SlideShare a Scribd company logo
1 of 40
Download to read offline
Conference on:
       Russian Decision Making and
     Implications for Defense Spending
                      Lunch Session:
             Defense Budget and Procurement


March 2, 2011
by Reed Livergood
Outline
I. Economy

II. Budget

III. Procurement & SAP

IV. Exports
I. Economy
Russia:                              • Rising:
• Middle income country                    •   GDP
                                           •   GDP per capita
   – Biggest country outside WTO
                                           •   Life expectancy
• G8 Member                                •   Education rates
• #1 in:
       • oil production              • Hit hard by the financial
       • natural gas                   crisis (2008-2009)
         (production and reserves)
                                        – Stabilization Fund
• #2 in:                                  drained
       • Arms exports                      • Reserve Fund
       • Coal reserves                     • National Welfare Fund
I. Economy
   in billions                                                                           OECD GDP                                                            Canada
   $16,000
                                                                                                                                                             Finland

   $14,000                                                                                                                                                   France

                                                                                                                                                             Germany
   $12,000
                                                                                                                                                             Italy
   $10,000
                                                                                                                                                             Netherlands

    $8,000                                                                                                                                                   Norway

                                                                                                                                                             Poland
    $6,000

                                                                                                                                                             Spain
    $4,000
                                                                                                                                                             Sweden

    $2,000                                                                                                                                                   United Kingdom

        $0
                                                                                                                                                             United States
                 1970



                               1974



                                             1978




                                                                  1984



                                                                                1988



                                                                                              1992




                                                                                                                   1998



                                                                                                                                 2002



                                                                                                                                               2006
                        1972



                                      1976



                                                    1980

                                                           1982



                                                                         1986



                                                                                       1990



                                                                                                     1994

                                                                                                            1996



                                                                                                                          2000



                                                                                                                                        2004



                                                                                                                                                      2008
                                                                                                                                                             Russian Federation



Source: OECD Factbook 2010
I. Economy
    in US billions                           Russian GDP, constant prices (2009)
    1,800
                                                                                                                                 1,669

    1,600


    1,400                                                                                                                1,349
                                                                                                                                         1,232
    1,200
                                                                                                                 1,055
    1,000
                                                                                                          843
      800
                                                                                                   677

      600                                 528      535                                      507
                                   433                                               417
                            393                                               377
      400                                                355           327
                     266                                        253
      200      127


         0
              1992   1993   1994   1995   1996    1997   1998   1999   2000   2001   2002   2003   2004   2005   2006    2007    2008    2009

                                                 Gross domestic product, constant prices (2009)


Source: IMF World Economic Outlook 2010
I. Economy
    in US billions                                                 GDP per capita (PPP)
   $16,000                                                                                                                                           Brazil

                                                                                                                                                     Chile
   $14,000
                                                                                                                                                     China

   $12,000                                                                                                                                           India

                                                                                                                                                     Kazakhstan
   $10,000
                                                                                                                                                     Korea

    $8,000
                                                                                                                                                     Poland


    $6,000                                                                                                                                           Russia

                                                                                                                                                     Ukraine
    $4,000
                                                                                                                                                     United
                                                                                                                                                     Kingdom
    $2,000                                                                                                                                           United States

                                                                                                                                                     Venezuela
         $0
                                            1995

                                                   1996

                                                          1997

                                                                 1998




                                                                                                           2004

                                                                                                                  2005

                                                                                                                         2006

                                                                                                                                2007
                1991

                       1992

                              1993

                                     1994




                                                                        1999

                                                                               2000

                                                                                      2001

                                                                                             2002

                                                                                                    2003




                                                                                                                                       2008

                                                                                                                                              2009
Source: IMF World Economic Outlook 2010
I. Economy
in USD Billions                              Russian Trade in goods                                     in USD Billions
800


700
                                                                                                                  800


                                                                                                                  700
                                                                                                                          Goods
600                                                                                                               600
                                                                                                                          •   Petroleum-based products
500                                                                                                               500


400                                                                                                               400
                                                                                                                          •   Natural gas
300                                                                                                               300     •   Wood-based products
200
                                                                143
                                                                             163          153
                                                                                                      201         200
                                                                                                                          •   Metals
100                                                106                                                            100

                                                                                                                          •
                                     76
   0
             58         61
                                                                                                                  0
                                                                                                                              Chemicals
            2001        2002        2003          2004          2005         2006         2007        2008

                                                                                                                          •   Medical equipment
         Imports of goods       Exports of goods           Goods trade balance: exports minus imports of goods
                                                                                                                          •   Agricultural products
in USD Billions                             Russian Trade in services

                                                                                                                          Services
                                                                                                        in USD Billions
140                                                                                                               0


120
                                                                                                                  -5


100
             -9.1
                        -9.9                                                                                      -10
                                                                                                                          •   Financial
                                    -10.9
  80                                              -12.7
                                                                -13.8        -13.6
                                                                                                                  -15
                                                                                                                          •   Technology-based
  60

                                                                                         -19.6                    -20
                                                                                                                          •   Information Technology-based
                                                                                                                          •
  40


                                                                                                      -25.1       -25
                                                                                                                              Academic: mathematics, physics, engineering
  20


   0                                                                                                              -30
                                                                                                                          •   Communication
                                                                                                                          •
            2001        2002        2003          2004          2005         2006         2007        2008
                                                                                                                              Business
       Imports of services     Exports of services        Service trade balance: exports minus imports of services




 Source: OECD Factbook 2010
I. Economy
   in USD Millions              Russian Flows of Foreign Direct Investment
    140,000


    120,000


    100,000


     80,000


     60,000


     40,000


     20,000


          -
              2001       2002           2003          2004       2005          2006          2007    2008

                     Inflows of foreign direct investment    Outflows of foreign direct investment



Source: OECD Factbook 2010
I. Economy
                                       %                                    Russian Inflation Rates

