Procurement: Arms For The Cheap And Clueless


January 28, 2013: Russian arms exports for 2012 were a record $15.2 billion. This is a major increase over 2010 (a then record $10 billion). That was an 18 percent jump from 2009 sales of $8.5 billion. That was less than two percent more than 2008's $8.35 billion. It was feared that the 2010 sales might be as high as it would get for a while. This was because the subsequent political upheavals in the Arab world might 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. Russia did lose some orders and there might be other cancellations (especially from Syria). But India remained the largest buyer of Russian arms, despite complaints of poor quality and bribes.

Increasing these sales is very important for the Russian government. The defense industry employs over 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 (and their generally larger per-capita economies).

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 $80 billion now. Oil rich countries, particularly those in the Persian Gulf, are 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 a 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.

Three years ago Israel became one of the top four arms exporters on the planet, shipping $7.2 billion worth of military equipment. The year before Israel had exported $6.9 billion. The U.S. is the largest exporter, followed by Russia and Germany. Israel is now number four.

Half the weapons exported worldwide last year came from the United States (mostly) and Russia. European nations have long occupied the next three slots (Germany, France, and Britain). But lately German and Israeli exports have been growing. The other big exporters are Spain, China, Netherlands, and Italy. These top ten exporters accounted for over 90 percent of the exports. The major importers are Middle Eastern Arab nations, India, South Korea, China, and (until recently) Greece.

Israel and Germany have been gaining more sales because of reliability and quality. Israel has a major advantage in that many of its weapons and military equipment have proved their worth in combat.




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