash or from storage bases, and the French and British did not have export contracts at all during this period. At the moment, among Western countries, only Germany has an agreement for the supply of new Leopard 2A7s to Qatar, concluded in 2013.
- What is the reason for the surge in interest in Russian tanks?
- High demand for T-90S is the best indicator of their efficiency and competitiveness. The criticisms that we have heard from some of the former leaders of the Russian Defense Ministry are absolutely groundless. In recent years, Uralvagonzavod has implemented at least three large projects for the supply of hundreds of T-90S vehicles to India, Algeria and Azerbaijan. Smaller contracts (for the export of dozens of tanks) have been executed with Uganda and Turkmenistan. In addition to finished machines, technological kits for licensed production of T-90S were sent to India.
- What other foreign tanks are in demand on the world arms market?
- Against the background of the departure of traditional Western manufacturers, new players are gradually emerging. In particular, in recent years Poland has fulfilled a contract for 48 RT-91Ms for Malaysia. China has entered into agreements to supply its tanks to Morocco, Myanmar and Bangladesh. Relatively recently, Israel received the first ever export contract - 50 Merkava Mk4 tanks were transferred to Singapore. However, in quantitative terms, all these agreements are significantly inferior to the supply of Russian T-90S.
- Who can add to the list of exporting countries in the coming years?
- South Korea, Turkey, India, Japan, Pakistan, Iran and even Jordan are now implementing their own national projects for creating battle tanks with varying degrees of success. However, it is too early to assess their export potential.
- What factors will determine the development of the global tank supply market?
- The key event will be the offer to the market of a Russian family of heavy vehicles based on the Armata platform. When this product reaches a state of commercial maturity, a real revolution will take place: the entire global fleet of tanks will immediately become obsolete. Historical analogy: this is how the appearance of dreadnoughts instantly devalued battleship fleets equipped with medium-caliber artillery.
The market is now under pressure from two opposite factors - the growth of geopolitical tensions is accompanied by low oil prices.
The key factor here is controlling the cost of this new offer. The cost of production will largely depend on the serial production. With a large state defense order, the price of one unit should go down - for both domestic and foreign consumers.
- Opinions are often heard that tanks are weapons of the last century, and buyers will soon stop updating the outdated fleet of equipment. How justified are these fears?
- The number of armed conflicts in the world is growing. There is a war in Syria, Iraq, Yemen. The punitive operation of the Kiev regime in the east of Ukraine may resume at any moment. In all these conflicts, tanks, along with artillery, are one of the main tools for achieving success. Aviation, precision weapons, information technology are wonderful. However, it is impossible to win a military victory without the participation of the infantry, which must be covered with armor. "Armadas of many thousands", "Guderian breakthroughs" and "Rommel's raids" are probably a thing of the past forever. However, the tanks will still serve the military.
Myth 2. Phase of oversaturation
The second popular myth of the global arms market is its cyclical nature. Experts distinguish three main phases: an avalanche-like increase in sales, peak and oversaturation. This view is based on the assumption that key buying countries eventually complete the rearmament of their armies and make long pauses in purchases. Proponents of this concept argue that the last phase of oversaturation occurred in the 90s - early 2000s. It was replaced by an “avalanche” growth in sales: in 2001 the volume of the world arms market amounted to $ 27 billion, and in 2014 - $ 64.5 billion. By 2015, the volume of purchases should reach the maximum level, and then begin to fall sharply, which may hit the prospects of all the Ural enterprises of the military-industrial complex, oriented to export.
- How realistic is this concept?
- In the arms market over the past 30 years, you can really see fluctuations in capacity. However, they are connected not with the world cycles of rearmament of armies, but with the dynamics of conflict. Buying countries do not modernize their armed forces at the same time, each has its own cycle. Moreover, the process of purchasing weapons in the oil monarchies of the Persian Gulf is ongoing. A similar situation is observed in India, which, after purchasing a large number of Russian heavy fighters, is now spending huge amounts of money on the import of American military transport aircraft, and is also preparing to purchase multi-functional middle-class combat aircraft in the future. The rearmament process does not stop here, affecting all new segments.
- When was the historical maximum of arms purchases recorded on the world market? What was he connected with?