• 9.6% inflation rate (1-2011)
                                       25.0

                                              21.5

                                                    21.3
                                       20.0                                                                                      20.9


    – Double from summer of 2010                           15.8
                                                                                                                                 14.1
                                       15.0                          13.7                       13.7

    – Biggest problem ahead of                             12.3
                                                                                    10.9
                                                                                                               9.7
                                                                                                                          9.0
                                       10.0                          11.2                              12.7
      alcoholism (BRIC survey)                                                      10.4
                                                                                                               9.6
                                                                                                                          9.0



    – Food inflation problematic
                                        5.0




    – Forecasts of 5.5% through 2015    0.0
                                              2001         2002      2003           2004        2005           2006       2007   2008

                                                                  Inflation rate: all items      Inflation rate: food

• 2.7% growth rate                     %                    Russian Real GDP growth compared to inflation

• R28.89 : $1 USD
                                       30.0
                                              21.5

                                       25.0




• Interest rates increase after
                                                           15.8      13.7
                                                                                                                                 14.1
                                       20.0                                                     12.7
                                                                                    10.9
                                                                                                               9.7        9.0




  record low                           15.0



                                       10.0                                                                               8.1

    – 7.75% to 8%
                                                                      7.3           7.2                        7.7
                                                                                                 6.4
                                              5.1                                                                                5.6
                                                           4.7
                                        5.0



                                        0.0
                                              2001         2002      2003           2004        2005           2006       2007   2008

                                                                  Real GDP growth (%)         Inflation rate: all items



                                           Source: OECD Factbook 2010
I. Economy
                                                                                                                                                                                                                                       Canada
   in thousands
                                                                                                                OECD Population
    350,000                                                                                                                                                                                                                            Finland

                                                                                                                                                                                                                                       France
    300,000
                                                                                                                                                                                                                                       Germany

    250,000                                                                                                                                                                                                                            Italy

                                                                                                                                                                                                                                       Netherlands
    200,000
                                                                                                                                                                                                                                       Norway

    150,000                                                                                                                                                                                                                            Poland

                                                                                                                                                                                                                                       Spain
    100,000

                                                                                                                                                                                                                                       Sweden
     50,000
                                                                                                                                                                                                                                       United Kingdom

          0
                                                                                                                                                                                                                                       United States
                     1952


                                   1956
                                          1958


                                                        1962



                                                                             1968



                                                                                                  1974


                                                                                                                1978
                                                                                                                       1980


                                                                                                                                     1984



                                                                                                                                                          1990



                                                                                                                                                                               1996


                                                                                                                                                                                             2000
                                                                                                                                                                                                    2002


                                                                                                                                                                                                                  2006
              1950


                            1954



                                                 1960


                                                               1964
                                                                      1966


                                                                                    1970
                                                                                           1972


                                                                                                         1976



                                                                                                                              1982


                                                                                                                                            1986
                                                                                                                                                   1988


                                                                                                                                                                 1992
                                                                                                                                                                        1994


                                                                                                                                                                                      1998



                                                                                                                                                                                                           2004


                                                                                                                                                                                                                         2008
                                                                                                                                                                                                                                2010
                                                                                                                                                                                                                                       Russian Federation


Source: OECD Factbook 2010
II. Budget




Source: Google stock images
II. Budget
                                 • Executive Branch
                                    – 8 Ministries
                                       • Ministry of Defense
                                       • Ministry of Finance
• Formulation                          • Ministry of Economic
                                         Development and Trade
• Negotiation
                                 • Legislative Branch
• Implementation
                                    – Upper House
                                       • Federation Council
  – 5th biggest military
                                    – Lower House
    budget worldwide
                                       • Duma
     • USA, China, United
       Kingdom, France, Russia
II. Budget
• Basis:
   – Oil price
       • $75/bbl (2011), $78/bbl
         (2012), $79 (2013)
   – Oil and gas income (% of GDP)
       • 8.1% (2011), 7.9% (2012),
         9.3% (2013)                                                                                                                             Oil Future Contract (Dollars per Barrel)
                                       $160


   – Inflation (%)                     $140


                                       $120

       • 6.5% (2011), 6.0% (2012),     $100



         5.5% (2013)                   $80


                                       $60


                                       $40




   – Defense burden
                                       $20


                                        $0
                                                                    Oct-1984




                                                                                                                Oct-1987




                                                                                                                                                            Oct-1990




                                                                                                                                                                                                        Oct-1993




                                                                                                                                                                                                                                                    Oct-1996




                                                                                                                                                                                                                                                                                                Oct-1999




                                                                                                                                                                                                                                                                                                                                            Oct-2002




                                                                                                                                                                                                                                                                                                                                                                                        Oct-2005




                                                                                                                                                                                                                                                                                                                                                                                                                                    Oct-2008
                                              Apr-1983




                                                                                          Apr-1986




                                                                                                                                      Apr-1989




                                                                                                                                                                                  Apr-1992




                                                                                                                                                                                                                              Apr-1995




                                                                                                                                                                                                                                                                          Apr-1998




                                                                                                                                                                                                                                                                                                                      Apr-2001




                                                                                                                                                                                                                                                                                                                                                                  Apr-2004




                                                                                                                                                                                                                                                                                                                                                                                                              Apr-2007




                                                                                                                                                                                                                                                                                                                                                                                                                                                          Apr-2010
                                                         Jan-1984




                                                                                                     Jan-1987




                                                                                                                                                 Jan-1990




                                                                                                                                                                                             Jan-1993




                                                                                                                                                                                                                                         Jan-1996




                                                                                                                                                                                                                                                                                     Jan-1999




                                                                                                                                                                                                                                                                                                                                 Jan-2002




                                                                                                                                                                                                                                                                                                                                                                             Jan-2005




                                                                                                                                                                                                                                                                                                                                                                                                                         Jan-2008




                                                                                                                                                                                                                                                                                                                                                                                                                                                                     Jan-2011
                                                                               Jul-1985




