RUSSIAN DEFENSE INDUSTRIES EXPAND FOREIGN SALES

Russian defense industries are seeking to boost foreign sales primarily in Latin America and the Middle East, providing opportunities for Russian companies to compete with potentially expensive Western options. In Latin America the main fields of military cooperation are aviation, small arms, as well as armored vehicles and air-defense systems. In the Middle East, potential exists to supply missile systems and aircraft, as Russian President Vladimir Putin recently explored such possibilities with his Palestinian counterparts.

During an April 28 visit to the Latin America Aero and Defense Exhibition in Rio de Janeiro, Alexander Fomin, deputy director of the Russian Federal Service for Military and Technical Cooperation, made clear his view that the Latin American market should receive much more attention from Russian companies. Russia currently enjoys strong military cooperation ties with Argentina, Brazil, Columbia, Ecuador, Mexico, Nicaragua, Peru, and Venezuela. Last week Russia opened a helicopter repair center in Mexico, and it is negotiating the establishment of repair bases and service centers in Colombia and Peru.

Crucially, Vladimir Pakhomov, deputy director-general of Rosoboroneksport, shares Fomin’s views. He complains bitterly about the lack of progress for Russian defense companies entering the Latin American market, which only represents an annual sales figure of $300 million. Pakhomov explained, “Russia has delivered arms and combat equipment worth about $700,000 to Brazil in a year. We have delivered man-portable air-defense systems to Brazil, which are in great demand there. We have also had good results from promoting our planes, helicopters, and armored vehicles there. We are cooperating with Brazil in manufacturing small arms. A lot of work is also being carried out in the military-space sector.”

The renewed sense of momentum within the Russian defense industries, in part reflecting this drive into foreign markets where Russia has traditionally performed less well, is also evident in air defense companies. The Almaz-Antei air defense consortium, for example, has announced plans to double its output by 2010. Its total net profits doubled in 2004, and this level of economic success is contributing to the formulation of ambitious plans for future development.

Putin’s visit to the Middle East provoked predictable controversy surrounding Russian missile supplies to Syria, but Putin was equally keen to downplay Russia’s wish to expand into the Middle Eastern arms market, while receiving requests from the Palestinian National Authority (PNA) to supply Russian aircraft. Although initially this would only involve supplying two Mi-17 helicopters to the PNA, the prospect of greater sales and military cooperation opportunities between Russia and the PNA clearly exists, raising concerns in Tel Aviv.

The top brass of the Russian military are painfully aware that the successes of the national defense industries in foreign markets do not imply adequate service for the Russian armed forces. Not simply deficient in terns of equipment and modern technology, the Russian military even struggles to complete base restructuring in order to facilitate political agreements regarding the deployment of Russian forces.

A case in point is the long-delayed construction of a new base for the Black Sea Fleet in Novorossiysk. This ostensibly would allow the redeployment of the Black Sea Fleet units based in Sevastopol, Crimea to a new base Novorossiysk. Vladimir Sinyagovskiy, mayor of Novorossiysk has announced plans to construct the naval base at a cost of $500 million. Construction will run for five years and also includes revamping the existing specialized port in Tsemesskaya Bay. Sinyagovskiy is understandably dismayed by the slow progress: “In order for us to be able to receive the military in an appropriate way, the city needs a well-prepared social infrastructure. The city itself will not be able to tackle it without the active assistance of the Russian Defense Ministry.” So far, no additional funding has been allocated to build schools and other social facilities in the localities.

The Russian Navy is learning a lesson that the rest of the armed forces already know: in reality, they are not a priority for Russian defense industries. Moreover, Russia relies on foreign military assistance to dispose of its ailing fleet of nuclear submarines. The UK has signed a contract to fund the scrapping of a Shchuka Project 671RTM multi-role nuclear-powered submarine, currently located at the Nerpa shipyard, situated in Snezhnogorsk outside Murmansk.

Russia will continue to foster its access to international arms markets, boosting the sales of its leading defense companies in the process, and become more able to supply niche technologies at affordable prices, but this should not be seen as a harbinger of a new, long road to recovery for the Russian armed forces. Politically, there is less risk involved in entering the Latin American market that in simply seeking to enhance sales in the Middle East. Putin is therefore endeavoring to avoid upsetting his relations both with the West and negatively affecting Russia’s competitive credentials in exporting its arms. The losers in this scenario, unfortunately, remain the Russian armed forces.

(Interfax, April 28, 29; Itar-Tass, April 27, 28, 29)