Russia’s military-industrial complex

Under President Vladimir Putin, Russia has launched a comprehensive programme to restructure its defense industry, which has shrunk dramatically since the Soviet era. This process has achieved some progress, but fundamental structural problems persist that lead Russia to export large quantities of advanced weapons to conflict-prone regions, placing the Kremlin at odds with Europe, the US and other countries.

Over the last six years, the Putin administration has encouraged the nationalisation and consolidation of private-sector defence firms into large, vertically integrated, state-controlled holdings. In November 2000, Putin approved the creation of a single government-supervised arms exporting agency, Rosoboronexport, to end the self-destructive competition that had developed between the country's major weapons-exporting enterprises. Earlier this year, the agency gained the exclusive right to sell Russian weapons to foreign countries.

At present, the government is promoting the creation of a similar institution in the aviation sector.Under Putin, Russian military spending has also rebounded. This year, the Russian government will provide the Ministry of Defence almost 5 trillion rubles ($189 billion) under the 2007-2015 State Armaments Programme. The percentage of the defence budget allocated to military equipment will rise from 44% in 2006 to 50% by 2011.

The primary purpose of this increased spending is to push new weapons systems from the R&D stage to actual procurement for Russia's armed forces. Over the course of 2007-2015, Russia's army and navy will replace almost half (45%) of their military equipment. The Russian government now spends more on new Russian-made conventional weapons than do foreign purchasers.

Yet, persistent inefficiencies in the Russian defence procurement system result in foreign buyers receiving more new systems than the Russian military. As a result, Russia's leading defence firms remain heavily dependent on foreign sales. Although Russia's arms exports have decreased considerably since the Soviet period, its revenue per transaction is now greater because Russian firms have yielded much of the lower-end market to less expensive suppliers like China, India, and other former Soviet bloc allies.

In an effort to both maximise foreign revenue and strengthen Russia's own military potential, former Russian Defence Minister Sergei Ivanov stressed the need for "the national defence industry to find a balance between a commitment to arm the Russian military and an opportunity to export arms to countries not subject to UN sanctions."

These transactions, however, have complicated Moscow's relations with foreign governments, particularly the US. American officials complain that Russia's self-imposed restrictions on arms...

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