RUSSIAN ARMS INDUSTRY
The Russian Federation inherited the largest and most productive share of the former Soviet defense industry, employing as many as 9 million workers in 1,125 to 1,500 research, design, and production facilities. Those installations are concentrated in particular regions, whose economies tend to be heavily dependent on the industry; in the Republic of Udmurtia, for example, more than two-thirds of workers and industrial capacity were attached to defense in some way in the early 1990s. Moscow has large plants for air force and missile components, and St. Petersburg specializes in naval design and production as well as infantry weapons. [Source: Library of Congress, July 1996 *]
The Soviet Union built 50,000 T-54/55 tanks between 1954 and 1980. Even after the break-up of the Soviet Union, Russia' state-run defense industry was the largest and most diversified in the world. It was bigger than the ones in the United States, China, Britain and France.
Few of Russia's 1,700 defense plants initially were shut down after the collapse of the Soviet Union in 1991. But output was greatly reduced. In the late 1990s, the average production at a typical facility was 20 percent of capacity. Hurt by a decline in defense orders, the Russian military industry has increasing looked abroad as a way to make money. In 2003, two defense contractor executives were shot and killed shortly after they were appointed by Russian President Vlaimir Putin to bring the companies under government control.
Structure of the Russian Arms Industry
Russia's military-industrial complex (MIC) is coordinated by the State Committee for the Defense Industry (Gosudarstvennyy komitet po oboronnoy promyshlennosti — Goskomoboronprom). In 1996 this agency included about 2,000 production enterprises and 920 research organizations with a directly employed work force of about 5 million. However, a 1996 estimate identified about 35 million Russians as receiving their income from enterprises linked in some way to Goskomoboronprom. The research organizations are the heart of Russian military research and development. They take new weapons and military matériel projects from concept to prototype, then hand them off to the production enterprises. Production enterprises do prototype construction, production runs, and modifications. [Source: Library of Congress, July 1996 *]
Zinoviy Pak was appointed director of Goskomoboronprom in January 1996. Prior to his promotion, Pak managed a large defense enterprise in Moscow. His predecessor, Viktor Glukhikh, was dismissed by President Yeltsin for mismanagement — a move that made Glukhikh the scapegoat for a multitude of problems that beset the defense industry in the first half of the 1990s. *
The Russian MIC includes an industrial base that is wholly owned by the Russian military. In the Soviet era, defense industries were created solely to arm the Soviet Union, and as such they had the highest national priority in the allocation of technology and talent. The complex regularly consumed 20 percent of the gross national product (GNP) and 15 percent of the industrial labor force. In the drive for privatization after the fall of communism, Russian planners initially believed that this, the best supplied and most efficient of Russian industries, could be converted easily to production for the civilian market and thereafter would become an engine of economic growth. Such optimism obscured the complex's total lack of a civilian market for its products and its inexperience in developing and selling goods in a competitive marketplace. Beginning in the late Gorbachev era, planners mistakenly expected to achieve conversion by a Soviet-style centralized program and without additional funding to support the lengthy, stagewise conversion process. *
Although MIC conversion received much publicity and billions of dollars in Western aid after 1992, government funding for that program decreased steadily in the mid-1990s, and only a small percentage of allotted funds actually were spent for conversion. No funds were authorized for conversion in the 1995 budget. Some defense industries have mounted successful conversion and restructuring programs, however. Russia's leading aviation firm, the Mikoyan-Gurevich (MiG) Aviation-Scientific Production Complex, has formed joint ventures with the Moscow Aircraft Production Association (MAPO) and enterprises in Germany, India, and Malaysia. The Sukhoy Holding Corporation has been formed to combine formerly separate design, development, and production operations for high-performance aircraft; Sukhoy has branched out into production of business and commuter aircraft, which accounted for about half its sales in 1995. The MiG and Yakovlev design bureaus also began developing commercial aircraft in the early 1990s. *
Condition of the Russian Arms Industry
Given its intrinsic shortcomings, the MIC became a major liability rather than a boon to the Russian economy as the initial momentum of conversion dissipated. In December 1995, the complex's average basic wage rate fell to two-thirds the average for industries in the nonmilitary sector. Shortly after assuming the Goskomoboronprom directorship, Pak admitted that the defense industry could not survive unless it were reconfigured. He proposed a smaller military and a smaller defense industry — a course whose wisdom was reflected in statistics on recent performance. [Source: Glenn E. Curtis, Library of Congress, July 1996 *]
In 1995 defense industrial production fell by 21 percent compared with 1994, when production in turn was 25 percent lower than 1993. In January 1996, orders were 25 percent below the level for January 1995, and in the first half of 1996 the Ministry of Defense had not completed payment for its 1994 and 1995 deliveries from defense plants. Hardest hit were the shipbuilding, radio, electronics, and ammunition industries. The reason for such a steady decline is that the MIC had only a single customer, the Ministry of Defense, which had an ever-shrinking budget allocation for repairing and modernizing old equipment, buying new matériel, and funding research for future models. Because few enterprises of the MIC had been privatized (a situation that ensured that complete state control would continue), government subsidies kept many alive through the mid-1990s. *
Between 1991 and 1994, annual production of main battle tanks dropped from 900 to forty, of infantry fighting vehicles from 3,000 to 400, of fighter aircraft from 225 to fifty, and of helicopters from 350 to 100. Those statistics partly reflect the intentional reduction of forces that began in the late Gorbachev era before the dissolution of the Warsaw Pact in 1991, but they also indicate the overall deterioration of the industry. *
In the first half of 1996, the only fully active production program was that for the SS-25 intercontinental ballistic missile (ICBM). Some other enterprises were producing relatively small batches of armored vehicles, most of which were for export. The great majority of the production facilities, including most of the aircraft and shipbuilding installations, were dormant.
