Russian exports - Secrecy surrounds official figures.

Russia has two things that sell well in the global marketplace: natural resources and weapons.

1st Jul 2010


Russia has two things that sell well in the global marketplace: natural resources and weapons. Whilst in terms of volumes and amounts the former prevails, the export of weapons carries strategic importance, as it helps the Kremlin build good relations with ruling elites in other countries and helps domestic manufacturers stay in business and develop critical technologies. Natural resources and weapons have both grown in volume since Russia emerged as a sovereign country after the Soviet Union broke up. Further, the world-wide economic crisis produced an effect on arms sales, Russian president Dmitry Medvedev said, but the volumes continue to grow despite the adverse financial environment.


According to estimations by the Moscow-based Center for Analysis of Strategies and Technologies [CAST], in 2009, Russian arms exports (in executed deliveries) totalled $8.5 billion, $150 million above 2008’s level. Tables 1 and 2 include its estimates for 2006-2008 and contains figures from the Kremlin regarding the volume of contracts signed with importers of Russian weapons and a breakdown percentage for certain countries. According to these figures, the order book reached $40 billion, $7 billion up from 2008.

Table 1. Volumes of deliveries and signed contracts to do with Russia’s military technical cooperation with other countries.

Year

2006

2007

2008

2009

Deliveries, billions USD

6,46

7,55

8,35

8,5

Contracts

billion USD

30

32

33

40

Table 2. Share of certain countries in Russian defense export.

Countries

Algeria

India

China

Others Combined

Syria

Malaysia

Venezuela

Vietnam

Afghanistan

Share %

29

25

15

10

8

5

5

3

3

Military export from Russia is centralised. All sales of ready-to-use weapons (not counting some minor items) are via Rosoboronexport, a government-run company responsible for military technical cooperation with foreigners. Notwithstanding this, 21 Russian companies (all being OEMs or license-holders) hold governmental permission to work directly with foreign customers, but their scope of activities is limited to spare parts, repairs and overhaul, training and logistics – none holds the right to supply weapons systems independently of Rosoboronexport.


Two years ago, Rosoboronexport (together with over two hundred other companies) was moved under the control of the State Corporation, “Russian Technologies” – a huge structure established by the Kremlin to control state assets in the Russian military-industrial complex. On the surface, the moving of Rosoboronexport under the umbrella of the Russian Technologies produced little effect. Perhaps the most evident change was that all Rosoboronexport’s representative offices outside Russia were “re-branded” and became those of Russian Technologies. However, this did not bring much change into their everyday work – they continue to focus on sales and interaction with the customers and end-users on technical support; modernisation and upgrade; spare parts; training of personnel and logistics. The need to change the facade was caused by alterations in Russian law following the establishment of Russian Technologies, and also as a measure to boost sales of high-tech civilian products abroad – which is another one of the tasks set by the Kremlin for Russian Technologies.


Quoting its own statistics, Rosoboronexport states that in 2009 its exports amounted to $7.4 billion, which is 10% more than the previous year. Earlier this year the head of Russian Technologies, Sergei Chemezov (who headed Rosoboronexport before receiving his new appointment) was decorated with the Order of Friendship. “This is a testimony of the fact that the arms trade has developed well so far,” commented Rosoboronexport general director, Anatoly Isaikin. “We anticipate that the arms trade volume this year will not be less than the previous one.” During 2001-2009 timeframe, the volume of arms sales through Rosoboronexport rose by 2.4 times, he added. Russia now has partners on military trade in 70 countries across the world. “Today, we offer not only ready-to-use systems, but also technologies, joint production of subcomponents and sometimes even sell licenses for local production of ready-to-use weapons.” These words seem to be said to give some clue to a pair of figures which Sergei Chemezov voiced during his press conference in February: “Contracts exceed $34 billion, the backlog is $21.5 billion.” Apparently, the first figure is that for deals signed and already approved by responsible governmental bodies (such as the Federal Agency for Military-Technical Cooperation) and put into force. The second is a total sum for deliveries of Russian-made weapons, not counting sells of property rights, licenses, documentation and the like.


In the past two years, the structure of Russian arms sales by types of weapons systems seems to have settled with aviation becoming the undisputable leader, taking half of total. Tactical jetfighters (Sukhoi Su-27/30 “Flanker” and Mikoyan MiG-29 Fulcrum series), Mil gunship (Mi-24/35) and utility (Mi-17) and Kamov naval helicopters (Ka-28/31) are the best-selling items. These are widely considered world-class and still in demand and will be ordered over the next five to ten years before being superseded by a new generation of systems from the same makers.


