Today, these processes have culminated in the states domination of this strategic industry, with the private sector represented only nominally. [8] Russian shipbuilders and naval missile manufacturers survived the difficult period of transition from a command to a market-driven economy, and kept skills needed for the development of advanced combat systems. This is 2.5 times more than in 2011. The Russia-Ukraine war and defence industry FDI - Investment Monitor Special Focus Ukraine Crisis 17 March, 2022 What impact will the Russia-Ukraine conflict have on investment in the defence industry? In the following decade the military planned to commission no more than 48 additional Su-34s and there were, production to a different plant, in Komsomolsk-on-Amur, in an effort at streamlining. From there they slipped into Russian territory, even though it was covered by a layered network of advanced radars and robust air defenses, which included state-of-the art strategic. The share of different weapon types was the following: 61% Aerospace, 21% Ground, 9% Naval, 8% Air Defense and 1% other. Vietnam will rank third, with imports of $3.2 billion.that the Asia-Pacific now accounts for more than half of the company's deliveries. Within Russias current model of governance, the defense industrys influence flows from the priorities on which Russias authorities have based their legitimacy: catch-up modernization and restoring Russias military power and greatness. While defense enterprises were found throughout the country, a. The plan for 2010-2013 only represents a small portion (16%) of that amount, just over RUB2.9 trillion ($98.6 billion). Here, the interesting fact is that the total Russian federal spending planned for 2022 has increased from 23.69 trillion rubles ($391.73 billion) to 29 trillion rubles ($479.54 billion), as budget revenues remain around 25 trillion rubles ($413.39 billion) ( Duma.gov.ru, November 24, 2021; Budget.gov.ru, November 16). Grigory Kozlov, head of Helicopter Export Department at Rosoboronexport, said there is good potential for cooperation virtually with all the countries in the region, and especially with Brazil, where Mi-35M helicopters are successfully used. 14024, because "they are persons who operate or have . MOSCOW Russia has long been one of the world's largest arms dealers, reporting about $15 billion in sales annually. As long as the industry contributes to these goals it remains crucial to the system. Ukrainian air defenses are shooting down the drones in large numbers, but those victories come at a cost. During the crisis years of the Russian economy, the country's military industry survived mainly on exports. Self-propelled artillery systems, mortars, and robotic systems, the Korsar . The forum also features an open-air exhibition of Russian military hardware exclusives. We have already said that sanctions imposed on import of military and dual-use goods to Russia in 2014 had a profound impact on the defense industry," the authors said. Thus, the Russian leadership will be forced to increase its defense budget in the coming years, regardless of current financial planning. Permanently Growing Costs of Russias Defense Industry, The most significant evidence of the Russian defense industrys economic inefficiency is the sectors growing debt burden, which highlights rising costs but also foreshadows continued increases in military spending. UEC-Saturn is a Russian defense entity that produces engines for Russia's military, including for military aviation and frigates. Since 2007, Moscow has consolidated most of it into various holding companies under the control of Rostec, a state-run conglomeration. Today, these processes have culminated in the states domination of this strategic industry, with the private sector represented only nominally. As long as the industry contributes to these goals it remains crucial to the system. Thus, Russias defense-industry lobbying, such as it is, focuses on access to the federal budgetfunds distributed by the government with the active participation of the presidential administration and Putin himself for arms procurement, R&D and industrial modernization programs. Russian Helicopters produced 122 aircraft in 2008, increasing its revenue from $724million to $1.7billion. The Costs of War Project at Brown University concludes that while $1 million in defense spending supports 6.9 jobs, the same amount directed toward clean energy and infrastructure supports 9.8 jobs, toward health care supports 14.3 jobs and toward education 15.2 jobs. Russia presented its Ka-50-based Ka-52 Alligator attack helicopter and the Mi-28NE Night Hunter. Russian global arms exports reached $15.2 billion in 2012, up 12% compared to the previous year said Venezuela, Peru, Brazil, Argentina and Mexico were interested in buying helicopters and air defense systems. Dollar figures based on average exchange rates for the respective year. Meanwhile, the entire system of Russian leadership maintains its reputation in the eyes of its citizens by showing it can solve problems and strengthen Russias military capabilities. For months, the Kremlin and the Iranian regime denied an exchange of drones took place, despite the litany of evidence proving otherwise, Ms. Carlin wrote in November. The industry, about 1,300 entities, most of which fall under the aegis of the state-owned corporations Rostec, AlmazAntey, Roscosmos, Tactical Missiles Corporation, United Shipbuilding Corporation and the nuclear weapons division of Rosatom. These companies employ 81,857, over 30,000 and 11,585 people, respectively. For example, in March 2022, the Department of State . Throughout the 1990s, Russias approach toward the defense industry involved a balancing act of finding new partners and decoupling from old onesmainly to improve domestic manufacturing of advanced civilian goods like aircraft engines. [10] In total, the state plans to spend $128billion in military procurement in the 20092011 period. He was buying drones from Iran. Investors and countries are changing their approach towards financing the defence industry following the Russian invasion of Ukraine. Russias defense industry managed to survive the crisis years through its continued ability to produce and service weapons, drawing on Soviet-era inventory and foreign demand for conventional arms and technologies, mostly from China, India and other developing countries. Although these figures are adjusted for inflation, which is normally considered the more reliable way to reflect price changes over time, calculating Russias defense spending in dollars is, For comparison, in 2020 the share of civilian products in, In the late Soviet period, according to data. products unrelated to R-29RMU2s; the armed forces can slowdown their reduction of strategic forces amid the ongoing dismantling of old ICBMs and SLBMs; and the Kremlin gets another strong card for bargaining with the United States and the West writ large. The states monopoly on arms export was restored in 2000-2007 in the hands of Rosoboronexport, which eventually became a subsidiary of Rostecone of about half a dozen specialized state-owned defense holdings created in 2002-2015. The Russian Navy also ordered five Project 885M Yasen-M fast attack submarines, in addition to the head vessel, the K-329 Severodvinsk. Military expenditure fell from a yearly average of just over $254 billion in 1988-1990 to just $15.7 billion in 1998, according to estimates by the Stockholm International Peace Research Institute (figures in constant 2019 dollars1). Saint Petersburg shipbuilders continue to work on civil projects. These controls severely restrict the export of strategic technologies, including semiconductors, microelectronics, navigation equipment, and aircraft components, to Russiaharking back to the. The main partner in the region is a traditional friend of Russia Venezuela. The question is, will these sanctions hurt Russia's defense industry enough to curb the Kremlin's behavior? Sanctions are almost never watertight but any leakage will probably not be enough for Russia to replenish its missile stocks, especially if the war continues unabated in the coming months.. 