                                                                                                                           Jul-1988




                                                                                                                                                                       Jul-1991




                                                                                                                                                                                                                   Jul-1994




                                                                                                                                                                                                                                                               Jul-1997




                                                                                                                                                                                                                                                                                                           Jul-2000




                                                                                                                                                                                                                                                                                                                                                       Jul-2003




                                                                                                                                                                                                                                                                                                                                                                                                   Jul-2006




                                                                                                                                                                                                                                                                                                                                                                                                                                               Jul-2009
       • 2.84% (2010), 3.01% (2011),                                                                                                                                                                                                      Oil Price

         2.97% (2012), 3.39% (2013)
Key Players
•   President = Dmitry Medvedev                             •   Defense Secretary = Anatoly Serdyukov
•   Prime Minister = Vladimir Putin                         •   1st Deputy Defense Minister (Acquisitions) = Vladimir
•   Deputy Prime Minister = Sergei Ivanov                       Popovkin
•   Deputy Prime Minister & Minister of Finance = Aleksey   •   Acting Chief of Armaments (MOD) = Oleg Frolov
    Kudrin                                                  •   Deputy Defense Minister (Financial-Economic Work) =
•   Deputy Prime Minister & Chairman of Rosneft = Igor          Lyubov Kudelina
    Sechin                                                  •   Chief of General Staff = Nikolai Makarov
•   Deputy Finance Minister = Anton Siluanov                •   Ministry of Defense's Chief Social Guarantees
•   Ministry of Industry & Trade = Viktor Khristenko            Department = Anna Kondratyeva
•   Ministry of Economic Development = Elvira Nabiullina    •   Defense Ministry Public Council Representative = Igor
•   Minister of Interior = Rashid Nurgaliyev                    Korotchenko
•   Federation Council Chairman = Sergei Mironov            •   Defense Ministry Public Council Representative =
                                                                Ruslan Pukhov
•   Fed. Council Defense and Security Committee
    Chairman = Victor Ozerov                                •   FSMTC General Manager = Alexander Kopetsky
•   Duma Chairman = Boris Gryzlov                           •   Federal Service for Defense Contracts
                                                                (Rosoboronzakaz) = Alexander Sukhorukov
•   Duma Defense and Security Committee Chairman =
    Victor Zavarzin                                         •   Federal Service Military-Technical Cooperation
                                                                Director = Mikhail Arkadievich
•   Duma Budget Committee Deputy Chairman = Mikhail
    Babich                                                  •   Deputy Director = Konstantin Biryulin
•   Auditor of Audit Chamber Nicolai Tabachkov              •   Director General of Rosoboronexport = Anatoly Isaykin
II. Budget
Defense and Security Draft
Jane’s & RIA Novosti:
• Income: R8844 tn ($290 bn )
     – 17.6 (% of GDP)
• Expenditures: R10,658 tn ($329 bn)
     – 21.2 (% of GDP)
• Deficit = -3.6% (of GDP)
     – R -1814 bn

•   Military: $60 bn
     – 13.8% of GDP




                                       Source: Military Balance 2010 (IISS)
II. Budget
Siluanov: (6-3-2010)             Medvedev: (11-25-2010)
• Military:                      • Military:
    – 2.6% (2010) of GDP             – R574 bn (2011), R726
    – Plan was 2.9% (2011),            bn (2012), R1160 bn
      3.0% (2012), 3.2% (2013)         (2013)
• Has overseen four-fold             – % of GDP: 2.8% (2011)
  increase of military
                                 Kudrin: (11-30-2010)
                                 • Medvedev’s intention to
                                   secure R20 tn was a “new
                                   task”
II. Budget
• State Armaments                        • Goal: modernizing and
  Program (SAP)                            renovation
  – R20,700 tn                               –   30% (by 2015), 70-80% (by 2020)
      • R19,040 tn for MOD                   –   R100 bn increase in procurement
      • R2.5 – R3.0 tn for other law         –   6.5% raise in personnel pay
         enforcement agencies                –   R&D spending will drop
  – 1st time in last ten years defense              • From 22% (2010) to 16% (2013)
    burden is greater than 3%
  – 70% to be spent by 2015
  – R700 bn allocated for after 2015




                                         Source: Centre for Analysis of Strategies and Technologies
II. Budget
                                                     Russian Military Expenditures ($US bn)
           15.8                                         and Defense Burden (% of GDP)
    $700                                                                                                                                                                         16
                   14.2
                                                                                                                                                                                 14
    $600
                           12.3
                                                                                                                                                                                 12
    $500

                                                                                                                                                                                 10
    $400
           339
                   314                                                                                                                                                           8

    $300                   266                            5.9
                                           5.5     5.3                                                                                                                           6
                                                                 4.4           4.5                                4.4    4.3
    $200                                                                4.1                                4.1
                                                                                                    3.7                         3.8    3.7    3.6
                                                                                      3.3    3.4                                                     3.5    3.5                  4


    $100                                    66     58     57                                                                                         53     58     61     53     2
                                                                                                                  37     39     41     44     48
                                                                 34     30     33            22     30     33
                                                                                      21
     $0                                                                                                                                                                          0
                                                          1994

                                                                 1995

                                                                        1996

                                                                               1997

                                                                                      1998




                                                                                                                                              2006

                                                                                                                                                     2007

                                                                                                                                                            2008

                                                                                                                                                                   2009

                                                                                                                                                                          2010
            1988

                    1989

                            1990

                                   1991

                                            1992

                                                   1993




                                                                                             1999

                                                                                                    2000

                                                                                                           2001

                                                                                                                  2002

                                                                                                                         2003

                                                                                                                                2004

                                                                                                                                       2005
                                          Russian Military Expenditures $US bn (constant 2008)                                              % of GDP


