5.1. $6 BILLION FOR WEAPONS
that’s what Russia made last year
Author: Alexei Nikolsky

Source: Vedomosti, February 2, 2005, p. A3

[Russia’s arms exports are rising steadily, but the unprecedented revenue is mainly coming from sales of spare parts and maintenance. Experts hope the situation will change within the next few years; otherwise, Russia’s defense enterprises will have to seek new markets.]

<> AN ARMS SALES RECORD: THE LEVEL OF $6 BILLION REACHED

The Russian defense sector set an export record last year: arms sales revenues reached $6 billion. Only in the Soviet era were arms exports greater than this. The current portfolio of orders will suffice to keep exports around the $5 billion mark for the next two years, experts note.

Mikhail Dmitriyev, director of the Federal Military Technology Cooperation Service, reported to President Vladimir Putin yesterday on the achievements of the Russian defense sector. According to Dmitriyev, in 2004 Rosoboronexport brought in $5.1 billion out of a total of $6 billion in arms sales. RSK MiG, the Instrumentation Design Bureau, and the Machine-Building Design Bureau, as well as NPO Mashinostroyeniya, which have independent licenses to export finished systems, earned at least $450 million more. The rest of the revenue was brought in by 14 enterprises which export spare parts, Sukhoi Aviation and the Salyut Plant of Moscow being the largest of them (with revenue of $135 million and $38 million respectively).

Earnings of $6 billion may boost Russia to second place among the world’s arms exporters, after the USA, notes David Mulholland of Janes Defence Weekly. Besides, this is an absolute record for the post-Soviet history of Russia.

However, it was mainly achieved thanks to a rise in exports of spare parts and services; and these sources will soon prove insufficient for Russia to maintain sales at the level of at least $5 billion per annum, says Konstantin Makiyenko, an expert at the Strategy and Technology Analysis Center.

Exports will not decline within the next couple of years, adds Marat Kenzhetayev from the Center for Disarmament Studies at MFTI; according to Dmitriyev, the sales portfolio of Russian enterprises includes contracts to the amount of $14-15 billion. Russian arms producers will have to seek new markets after that, says Makiyenko. Sales to North Africa and the Middle East could be promising, as well as supplying strategic systems to China and India. According to Makiyenko’s calculations, China and India accounted for 65-75% of Russia’s exports in 2004. Dmitriyev promised Putin that Russian enterprises “are expecting orders from Saudi Arabia and, for the first time, from the Sultanate of Oman.”

Thus far, Russia is mainly selling aircraft abroad. According to a source at Rosoboronexport, aviation exports account for about half of total exports, and almost 60% of Rosoboronexport’s sales (that is, about $2.5 billion). Overall, India, China and Vietnam received 38 Su-30 fighters of various models. Almost all of 70 Mi-8/17 helicopters constructed at Russian plants were exported as well. At the same time, about 20% of Rosoboronexport deliveries are made up of vessels – China received the first Project 636 diesel submarine (out of eight ordered in 2002), while India acquired the last Project 11356 frigate. The share of air defense systems in Rosoboronexport sales was about 6% ($300 million). Besides, part of the revenue of the Tula Instrumentation Design Bureau ($242 million) probably came from Pantsir missile and artillery systems. Within the next couple of years, the share of air defense systems in Russian arms exports is expected to grow, says Kenzhetayev.

A major contract was concluded last year with China, for the supply of S-300 PMU-2 systems to the value of around $1 billion; these systems will also be supplied to Vietnam. Contracts for sales of Tor and Pantsir systems to the Middle East and India are also likely.

Translated by Andrei Ryabochkin