Some of the most visible domestic products of the arms industry suffered production delays in 1996. In November construction began on the Yuriy Dolgorukiy, the first in the new Severodvinsk class of strategic missile submarines described as superior to any existing model and expected to carry Russia's sea-based nuclear missiles after 2000. Plans had called for three such boats to go into production in 1996. The Petr Velikiy, a powerful, heavily armed cruiser whose keel was laid in 1986, finally took its maiden voyage in October 1996 after years of production delays. In March 1997, the Moscow Aviation Production Association (MAPO) postponed serial production of an advanced multifunctional fighter, targeting instead the MiG-35 fighter destined for overseas sales.*
Russian Arms Exports
Russia is the second largest producer and exporter of arms after the United States. It was once the world's largest arms dealer but it now only sells about half of what the United States sells and accounted for 6 percent of all weapons sales in the early 2000s. Top weapons exporters in 2002 were: 1) the United States ($8.6 billion); 2) Russia ($5 billion); 3) France ($1 billion). Arms exports increased from $2.4 billion in 1997 to $3.4 billion in 1999 to $4.1 billion in 2001 to $6.1 billion in 2005.
According to the Moscow Times: Russia sold $13.2 billion worth of weapons in 2014, about $22 million more than the year before, despite Western sanctions against Moscow for its meddling in eastern Ukraine, according to figures cited by the head of Rosoboronexport arms exporter, Anatoly Isaikin. Major deals included the sale of S-400 surface-to-air missiles to China, Other important customers for Russian weapons include India, Iraq and Vietnam [Source: Moscow Times, April 13, 2105]
The United States was responsible for 64 percent of the global weapons trade in the early 1990s after the Soviet Union break up. Arms exports (1995 through 1999): 1) the United States ($53.4 billion); 2) Russia ($14.6 billion); 3) France ($11.7 billion); 4) Britain ($7.3 billion); 5) Germany ($6.1 billion); 6) the Netherlands ($2.2 billion); 7) China ($2.2 billion); 8) the Ukraine ($2.0 billion); 9) Italy ($2.0 billion); 10) Canada ($1.1 billion); 11) Israel ($1.1 billion). [Source: Stockholm International Peace Research Institute]
Weapons are a primary source of foreign exchange and forces of salesman with cell phones and Western marketing strategies cover the earth trying to sell planes, tanks and automatic rifles. At major air shows MIG and Sukhoi aircraft salesmen entice potential buyers from Asia and the Middle East with the relatively low prices and options anti-tank and air-to-air-missiles.
Russian Arms Exports After the Soviet Union Break Up
After the break up of the Soviet Union, Russia all but stopped producing arms for its own military. Most of what was produced by arms factories was earmarked for foreign buyers. Sukhoi and MIG fighters were about a forth of the price of comparably equipped American-made planes. Russia is aggressively promoting its combat aircraft in the East Asian arms market. Other top sellers included tanks, rifles and missiles.
