Russia’s Military Spending is Jumping – But Can Its Industry?
As oil prices remain high, and natural gas has become a critical fuel for Europe, Russia’s strategy for geopolitical action and leverage has revolved around energy. After the disastrous collapse of communist Russia’s illusion economy, high energy prices are lifting the Russian economy – and with it, available funds for Putin to spend on military modernization.
Russia’s military has declined from 4 million men to 1.1 million, and the vast majority of its equipment consists of holdovers from the Soviet Union. During the 1990s, weapons procurement was almost completely halted; indeed, there were frequent reports of Russian soldiers in uniform, begging in the streets. Times have changed, and Russia’s military is set to change and modernize. The invasion of Georgia shows a Russia that is once again prepared to use military power beyond its borders. Budgets are rising, and will rise further.
The question is whether Russia’s industry and political system can keep up…
Russia’s Arms Industry: Opportunities and Dilemmas
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The UK’s Times reports that in September 2008, Russia’s Duma passed a 25% increase in official defense spending, from $40 billion in 2008 to $50 billion in 2009. The country’s current 3-year plan includes further jumps to $54.5 billion in 2010, and to $58 billion in 2011. Overall, $189 billion is reportedly earmarked to upgrade Russian army and navy equipment by 2015. Forecast International adds that this plan calls for 1,400 new and upgraded main battle tanks in 45 tank battalions, 4,020 armed infantry fighting vehicles, and 3,008 armored personnel carriers for 174 motor rifle and parachute battalions. Missiles are also represented: 60 SS-26 Iskander E short-range ballistic missile systems for 5 missile brigades, and 18 S-400/SA-21 Triumf anti-aircraft/ABM systems to equip 9 air-defense units. On the electronic front, improvements to Russian electronics and communications, electronic protection systems for Russian helicopters, and improvements to its GLONASS GPS system are all priorities.
That’s the good news.
On the other hand, Russia’s bungled refit of the aircraft carrier Gorshkov for India, and the recent spat with Algeria that resulted in the unprecedented step of having its MiG-29s returned for refund, underscore a very real issue for Russia’s defense industry.
Russian concepts of equipment quality already proceed from a different mindset than American/European approaches. American or European items are frequently overdesigned. Russian equipment is frequently overbuilt. Their items are rugged, and are usually less expensive. If coupled with excellent fabrication and quality approaches, Russia’s approach could offer a compelling alternative in the international defense market. Unfortunately, Russian fabrication technologies, quality approaches, and accountability have often been poor. The result? A swath of poorly performing equipment that cannot overcome those deficiencies, offset by a smaller set of good offerings whose design overcomes these deficits.
Fixing that kind of pervasive organizational/cultural problem would be a massive effort under the best of circumstances. Unfortunately for Russia, these are not the best of circumstances.
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Mere maintenance of Russia’s equipment base is a challenge. The complete defense budget collapses of the 1990s have left Russia a lasting legacy – one that serves as a canonical example of what happens when a country’s military industrial and knowledge base is allowed to decay. Russian defense analyst Nikita Petrov explains, in a February 2008 RIA Novosti Op/Ed:
“…the Algerian experts are right when they talk about a drop in quality of Russian arms exports. This is openly admitted by top-ranking officials in charge of the Russian military-industrial sector… At a recent Academy of Military Sciences conference, Putilin said that “although the enterprises of the military-industrial sector have increased their turnout by more than 14% (military production went up by 19.1%, and civilian by 7.6%), some of them are simply unable to fulfill state-awarded contracts. Moreover, they cannot even use the allocated funds…” …Highly qualified personnel have come close to retirement age. Machines and technologies are becoming obsolescent – capital equipment in the defense industry is more than 30 years old. Major technologies have been lost, usual contacts severed, and the required raw materials and equipment are in short supply. The price of energy… greatly exceeds the deflators fixed by the Ministry of Economic Development and Trade. Graduates of technical colleges are reluctant to work in the defense industry. Salaries are rather low, and career opportunities cannot compete with those in the oil and gas industry… Before, young people were not drafted if they worked at a military plant called a mailbox. Now this benefit does not exist… technical vocational schools no longer exist…”
This isn’t the first time RIA Novosti has covered these issues. Nikita Petrov again, this time from a January 2007 RIA Novosti article:
“In the last few months, defense factories have expanded production by 14.1%, boosting military-equipment and civilian output by 19.1% and 7.6%, respectively. Nevertheless, some of them are simply unable to fulfil the state defense order and to effectively spend federal-budget allocations… Only 36% of strategic defense enterprises are solvent, while another 23% are tottering on the verge of bankruptcy… The lack of qualified personnel and up-to-date production equipment will inevitably impair product quality. In fact, India, Algeria and some other countries are beginning to file quality claims [emphasis DID’s]… Since 1992, not a single state defense order has been fulfilled completely and on time.”