Source: SIPRI Military Expenditure Database 2010
II. Budget
                              Russian Defense Burden (% of GDP) SIPRI, Rosefielde, IISS
     18

          15.8
     16
                  14.2
     14
                          12.3
     12


     10


     8
                                                         5.9
                                          5.5     5.3
     6
                                                                4.4           4.5                                4.4    4.3
                                                                       4.1                                4.1                  3.8
                                                                                            3.4    3.7                                3.7    3.6    3.5    3.5
     4                                                                               3.3
                                          4.7     4.4    4.4    4.6

     2                                                                 3.0    3.1                         2.9
                                                                                            2.6    2.6           2.4    2.5    2.5    2.5    2.5    2.5    2.4
                                                                                     2.1                  2.5
                                                                                            2.3    2.0
     0
                           1990




                                           1992




                                                         1994




                                                                       1996




                                                                                            1999




                                                                                                          2001




                                                                                                                        2003




                                                                                                                                             2006




                                                                                                                                                           2008
           1988

                   1989




                                  1991




                                                  1993




                                                                1995




                                                                              1997

                                                                                     1998




                                                                                                   2000




                                                                                                                 2002




                                                                                                                               2004

                                                                                                                                      2005




                                                                                                                                                    2007
                                         % of GDP (SIPRI)                % of GDP (Rosefielde)                   % of GDP (IISS)


Sources: SIPRI, Russia in the 21st Century (Rosefields), Military Balance 2010 (IISS)
II. Budget
    in Billions        Military Expenditure: Russia to Europe comparison (constant 2008)
    $800                                                                                                                                                                                    80%
           744
                     716
    $700                                                                                                                                                                                    70%
                             644

    $600                                                                                                                                                                                    60%


    $500    46%                                                                                                                                                                             50%
                     44%
                             41%            427                                                                                                                                     424
                                                    404                                                                                                             403     413
                                                            397                                                                     385     387     389     397
    $400                                                                                                            368     381                                                             40%
                                                                    361     359     362             356     367
              339                                                                           350
                       314
    $300                       266                                                                                                                                                          30%


    $200                                    15% 14% 14%                                                                                                                                     20%
                                                                                                                                                        14%
                                                                                                                                                13% 14%
                                                                                                                                        11% 12%
                                                                     9%      8%      9%                              9%     10% 10% 10%
                                                                                                             8%
    $100                                      66                                             6%      6%                                                                               61    10%
                                                      58      57                                                                                              48      53      58
                                                                      34              33                              33      37      39      41      44
                                                                              30              21      22      30

      $0                                                                                                                                                                                    0%
              1988




                              1990




                                                     1993




                                                                     1995




                                                                                     1997




                                                                                                     1999




                                                                                                                             2002




                                                                                                                                             2004




                                                                                                                                                             2006




                                                                                                                                                                             2008
                      1989




                                     1991

                                             1992




                                                             1994




                                                                             1996




                                                                                             1998




                                                                                                             2000

                                                                                                                     2001




                                                                                                                                     2003




                                                                                                                                                     2005




                                                                                                                                                                     2007




                                                                                                                                                                                     2009
                                                            Europe                   Russia                 Russia as % of Eur Spending



Source: SIPRI Military Expenditure Database 2010
II. Budget
                              • Kudrin & Serdyukov
                                – 1.5% of GDP spent on army
                                  modernization, military pay, &
                                  other
                                – Called for fair and honest
                                  elections to grant authorities
• Federal Service Military-       mandate for executing difficult
  Technical Cooperation           economic reforms
                                – Remains loyal to Putin
  (FSMTC)
                                – Supported idea to purchase ships
                                  (Mistrals) vs. producing
• Military-Industrial             domestically
  Commission (MIC)              – Has overseen four-fold increase
                                  of military industrial complex
     (Rosoboronzakaz)
III. Procurement & SAP




Source: Centre for Analysis of Strategies and Technologies
III. Procurement & SAP
• Navy: (100+ vessels)               – Mistral assault ships
   – 20 submarines                      • (2 + 2)
      • 8 Borei-class ballistic      – New Carrier
        missile submarines              • Design (2011), start
      • Yasen-class nuclear attack        (2015), completed (2020)
        submarines                   – Auxiliary ships
      • 3 Kilo-class submarines
                                     – Service craft
   – 35 corvettes
   – 15 frigates                        • Kashin-, Sovremennyi-
      • 3 Talwar-class                    class destroyers likely to
                                          be retired soon
   – Kirov- and Slava-class
                                        • Udaloy will become
     cruisers                             backbone
III. Procurement & SAP
• Air Force
   – 1994-2003 = 0 planes              •   Su-30s
   – 2004-2009 = 3 planes              •   Su-35s
                                       •   Upgrade MiG-29 to MiG-29SMT
  Investigation into 2 crashes (‘08)   •   T-50 PAK-FA to be future
   – 200+ aircraft had fin corrosion       – Ordered (2015), tested (2015)
                                       • Helicopters
                                           – 500 Mi-24 Hind gunships
   Under SAP 2011-2020                     – Mi-8/Mi-17 transport
   – 600+ planes                       • Transport aircraft
   – 1,000+ helicopters                    –   Il-112
                                           –   An-70
                                           –   Il-476
                                           –   An-124
III. Procurement & SAP
• Nuclear Forces:                • Other Armaments
   – Procurement, upgrading,       – Small batches of drones
     maintenance in combat            • UAVs
     readiness will increase       – Sniper rifles
     by 50%                        – Felin (French) infantry
   – 10 batteries of S-500           combat suits
     anti-missile and anti-        – T-90s
     aircraft defense missiles
                                   – AN-94s
   – 56 batteries of S-400
     defense missiles
III. Procurement & SAP
                                     Active Troops (2009)


                       250,000
                                                                         360,000
                        24%
                                                                          35%
        80,000
         8%
                                                                             35,000
                 160,000                              142,000                 3%
                  16%                                  14%