As Russia's military deteriorated, the arms export activities of its defense industries continued to grow. In 1995 Russia exported more arms to developing countries than any other producer; China was its best customer. Total 1995 sales were estimated at US$6 billion, an increase of 62 percent over 1994. At the end of 1996, defense authorities announced that foreign arms sales would play a prominent role in financing military reform in coming years. In early 1997, Russia angered the West by selling S-300 missile systems to the Republic of Cyprus and by selling a third Kilo-class diesel submarine to Iran.[Source: Glenn E. Curtis, Library of Congress, July 1996 *]
In the first half of 1996, defense planners appeared to favor delaying privatization and civilianization and letting the MIC do what it does best: make weapons. Instead of depending upon Russia's armed forces as the customer, Soskovets intensified his pursuit of the international arms market in an attempt to improve the industry's earnings. Russia offered military hardware both for sale as a means to raise capital and in barter arrangements to repay international debts.
Arms Export Customers
China and India have been the top customers for Russia’s military exports. Other major buyers of Russian arms include the UAE, Iran, Algeria, and Syria. India purchased 70 percent of military equipment from the Soviet Union before the break-up. Russia once provided Iraq with 80 percent of its defense equipment and has supplied sophisticated weapons and technical assistance to North Korea, China, and India. New markets have been developed in Kuwait and other Middle Eastern countries and Southeast Asian countries like Malaysia, Indonesia, Thailand and Burma.
In April 1996, the State Corporation for Export and Import of Armaments (Rosvooruzheniye) reported fifty-one countries as current customers, with the largest sales totals involving China, India, Syria, and the United Arab Emirates (UAE). Together with lesser customers Algeria, Cuba, Kuwait, Malaysia, Turkey, and Vietnam, those countries accounted for 75 percent of arms sales in early 1996. Arms exports were being produced at more than 500 enterprises in Russia and more than 1,200 enterprises in ten other CIS nations having production-sharing agreements with Russia. [Source: Library of Congress, July 1996 *]
In early 1996, MIC chairman Pak astounded the United States Army by marketing the Russian SA-12 surface-to-air missile system in the UAE in direct competition with the United States Army's Patriot system. He directed Rosvooruzheniye to offer the UAE the highest-quality Russian strategic air defense system, the SA-12 Gladiator, as an alternative to the Patriot at half the cost. The offer also included forgiveness of some of Russia's debt to the UAE. *
Russian Arms Sales to China and India
At one time half of Russia's export arms sales went to China. In the early 2000s, Russia sent Sovremenny-class destroyers, SU-27 fighters, advanced MiG fighters and AWACS plane to China. At that time Russia and Israel are China's largest suppliers of weapons. Major arms purchases from Russia in the early 2000s included 24 Su-30 fighter aircraft for $1 billion and SA-20 surface-to-air missiles for $500 million.
Arms sales and military technology transfers to China expanded rapidly in the mid-1990s, although many defense authorities had strong reservations about sharing advanced technology with such an unpredictable neighbor. For China, Russia is a source of sophisticated, reasonably priced armaments unavailable from the West. For Russia, China is another source of hard currency. Among China's key purchases in recent years were Su-27 fighter-bombers, MiG-31 fighters, heavy transport aircraft, T-72 tanks, and S-300 antiaircraft missile launchers. In 1994 and 1995 agreements, China bought a total of ten Kilo-class diesel submarines, the first four of which cost US$1 billion altogether. Russia received repeated warnings from the United States about the dangers of enhancing China's military capabilities. Such a warning came in May 1996 against the sale of technology for SS-18 ICBMs, which China had requested ostensibly for its space program. [Source: Library of Congress, July 1996 *]
India purchased 70 percent of military equipment from the Soviet Union before the break-up. Russia and India signed a defense agreement in November 1994 during a state visit by Prime Minister Viktor Chernomyrdin. This agreement marked the end of the strained relations that had resulted from India's loss of access to generous Soviet credit terms and low prices when cash-strapped Russia demanded hard currency after the fall of the Soviet Union. During a related visit to India in March 1995, First Deputy Minister of Defense Andrey Kokoshin made a sale of ten MiG-29 aircraft for US$200 million. At the time, Kokoshin asserted that this and future defense deals with India would save several hundred thousand jobs in the Russian defense sector. *
India and Russia have a tradition of cooperation in armaments that began in the 1960s; in the mid-1990s, India needed new equipment from Russia to modernize its armed forces in view of ongoing arms imports by traditional enemy Pakistan and persistent suspicion of neighboring China. In early 1996, India and Russia signed a treaty of military technical cooperation, estimated to be worth US$3.5 billion through the expiration date of 2003. Among key purchases are Russian technology for armored vehicles, artillery, and naval systems in addition to aircraft. In early 1996, experts estimated that as much as 70 percent of India's armaments had been purchased from Russia. *