The money is certainly there. By 2009 Russian defense budgets had already shot past prior years’ projections for 2010. Spending has remained steady since, with continued growth.
Money alone won’t instantly provide production lines with the required tools, some of which must be bought abroad. Or produce technically qualified graduates from thin air to operate them. Or fix the gap between real and official prices, including poorly-set energy cost adjustments. Or handle the property right issues and state interference that prevent the creation of efficient holding companies, and make it very difficult to restructure the assets and production of the holding companies that are created. Russia’s decision to combine its entire aircraft portfolio within a single company offers a certain level of consistency, at the likely cost of innovation and efficiency.
Full recovery from those structural issues will take more than just cash. It may even take more than time.
Partial recovery is far more probable. Regardless of the formal system in place, Russia is a country where Vladimir Putin’s desires are law, or will soon become so. Continued domestic defense spending is assured, and may eventually begin to restore Russia’s defense industry to some semblance of health.
Restoration beyond that level will require both sound policy, and a strong system of accountability. The system doesn’t have that yet.
Success in achieving this goal would leave Russia with a modernized force, a rejuvenated military-industrial capacity, and a an export position that goes from strength to strength. Failure could leave Russia with a budget that’s willing, but an industry that’s weak. One hard pressed to keep pace with domestic demand, and too unreliable to offer strong competition on the international front, outside of a few select niches.
As always, time will tell the tale.
Additional Readings
- DID – Boeing’s Russian Titanium Deals. This is a civilian deal with wider implications. Titanium production is more of a feeder to military industries, but it’s an important one. Improving industrial capabilities with the metal is also strategically important to Russia, given its use in advanced aerospace applications. VSMPO-AVISMA’s ownership patterns and maneuvers are also worthy of note, reflecting the twin government priorities of investment and state control.
- DID – PAK-FA/FGFA/T50: India, Russia Cooperate on 5th-Gen Fighter. In practice, this is a very Russian design.
- DID – Russia’s SU-32/34 Long-Range Strike Fighters. Good example of a program hit hard by the collapse of Russia’s defense budget.
- DID – Russia’s Ka-52 Alligator Scout-Attack Helicopters. Note the $200 million investment in December 2009, under a broader state program, aimed at improving one of Russia’s helicopter plants.
- DID – Israel & Russia in UAV Deal. Russia’s own UAV efforts failed, but it really needed them to watch its energy infrastructure and equip its Army.
- DID – Algerian Arms Deal Brings Russia $7.5 billion, Gas Market Leverage. Mind you, parts of this 2006 mega-deal didn’t go very well. And their twin-jawed strategy for European gas market leverage could prove very transitory.
- DID – Russia Orders French Mistral Amphibious Assault Ships. The Vladivostok Class is an admission that Russian shipbuilding isn’t there yet.
- DID – INS Vikramaditya: Waiting for Gorshkov… The Vikramaditya is the poster child advertisement for the fact that that Russian shipbuilding isn’t there yet.
- DID – Baby Come Back: Iraq is Buying Russian Weapons Again. The news isn’t all bad. Russia’s defense exports have roughly doubled since 2005, and Iraq became the big new client in 2012.
- DID – Vietnam’s Russian Restocking.
News & Views
- The Daily Beast (Nov 23/13) – The Return of Russian Hard Power? The article encounters a lot of skepticism on that score, while noting that Russian economic/ soft power and infowar “active measures” are working fairly well.