2 minutes ago. Russia fires off an estimated 20,000 howitzer shells a day - a rate not seen since the Korean War. From 1992 to 1997 Russia developed control lists for missile, biological, chemical, nuclear and dual-use related items and issued regulations governing the export of these items. Market Cap (USD) Country. designated a Russian defense-related firm, Radioavtomatika, due to its role as an entity specializing in the procurement of foreign items for Russia's military and defense industry. The Sarmat case offers a good illustration of how the administrative market works, pursuing a politically acceptable balance of interests among different groups and individuals: Roscosmos retains industrial assets in the Chelyabinsk and Krasnoyarsk regions; regional (and federal) authorities avoid social upheaval due to large-scale lay-offs; the Ministry of Industry and Trade avoids trouble with supply chains connected to Makeyevs handful of military and civilian products unrelated to R-29RMU2s; the armed forces can slowdown their reduction of strategic forces amid the ongoing dismantling of old ICBMs and SLBMs; and the Kremlin gets another strong card for bargaining with the United States and the West writ large. This represents a significant change from previous regulations, which gave the executive The chip shortage has clearly hurt. This has enabled Rosoboron export to sign new deals with Myanmar, Malaysia, Indonesia, Sri Lanka and Vietnam. But those critical advanced components cannot be substituted by Russian analogues if Russia lacks a domestic computer industry worthy of the name, Alksnis says. The Russian Defense Ministry has blamed the attacks on Ukraine. All exports must proceed through Rosoboronexport, although 22 firms are allowed to independently export spare parts and components. All military spending formally comes from the federal budget; the consolidated budget includes the federal, regional and local budgets. This bargaining for resourceslargely to determine which defense enterprises get to fulfill which state ordersinvolve multiple layers of interest groups, including companies workers, managers and executives, as well as federal and regional government officials, operating through formal and informal channels, both publicly and behind the scenes. From 2011 to 2020, its factories could turn out eight to 12 Su-34 fighter bombers every year. Russian officials deny that their military-industrial base is unstable. REAGAN NATIONAL DEFENSE FORUM Just as military leaders in the US and elsewhere continually discover new lessons from watching Russia's flawed invasion of Ukraine, China is keeping a close . Russia's defense industry suffers from a serious personnel gap. Russia Matters 2018 | This project has been made possible with support from Carnegie Corporation of New York. One of the most autarkic industries in one of the world's most autarkic economies is suffering from supply shortages because of sanctions. France already ranks second in top weapons suppliers to India after Russia, but the French defense industry is reportedly ill-equipped to keep up with India's growing demands. , whose primary activity for several decades had been the manufacture and modernization of R-29RMU2 liquid-fuel SLBMs. These are difficult for its defense industry to . This in turn raises the question of the economys overall sustainability and, consequently, the question of the long-term sustainability of Russias political system. Mike Glenn can be reached at mglenn@washingtontimes.com. The gist of the new system is to encourage industry to continually reduce manufacturing expenses and improve resource management. The Defense industry of Russia is a strategically important sector and a large employer. He further said the earlier program for scrapping third-generation submarines is being revised so that "these vessels will get newer missiles and be subjected to a series of repair efforts enabling them to serve for another seven years". Today, Russias defense sector is an integral part of the countrys political system, where the distribution of state resources depends on continuous bargaining among various stakeholders, and thus differs from its U.S. and Chinese counterparts. begun in the late 1980shad failed completely by 1993. There is no evidence that defense companies improved their economic efficiency in 2021-2022. Thus, the Russian leadership will be forced to increase its defense budget in the coming years, regardless of current financial planning. 70 billion rubles (more than $1 billion). The industry includes about 1,300 entities, most of which fall under the aegis of the state-owned corporations Rostec, AlmazAntey, Roscosmos, Tactical Missiles Corporation, United Shipbuilding Corporation and the nuclear weapons division of Rosatom. All arms procurements must be carried out by a civilian government acquisition service. US sanctions on Russia, announced by president Joe Biden on 24 February after the invasion of Ukraine began, are expected to have a long-term effect on the Russian defence industry. The sectors roughly 2 million employees amount to about 2.7% of Russias labor force.3Russian ministers, deputy ministers and presidential administration officials sit on the corporations boards of directors, while FSB officers work in management. These boons, in turn, improve such officials standing within the Russian political hierarchy. In this respect, the law provides a new foundation for export control policy, empowering other actors than those from simply the executive branch. Oops, this content can't be loadedbecause you're having connectivity problems, Stay always informed and up to date with our breaking news alerts, - The Washington Times - Saturday, December 3, 2022, Get The Washington Times' latest newsletter 'Threat Status' delivered every Wednesday. Scope. United Aircraft Corporation (UAC) was estimated to have the highest total sales among Russia's arms-producing and military services companies, at around 6.35 billion U.S. dollars in 2021. One example of the states heavy hand is the above-mentioned obligatory purchases of civilian goods. The production of weapons and special equipment is increasing many times in all directions: from tanks and guns to