Third Quarter Arms Production Undermines the Kremlin’s Narrative

In September, Moscow announced its plans to dramatically increase defense spending by the end of the year, with some estimating a 70-percent increase for that budget (see EDM, October 5). Russia’s national defense budget has reportedly been growing quickly ever since, but this has not correlated with a significant increase in arms production rates. That can be explained by the rampant cost-plus inflation within the Russian military-industrial complex, high inflation in the domestic economy as a whole, and the ongoing devaluation of the ruble. Russia’s national defense budget for all of 2022 was 5.5 trillion rubles; as of October, it already stands at 6.4 trillion rubles for this year (Euromaidan Press, October 23). These figures make it seem as if the budget has being steadily increasing. Devaluation has been so severe that the current budget would have to grow to at least 6.8 trillion rubles ($72.65 billion) by the end of year to be comparable to last year’s budget.

The Russian economy is heavily dependent on imported goods, services, and equipment. Under pressure from Western sanctions, the inability of Russia’s military-industrial complex to source critical parts for weapons manufacturing has contributed to numerous setbacks in Ukraine. Consequently, such volatility makes the Kremlin’s demands for increased production rates in the short term nearly impossible. Russia has been able to increase production rates in the first nine months of 2023, but this increase is far from significant and does not come close to Moscow’s stated goals (see EDM, October 5; Rosstat.gov.ru, October 25).

The manufacturing output index in industries related to arms manufacturing from July to September 2023 compared to the same period for each year over the past five years was the following:

When expressed in percentages or rubles, Russian statistics paint an optimistic picture. When expressed in the physical amount of units produced, the outcomes differ significantly. For example, semiconductors and their parts, along with cellulose, are critical to arms manufacturing. According to the table below, the amount of units produced in Russia for these two categories has not increased since 2018, experiencing a decrease in production for some years.

A similar situation becomes apparent when comparing data on electricity power generation in Russia in billion kilowatt-hours and percentages:

Other than a slight jump in 2021, electricity power generation in Russia has remained relatively stable. The growth that this table does display is related to the whole Russian economy, not just the military-industrial complex. The massive uptick in arms production rates as reported by Moscow would likely lead to greater fluctuations in electricity power generation than this table shows, especially for 2022 and 2023. A more complete assessment of this indicator will be possible by the end of the year.

Another indicator for arms manufacturing is the freight handling rates for Russian rail companies. Railways are primarily used by the Russian military for maintaining logistics and supporting Russian industry, including the delivery and manufacture of weapons and military equipment (Rosstat.gov.ru, accessed October 30, 2023; Company.rzd.ru, accessed October 30, 2023). The “other goods” category in Russian manufacturing includes industrial goods other than raw materials, agricultural products, oil products, fertilizers, wood, and imported goods. No significant increase has been witnessed in this category.

Given this more nuanced perspective, the increase of arms production rates in Russia is much more moderate than Moscow claims. The increases in some sectors are balanced out by stable or even decreasing rates in others. Additionally, an increase in the production of relatively simple arms and systems is more probable than an increase in the production of sophisticated and advanced equipment. For example, Russia’s United Engine Corporation (UEC) is planning to supply more than 3,500 gas turbine engines of all types by 2030, or 500 engines a year. The production plan for 2014–2016, however, was 1,300 engines, or 430–440 engines a year. That means a 16-percent increase in production rates will be required for the coming years. This planned growth is possible based on the Kremlin’s massive investments into the modernization of UEC as well as a focus on producing simpler engines (TASS, December 5, 2014; Uecrus.com, October 12).

Arms manufacturing in Russia is unable to sustain systemic growth in production rates due to personnel shortages and Western sanctions stemming from Moscow’s war against Ukraine. Some sectors are able to increase production rates temporarily, but maintaining these rates over the long term remains a serious problem. The Kremlin’s inability to mobilize the domestic economy in support of the war effort will likely lead to more heavy losses for Russian forces fighting in Ukraine.