The next three hardware types form “a second tier”: items for anti-aircraft defense, land forces and navy. These types continue to “compete” against each other for the second and third places by the volume of annual sales. In 2009, the equipment for the land forces came second with 19% and that for the navy came third with 13.9%, leaving anti-aircraft defenses third with 13.3%. The rest were about 4%.


On Page 209 of the Military Balance 2008 book by the London-based International Institute for Strategic Studies, there is the phrase: “In the recent years, it has become increasingly difficult to collect and analyse meaningful date on Russia’s Federal Budget and particularly the finances of Russian national defense, owing to a number of presentational changes.” Today these words are even more meaningful. Not only have official financial statistics from Moscow become less meaningful, independent analytics say that they tend to experience more and more difficulty when assessing the flow of information from Russian sources. Secrecy within the regime tends to tighten, while the independent media (badly hit by the economic slump) has lost interest in the military field and suffered loss of skilled staff writers. One of the outcomes is the growing volume of “undiscovered” arms deals and larger amount of “unidentified” content of these deals. Equipment for navies and air defense units appears to be most difficult to identify in recent Russian export sales. This finds a reflection in the difference between the official figures and those from independent sources, such as the abovementioned CAST’s figures. For instance, CAST did its own calculations which give the share of aviation equipment in the new sales at some 61% (compared to 50% in official statistics), army equipment at 21% (19), navy 9% (14) and air defense 8% (13). This also provides evidence that more and more of the Russian arms export are going to those countries that tend to have less transparency in their military affairs. This specially applies to China, Arab nations and certain territories in Latin America.


About 1% of Russian arms export is equipment for special forces, such as non-recoil or noiseless rifles, pistols, grenade launchers, shock makers, personal self-protection suites and the like. While money-wise it is a small business compared to aviation, the importance of these products should not be underestimated. There are a number of customers for this sort of equipment that buy only these types of items from Russia, often without publicity. This helps in building bridges, as otherwise the seller and customer would probably never come to a negotiating table in their given roles. One factor making special forces of other nations buy Russian products are some of the unique technologies created by the Russian military-industrial complex. Secondly, the huge experience that Russia amassed in counteracting terrorists and crushing nationalist resistance in the North Caucasus finds a reflection in design of certain systems, which makes it better suited to realistic scenarios of special forces’ actions in critical situations. In some cases, sales of equipment to special forces has led to forming good personal relations between seller and buyer, and has facilitated deals in other areas. This is particularly true in case of some Arab buyers. The current head of Rosoboronexport was previously responsible for sales of special forces’ equipment, which makes it more remarkable.


Although his sales figures were numerically lower than his colleagues, Anatoly Isaikin surpassed them in climbing up the corporate ladder as he managed to establish good personal relations with certain buyers and thus opened new export perspectives for Rosoboronexport. He says about it himself: “This is relatively small, but a stable business. Many of the items we sell are unique, they are being produced in very small quantities. It is always a trade between techniques of series production, and the needs of special forces. Certain types are under strictest control imposed to ensure that terrorists never get them.”


The UN register of conventional weapons can serve a good source for understanding the structure of Russian arms sales. Essentially, the register is a list of military equipment that every member country fills in, driven by good will and the desire to promote transparency. In its report for 2008, Moscow acknowledged deliveries of 77 main battle tanks (T-90 MBT series to Algeria and India); 46 armoured vehicles (BPM-94 Vystrel and BTR-80 armoured personnel carriers to Kazakhstan, Azerbaijan and Algeria); 12 artillery systems (Smerch multiply launch rocket systems to India); 34 combat aircraft (Algeria, Malaysia, India [not counting Su-30MKI kits for Hindustan Aeronautics Limited] and Venezuela [including the last in the batch of 24 Su-30MK2V fighters]); 32 combat helicopters (including Mi-17s to Indonesia); 921 guided missiles; and separately 138 portable SAM launchers with 624 missiles (portable SAMs are of special attention and given a separate entry in the register). It was observed by independent analytics that Russia did not include China into its list of receivers of missiles in 2008, whilst the previous year the figure given was 984.