high-precision missiles and drones, Mr. Medvedev later wrote on his Telegram social messaging channel, according to Russias RIA Novosti news agency. That said, Russia today is far lower on economic, technological and human resources than the Soviet Union was, while the costs of defense manufacturing have become much higher. Russia's most advanced . A comprehensive federal law 'On export control' took effect on 29 July 1999. This administrative-market system does not accommodate proper oversight and decisions concerning the defense industry are determined primarily by political rationale. The attempts at conversion also cost the government money. Nevertheless, defense spending from January to April totaled almost 1.6 trillion rubles ($26.4. Even within each defense corporation, competition among its subsidiaries means that key players resist optimization and reorganization efforts that could undermine their interests but support those likely to bolster them. Russias sector, meanwhile, involves a more complex balance of group and personal interests, networks and patron-client relationships. One U.S. publication, this heavy, liquid-fuel missile Russias doomsday weapon, adding that it makes Americas 39-ton Minuteman ICBM look like a rocket-propelled toothpick." You Won't Believe How Many Rounds Are Fired in Ukraine. Russia Matters offers weekly news and analysis digests, event announcements and media advisories. While it is hard to estimate total investment, some numbers suggest that the defense industry gets hundreds of billions of rubles annuallyin state-backed civilian procurements, government investment and projects aimed at modernizing and diversifying the defense sector. Vietnam became Russia's largest weapons customer in terms of new contracts signed in 2009, especially due to a large order for six Project 636M Kilo-class submarines. Since then Russia has successfully tested the fifth generation jet fighter, Sukhoi Su-57, and started the commercial production of the regional airliner Sukhoi Superjet 100, as well as started developing a number of other major projects. in patriotic education programs and conducts other activities in support of state priorities. The economic decline of Russias defense industry came on the heels of the Soviet collapse, when arms procurement and R&D programs shriveled. January 28, 2013. "Between 2012 and 2015, India will once again become the number one importer ($14.3 billion), followed by Venezuela ($3.2 billion) instead of Algeria. On March 3, 2022, the State Department announced that the United States was sanctioning certain Russian companies deemed to design, develop, and produce items that the Russian military is using to attack Ukraine. Design Bureau of Special Machine Building is a Russian defense entity that develops military equipment for Russia's military, including missile and missile-defense systems. The most significant evidence of the Russian defense industrys economic inefficiency is the sectors growing debt burden, which highlights rising costs but also foreshadows continued increases in military spending. With regard dual-use goods and services, the Russian government issued a "catch all" export control regulation in a resolution signed on 22 January 1998. Dozens of Ukrainian factories and research facilities that either produced components or carried out R&D programs for. Exhibited mock-ups included the T-90S tank, Terminator fire support combat vehicle, the BMP-3M infantry combat vehicle, the BTR-80 and the BTR-80A Armored Personnel Carriers, the Smerch multiple rocket launcher, the Kornet and the Metis-M anti-tank missile systems, the Msta-S 152-millimeter howitzer, the 2S9 120-millimeter self-propelled mortar, and the Vena self-propelled automated artillery system. The industry bolsters Russias modern-day authoritarianism not only by projecting power but by providing a major part of the systems social basefrom the ordinary Russians who benefit via employment to the political elite involved in managing the industry or reliant on its contributions to local coffers. Defense Industry Interests vs States and Public Interests, Another specific example similar to the Sarmat program concerns combat aircraft manufacturing. The deliveries of civilian aircraft increased to 6 in 2005, and in 2009 the industry delivered 15 civilian aircraft, worth 12.5 billion roubles, mostly to domestic customers. For the duration of the 1990s and early 2000s Russia's . Just one example: In 2014-2018 Rostec sold a 75% stake of Kalashnikov Group to a company controlled by Alexei Krivoruchko, who became a deputy defense minister in June 2018 and. The second involved the collapse of Soviet-era chains of command, supplies and manufacturing, followed by ersatz privatization that benefitted new elites and ultimately a reconsolidation of the industry under official state ownership. However, if we try to calculate the change by taking, of total military expenditure in rubles and comparing them with Soviet/Russian Finance Ministry data on budget expenditure for. Conversion and diversification efforts in the industry should continue but should be incentivized by lower taxes and fewer regulations instead of protectionism (e.g., closing off Russias domestic market to foreign suppliers), bureaucratic enforcement and direct financial assistance. Thus, the Russian leadership is forced to maintain a money-guzzling sector despite limited resources and sometimes contrary to its own strategic goals. Iran, which once sought high-tech transfers from Moscow and other countries, is now a leader in the low-cost but effective drone market. This gives the state too little freedom to reform a sector plagued by economic inefficiencies that create a drain on the budget, leading instead to the partial restoration of a command economy and raising the specter of economic overstretch. It seems that the new leadership team at the MOD has decided to stop using the threat of importing armaments from abroad to get Russian defense industry to improve the quality of its products. For instance, the volume of the industry's non-performing loans surpassed 1.7 trillion rubles in 2016-2020, with the ultimate responsibility lying with the government. For Russia, Irans drones represent affordable off-the-shelf weapons it can expend in Ukraine. Russia ranks second in the world's arms export. , despite the original decision to do away with liquid-fuel missiles. The biggest sales were in aviation equipment 37 percent. Putin created the United Shipbuilding Corporation in 2007, which led to the recovery of shipbuilding in Russia. The order was expected to be raised by a further RUB 40billion for 2010, and by RUB 60billion for 2011. [30], According to Centre for Analysis of Strategies and Technologies (CAST), the most successful businesses in the sector are aerospace and air defense companies. The Sukhoi Su-57 fifth generation fighter and the BrahMos supersonic multiple usage cruise missile are the most visible outcomes of joint venture production with India. The Ukrainian defense industry should be refocused to meet NATO standards and requirements, taking aim at replacing Russian and Soviet weapons that are used by current NATO