Russia: Arms Industry Gathers Steam, But For How Long?

By Michael Scollon http://gdb.rferl.org/9DC99B05-DBD0-4A8C-AE2B-C678C8011A28_w203.jpg Part of the Nizhny Tagil arms exhibition on July 11 (ITAR-TASS) Arms manufacturers from Russia and elsewhere in the CIS assembled in Nizhny Tagil this week to tout their products at one of Russia's largest arms expositions. Russia's share of the global arms industry remains a sliver of what it was during the Soviet era, but it has posted gains in recent years. Russian arms manufacturers are hoping to build on that success by expanding sales in Latin America and the Middle East, and Russia's efforts to re-equip its own military could further boost the industry. What does the future hold for Russia's arms industry, and are its expansion efforts based on politics -- or just business?

PRAGUE, July 14, 2006 (RFE/RL) -- Hundreds of Russian armaments manufacturers convened at this week's exhibition, which ends on July 15, to hawk the latest Russian military technology. Officials took advantage of the event to predict a bright future for the domestic industry.

And by many measures, they have reason for optimism.

In a stagnant market, the world's second leading arms exporter posted a significant gain in 2004, with $6.1 billion in agreements -- accounting for 16.5 percent of the market -- compared to $4.3 billion in sales in 2003. Russia maintained that level in 2005 -- again exceeding expectations and exporting about $6 billion worth of military equipment to more than 60 countries.

Orders Abound

Russia's state-owned arms export agency Rosoboroneksport, announced in Nizhny Tagil on July 11 that it has orders in hand worth about $17 billion. Deals for naval equipment headed the list, but orders through 2010 for Russian air-defense systems accounted for a major share ($3.5 billion). Rosoboroneksport Deputy Director Ivan Goncharenko also predicted a major turnaround for the much-maligned military-aviation sector, saying aviation equipment will be Russia's top seller in 2007.

Movement is afoot on the domestic front as well. Defense Minister Sergei Ivanov recently said Russia will spend 237 billion rubles ($8.8 billion) this year to upgrade its military equipment -- and that figure is to rise to 300 billion rubles in 2007. In addition, the country is mulling a proposed program that would increase defense procurement by 20-25 percent a year.

But some say serious flaws remain in Russia's arms industry, claiming it depends too much on Soviet-era designs and that the failure of the industry to adapt to economic realities threatens to torpedo the entire endeavor.

Taking Stock

Detractors include Defense Minister Ivanov, who last year expressed fears that by 2011 the Russian arms industry would be incapable of re-equipping its own military.

In an attempt to address such fears, Russia has embarked on a large-scale effort to consolidate its defense enterprises -- an exercise in "state capitalism" that at the same time harkens back to the Soviet Union's oversight of a massive defense industry.

Aleksandr Goltz, a defense expert for the Moscow-based "Yezhednevny zhurnal," says this effort is steering the industry in the wrong direction.

"All these plants, all these enterprises, will again, as in Soviet times, be put under strong bureaucratic control," Goltz says. "And as [a] result, the level of bribes, the level of corruption, will rise and it's obvious that it will make this process much more complicated, not easier."

Piquing Concerns

The direction of Russia's arms-sales policies has attracted controversy in the United States.

A fly-by at the Russian Arms Exhibition in Nizhny Tagil

In April, Russia inked a deal for the sale of 100,000 Kalashnikov assault rifles and 15 military helicopters to Venezuela, which says it needs the weapons to defend itself in case of a U.S. invasion.

The Latin American country is also seeking to purchase 24 Sukhoi fighter jets -- a deal that Washington has asked Russia to reconsider out of fears that it could upset the balance of power in the region.

Missile sales to Iran have also raised the ire of Western countries, particularly the United States, and sales to Sudan and Syria have been criticized.

Russia maintains that such sales break no international regulations, and that if it doesn't sell to these countries, somebody else will.

So, are Russia's efforts to expand its arms sales based on politics, or business?

Both, says analyst Goltz.

"Such countries as Iran, or Venezuela, or Syria have no other sources of military equipment," Goltz says. "It's profitable, but at the same time it is politics because Russia positions itself as the supplier of these -- as the people in Washington say now "problematic regimes."

But given the position Russia is in, it may have no choice. Goltz says he is skeptical of the Russian arms industry's chances of survival. And other analysts have noted that -- given the intense competition in the industry and the United States' dominance as the world's largest arms exporter -- Russia is in no position to turn away business.