Russian Arms Sales in Europe
Russia has agreed to repay part of its trade debt to Finland with its modern SA-11 air defense missile system in a deal worth US$400 million. The SA-11 is an army-level, mobile, low- to medium-altitude, surface-to-air missile system that went into serial production in 1979. The SA-11 can successfully engage any aircraft at altitudes from fifteen to 22,000 meters at a range of up to 35,000 meters using its tracking and engagement radar system. It has an on-board identification friend-or-foe (IFF) system and an electronic countermeasures suite. Experts predicted that Finland would employ the SA-11 as its national air defense system. The SA-11 also is in service in India, Poland, Syria, the Federal Republic of Yugoslavia (Montenegro and Serbia), and several former Soviet republics. *
In yet another debt reduction arrangement, Russia is furnishing Hungary 200 BTR-80 wheeled armored personnel carriers (APCs) as replacements for the thirty-year-old Hungarian-manufactured FUG APC. The BTR-80 is a modern, lightly armored vehicle with a diesel power plant. It is manufactured at the Gorkiy Automobile Factory in Nizhniy Novgorod and has been in service since the early 1980s. The BTR-80 is a lightly armored amphibious vehicle with a collective chemical-biological-radiological (CBR) protective system. Operated by a crew of three, the vehicle can carry a squad of seven infantry troops. *
In the mid-1990s, the Russian defense industry was anticipating the end of the arms embargo against Serbia as an opportunity to generate hundreds of millions of dollars in sales. Russia's long association with the Serbs has established a traditional Russian arms market in the Federal Republic of Yugoslavia (Montenegro and Serbia). However, in the aftermath of an extremely expensive economic embargo, it is not clear that the Ministry of Defense of Yugoslavia has the funds to purchase large quantities of Russian military matériel. *
Viktor Bout and the Black Market Arms Exports
Starved for cash, the Russian military has been willing to sell weapons, including missiles to almost anybody. Russian mobsters made huge profits buying weapons from the military and selling them to outsiders. Iran has been one of Russia's biggest weapons customer. The Saddam Hussein government was also a big buyer. On the eve of the United States invasion of Iraq, the U.S. government was upset by the sale of night vision goggles, electronic equipment that could jam global positioning devises and anti-tank missiles . One of the primary weapons suppliers for the Taliban lived openly in Russia after the American invasion of Afghanistan.
One of the most notorious arms dealers is a former Soviet military officer named Viktor Bout. Fluent in five languages, he has established an international arms export business that supplied weapons to participants in many of of Africa’s major conflict zones and reportedly worked with the Taliban, Al-Qaida, the Filipino terrorist group Abua Sayyaf and Libyan leader Moammar Gaddafi. Bout was based in the United Arab Emirates until Belgium and Interpol issued an international warrant for his arrest. He then fled to Russia, where he lived comfortably, apparently with no fear of being deported.
Dan Eggen wrote in the Washington Post: “Bout's odds-defying career as an amoral arms merchant who sometimes supplied both sides in military conflicts has been the focus of journalistic exposes, a recent book and, loosely, a 2005 movie called "Lord of War." Bout, 41, has at least five passports, is fluent in six languages and has used numerous aliases and birthdates, authorities say.Emerging from the wreckage of the former Soviet Union, Bout used military and intelligence connections to become the "FedEx of arms dealers," in the words of a U.S. arms sales analyst. Bout allegedly used front companies and fleets of military cargo planes to drop weaponry into war zones from Africa to the Middle East. [Source: Dan Eggen, Washington Post, March 7, 2008 /*/]
“Bout, a former Soviet air force officer, “weathered international sanctions by hiding in plain sight in a luxury apartment building in Moscow, while Russian authorities deflected outside attempts to apprehend him. U.S. and European intelligence agencies have long suspected that Bout received assistance, particularly early in his career, from Soviet and later Russian intelligence agencies. Bout has denied it. "He took his Soviet military experience and used that to build a very lucrative business operation," said James A. Lewis, a former State Department expert on arms smuggling now at the Center for Strategic and International Studies. "His reputation was that he could deliver large quantities of weapons anywhere in the world. That was his competitive edge." The list of Bout's alleged customers since the early 1990s stretches across at least four continents, with a focus on Africa, Western law enforcement officials and human rights groups say. The Treasury Department accused him of supplying armaments to both the Taliban and its al-Qaeda allies in Afghanistan before the Sept. 11, 2001, attacks, while also providing weapons to the opposing Northern Alliance. /*/