member-states. One of the most autarkic industries in one of the world's most autarkic economies is suffering from supply shortages because of sanctions. Russia's foreign partners have also benefited from the recovery of the Russian defense sector. Once-mighty sector starved for parts, workers, new markets after Ukraine invasion. Six more such stations and five nuclear-powered ice-breakers are on order. By 2018-2019, the Novosibirsk plant had, significant staffing cuts. In 2012, Rosoboronexport received 1,877 enquiries from foreign clients, and, following consideration of the applications, 1,309 contracts were signed. Iran, meanwhile, gains by finding a new market for its systems and seeing them used in large numbers, author and analyst Seth Frantzman wrote in an essay for the Atlantic Council. [12] Unlike American defense companies, however, the Russian defense industry largely belongs to the state, de facto if not always de jure. Sophisticated military hardware requires a large quantity of high-tech equipment, such as computer chips to send missiles from a rocket launcher to its target potentially hundreds of miles away. Russias defense sector, like its U.S. counterpart, forms a key aspect of the countrys national power. A destroyed. Attempts at conversion to non-military productionbegun in the late 1980shad failed completely by 1993. [1] It is also a significant player in the global arms market, with Russian Federation being the second largest conventional arms exporter after the United States, with $13.5 billion worth of exports in 2012. Russian Defence Industry: An Uncertain Future. But such a policy would effectively require the shuttering of a Roscosmos subsidiary, the. Arms export should be demonopolized to create incentives for defense companies to supply their products directly to foreign customers instead of sharing profits with Rosoboronexport. an ongoing redistribution of government resources, mostly via Moscow, among players important to the political system and its sustainability. "Targeting Russia's defense industry will degrade (Russian President Vladimir) Putin's capabilities and further impede his war against Ukraine, which has already been plagued by poor morale . The Ministry of Defence of the Russian Federation (Russian: , , informally abbreviated as , or Minoboron) is the governing body of the Russian Armed Forces.. the FSB (e.g., FondServisBank), or of individual FSB officers. A case in point is the Sarmat ICBM now under development. The company's portfolio of contracts has reached an impressive $37.3 billion. Even the US, with its industrial base, needs three years to triple production of simple 155 mm ammunition. Between 2019 and 2020 the defense industry's total debt burden increased from 2 trillion to 3 trillion rublesor nearly . Another specific example similar to the Sarmat program concerns combat aircraft manufacturing. Perhaps to cover the straits its military-industrial complex is facing, Russian officials deny the multiple reports that their armies have had to rely on imports. Defense 'We haven't got this figured out just yet': Pentagon, industry struggle to arm Ukraine The Russia problem takes center stage at this year's Reagan National Defense Forum. Rosoboronexport's share was $8.6billion, with independent suppliers making up the difference. The Russian defense industry has some struggles ahead. Measures introduced by the US will prevent Russian manufacturers from accessing essential components such as microelectronics and chips known areas of weakness . Meanwhile, the Russian defense industry has been generating net losses for years. Despite claims of self-sufficiency, it turns out that Russian industry needs Western components and Western support. Thus, Russias defense corporations and the people affiliated with them become both beneficiaries and proponents of Moscows ongoing confrontation with the West. When calculated in constant 2000 prices, this represents an increase by a factor of two.[9]. Recently, Russia has made arms deals with UAE,[27] Saudi Arabia, Iraq[28] and Egypt. Russian arms sales declined over the past five years as a percentage of the international market as vendors, including South Korea, India and Brazil, joined the market, said John Parachini, an analyst with the Rand Corp., an independent think tank. Chinas defense industry, like Russias, is state-controlled, but the Communist Party has retained its central role as mediator of competing political, bureaucratic and economic interests. [13] Russian arms were exported to 60 countries. A new attempt was made at the IDEF 2013 exhibition. In November 2011, the Russian defense ministry awarded Sevmash contracts for construction of four Project 955A Borey-A strategic underwater cruisers armed with the Bulava intercontinental ballistic missiles. Appendix: Inflation- and PPP-Adjusted Calculations, The Collapsing Russian Defense Budget and Other Fairy Tales, Accidental Czar: A Creative Take on the Putin Biography, Despite Russian Reliance on Iranian Drones, Tehrans Leverage Over Moscow Is Limited. Dec. 3, 2022, 5:37 PM PST. With recently won orders for Project 955 and Project 885 submarines, the share of domestic military orders in Sevmash's portfolio has risen to above 70%. International sanctions are hitting Russia's arms industry, which is struggling to replace guided missiles used by Russia's military in Ukraine because of an embargo on electronic components against Moscow, a US defense official said Monday. Russia that engage in sanctions evasion or circumvention. Economy, demographics, military metrics and morekey quantitative data on Russia and its peers around the world. The first involved plummeting government spending and failed efforts at conversion, followed by strong growth in spending since 1998. Between 2019 and 2020 the defense industrys total debt burden increased from 2 trillion to 3 trillion rublesor nearly $31 billion to $41.6 billionup from 1.2 trillion rubles ($19 billion) in 2016.7Moreover, the defense sector has been incapable of paying off these loans: In 2019 the deputy prime minister overseeing the sector recommended writing off up to700 billion rubles of debt; the following year, 350 billion rubles were completely written off and 260 billion more were restructured; in 2016, the government paid off 800 billion rubles ahead of schedule to free itself of mounting interest payments. In 2005, Putin initiated an industry consolidation programme to bring the main aircraft producing companies under a single umbrella organization, the United Aircraft Corporation (UAC). Consequently, the Russian defense industrys economic problems have become harder to manage. The second most significant market remains the Near and Middle East, together with North Africa 23 percent. The past 30 years have seen Russias defense industry go on two interconnected roller coaster rideseconomic and organizational. In 2012, Russia's military exports hit another record sum of $15 billion the structure of military exports had become more balanced. Another is the intermingling of state-owned defense corporations with private businesses linked to senior Russian officials. Still, the state of affairs in Russia is complicated. The