The problems facing Russia’s defense industry

A couple of weeks ago, Ilya Kramnik had Viktor Murakhovsky on his show on the radio station Govorit Moskva. Murakhovsky and Kramnik are both relatively well known experts on the Russian military and the discussion turned out to be highly informative. The whole 45 minute conversation is available here in audio form, while a Russian language transcript of the first 10 minutes can be found here.

There’s a lot of interesting material here, mostly on the state of Russian defense industry and specifically on the State Armaments Program. The key point for me comes near the end, though. Murakhovsky spells out the four top priorities of SAP 2020 as follows: 1) Strategic Rocket Forces, 2) Space Forces, 3) Air Defense and 4) Command and Control. Murakhovsky argues that these are derived directly from the military doctrine, which lists NATO and its enlargement as the most significant threat facing Russia. However, since these threats have nothing to do with the actual conflicts that Russia might be engaged in in the coming years, the army is in essence spending money on armaments that it will never use (new missiles, air defense, advanced fighter planes, etc).

The Russian military’s real needs relate to the types of war in which the Russian military HAS fought in the last 20 years — local and regional wars. For this, Russia needs to procure new tanks, armored vehicles, machine guns, better personal armor, modern artillery, PGMs, etc. But the modernization of the ground forces is last on the list of priorities for the SAP. No new tanks are to be procured until 2015 or 2016. Modern ammunition will only be procured starting in 2014. Until then, 1980s era tanks will get by with 1980s era ammunition.  This is not to say that the ground forces are not getting new tanks or other armaments. They are. But what they’re getting is new equipment based on old designs, which are not truly modern weapons by any means.

A second point made by Murakhovsky is that when MOD officials talk about goals for procuring modernized weaponry over the next 10 years, they never define their terms. There’s no denominator for the percentages. In other words, 30% modern weaponry could be achieved just by scrapping a lot of old equipment, without actually producing all that much new equipment. More seriously, there’s no list of what types of armaments are considered modern. Some officials describe systems that are based on 20-50 year old designs (Msta, Akatsiia, Gvozdika) as modern. This inevitably leads to the conclusion that the MOD is implicitly defining modern equipment as any equipment that was procured in last few years, rather than equipment actually based on new designs.

Third, Murakhovsky addresses the likelihood that the SAP will actually be carried out. The problems revolve around simple arithmetic. If the total amount to be spent on rearmament over the next 10 years is about 20 trillion rubles, it is fairly simple to figure out that the MOD should be spending approximately 2 trillion rubles a year. However, the total amount spent in 2011 was 721 billion. In 2012, procurement spending may reach 1.1 trillion. And of this, only 60-65 percent goes to actual procurement of new equipment, while the rest goes to R&D and modernization of existing equipment. These are obviously quite significant sums, but the difference between the plan and actual spending is clear to see. If this persists, then the current SAP is likely to fail in much the same way as the last three SAPs failed.

In addition to the discussion of the armaments program, Kramnik and Murakhovsky also discussed the state of the Russian defense industry. A lot of the discussion focused on the successes and failures of specific companies, but several general points were made as well.

First of all, the companies that are currently in the best shape are those that were able to adjust to the post-Cold War conditions by focusing on exports. They developed modern marketing and information departments, were able to produce new designs, and were able to retain a large part of their workforce. Some examples include Russian Helicopters, Irkut, and Sukhoi, as well as several lesser known companies. On the other hand, even these companies are dependent on sub-contractors for their supply chains, and these subcontractors are often in much worse shape.

Many companies are continuing to lose skilled workers because the civilian sector can pay higher salaries. This is in addition to the disappearance of an entire age cohort (ages 30-50) who didn’t go into the field because of its lack of financing from the late eighties until the mid 2000s.

The modernization of the industry has not really begun, because the three-year federal program dedicated to this task has yet to be adopted. It is difficult to understand how the State Armaments Program can be fulfilled without the modernization of the defense industry. Until this program is adopted, it will be difficult to recruit workers with the necessary qualifications, or to modernize the equipment of many defense sector companies.

One topic that was not addressed was the extent to which the defense industry’s problems are caused by government’s refusal to allow some defense sector companies to fail. The creation of vertical sectoral holding companies has been described by some analysts as an effort to make the better-performing units support other units that are effectively bankrupt. This may be a reasonable solution if the goal is to minimize social disruption to the companies’ remaining employees, but it inevitably drags down the more successful units and makes the production of needed technology more expensive. I would have been curious to hear Murakhovsky’s take on this problem.

Of course, no one can address all the problems that face Russian defense procurement in one 45 minute radio show. The topics that were addressed make clear the depth of the problems facing Russia’s defense industry and reinforce the sense that concrete procurement targets should continue to be taken with a grain of salt.