March 10, 2011: Russian arms exports for 2010 reached a record $10 billion. That's an 18 percent jump from 2009 sales of $8.5 billion. That was less than two percent more than 2008's $8.35 billion. But the 2010 sales  may be as high as it gets for a while. This is because the current political upheavals in the Arab world may lead to large cancellations of orders, in part because of Russian willingness to use bribes to obtain sales, and past help in security matters to keep the ousted dictators in power. 

This situation is not good. Increasing these sales is very important for the government. The defense industry employs nearly three million people and accounts for about 20 percent of industrial jobs in Russia. At the end of the Cold War in 1991, defense work was more than three times as large as it is now. It was the enormous size of the defense industry that played a major role in bankrupting the Soviet Union. The Russians were never quite sure (cost accounting not being a communist favorite) what proportion of their GDP was devoted to military spending, but it is estimated that it was over 20 percent. That was more than four times the figure for Western nations.

Russian defense firms quickly realized, in the 1990s, that export sales were all that could save them. It worked. By 2007, Russia was exporting $8 billion worth of weapons a year. Two years before that there were hopes that sales might reach $10 billion for 2008. Russian arms exports had been growing rapidly for a while. In 2005 Russian arms exporters had already booked orders for six billion dollars worth of sales per year through 2008. In 2004, Russian arms sales were $5.6 billion, and that went to $6 billion in 2005 and $7 billion in 2006. Russian arms sales were only $4.3 billion in 2003, and ballooned as the economies of their two biggest customers (India and China) grew larger. That, and the escalating price of oil (driven largely by increased demand from China and India), has sent international arms sales from $29 billion in 2003, to over $60 billion now. Oil rich countries, particularly those in the Persian Gulf, as eager to buy more weapons, with which to defend their assets.

Then problems developed, even before the current Arab situation. There were problems with the two largest customers; China and India.  Over the last decade, about a third of Russian arms exports went to China. But that is now way down, as Russian manufacturers feud with the Chinese over stolen technology. The Chinese have been quite brazen of late, as they copy Russian military equipment, and then produce their own versions without paying for the technology. Worse, the Chinese are now offering to export these copies. The Russians are trying to work out licensing deals with the Chinese, with limited success. The Chinese say their generals are angry over how Russia sells technology to potential Chinese enemies, like India. The Russians don't understand that, as they have been selling weapons to India for decades. Russia fears that the Chinese have just decided that they don't need to buy Russian technology, or equipment, any more, and can just steal what they need.

India is also unhappy with Russian sloppiness in handling large projects, like refurbishing an decommissioned Cold War era carrier. This project has been a financial disaster for India. Worse yet, India is buying more Western (Israeli, European and American) weapons, and notes the differences in performance and service. The Arabs were always more understanding, at least more so than China and India. But if Russia cannot change a lot of old habits real quick, their flourishing arms export business is going to slide back into the cellar.