President of Russia is the Commander-in-Chief of the Armed Forces of the Russian Federation and directs the . The Jamestown Foundation says it is short about 400,000 workers, and analysts say the country is likely unable to solve that . Among the firms that remain on Putin's Aug. 4 list which does the same thing are natural gas giant Gazprom, oil pipeline monopoly Transneft, aircraft builder Sukhoi, oil firm Rosneft, power monopoly Unified Energy System and Russian Railways, the country's rail transportation conglomerate. In 2018, Myanmar agreed to buy 6 Su-30 fighter jets from Russia. Just one example: In 2014-2018 Rostec sold a 75% stake of Kalashnikov Group to a company controlled by Alexei Krivoruchko, who became a deputy defense minister in June 2018 and sold his stake to former Deputy Transport Minister Alan Lushnikov; Lushnikov, meanwhile, is a business partner of retired Maj. Gen. Timur Gareyev, who sits on the board at Tactical Missiles Corporation, one of the state-owned defense holdings. Since March, Radioavtomatika has attempted to leverage Sector. Where they were once used primarily in surveillance missions, unmanned aerial vehicles are now increasingly employed as weapons. Evolution of Russias Defense Industry Since the Cold War, The past 30 years have seen Russias defense industry go on two interconnected roller coaster rideseconomic and organizational. The Russian defense industry consisted of over 1,700 firms and in 1997 employed some 2.5 million workers. Russia has consistently ranked as the worlds second-largest arms exporter, behind the United States. The exact sum of these contracts has not been made public. Regional officials play a comparatively minor role here, but they want defense manufacturing in their regions for reasons not unlike those in the U.S.: It means more jobs, additional investment into infrastructure and a plumped-up tax base. Russia's defense industry is the second largest in the world, after the United States. The Kremlin is believed to have employed hundreds of Iranian-made attack drones in Ukraine since the start of the war. The State Duma Defense Committee has announced that the nation's defense spending, including research and development R&D spending, will total $16.3 billion (RUB487 billion) in 2010, $19.2 billion (RUB574 billion) in 2011, $24.3 billion (RUB726 billion) in 2012, and $38.8 billion (RUB1.16 trillion) in 2013. Specifically, the following 21 entities are being designated pursuant to E.O. [26] The Center for Analysis of the World Arms Trade estimates the value of equipment acquired by Caracas from the Russian defence industry at $4.4 billion. the production of 76 more Su-34sto be delivered by the plant by 2027. The countrys national defense budget has skyrocketed from more than $57 billion at the end of 2021 to more than $82 billion projected for 2023, according to the Jamestown Foundations Eurasia Daily Monitor. Moscow is providing much-needed cash for Tehran, which also remains under U.S. sanctions. Thus, Russias defense corporations and the people affiliated with them become both beneficiaries and proponents of Moscows ongoing confrontation with the West. The State Defense Order for 2009 was expected to amount to a record of RUB 1.2trillion, showing an increase of RUB 70billion from the previous year. its successes in advancing the modernization agenda. According to Putin, in 2014, Russian defense firms exported more than $15 billion worth of arms to more than 60 countries, and signed almost $14 billion worth of new contracts The Russian defense industry currently has more than $40 billion worth of . Russian defense exports, a critical source of foreign currency for the Kremlin, were taking a hit even before the Ukraine invasion. May 20, 2021. major challenge facing Russia's defense industry, some critical facilities remained outside of Russia, so a significant effort had to be invested in consolidating all The collapse of the Soviet Union and subsequent trauma of the Yeltsin years greatly damaged Russia's defence industry. In some cases, Russians have cannibalized household appliances such as refrigerators for computer parts to maintain weapons training. Key enterprises on the Black Sea coast appeared to be on the territory of now-independent Ukraine - which proclaimed non-nuclear status. During the last 20 years Moscow has repeatedly tried to attract the Turkish military with its advanced technology. In some instances, the Russian leadership adapts its defense policies to prop up parts of the industry in ways that could have a direct bearing on U.S. and NATO military planning. The Russian defense industry is struggling. In 2010, total Russian arms exports amounted to $10billion. U.S. officials say the need to import weapons from rogue regimes is a sign of desperation as Mr. Putin struggles to sustain his war. More than 1,300 facilities currently produce weaponry, and state officials like to boast about the hundreds of missiles, aircraft and tanks being produced alongside military innovations such as Iskander missiles and Armata tanks. 04:06. ConflictsRussian Federation. In 2007, the Russian Nanotechnology Corporation was established, aimed to boost the science and technology and high-tech industry in Russia. In response to recent Russian cyber espionage, interference in U.S. elections, and the poisoning of opposition leader Alexei Navalny, President Biden announced a new round of sanctions and expulsions of Russian officials. Photoby Rosoboronexport (roe.ru)shared without restrictions. It is also a significant player in the global arms market. Peru will sign a contract to upgrade Lima's fleet of Mikoyan MiG-29 Fulcrum fighters, Peru is interested in buying 700 Kamaz trucks and a new batch of Mi-8/Mi-17 helicopters from Russia. While total defense spending will increase, the amount allocated for R&D will drop from the current 2010 level of 22 to 16 percent by 2013. Sevmash directly employs 27,000 people. By Dan De Luce. Civilian procurements under the governments ambitious . As a result, Western sanctions have denied Russian producers access to high-tech parts and circuitry that are essential to manufacturing modern military hardware. Consequently, the Russian defense industrys economic problems have become harder to manage. 