                    Army                                    Airborne
                    Navy                                    Air
                    Strategic Deterrent Forces              Command and Support


Source: Military Balance 2010
III. Procurement & SAP
Production in defense
   – 45% of defense output volume is                  – UAC deal (Jan 2011) with
     dual-use                                           MAG Industrial
       • Oil, gas, transport, energy, household
         appliances, electrical engineering sectors     Automation Systems
   – 70% of scientific output is                         • MAG VIPER Fiber Placement
                                                           System and 2 HyperMachTM
     defense                                               Vertical profilers to support
   – Output up 13% while total went                        aircraft manufacturing
     down (PM Putin 4-21-2010)
   – Production declined 46% (1991-
     2001)
   – Russian government wants to
     supply 5% of the world’s aircraft
     by 2015, 10% by 2025
III. Procurement & SAP




Source: Russian Defense-Industrial Base, CSIS
III. Procurement & SAP
Partnerships                           • Italy: Iveco joint
• Bridge short- and                      enterprise
  medium-term gaps                        – Lynx light multi-purpose
                                            armored vehicles (LMVs)
• Not cost free
                                            (about 1,000)
• France: (STX & DNCS)                       • BTR-80
  – Mistral amphibious assault               • Tiger
    ships
     • 1st two to be built in France
         – 20%, 40% Russian-built
         – $1.9 bn est.
     • 2nd two to be built in Russia
         – 80%, 80% Russian-built
III. Procurement & SAP
Investment                             • 1/3rd of defense enterprises
• Regulatory changes coming to           are bankrupt, 1/3rd are
  improve climate, abolish               unstable
  limitations, revise legal            • 80% of production plants
  investment framework                   are obsolete
   – One of Putin’s last acts as       • Investment is 10-20% it is in
      president was to sign the 50%      developed countries
      acquisition law on strategic
      ventures                         • Defense is “locomotive” of
• $50 bn worth of bonds to be sold       entire economy
• $10 bn worth of state assets to be   • M&As are creating
  sold until at least 2014               “industrial kolkhozy”
III. Procurement & SAP
Research & Development                  Corruption
• Share of worldwide Russian              – 9,000+ corruption-related law
  research-related products has             violations
  dropped from 6% (1990), to 1%               • More than R870m in damage
  (2000), to 0.2% (2008)                      • 950 officials involved
• Japan spends 4x, Germany 3x,                    – Almost 10:1 ratio
  Czech Republic 2x more than             – Fraud increased by 50%
  Russia on scientific R&D                – Most crimes committed by
• Russia faced “stooping to the             officials who have regulatory
  level of iron supplier”                   powers
    – ROE Director Isaykin                – Mostly found in areas where
• Russian “Silicon Valley” (Skolkovo)       “hard cash” and material
• Russian “DARPA”                           resources are being
    – Technological independence            distributed
IV. Exports
• Worldwide leader in           SIPRI Top 100 Arms-
  exports (#2)                    producing companies
   – USA, Russia, Germany,        (2009)
     France, UK                   – 9 were Russian
• Total sales (2009) were            • Almaz-Antei (23)
  $8.5 bn (FSMTC) with a             • United Aircraft Corp. (29)
                                           – Sukhoi
  50% growth (2001-6)
                                           – Irkut Corp
• Have played important                    – MiG
  role domestically                  •   TRV Corp (67
                                     •   Vertolety Rossii (73)
   – Arrears, inflation
                                     •   Uralvagonzavod (76)
• “Lifeline” for industry            •   UEC (90)
IV. Exports




Source: Centre for Analysis of Strategies
and Technologies
IV. Exports
• Exports                                   • 4 others who can
    – Rosoboroneksport (ROE)                  export:
       • Rosoboronprom (ROP)                  –   RSK-MiG
• ROE created (2000) and given                –   Kolomna Design Bureau
  exclusive right to sell exports
  (March 2007)                                –   NPO-Machine-Building
    – Sales (2009): $7.4 bn (10% increase     –   Tula Instrument Design
      from 2008)
    – Portfolio: $34 bn ($15 bn from 2009
                                                  (KBP)
      due to Saudi Arabia, Libya,
      Venezuela)
    – Works with 700+ enterprises and
      provides R3-4 bn/yr loan guarantees
    – Reports to MIC
• ROP created (2005) to officially
  sign contracts
IV. Exports
  (2009)                         • M&As Goals
• S-300 SAM Systems (China)        – eliminate problems with
• 43 Su-30 fighters (Algeria,        skilled personnel
  India, Malaysia)                   shortages
• Missile weapons for fighters     – technology losses
  (UAC)                            – obsolete production
• 120 helicopters                    lines
• About 100 T-90 tanks (India)     – low labor productivity
                                   – product quality
                                   – duplicative development
                                   – excess capacity issues
IV. Exports
• China                        • India
  – PLA Commander in Chief        – Uses about 70% Russian-
    (Gen Xu Qiliang) saw “at        made equipment
    least five more years of         •   T-55s
    strong co-operation”             •   T-72s
  – Su-27s (J-11)                    •   T-90s
     • J-11B                         •   Submarines
                                     •   MiGs
  – Su-33s (J15)
                                     •   Sukhoi fighters
IV. Exports
• Algeria                           • Libya
   – 2006 deal ($4.7 bn)               – 2010 deal ($1.8 bn)
      • 40 MiGs                           • Small arms (AKs)
            – 34 MiG-29s returned         • Light weapons
      •   20 Su fighters                  • Complex weapons
      •   16 Yak trainers
                                    • Venezuela
      •   8 S-300s
      •   40 T-90s                     – 2010 deal ($5 bn)
                                          • 92 T-92 tanks
   – 2010 deal (about $1 bn)
                                          • S-300
      • 16 Su-30s
                                    • Syria
                                       – Forgiven 75% of debt
                                         with purchases
Conclusion
• Key Questions still remain for Russia:
  – How will insufficient allocation distribution be
    addressed and who will assert this effort?
  – What role does inflation play in setting budget
    allocations?
  – Will civilian control ever come to pass?
  – What are the measureable steps to create a
    Russian version of “Silicon Valley” or “DARPA”?
  – How will the SAP 2011-2020 adapt to the
    changing nature of military threats?
Conclusion
• Glasnost (transparency) is needed – again
• The nature of the military budget system assists in
  uncontrolled growth and should have civilian
  formulation and execution powers
• The nature of oligopoly and secret cost information
  hurt production and allocation efficiencies
• High Inflation, rampant waste, corruption, and
  bureaucratic interference have all affected the front-
  line soldier in detrimental ways
Russian defense budget & procurement