- The peak was in the mid-1980s. During this period, the Iranian-Iraqi war generated enormous demand. At the same time, the USSR helped the regimes that fought against pro-Western or pro-Chinese rebels in Angola, Ethiopia, Cambodia, and Afghanistan. The end of the Iran-Iraq and Cold Wars has brought down the arms market to such an extent that some large exporters (Brazil, for example) have virtually completely lost their defense industries. Since the beginning of the 2000s, after the start of American operations in Yugoslavia, Afghanistan and Iraq, the market began to grow again.
- Does the capacity of the arms market depend solely on the dynamics of conflict?
- Not only. There is a concept by the French scientist Jean-Paul Hébert on the dependence of the arms market on the cost of oil. The high cost of hydrocarbons leads to an increase in purchases from the oil-exporting countries of the Middle East and North Africa. If you look at the dynamics, you can see that the period of low oil prices in the 1990s coincided with a drop in the capacity of the arms market. After the resumption of the growth of quotations in the 21st century, the volume of purchases of military equipment began to increase again.
- In other words, are two opposing factors pressing on the market now?
- That's right. We are in a situation where the rise in geopolitical tensions is accompanied by low oil prices. It is extremely difficult to predict which of these factors will outweigh. I would bet that the growth of purchases of military equipment will continue in the coming years. The fact is that the drop in oil prices is not always a negative factor. For example, the solvency of Algeria and Iraq is decreasing because of this, while India and Vietnam is growing.
Myth 3. Transition to self-sufficiency
The third popular myth is the assertion that major buying countries are gradually leaving the market due to the development of their own defense industry. Usually they cite the example of China and South Korea, which were able to retrain from importers to exporters of weapons in a short period. In addition, the experience of Singapore is indicative. The tiny state managed from scratch to develop its own infantry fighting vehicle, heavy wheeled armored personnel carrier, artillery systems, build whole series of frigates and landing dock ships. If many other countries follow this example, then the main exporters in the person of Russia and the United States risk losing a significant share of orders. Now the key countries that buy weapons have adopted programs for the development of their own military industry and are trying with all their might to carry out import substitution.
- How successful is this process? Which countries will be able to refuse imports in the near future?
- The largest importers of weapons in the world are India and the oil monarchies of the Persian Gulf. So far, there is no evidence that they will be able to meet the needs of their armed forces through their own production. In particular, the Arab monarchies do not make any serious efforts to develop their own military-industrial complex. The results of numerous projects of the Indian defense industry have not yet delighted the local armed forces. The country's largest achievements are associated with the organization of licensed production of certain types of Russian weapons, primarily the Su-30MKI fighters and T-90S tanks. The joint Russian-Indian project of the BrahMos supersonic anti-ship missile has been a brilliant success. At the same time, projects for licensed production of Western systems (for example, French submarines Scorpene) are being implemented with great difficulty.
- Which states have achieved the greatest success in import substitution?
- The only country that has managed to replace imports in almost all key positions in the last decade is China. South Korea is another successful example. Despite the fact that this state still remains dependent on American technology, it has managed to demonstrate outstanding success in the development of its own defense industry. Korea has now received several export contracts: four agreements for the supply of a light combat aircraft T-50, as well as an order for the construction of three submarines for Indonesia. However, for now, these two countries are the exception to the rule.
Due to the organization of production on their territory, the main buying countries began to buy less final products and more components?
- I think that pickers will always have a stable market share, but they will not be able to prevail over the manufacturers of final products. There are other trends on the market now. We are witnessing an increase in the scale of licensed projects. Recently, all countries, except for the oil monarchies of the Persian Gulf, have raised the question of transferring licenses to the sellers. Another trend is the development of international projects based on risk-sharing partnerships.
How does the slowdown in the growth of the world economy affect the market? Recently it became known that Brazil refused to purchase Russian Pantsir-S1 air defense missile systems due to the difficult financial situation. Will other countries follow this example?
- In my opinion, the political situation affects the market much more than the economic one. Therefore, negative trends in the economy will not lead to a reduction in arms purchases. When the need arises, even the poorest countries are able to find the resources to ensure their security.
The market is now under pressure from two opposite factors - the growth of geopolitical tensions is accompanied by low oil prices.