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At the level of big-picture foreign policy then, Russias defense sector does not so much influence the Kremlins position as perpetuates it; at the same time, the needs of the industry sometimes dictate government decisions to produce particular weapons or equipment, whether they are genuinely needed or not, and some of these can in turn seem threatening to adversaries like the U.S. and NATO. Russia is the second largest conventional arms exporter after the United States, with $13,5 billions' worth of exports in 2012. At the same time, Russia tried to reduce its dependence on other ex-Soviet republics for defense manufacturingfully localizing, for example, the production of various types of missiles formerly made in Ukraine. State orders for military equipment have risen considerably during the last decade. Unlike American defense companies, however, the Russian defense industry largely belongs to the state, de facto if not always de jure. And it cannot do so if it must continue to rely on imports of key components. One example of the, is the above-mentioned obligatory purchases of civilian goods. [31] Across the top 20 rated companies, growth in military production averaged more than 25% in 2007. Expertise gained in Ukraine poses a threat to the U.S., Israel, the Gulf and other partners forces in the Middle East.. The defense industry of Russia is a strategically important sector and a large employer in Russia. The most significant evidence of the Russian defense industry's economic inefficiency is the sector's growing debt burden, which highlights rising costs but also foreshadows continued increases in military spending. And one of the main tasks for russia's defense industry in this regard is, first of all, the repair and restoration of damaged equipment. Company. Under the resolution, Russian firms are forbidden to sell dual-use goods if they know they will be used in WMD, even if the items are not specifically mentioned on 'control lists'. On one hand, Russia relied on cooperation with Western businesses, allowing them to partner with and/or buy stakes in Russian defense companies. Western governments, meanwhile, worked with Russia on space programs and bankrolled disarmament programs. , for example, are planned at 6.2 trillion rubles by 2030 and. In 1997 the Russian defense industry consisted of over 1,700 firms and nominally employed some 2.5 million workers. The US-led West's sanctions and the exit of foreign companies from Russia have had a minimal impact on the domestic defense industry while the aircraft-and car-manufacturing industries have. U.S. munitions exports topped $60 billion in 2011 and 2012. While Ukraine has been the beneficiary of a steady stream of NATO armaments, chiefly from the U.S., Russia has been forced to rely on its own industry and the few countries that are willing and able to defy international sanctions and send them weapons. Predictably, the industry still suffers from economic inefficiency, a lack of technologies and, consequently, a lack of human capital. Reasons to Buy "The Russian Defense Industry - Procurement Market Dynamics to 2021: Market Profile"allows you to: Gain insight into . Russian defense companies do not need to spend money on lobbyists (as their U.S. counterparts do) because key individuals working for them simultaneously hold senior political posts and already take part in high-level decision-making. Iran will likely study how Western air defense responds to the drones and try to recalibrate them based on their failure rate, Mr. Frantzman wrote. Moscow supplies arms and military equipment to 66 countries, has concluded agreements on military and technical cooperation with 85 countries and its portfolio of orders for defence-related products currently stands at a staggering $46.3 billion. It is an important business for Moscow, especially in times of economic. Since May 2022, the Russian government has not released much data on the defense budget. The industry bolsters Russias modern-day authoritarianism not only by projecting power but by providing a major part of the systems social basefrom the ordinary Russians who benefit via employment to the political elite involved in managing the industry or reliant on its contributions to local coffers. Meanwhile, the entire system of Russian leadership maintains its reputation in the eyes of its citizens by showing it can solve problems and strengthen Russias military capabilities. Since 3 July 1998 (the date on which the State Duma adopted a comprehensive federal law on 'Military-Technical Cooperation of the Russian Federation with Foreign States'), the only body competent to deliver Russias defense industry suffers from a serious personnel gap. The production of new ICBMs and SLBMs, the Yars and Bulava, respectively, is concentrated at another Roscosmos subsidiary, the MIT Corporation. [clarification needed] Admittedly, these enterprises had little to do with nuclear propulsion technology, except for some ambitions in the late 1980s when the Soviet navy planned the construction of nuclear-powered aircraft carriers. The Russia-Ukraine war too will bring about changes in the defense procurement balance, and defense leaders must be ready for the change. One set of government measures involves rebooting the conversion programRussian defense enterprises are to increase their share of revenue from civilian products to 50% by 20302and obligating government entities and state-owned companies in other sectors to buy the resulting civilian goods. The government does try to decrease the number of companies that are chronically money-losing, so too many unsolved economic problems can lead to defeat in the administrative market: For instance, debt burdens at two leading state-owned defense corporations, Uralvagonzavod and the United Aircraft Corporation, led to their absorption by Rostec in 2016 and 2019-2020, respectively. The program was divided in three parts: reorganization and crisis management (20072010), evolution of existing projects (20102015) and further progress within the newly created structure (20152025). Analysts fear the Russian-Iranian drone alliance could pose problems that extend further than Moscows war against Ukraine. The quality of the North Korean shells is probably not clear, but if youre running out, youve got to get them somewhere, Mr. Parachini said. Between 2019 and 2020 the defense industrys total debt burden, from 2 trillion to 3 trillion rublesor nearly $31 billion to $41.6 billionup from 1.2 trillion rubles ($19 billion), writing off up to700 billion rubles of debt; the following year, 350 billion rubles were completely, and 260 billion more were restructured; in 2016, the government, of mounting interest payments. Russia did not expect for this war to go on this long, said retired Lt. Col. Daniel Davis, a senior fellow with the Defense Priorities think tank. First, as Moscow is focused on its (cruel and mistaken) invasion of Ukraine, the Russian military industry will be mostly striving to keep delivering for its own armed forces. One set of government measures involves rebooting the conversion programRussian defense enterprises are to increase their share of revenue from civilian products to 50% by 2030. , leading in turn to exorbitant procurement costs for the defense industry, which still depends on imported electronics, especially in the space sector, and some other imports. Manufacturer profits are made directly dependent on savings it achieves during the series production of modern weapons. Total exports of land-based weapons and military equipment grew to 27 percent. Citing a Russian military source, this version of the T-72B3M was upgraded based on the combat experience gained in Ukraine. Dmitry Gorenburg. [34] In 2009, a senior official said that the Russian military industry had effectively "reached its ceiling" and could not take on any more orders. Russia Aerospace & Defense Industry - Top 6 Companies Details as of April 1, 2022. [35] Many skilled workers are nearing retirement age, and young graduates are hesitant to enter the industry due to low wages