- StrategyPage (July 14/11) – Pressure From Above To Make Things Happen In Russia. Even as the article recounts all the obstacles.
- Reuters (May 24/11) – Russia says a fifth of defense budget stolen. Specifically, Russia’s chief military prosecutor Sergei Fridinsky says so.
- Jamestown Foundation (May 12/11) – Russia’s Defense Industry Faces Deep Crisis. Follows moves by President Dmitry Medvedev to fire weapons plant officials and defense ministry officials, after musing about the good old days when they would have enjoyed “hard physical labor in the fresh air.”
- Eurasia Review (April 18/11) – Russia’s Military Modernization: The Geostrategic And Geopolitical Implications – Analysis. By the South Asian Analysis Group.
- RIA Novosti (Dec 13/10) – Russian military to receive 1,300 types of weaponry by 2020.
“More than 20 trillion rubles ($640.7 billion) will be earmarked for weapons procurement, three times more than is allocated in the existing 2007-2015 program… Putin said that 4.7 trillion rubles ($150.7 billion), or almost a quarter of the total budget, would be allocated to the modernization of the Russian Navy.”
- Space News (Dec 6/10) – Three Russian Navigation Satellites lost in Proton Launch Failure. Ouch. The Russian government eventually decides to prosecute some of the officials involved.
- DID (Sept 2/10) – Black Sea Fleet, Corvette Plans Highlight Russian Industry Issues.
- RIA Novosti (April 3/10) – Russia’s Black Sea Fleet may lose all warships by 2015. And Russia can’t build replacements in time because it lacks the industrial and human capacity.
- Weekly Standard (Aug 13/09) – Cash for Clunkers, Moscow Edition
- Moscow Times (July 28/09) – The High Price of Feeding Russia’s Ambitions. covers difficulties with Russia’s Bulava SLBM, which has failed 7 of 11 launch tests.
- Pravda (May 28/09) – Russian fighter jets worse than those of USA and Europe? Says the IL-78s were rejected because of they didn’t meet stated requisitions, adding that spare parts supplies and after-sales service also played a role. Sums up Russian industry problems as
“…the Russian military hardware, still being simple, started losing its former reliability. Nevertheless, the prices on it were growing…”
- The Weekly Standard (April 26/09) – Russia’s Military Aerospace Industry Suffers Another Crash (of an SU-35). The article adds that rising labor costs to attract workers are narrowing Russian industry’s cost advantage. Meanwhile, the credit crisis is slowing supplier investment and deliveries, to the point that Rosoboronexport is warning that some orders won’t be filled on time this year.
- World Politics Review (Feb 17/09) – Global Insights: Trouble Ahead for Russia’s Defense Industry
- RIA Novosti (Jan 22/09) – Russia to rebuild army by 2016. “In contrast to Defense Minister Anatoly Serdyukov’s order issued last year to finalize the army and navy reforms by 2012, the new presidential decree sets the date at January 1, 2016.” The economic crisis is only part of the explanation – building housing for all the demobilized officers, and reducing the number of military schools, is the other aspect.
- Forecast International (Jan 19/09) – Putin Outlines Stimulus for Russian Defense Industry. Including RUB 4 trillion in equipment acquisitions by 2011, plus another RUB 150 billion in guarantees, loans and similar aid. Putin also said there were 1,400 enterprises in Russia’s defense industrial complex, employing over 1.5 million people.
- DID (Jan 18/09) – MiG to Fold into UAC With Sukhoi? Engine manufacturers Klimov and Chernyshev may also be caught up.
- NewsMax (Dec 4/08) – Russian Military Misfires With Defects, Sales Lags. Points to RAC MiG as a firm with an especially problematic future, and adds that China is swiftly becoming a full competitor.
- Aerospace Technology (July 28/08) – Russia Reconsolidates Military Aerospace Arena
- Moscow Defence Brief (Q3 2007) – The Launch of Engine-Building Reforms
- Moscow Defence Brief (Q1 2007) – Russia’s Defense Industry in 2006
- DID (Dec 22/05, updated) – Russian Aircraft Industry Moving Toward the French Model? Actually, it’s looking more unipolar than that.
tag: russiaindustry, rusind