More Related Content

Similar to Russian defense budget & procurement

Иностранные инвестиции в нефтегазовых проектах НК "КазМунайГаз"
Иностранные инвестиции в нефтегазовых проектах НК "КазМунайГаз"Иностранные инвестиции в нефтегазовых проектах НК "КазМунайГаз"
Иностранные инвестиции в нефтегазовых проектах НК "КазМунайГаз"АО "Самрук-Казына"
 
Occupancy Cost Index 2012 AOS Studley
Occupancy Cost Index 2012 AOS StudleyOccupancy Cost Index 2012 AOS Studley
Occupancy Cost Index 2012 AOS StudleyJUAN MOSQUERA
 
AOS Studley - Occupier Cost Index - 2012
AOS Studley - Occupier Cost Index - 2012AOS Studley - Occupier Cost Index - 2012
AOS Studley - Occupier Cost Index - 2012Eusebi Carles Pastor
 
Europe’s competitiveness presentation for garagerasmus
Europe’s competitiveness presentation for garagerasmusEurope’s competitiveness presentation for garagerasmus
Europe’s competitiveness presentation for garagerasmusgaragErasmus Foundation
 
Housing Market Outlook and Affordable Housing in the Twin Cities Metro
Housing Market Outlook and Affordable Housing in the Twin Cities MetroHousing Market Outlook and Affordable Housing in the Twin Cities Metro
Housing Market Outlook and Affordable Housing in the Twin Cities Metrosotatodd
 

Similar to Russian defense budget & procurement (6)

Иностранные инвестиции в нефтегазовых проектах НК "КазМунайГаз"
Иностранные инвестиции в нефтегазовых проектах НК "КазМунайГаз"Иностранные инвестиции в нефтегазовых проектах НК "КазМунайГаз"
Иностранные инвестиции в нефтегазовых проектах НК "КазМунайГаз"
 
Local Foods Strengthen Your Local Economy
Local Foods Strengthen Your Local EconomyLocal Foods Strengthen Your Local Economy
Local Foods Strengthen Your Local Economy
 
Occupancy Cost Index 2012 AOS Studley
Occupancy Cost Index 2012 AOS StudleyOccupancy Cost Index 2012 AOS Studley
Occupancy Cost Index 2012 AOS Studley
 
AOS Studley - Occupier Cost Index - 2012
AOS Studley - Occupier Cost Index - 2012AOS Studley - Occupier Cost Index - 2012
AOS Studley - Occupier Cost Index - 2012
 
Europe’s competitiveness presentation for garagerasmus
Europe’s competitiveness presentation for garagerasmusEurope’s competitiveness presentation for garagerasmus
Europe’s competitiveness presentation for garagerasmus
 
Housing Market Outlook and Affordable Housing in the Twin Cities Metro
Housing Market Outlook and Affordable Housing in the Twin Cities MetroHousing Market Outlook and Affordable Housing in the Twin Cities Metro
Housing Market Outlook and Affordable Housing in the Twin Cities Metro
 

Recently uploaded

One India vs United India by Dream Tamilnadu
One India vs United India by Dream TamilnaduOne India vs United India by Dream Tamilnadu
One India vs United India by Dream TamilnaduDreamTamilnadu
 
Light Rail in Canberra: Too much, too little, too late: Is the price worth th...
Light Rail in Canberra: Too much, too little, too late: Is the price worth th...Light Rail in Canberra: Too much, too little, too late: Is the price worth th...
Light Rail in Canberra: Too much, too little, too late: Is the price worth th...University of Canberra
 
Por estos dos motivos, defensa de JOH solicita repetir juicio
Por estos dos motivos, defensa de JOH solicita repetir juicioPor estos dos motivos, defensa de JOH solicita repetir juicio
Por estos dos motivos, defensa de JOH solicita repetir juicioAlexisTorres963861
 
Anantkumar Hegde
Anantkumar Hegde  Anantkumar Hegde
Anantkumar Hegde NewsFeed1
 
19032024_First India Newspaper Jaipur.pdf
19032024_First India Newspaper Jaipur.pdf19032024_First India Newspaper Jaipur.pdf
19032024_First India Newspaper Jaipur.pdfFIRST INDIA
 
Green Aesthetic Ripped Paper Thesis Defense Presentation_20240311_111012_0000...
Green Aesthetic Ripped Paper Thesis Defense Presentation_20240311_111012_0000...Green Aesthetic Ripped Paper Thesis Defense Presentation_20240311_111012_0000...
Green Aesthetic Ripped Paper Thesis Defense Presentation_20240311_111012_0000...virgfern3011
 
Européennes 2024 : projection du Parlement européen à trois mois du scrutin
Européennes 2024 : projection du Parlement européen à trois mois du scrutinEuropéennes 2024 : projection du Parlement européen à trois mois du scrutin
Européennes 2024 : projection du Parlement européen à trois mois du scrutinIpsos France
 
Another Day, Another Default Judgment Against Gabe Whitley
Another Day, Another Default Judgment Against Gabe WhitleyAnother Day, Another Default Judgment Against Gabe Whitley
Another Day, Another Default Judgment Against Gabe WhitleyAbdul-Hakim Shabazz
 
Ministry of Justice Extradition Eswatini 3.pdf
Ministry of Justice Extradition Eswatini 3.pdfMinistry of Justice Extradition Eswatini 3.pdf
Ministry of Justice Extradition Eswatini 3.pdfSABC News
 

Recently uploaded (9)

One India vs United India by Dream Tamilnadu
One India vs United India by Dream TamilnaduOne India vs United India by Dream Tamilnadu
One India vs United India by Dream Tamilnadu
 
Light Rail in Canberra: Too much, too little, too late: Is the price worth th...
Light Rail in Canberra: Too much, too little, too late: Is the price worth th...Light Rail in Canberra: Too much, too little, too late: Is the price worth th...
Light Rail in Canberra: Too much, too little, too late: Is the price worth th...
 