and insufficient career opportunities. By 2018-2019, the Novosibirsk plant had started significant staffing cuts. Russian defense industry proved unequal to the challenge of manufacturing battleships and other BMP-3, BMD heavy combatants T-90 tanks, artillery, missiles, space technology, nuclear technology even lack of funds from state. The sectors roughly. [7] The combined revenue of the industry's 20 largest companies in 2009 was $12.25billion. Predictably, the industry still suffers from economic inefficiency, a lack of technologies and, consequently, a lack of human capital. Since 2006, much efforts were put into consolidation and development of the Rosatom Nuclear Energy State Corporation, which led to the renewed construction of nuclear power plants in Russia as well as a vast activity of Rosatom abroad, buying huge shares in world's leading uranium production companies and building nuclear power plants in many countries, including India, Iran, China, Vietnam and Belarus. By Jack Detsch, a Pentagon and national security reporter at Foreign Policy. In developing policy toward the defense industry Moscow faces an inherent contradiction: On one hand, Russias leadership needs on efficient defense sector that acts as a source of the countrys power and legitimacy, producing arms for export and advanced high-technology civilian goods; on the other, the domestic political and economic orderwith its bureaucratic over-regulation and the absence of private initiative in defense manufacturingcontributes to an inflation of costs and general economic inefficiency in Russias defense industry. When considering Moscows policies toward the United States and NATO, the Russian defense industrys influence can only be understood in the context of this administrative-market-driven feedback loop: In its foreign policy, the Kremlin relies on asserting its military might and on continued legitimacy in the eyes of Russian citizens; consequently, it needs to keep the defense industry afloat, covering the constantly growing costs and sometimes making up work for enterprises that would be redundant in a true marketincluding the manufacture of weapons deemed threatening by Washington and Brussels. RELATED STORIES. The defense industry of Russia is a strategically important sector and a large employer in Russia. Therefore, as their report summarizes, "for the same amount of spending . The defense industrys rising debt burden and the governments intense spending on the sectoron procuring arms and civilian goods, investments into defense manufacturing itself and diversification of the defense corporationssuggest that balancing between market and command-administrative sectors within the Russian economy will become increasingly challenging. Though western sanctions have targeted Russia's defense industry, Russia was in 2021 the second-largest arms exporter after the United States, according to the Stockholm International Peace. Vietnam is expected to considerably increase its share of Russian arms exports in the future. Moreover, the complex balancing acts within Russias administrative market mean that the authorities do not have enough freedom of action in dealing with the defense industry. in spending since 1998. Russia has started re-purposing surface-to-air missile systems such as S-300 and S-400 air defense batteries to fire at ground targets. The Jamestown Foundation says it is short about 400,000 workers, and analysts say the country is likely unable to solve that problem in the foreseeable future. Russias defense industry managed to survive the crisis years through its continued ability to produce and service weapons, drawing on Soviet-era inventory and foreign demand for conventional arms and technologies, mostly from China, India and other developing countries. The head of the Military Committee of the North Atlantic Alliance (NATO), Admiral Rob Bauer, is sure that the Western sanctions against the Russian Federation due to the invasion of Ukraine have already begun to prevent the Russian defense industry from producing sophisticated weapons. The proposal to start joint development of a surface-to-air missile system with Ankara was perhaps the most intriguing development of IDEF 2013. The situation is the same with the manufacturing of combat helicopters, the Eurasia Daily Monitor said. Click here for reprint permission. The guests of the forum will be the first ones to see them. In addition to turning out arms for export, Russias defense industry provides military equipment for its own use. Now longtime customers such as India and Vietnam are openly questioning the quality of Russian arms and Moscows reliability as a supplier as it faces massive demands in Ukraine and Western sanctions. [11] Further growth will require a serious upgrade of production facilities, as well as investment in skills and training. Exports fell from 24% of the global market to 19% from 2017 to 2021, according to the Stockholm International Peace Research Institute. "China is looking at the arms export embargoes on Russia as an opportunity for their arms industry. In recent years Russia approved about $7 billion worth of export loans under weapons contracts. Before 1998, the Russian Federation did not have a comprehensive export control law, inheritance from the Soviet Union, in which legal basis for many things was unclear or secret. Under President Vladimir Putin, the defense industry turned to consolidation and restoration of formal state ownership amid a larger consolidation of Russias authoritarian governance. In part, this approach arose as Moscow tried to find alternatives to Western components and contain costs: Russian cooperation with Western defense companies, declining since the 2000s, has all but ended due to post-Crimea sanctions, leading in turn to exorbitant procurement costs for the defense industry, which still depends on imported electronics, especially in the space sector, and some other imports. Dollar and ruble figures in Tables 1 and 2 below are in current prices for each respective year.8. Struggle ongoing for Russian defense industry: SIPRI. [11] Military-Industrial Commission of Russia is responsible for supervising the distribution and implementation of the State Defense Order. No other country has used Irans drones in such quantity.. It is also a significant player in the global arms market. For an explanation of this seeming contradiction and the ostensible drop in spending from 2016 to 2017, see Kofman, Michael, . This, obviously, leaves less money for other types of public spending and hinders economic modernization overall. Manned fighter aircraft are not as important as unmanned drones or short-range missiles, Mr. Parachini said. [3], The Russian government has announced its intention to restructure the debts of Russian militaryindustrial complex in the amount of 750 billion rubles, half of this amount will be written off, Deputy Prime Minister, Yuri Borisov said, speaking at a board of the Ministry of Industry and Trade of Tatarstan. The Russian defense industry has some struggles ahead.Despite claims of self-sufficiency, it turns out that Russian industry needs Western components and Western support. Many in Russia and