“In Zaire, now known as Congo, Bout allegedly supplied arms to rebels fighting then-dictator Mobutu Sese Seko, turned around and helped Seko flee the country, then flew humanitarian cargo into the devastated nation. "One of the most fascinating things is his ability not only to supply different sides of a conflict, but to live and tell about it with no one killing him," said Douglas Farah, a former Washington Post reporter and co-author of a 2007 book about Bout, "Merchant of Death." Other alleged customers over the years have included then-Liberian despot Charles Taylor, Unita rebels in Angola and the Revolutionary United Front in Sierra Leone. Cargo companies connected to Bout were also linked to hundreds of supply flights into Iraq for private contractors and the U.S. military early in the Iraq war. The complaint even states that, in the 1990s, Bout sought to drop "crates and boxes over Chechnya," the site of a bitter secessionist rebellion inside Russia. /*/
“The Treasury Department sanctioned Bout in 2004 for alleged war profiteering because of his ties to Taylor, and it froze the assets of 30 companies and four individuals linked to Bout in 2006. He is also accused of violating United Nations arms embargoes in numerous conflicts and has been subject to a U.N. travel ban. Smulian outlined the pressures on Bout in his e-mail message to the two DEA informants, which was detailed in yesterday's criminal complaint. "All assets cash and kind frozen, total value is around 6 Bn USD, and of course no ability to journey anywhere other than home territories," Smulian wrote. "Listed on the US black list. . . . All access and communications monitered." Bout has periodically granted media interviews to deny the voluminous allegations against him. In a 2002 interview with the Echo of Moscow, he said he does "aviation lifts. This is my main business." "It sounds more like a Hollywood blockbuster," he said of the al-Qaeda arms-sales allegations. He even critiqued the "Lord of War," which reportedly used a Bout cargo plane. "I am sorry for Nicolas Cage," he told MosNews in 20. /*/
Prospects for the Defense Industry
As the defense budget faces annual threats of receiving a smaller share of a shrinking GNP, experts predict that either the defense industry will collapse under its own weight in the near future or that the national budget will reallocate so much money to civilian programs that the industry simply will wither away. [Source: Library of Congress, July 1996 *]
The collapse theory is based on the fact that the two sources of funds in the military budget appropriations that support the defense industry — acquisitions and R&D — are shrinking at a rate faster than the industry can absorb. Although Pak claimed in early 1996 that defense orders constituted only 15 to 20 percent of the MIC's current orders, the civilian economy was not healthy enough to absorb the industry's new products, and most of the converted industries were not producing items with high market appeal. Therefore, Pak's Goskomoboronprom has emphasized dual-use technology that would bridge the gap between the two production sectors. *
The fund reallocation theory is based on the premise that the real threats to Russian national security are domestic problems such as regionalism, terrorism, corruption, and crime. A hungry and disillusioned population existing on the edge of economic catastrophe since 1991 does not favor spending scarce funds on a military for which it perceives no immediate need. *
The real long-term threat to the Russian defense industry is the reduced R&D funding allotment in the Russian military budget. In the opinion of Western experts, foreign sales will not provide the long-term security required to revive the R&D programs of Russia's military laboratories. In turn, the absence of an aggressive research program for new technology will cause foreign markets to dry up. In June 1996, President Yeltsin named Aleksandr Lebed', an outspoken advocate of smaller, better-equipped armed forces, to chair the Security Council. That move was expected to end arbitrary funding of inefficient MIC enterprises, but its meaning for future R&D was not clear. *
The Soviet Union produced an excellent array of military equipment that has been distributed around the world. However, modernization has not continued under the Russian Federation, and the poor performance of Soviet equipment against United States equipment in Operation Desert Storm reduced the eagerness of international arms purchasers. Another problem is repair and replacement. The Russian record on resupply to foreign defense ministries has not been good, and the well-documented prospect of further deterioration in the Russian MIC does not build customer confidence. *
From the onset of his tenure as director of Goskomoboronprom, Zinoviy Pak proved to be an imaginative and aggressive marketer of Russian military hardware. He energized the moribund Rosvooruzheniye to the point that it even was placing sophisticated advertisements in Western commercial publications aimed at United States and NATO armed forces. Pak also entered Russian dual-use technology, applied in such products as sports airplanes and high-speed passenger boats, in numerous international exhibitions. In March 1996, Soskovets reported that Russia's 1995 arms sales abroad exceeded US$3 billion, an increase of 80 percent over 1994 and 60 percent more than sales to the Russian military. About 75 percent of foreign payments for weapons were made in cash. By mid-1996 new sales of about US$7 billion already had been identified, and the predicted 1996 income was US$3.5 billion. *
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Last updated May 2016