Speaking of Russian exports, it is always necessary to keep in mind that there are dozens of smaller countries that produces Russian weapons and some of them continue to develop the Russian (Soviet) school of defense equipment design, manufacturing and after sales support. Ukraine and Belarus are perhaps the brightest examples. Also, Belarus is sometimes used to sell equipment to certain customers that cannot or do not want to buy directly from Russia. This applies both to newly made and used equipment, being illustrated by the fact that Belarus exported 33 MiG-23s to Syria (without identifying exactly which type of the Flogger). According to ex-president Victor Yushenko, in the past year, Ukraine signed arms export contracts for $1.5 billion. Since most of the Ukrainian contracts are short-term and executed fast, they add to the grant total of “Russian” arms sales worldwide. Besides, despite fifteen years of separation following the breakup of the Soviet Union, Russia still uses a lot of Ukrainian components in its weapons. It is a Soviet legacy, particularly with the fact that Ukraine housed many design houses and manufacturing plants involved in the defense programs of the Soviet Union’s military industrial complex.


With the election of pro-Russian president, Victor Yanukovich, ties between the Ukrainian and Russian defense industries are expected to get tighter. In particular, this brings more hope to the long-going development of the Antonov An-70, effectively the only truly next-generation airlifter already flying in the Eastern countries. On the wave of warming relations with Kiev, Russian army leaders began to speak about the need to finalise a contract on delivery of 40 An-70s to the Russian air force. If that happens, such a contract will finally get the project off ground and open export perspective for the aircraft. Until recently, not only the Russian military, but also Rosoboronexport, remained cautious about An-70’s prospects, but this appears to have changed. Isaikin told reporters recently: “Airlifters are in demand in the today’s situation in the world; every air force needs or wants to have an efficient fleet of ramp aircraft. The An-70, therefore, has good chances in the market provided its development is completed soon.”


Furthermore, the Russian air force made a positive assessment of Antonov’s idea to create a 15-tonne air lifter, the An-178 – on the base of the An-148 75-seat passenger jet whose production has been mastered in Russia (VASO plant in Voronezh) and Ukraine (KiGAZ Aviant plant in Kiev). Today, the An-148 is most modern airliner in the Eastern world which is in operation with Russia’s GTK Rossiya (four An-148-100Bs as of late June) and Ukraine’s Aeroswit airlines (two An-148-100Bs). Russia’s United Aircraft Corporation [UAC] has secured preliminary orders from five Indian airliners which enabled it launch An-148 type validation campaign with India’s Directorate General of Civil Aviation in May 2010. First deliveries to Indian airlines are planned for 2011. In addition, two aircraft were contracted by the government of Myanmar in November 2009 for delivery in 2011 along with twenty MiG-29 fighters.


So, the An-148 is on its way of becoming the first Russian-built airliner in the Indian inventory after handful of Tu-154Ms and Il-62Ms were there for a short period of time in late 1980s to early 1990s. UAC is talking to several Indian companies on the possibility of license production that would start as “screwdriver assembly” and then move to a high degree of “Indianisation.” Should the An-148 be successful, it might prove a base for creation of many specialised military versions, including the An-178, and even serve as the base for development of an Indo-Russian Multi-role Transport Aircraft [MTA].


Russia is also considering re-starting production of the Il-76 50-tonne air lifter, in the form of the re-worked Il-476 and the super heavy Antonov An-124 Ruslan. The Kremlin has approached China, United States, India and certain European nations with the idea to join forces on these programs. Isaikin confirms this by saying that the Russian air force and undisclosed foreign customers have placed preliminary orders for Il-476. China is being urged to re-negotiate the stalled deal on some 40 Il-76-series aircraft in favor of the more advanced Il-476. India is likely to be offered either Il-476 or An-124 if it launches a new strategic air lift tender should New Delhi not buy Boeing’s C-17 Globemaster III under a government-to-government arrangement like those of the C-130J Hercules and P-8I Poseidon.


Advanced air lifters add a new dimension to the sales of aviation equipment currently dominated by tactical jetfighters. Around 2015, the evolving Flanker and Fulcrum series of fourth-generation fighters will be supplemented by the fifth-generation fighter aircraft [FGFA], effectively an exportable version of the Russian air force’s PAK FA, whose prototype has been under flight tests since January 2010. Isaikin says that Russia has received a proposal to cooperate on joint development of fifth-generation weapons systems only from India. The Indian initiative was met positively, and now Russia and India are working together on FGFA fighter and MTA airlifter, he added.


