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Eksport Vooruzheniy Journal
1'2001 (January-February)
Preliminary Estimates of Russian Performance in Military-Technical Cooperation with Foreign States in 2000

Konstantin Makienko


Print version (PDF-format, 182 Kb)

The year 2000 continued the trend established in 1999 of rising exports of Russian arms and military equipment (AME). Last year marked a high point since 1996, when Russia exported AME to the tune of 3.5 billion USD. Sales for the next two years leveled out at 2.6 billion USD, but in 1999 rebounded back to 3.4 billion USD. According to preliminary estimates, which likely will be adjusted upwards with the release of public figures, the volume of deliveries amounted to 3.7-3.8 billion USD. This is the best result since the collapse of the USSR, though it falls short of projections set earlier this year. At that time, Deputy Prime Minister Ilya Klebanov predicted sales of approximately 4.3-4.5 billion USD. Even this remains significantly below the ceiling of 5 billion USD widely recognized by experts and the military-technical community as the highest possible figure for Russia in view of the size of the international arms market and today's rate of conflicts. However, except for 1999, when Grigory Rapota's conservative scenario proved to be below real figures, official projections have generally been optimistic.


"Rosvoorouzhenie" State Corporation


In 1999, "Rosvoorouzhenie" exported AME worth 2.84 billion USD. Early last year Alexei Ogaryov, the former Director General of "Rosvoorouzhenie", said that the Corporation's exports would total 2.6 billion USD at minimum. Vice-Premier Ilya Klebanov ordered him to increase this figure to 3.0-3.2 billion USD. In the first 10 months of last year, "Rosvoorouzhenie" deliveries amounted to 1.329 billion USD. However, in November-December, "Rosoboronexport", a new company, transferred bulk armaments to the People's Republic of China (PRC), which included a shipment of 10 multifunctional Su-30MKK fighters from Komsomolsk-on-Amur, 8 Su-27UBK combat trainers from Irkutsk, the project 956E destroyer from St.Petersburg "Severnaya Verf" and the amphibious landing ship "Zubr" to Greece. The value of these and other deliveries accounts for 1.5 billion USD. Assuming this estimate is correct, the annual export of "Rosvoorouzhenie"-"Rosoboronoexport" amounted to about 2.8 billion USD, i.e. approximately the same as the year before.


Within the first ten months of last year, the deliveries of the key arms dealers followed an unconventional pattern. As a rule, half of all defense deliveries were made up of Air Forces arms and equipment. However, in January-October 2000 transfers of naval armaments amounting to 37% of total exports were executed. Next came air defense systems at 25%, followed by aircraft materiel at 19% export share. After the delivery of 18 fighters Su-30MKK and Su-27UBK to China, the share of aircraft armaments increased, however, and the percentage of naval systems is likely to remain disproportionately high. This can be explained by delivery of the project 956E destroyer and Kilo-class submarine to China; besides, the Indian Navy purchased a tenth submarine of the same-class rigged with the powerful Club missile system.


The regional structure of shipments continued to narrow, as Russian defense exports are increasingly concentrated on the Chinese-Indian "ghetto." As on October, deliveries to the PRC amounted to 49.6% of exports, to India - 22%. Taking into account the transfers in December of the aircraft and destroyer, China's share is expected to rise to 70% and more. This means that the aggregate share of "the big two" is estimated at 90 per cent.


As for Alexei Ogaryov, in an October briefing he stated that the portfolio of "Rosvoorouzhenie" orders amounted to 10.1 billion USD for late October. On December 28, 2000 "Rosoboronoexport" signed the largest contract in Russian history for the licensed production of 140 Su-30MKI fighters to India. The value of the contract amounts to 3.3-3.6 billion USD, according to various sources. This high-profile deal is important politically and commercially as it makes possible the survival and sustainable development of what is perhaps the most promising Russian aircraft plant, located in Irkutsk. Moreover, India, as Russia's only uncontestable geostrategic partner, is becoming committed to Russian technologies, though France, Israel, the UK and South Africa are increasingly active on the Indian market. Thus, by the end of the year, "Rosoboronoexport"'s total portfolio of orders amounts to 13.6 billion USD.


"Antey" Concern


In 1999 the "Antey" Concern, which independently concluded a contract for the delivery of 21 Tor-M1 SAM to the amount of 526 million USD (according to other sources - 560 million USD), ranked second in export sales among key arms dealers players. Company executives claimed that its value amounted to 500 million USD, however, the available data on deliveries do not support this figure. It is an open secret that 4 Tor-M1 systems were shipped to Greece in August 1999, and their value could hardly exceed 100 million USD. In December 1999 - January 2000 six more Tor-M1 SAM were shipped to Athens. Their acceptance by the Customer was executed last year, hence, the export of these systems, if necessary, could be accounted for both last year and two years ago. Even supposing that in 1999 ten systems had been transferred to Greece, their value should not have exceeded 250 million USD. Sales of high-tech, read expensive, missiles and ancillary equipment could have raised this figure by several tens of millions USD, but they are still fall short of a half billion USD.