Por estos dos motivos, defensa de JOH solicita repetir juicio
Por estos dos motivos, defensa de JOH solicita repetir juicioPor estos dos motivos, defensa de JOH solicita repetir juicio
Por estos dos motivos, defensa de JOH solicita repetir juicio
 
Anantkumar Hegde
Anantkumar Hegde  Anantkumar Hegde
Anantkumar Hegde
 
19032024_First India Newspaper Jaipur.pdf
19032024_First India Newspaper Jaipur.pdf19032024_First India Newspaper Jaipur.pdf
19032024_First India Newspaper Jaipur.pdf
 
Green Aesthetic Ripped Paper Thesis Defense Presentation_20240311_111012_0000...
Green Aesthetic Ripped Paper Thesis Defense Presentation_20240311_111012_0000...Green Aesthetic Ripped Paper Thesis Defense Presentation_20240311_111012_0000...
Green Aesthetic Ripped Paper Thesis Defense Presentation_20240311_111012_0000...
 
Européennes 2024 : projection du Parlement européen à trois mois du scrutin
Européennes 2024 : projection du Parlement européen à trois mois du scrutinEuropéennes 2024 : projection du Parlement européen à trois mois du scrutin
Européennes 2024 : projection du Parlement européen à trois mois du scrutin
 
Another Day, Another Default Judgment Against Gabe Whitley
Another Day, Another Default Judgment Against Gabe WhitleyAnother Day, Another Default Judgment Against Gabe Whitley
Another Day, Another Default Judgment Against Gabe Whitley
 
Ministry of Justice Extradition Eswatini 3.pdf
Ministry of Justice Extradition Eswatini 3.pdfMinistry of Justice Extradition Eswatini 3.pdf
Ministry of Justice Extradition Eswatini 3.pdf
 

