Russia’s Role as an Arms Exporter: The Strategic and Economic Importance of Arms Exports for Russia

20 March 2017

Associate Fellow, Russia and Eurasia Programme

Cecilie SendstadResearch Manager, Cost Analysis Research Programme, Department of Analysis, Norwegian Defence Research Establishment (FFI)
Russian arms producers must adapt to growing competition in the global arms market and address issues within its domestic arms industry, or it will see its role within the global arms market lessen.

Summary

  • Russia is the world’s second-largest arms exporter after the US, and is seeking to strengthen its position in new markets. Only the US possesses the same ability to be competitive across a wide range of weapons systems. Russia’s large portfolio of orders suggests that it will occupy an important market position in the years to come, and that it is likely to continue to be seen as a reliable source of weapons for countries that do not enjoy warm relations with the US.
  • Asia is the most important foreign market for Russian arms producers, accounting for 70 per cent of their exports since 2000. India, China and Vietnam are the principal sources of demand for Russian weapons in the region, and Russia is the dominant supplier in a large proportion of Asian countries. The Middle East and North Africa is the second-most important market, but competition from other suppliers is much more intense there. Latin America and Africa are of relatively modest importance.
  • Arms exports play an important role in Russia’s economy, accounting for a large proportion of manufactured and technology-intensive exports. This makes the armaments industry one of the leading sectors through which Russia is integrated with the global economy. Exports are not as important to the armaments industry as they were in the 1990s, but they help keep production lines in service and preserve a full spectrum of capabilities.
  • Russia’s arms industry has benefited from the rapid growth in domestic defence procurement since 2011. However, it is not clear whether the government’s import-substitution plan will offset the reduced access to components of weapons systems caused by the sanctions imposed in the aftermath of the illegal annexation of Crimea in 2014. This could lead to shortages that impede production and, hence, export prospects.
  • There are also broader weaknesses within the Russian defence industry that hamper innovation and could impair the ability of Russian firms to remain competitive in global markets. These include ageing physical capital, an ageing R&D workforce, and weak linkages between higher education and defence-industrial firms.

Entire research: Here

Original post chathamhouse.org

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Excerpt from the research

There are several reasons to expect that Russia’s leading position in the production and export of armaments will persist well into the future.

First, in addition to the healthy export revenues generated by arms-producing firms, Russia’s industry has benefited from the rapid growth in defence procurement since 2011. Along with a programme to upgrade the capital stock in use across the industry, this injection of funds has helped boost productive capabilities and laid the foundations for the development of new weapons systems.

Second, Russia’s willingness and ability to offer a full spectrum of defence-industrial goods facilitate the conclusion of large export deals, thus supporting the development of long-term relationships to equip the armed forces of key customers.

Third, the country’s arms manufacturers may well benefit from the success enjoyed by Russia’s armed forces in Syria. The fact that its weapon systems – such as the Su-34 and Su-35 aircraft and the Kalibr missile systems – have been proven to be operationally effective could boost the attractiveness of Russian weapons in other countries. This point should not be pushed too far, however; after all, airstrikes by Russian forces have taken place in a largely uncontested airspace. Whether these systems would perform as well against better-equipped forces is an open question.

Fourth, Russia is likely to continue to be seen as a reliable source of weapons for countries that do not enjoy warm relations with the US. This means that a wider range of countries are potential markets for Russian exporters, in contrast with the situation facing some of their Western competitors. Russian armaments producers have the opportunity to exploit the tensions that exist between the US and countries such as Iran, China or Syria, and also those that may emerge in countries that traditionally source their weapons from the US, such as Turkey, Egypt or the Philippines.

This is not to say that the outlook for Russia is entirely rosy. A number of internal and external challenges threaten to erode its competitive position as an arms exporter in the future.

First, in the past Russian firms have proven weak in the provision of after-sales support and guidance to their customers. This is a lucrative aspect of the arms trade, and one of immense practical importance to the customer. This is, though, an area in which Russia has taken steps to improve performance, with construction under way of a system to enhance after-sales services.

Second, developments outside Russia might also threaten its position in the global arms market. If efforts by China and India to develop indigenous production capabilities were to prove successful, their need to import Russian aircraft, missiles, submarines and engines may diminish. Both countries – especially India – remain behind Russia in key areas. However, if they are able to produce viable substitutes for Russian goods in the future, this will result in a decline in demand for Russian exports and the emergence of potential competitors in third-country markets. For example, China’s progress in the development of advanced fighter aircraft – notwithstanding the persistence of its weaknesses in engine production – offers the prospect of greater competition for Russia in markets not traditionally served by Western producers.

Third, changes in international relations might also adversely affect Russia’s prospects as a leading arms exporter. Although its producers might benefit from any shift in foreign policy allegiance from traditional US allies towards Russia, a shift in the opposite direction by traditional Russian clients such as India or Vietnam could knock a significant hole in arms revenues………

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One thought on “Russia’s Role as an Arms Exporter: The Strategic and Economic Importance of Arms Exports for Russia

  1. Secundius

    At one time it use to be ~7 Rubles to the US Dollar, NOW it’s ~58.8 Rubles to the US Dollar. Russian Needs the Hard Currency to just Keep their Collective Heads above the Water…

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