In 2000, "Antey" delivered another shipment of 11 SAM to Greece under the terms and conditions of the 1999 contract. In April 2000, the Greek authorities announced their intention to procure another ten systems under an option for 29 SAM, which was signed together with the February 1999 contract. In June, a Supplement was signed, and 4 systems were delivered by the end of 2000. Thus, the "Antey" Concern shipped 15 SAM only to Greece. The Greek Army is now armed with 25 "Tor," at least four of which have been deployed to Cyprus.


In April 2000, ITAR-TASS reported that "one more consignment" of 13 Tor-M1 SAM was shipped to the PRC as a swap for Russian debt. At an early stage, however, this transfer was reported completed as far back as 1999. If the first announcement is true, then the Concern exported 28 SAM, or the equivalent of about 500 million USD or more in 2000. "Antey"'s contractual commitments foresee another shipment of 6 SAM to Greece, which has an option to place a new order of 19 "Tor", now the subject of ongoing negotiation. The press reported that the Concern conducted marketing in Saudi Arabia, where the security and control system "Granitsa" was tested.


By August 2000, "Promexport" had exported AME sales worth 107 million USD. Extrapolating this dynamic for the full year, one can assume that by the end of October 2000, the Company delivered materiel valued at 180 to 190 million USD. The press reported only the shipments of tanks to Yemen and helicopters to Nigeria. In addition, the Company collaborated with "Aviaexport" to fulfill a contract for the delivery of 40 Mi-17-1V helicopters to India.


Specialists with the Tula-based KBP Instrument Design Bureau reported that in 1999, the enterprise exported military-purpose products and services worth 180 million USD, ranking third among arms exporters. In 2000, they planned to increase export turnover by 1.5 times, according to some sources, or 2 times according to others. Information on the supplies of this enterprise is unavailable, though they are likely to have fallen to a basis level of 80-100 million USD. However, KBP concluded a second public high-profile contract after its December licensing deal signed with India. In May 2000, a deal with the UAE to supply 50 Pantsir-S1 SAM worth 720 million USD was announced. The deal was signed with the state, which had not procured any Russian armament in recent years. The subject of the contract is a weaponry system; its R&D is funded by the Customer and has not yet been completed. None of the MTC players operating outside "Rosvoorouzhenie" has thus far concluded a contract of such scope. "Antey"'s Greek contract is 200 million USD short of the Tula record, and the Malaysian MAPO "MiG" deal (560 million USD) was completed in conjuncture with "Rosvoorouzhenie".


It is worth pointing out, that the major contracts concluded by "Antey" and Tula enterprises do not involve the "big two" Russian AME importers. They lend a minimal diversity to the otherwise beaten track of the geographic pattern of Russian defense exports and ensure at least some sustainability of Russia on the world arms market.


In February 2000, RSK MiG was to complete the delivery of four MiG-29 fighters to Bangladesh. Anyhow, in March, a formal ceremony to commemorate the entry of eight such machines into the Bangladeshi Air Forces was reported, but only four fighters were supplied in 1999. The Corporation did not report any new contracts for sale of MiG-29 during the course of the year. Major marketing efforts are focused on Europe, where RSK "MiG", in partnership with EADS, is attempting to participate in the upgrading of East-European MiG-29s. The Corporation likely raised 100 million USD through the joint venture MAPS and supply of spare parts and carry-on of works to extend service life. Nikolai Nikitin confirmed this figure in an interview with the newspaper "Vedomosti."


It is safe to assume that "Rubin" Design Bureau and Kolomna Machine Building Design Bureau have not exported any military-purpose products or services in the last year. Public information is not available on the export activities of the Reutovo Machine-Building NPO.


To recap, the minimum export turnover of all players within the framework of military-technical cooperation that we have tracked down through mass media reports amounted to almost 3.7 billion USD, and in view of unreported deliveries, the figure could be higher. In January 2000, CAST estimated 1999 shipments at 3.2 billion USD, while official statistics released later raised this figure to 3.4 billion USD. Assuming that the same ratio of our preliminary non-governmental estimates and the official figures remains true for 2000, total aggregate sales should range between 4.0-4.2 billion USD.



Forecast


Trends in the contract portfolios of "Rosvoorouzhenie" (until 04.11.00), the "Antey" Concern and the Tula-based KBP allow us to assume that from 2001-2003 Russian AME export sales will fluctuate in the area of 4 billion USD. Today all necessary institutional and political drivers have been put in place to sustain stable short-term supplies at this level, i.e. for the period of 2-3 years. Such drivers include the abolition of competition among government suppliers, elimination of bureaucratic rivalry within the framework of MTC, the strengthening of the presidential hierarchy, and the lifting of restrictions on selling AME to Libya and Iran. Negative signals in 2000 include no observable progress in the field of AME with Libya and at the talks on deliveries of expensive naval substrategic systems to India.


Long-term AME export trends will depend on several underlying factors, such as the level of funds allocated to R&D, domestic state orders, the performance of state management of defense industry assets, the process of defense industry restructuring and the promotion of international defense industry cooperation. Ultimately, the competitiveness of Russian high-technology enterprises, including the defense industry, on international markets will depend on whether Vladimir Putin's Administration will succeed in creating a market infrastructure and a favorable macroeconomic environment. As of today, the influence of all these basic factors remains negative.




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