Russia’s Defense Industry: What Does the Future Hold?

The Wilson Center held an event on Sept. 21 to review the current status of the Russian defense industry, which appears to be back in the business of producing planes, ships, and new weapons systems for a revamped military.

 

Ruslan Pukhov discussed the Russian defense industry’s limitations and capabilities during the current hard economic times, brought on by western sanctions. A full webcast of the event can be found here.

 

“Russia is never as weak as it looks like, and is never as strong as it looks,” Pukhov said in opening his presentation.

 

Discussing the link between oil prices and defense industry procurement, Pukhov said that when oil prices reached $50 per barrel in 1995-96, Russian authorities could allocate large sums for initial procurement. But beginning in 2007, Russian defense industrial enterprises began producing military products for foreign customers. Now only 65-70 percent of their product is produced for the Russian national armed forces.

 

Performance system ownership has also shifted. Beginning in the early 1990s, the sector began to be privatized.

 

At the end of President Vladimir Putin’s second term, the policy changed and national pride drove de-privatization, with state-run enterprises largely re-taking control of the industry.

 

When the sector was private, the companies tried to develop single production and more sophisticated civilian-oriented technologies. But with the exception of air traffic control systems, none of the purely civilian projects were successful.

 

Russia also made attempts to team up with foreign countries to produce dual-use products.

 

Discussing the impact of the sanctions, Pukhov said Russian companies are dependent on the Russian state either directly or indirectly. The state relies on taxes it charges companies like Gazprom, and so government revenues are dependent on the demand for Gazprom’s products. With Gazprom’s decreased sales, tax revenues have fallen accordingly.

 

The future is extremely volatile and uncertain. Pukhov believes the Russian defense industry will continue to lose business.

 

Russia’s defense budget has stayed at the same level, but has actually declined in what it can purchase because of the falling ruble value. This means the construction of fewer aircraft, tanks, and defense systems.

 

Furthermore, Russia’s international customers have decreased in numbers and reliability. For example, Vietnam is buying from other nations and China is producing more military equipment internally.

 

Describing other aspects of the state-controlled industry, Puhkov said Russian constituent enterprises don’t have the ability to freely hire or fire people, unlike western companies.

As for what happens next, Puhkov said foreign technologies are an integral part of Russian systems. Where foreign technologies can be integrated, products have improved. Sanctions have not yet completely cut off the technology.

 

One problem is that Russia “still tries to do everything,” which isn’t possible given the extent of Russia’s military needs.

 

Asked if there are any emerging priorities in the defense industry, Puhkov said Russia will return to the paradigm of producing the types of equipment chosen by foreign customers, but this paradigm will never be recognized publically.

 

With less money, most Russian naval projects will be put on hold, despite Russian society’s deep appreciation for the Navy.