In the anti-aircraft area, the S-400 Triumph draws most interest from overseas customers. “It is a brand-new system, being developed for Russia’s Air-Defense Forces. Only after the needs of the Russian customer are fulfilled, the system will be available for export. We are in consultations with Defense Ministry of Russia so as to have understanding when we can start S-400 deliveries abroad. We are talking to our customers, but deliveries are in a distant future,” Isaikin told reporters. In the meantime, Russia will continue to sell previous-generation S-300, which sometimes becomes an issue for politicians. “The S-300 is a defensive system, it poses no harm to any of the neighbouring countries,” Isaikin insists. However, the long-expected deliveries to Iran are unlikely to start until newly imposed UN sanctions are lifted. This means Russia will have to find another customer for already-made systems that are now in storage, following Kremin’s decision in June this year to join the sanctions regime. It might be that these systems will find their way into China, which already operates S-300PMU2 Favorit, the latest mutation of the evolving S-300 series.


Isaikin also sees a new opportunity for expanding Russian sales with introduction of a new kind of armoured vehicles for the army, referred to as “the Machine” to support tanks in the battlefield. He described it as a highly protected and heavily armed vehicle which can deny mines and anti-tank missiles. It would interact with main battle tanks so as to clear the way for the main forces in the battlefield, he said. “Russia has developed prototypes of such a vehicle. The main thing about it is that the use of such vehicles allows a reduction in loses of personnel, and that’s most important for any army.” During the recent conflicts in Afghanistan, Iran and Lebanon, “classic” tanks, even heavy-protected Abrams and Merkava, fell preys of anti-tank systems – “not necessarily the most advanced missiles available.” If the new machine finds customers, it will help UralVagodZavod (UVZ, the largest Russian manufacturer of tanks) to survive the economic crisis, which badly hit this huge enterprise. “UVZ has orders, and talks with foreign customers are ongoing on further contracts for the plant. However, it is unlikely that the plant will be loaded to capacity with military orders”, Isaikin said.


Other systems worth mentioning in the light of bright export perspectives, including in the Asia-Pacific, are the Pantsir S1 short-range missile/gun air defense system – reportedly, deliveries are ongoing to Syria and United Arab Emirates. The success of the Project 636 diesel submarines could be repeated by the Project 677 Lada, following the commissioning of the head vessel St. Petersburg by the Russian navy in May 2010, after several years of sea trials. The 300mm Smerch rocket system is now being offered in a new version on lighter-wheeled chassis carrying four containerised rockets. India is likely to act as launch customer for this version. The Ka-31 radar picket helicopter, already in the Indian navy service, has won additional orders from this and other customers in the region.


Russia will continue to use foreign components on its weapon systems, for both export and domestic use. Thales night vision systems for armoured vehicles and avionics for aircraft are already incorporated into latest products from Russian OEMs. Russian makers are behind the French in these fields, but they are catching up. “We have started producing thermal imagers, quite good ones, which is something we would have been dreaming of a few years ago,” Isaikin commented. Some of those are made using French technologies. Russia will continue purchasing advanced components and technologies from France and other European nations, and develop other ways of industrial cooperation and co-development in high-tech areas. At the same time, Russia has been renegotiating older agreements with other producing nations on license production of Russian weapons. This process is to do with intellectual rights protection. Isaikin says that sometimes talks leads to success. For instance, China has been licensed to produce Kalashnikov assault rifle, which was in production there for decades without permission from its developer.


Despite this success, the share of China in Russian military export is likely to decrease further. “The fall of military trade with China is easy to explain. The local military production there develops fast and well. At some point in the past, China needed modern weapons systems, since the domestic manufacturers could not fulfill the requirements of the Chinese armed forces. By now, the Chinese manufacturers have improved and they can produce more competitive systems in greater numbers for the Chinese customers. Today’s share of China has gone down to 18%. I anticipate this may decrease further,” Isaikin said.


Meanwhile, Asia-Pacific remains the main selling point for Rosoboronexport. By contractual volumes, Vietnam has appeared the largest buyer of Russian weapons in 2009. It signed a contract for roughly $4 billion on six Project 636M diesel submarines (to be built at Admiralty Shipyards in St. Petersburg), together with infrastructure. This contract is a real breakthrough since the purchasing nation does not operate submarines today. Another large sale was that of eight Su-30MK2 multi-role aircraft (deliveries to be complete by 2011), in addition to four such aircraft purchased earlier. Hanoi has funded development of the Bastion shore-protection system using Yakhont supersonic missiles (similar to BrahMos PJ-10 co-developed by Russia and India) – the deliveries of these systems started in 2009. With these deals, Vietnam is now among largest Russian customers together with India, China, Algeria, Venezuela and Syria.

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