the West believe that Western sanctions have done little to affect the Russian economy let alone Russian policy, but there is at least one area where they have had a major impact - on the Russian defense industry - that has both international security and domestic political consequences, Russian analyst Pavel Luzin says. The top procurement priorities are the following: RS-24 intercontinental ballistic missiles, Bulava submarine-launched ballistic missiles, Su-24 fighters, Su-35 long-range fighters, submarines, corvettes, frigates, and battlefield command-and-control systems. The Kremlin wanted, of course, to maintain Russias status in global affairs and to avoid discontent among millions of employees, but it also had goals specific to the tumultuous 1990s: getting top managers on the side of the new Russian political elite; preventing the industrys criminalization; and restoring defense manufacturing capabilities after the defeat in Chechnya. Despite the fact that Russias political elite tries not to repeat the mistakes that led to the Soviet collapse, the risk of economic overstretch is growing. The Shahed 136 drone is designed for a one-way kamikaze mission. [1] Contents 1 Economic significance 2 State orders 3 Exports 4 Companies Moscow is determined to keep its share of the Indian defense market and to retain its status as the world's second-largest defence exporter. Another is the intermingling of state-owned defense corporations with private businesses linked to senior Russian officials. The U.S. defense industry, for instance, is not state-controlled; despite a strong reliance on government contracts and the revolving door among defense executives, lobbyists and government officials (not to mention contributions to political campaigns), the sector is separate from the U.S. political system and operates in the context of commercial markets and competitive politics subject to democratic checks and balances, including a powerful legislature and courts. Russia often uses standoff weapons such as drones and artillery to destroy targets in Ukraine, apparently in a desire not to risk its expensive air force. Also under Putin, Russia has restored a de facto command economy within the defense industry, which does not help the sector overcome its challenges. This requires more effective resource management, cutting manufacturing costs and making production more economically efficient. The top company was again Almaz-Antey, which boosted its revenue to $4.3billion. The consequence is that whereas the age of the average defence industrial scientist or engineer in China is about 30 and around 40 in the US it is 50 years or more in Russia in 2008, it was reported that only 36% of military-industrial enterprises are solvent, while 23% are on the verge of bankruptcy. Civilian and military officials must be excluded from the defense corporations supervisory boards in order to eliminate conflicts of interests. After collapse of the Soviet Union, Russia's nuclear shipbuilding industry has been transformed into something much smaller. As the Kremlin tried to maintain control of the defense industry amid the chaotic competition for resources during post-Soviet privatization, power in the industry was redistributed. The law provides, that export control lists should be drawn up by the President, in consultation with the Parliament and industry representatives. Russia will not be able to rearm the army and navy unless it has its own basic industries. Due to the sectors organizational entanglement with institutions of power, and consequently the political weight of the vested interests involved, any efforts to downsize the sector risk causing major political upheaval. It is only known that the Alexander Nevsky was built under contract worth 23 billion Rubles. Were also watching the nature of warfare change before our very eyes. For a couple of years, this seemed to be a favorite tool for former Defense Minister Serdyukov, especially in his bid . The UAC, one of the so-called national champions and comparable to EADS in Europe, enjoyed considerable financial support from the Russian government, and injected money to the companies it had acquired to improve their financial standing. 437 billion rubles ($7 billion) by 2025, with the cost of developing the engine alone. [2] Combined, the US and Russia account for 57% of all major weapons exports. Russia's military exports between 2008 and 2011 amounted to $29.8 billion. Visiting Severodvinsk in February, deputy premier of the Russian Government in charge of defense industry, Dmitry Rogozin said the local shipbuilders are contracted to build eight fourth-generation nuclear submarines by 2020, and that more orders are coming. Dmitry Medvedev, deputy chairman of the Russian Security Council, said during a late-October visit to a tank factory that the country was accelerating the supply of equipment to troops. Uralvagonzavod earned $640million by making 175 T-90 tanks: 62 for the Russian military, 60 for India, and 53 for Algeria, according to CAST. Because of sanctions, Russia is forced to scramble for components needed in precision weapons such as the 9K720 Iskander missile. Data from the Stockholm International Peace Research Institute (SIPRI) suggests that Myanmar purchased arms worth $1.7 billion from 2001 to 2021. Russia now can produce just seven such aircraft annually, the Jamestown Foundation reported. A case in point is the Sarmat ICBM now under development. Russia is the world's second largest conventional arms exporter after the United States. It just passed the 10th month, and the end is not in sight.. The modernization of weaponry will instead receive a significant portion of total spending, with 13 percent designated for the 2010 fiscal year, 15 percent for 2011 and 2012, and 14 percent for 2013. The government intends to spend RUB19 trillion ($613 billion) over the next decade to modernize the armed forces. It is a measure of the foolishness of Putin's war on Ukraine that this rule has been inverted. Accordingly, Russias large defense corporations and their subsidiaries compete not in a free market but within a so-called administrative marketan ongoing redistribution of government resources, mostly via Moscow, among players important to the political system and its sustainability. Nevertheless, some minor improvements are possible without that: Ultimately, the Russian defense industrys influence on the government derives from the nature of the countrys political and economic system. Since 2014, the costs to Russia's defense sector have been mounting. Following the collapse of the Soviet Union the defense industry and military-industrial complex of the Russian Federation suffered greatly. The opinions expressed herein are solely those of the author. The defense industry of Russia is a strategically important sector, and it creates more jobs for people. Then came Russian President Vladimir Putins all-out war of aggression against neighboring Ukraine, which commenced on Feb. 24. Dollar and ruble figures in. Russia's defense industry employs 2.5 3 million people and accounts for 20% of all manufacturing jobs in Russia. 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