Russian defense budget & procurement

  • 1. Conference on: Russian Decision Making and Implications for Defense Spending Lunch Session: Defense Budget and Procurement March 2, 2011 by Reed Livergood
  • 2. Outline I. Economy II. Budget III. Procurement & SAP IV. Exports
  • 3. I. Economy Russia: • Rising: • Middle income country • GDP • GDP per capita – Biggest country outside WTO • Life expectancy • G8 Member • Education rates • #1 in: • oil production • Hit hard by the financial • natural gas crisis (2008-2009) (production and reserves) – Stabilization Fund • #2 in: drained • Arms exports • Reserve Fund • Coal reserves • National Welfare Fund
  • 4. I. Economy in billions OECD GDP Canada $16,000 Finland $14,000 France Germany $12,000 Italy $10,000 Netherlands $8,000 Norway Poland $6,000 Spain $4,000 Sweden $2,000 United Kingdom $0 United States 1970 1974 1978 1984 1988 1992 1998 2002 2006 1972 1976 1980 1982 1986 1990 1994 1996 2000 2004 2008 Russian Federation Source: OECD Factbook 2010
  • 5. I. Economy in US billions Russian GDP, constant prices (2009) 1,800 1,669 1,600 1,400 1,349 1,232 1,200 1,055 1,000 843 800 677 600 528 535 507 433 417 393 377 400 355 327 266 253 200 127 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Gross domestic product, constant prices (2009) Source: IMF World Economic Outlook 2010
  • 6. I. Economy in US billions GDP per capita (PPP) $16,000 Brazil Chile $14,000 China $12,000 India Kazakhstan $10,000 Korea $8,000 Poland $6,000 Russia Ukraine $4,000 United Kingdom $2,000 United States Venezuela $0 1995 1996 1997 1998 2004 2005 2006 2007 1991 1992 1993 1994 1999 2000 2001 2002 2003 2008 2009 Source: IMF World Economic Outlook 2010
  • 7. I. Economy in USD Billions Russian Trade in goods in USD Billions 800 700 800 700 Goods 600 600 • Petroleum-based products 500 500 400 400 • Natural gas 300 300 • Wood-based products 200 143 163 153 201 200 • Metals 100 106 100 • 76 0 58 61 0 Chemicals 2001 2002 2003 2004 2005 2006 2007 2008 • Medical equipment Imports of goods Exports of goods Goods trade balance: exports minus imports of goods • Agricultural products in USD Billions Russian Trade in services Services in USD Billions 140 0 120 -5 100 -9.1 -9.9 -10 • Financial -10.9 80 -12.7 -13.8 -13.6 -15 • Technology-based 60 -19.6 -20 • Information Technology-based • 40 -25.1 -25 Academic: mathematics, physics, engineering 20 0 -30 • Communication • 2001 2002 2003 2004 2005 2006 2007 2008 Business Imports of services Exports of services Service trade balance: exports minus imports of services Source: OECD Factbook 2010
  • 8. I. Economy in USD Millions Russian Flows of Foreign Direct Investment 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - 2001 2002 2003 2004 2005 2006 2007 2008 Inflows of foreign direct investment Outflows of foreign direct investment Source: OECD Factbook 2010
  • 9. I. Economy % Russian Inflation Rates • 9.6% inflation rate (1-2011) 25.0 21.5 21.3 20.0 20.9 – Double from summer of 2010 15.8 14.1 15.0 13.7 13.7 – Biggest problem ahead of 12.3 10.9 9.7 9.0 10.0 11.2 12.7 alcoholism (BRIC survey) 10.4 9.6 9.0 – Food inflation problematic 5.0 – Forecasts of 5.5% through 2015 0.0 2001 2002 2003 2004 2005 2006 2007 2008 Inflation rate: all items Inflation rate: food • 2.7% growth rate % Russian Real GDP growth compared to inflation • R28.89 : $1 USD 30.0 21.5 25.0 • Interest rates increase after 15.8 13.7 14.1 20.0 12.7 10.9 9.7 9.0 record low 15.0 10.0 8.1 – 7.75% to 8% 7.3 7.2 7.7 6.4 5.1 5.6 4.7 5.0 0.0 2001 2002 2003 2004 2005 2006 2007 2008 Real GDP growth (%) Inflation rate: all items Source: OECD Factbook 2010
  • 10. I. Economy Canada in thousands OECD Population 350,000 Finland France 300,000 Germany 250,000 Italy Netherlands 200,000 Norway 150,000 Poland Spain 100,000 Sweden 50,000 United Kingdom 0 United States 1952 1956 1958 1962 1968 1974 1978 1980 1984 1990 1996 2000 2002 2006 1950 1954 1960 1964 1966 1970 1972 1976 1982 1986 1988 1992 1994 1998 2004 2008 2010 Russian Federation Source: OECD Factbook 2010
  • 12. II. Budget • Executive Branch – 8 Ministries • Ministry of Defense • Ministry of Finance • Formulation • Ministry of Economic Development and Trade • Negotiation • Legislative Branch • Implementation – Upper House • Federation Council – 5th biggest military – Lower House budget worldwide • Duma • USA, China, United Kingdom, France, Russia
  • 13. II. Budget • Basis: – Oil price • $75/bbl (2011), $78/bbl (2012), $79 (2013) – Oil and gas income (% of GDP) • 8.1% (2011), 7.9% (2012), 9.3% (2013) Oil Future Contract (Dollars per Barrel) $160 – Inflation (%) $140 $120 • 6.5% (2011), 6.0% (2012), $100 5.5% (2013) $80 $60 $40 – Defense burden $20 $0 Oct-1984 Oct-1987 Oct-1990 Oct-1993 Oct-1996 Oct-1999 Oct-2002 Oct-2005 Oct-2008 Apr-1983 Apr-1986 Apr-1989 Apr-1992 Apr-1995 Apr-1998 Apr-2001 Apr-2004 Apr-2007 Apr-2010 Jan-1984 Jan-1987 Jan-1990 Jan-1993 Jan-1996 Jan-1999 Jan-2002 Jan-2005 Jan-2008 Jan-2011 Jul-1985 Jul-1988 Jul-1991 Jul-1994 Jul-1997 Jul-2000 Jul-2003 Jul-2006 Jul-2009 • 2.84% (2010), 3.01% (2011), Oil Price 2.97% (2012), 3.39% (2013)
  • 14. Key Players • President = Dmitry Medvedev • Defense Secretary = Anatoly Serdyukov • Prime Minister = Vladimir Putin • 1st Deputy Defense Minister (Acquisitions) = Vladimir • Deputy Prime Minister = Sergei Ivanov Popovkin • Deputy Prime Minister & Minister of Finance = Aleksey • Acting Chief of Armaments (MOD) = Oleg Frolov Kudrin • Deputy Defense Minister (Financial-Economic Work) = • Deputy Prime Minister & Chairman of Rosneft = Igor Lyubov Kudelina Sechin • Chief of General Staff = Nikolai Makarov • Deputy Finance Minister = Anton Siluanov • Ministry of Defense's Chief Social Guarantees • Ministry of Industry & Trade = Viktor Khristenko Department = Anna Kondratyeva • Ministry of Economic Development = Elvira Nabiullina • Defense Ministry Public Council Representative = Igor • Minister of Interior = Rashid Nurgaliyev Korotchenko • Federation Council Chairman = Sergei Mironov • Defense Ministry Public Council Representative = Ruslan Pukhov • Fed. Council Defense and Security Committee Chairman = Victor Ozerov • FSMTC General Manager = Alexander Kopetsky • Duma Chairman = Boris Gryzlov • Federal Service for Defense Contracts (Rosoboronzakaz) = Alexander Sukhorukov • Duma Defense and Security Committee Chairman = Victor Zavarzin • Federal Service Military-Technical Cooperation Director = Mikhail Arkadievich • Duma Budget Committee Deputy Chairman = Mikhail Babich • Deputy Director = Konstantin Biryulin • Auditor of Audit Chamber Nicolai Tabachkov • Director General of Rosoboronexport = Anatoly Isaykin
  • 15. II. Budget Defense and Security Draft Jane’s & RIA Novosti: • Income: R8844 tn ($290 bn ) – 17.6 (% of GDP) • Expenditures: R10,658 tn ($329 bn) – 21.2 (% of GDP) • Deficit = -3.6% (of GDP) – R -1814 bn • Military: $60 bn – 13.8% of GDP Source: Military Balance 2010 (IISS)
  • 16. II. Budget Siluanov: (6-3-2010) Medvedev: (11-25-2010) • Military: • Military: – 2.6% (2010) of GDP – R574 bn (2011), R726 – Plan was 2.9% (2011), bn (2012), R1160 bn 3.0% (2012), 3.2% (2013) (2013) • Has overseen four-fold – % of GDP: 2.8% (2011) increase of military Kudrin: (11-30-2010) • Medvedev’s intention to secure R20 tn was a “new task”
  • 17. II. Budget • State Armaments • Goal: modernizing and Program (SAP) renovation – R20,700 tn – 30% (by 2015), 70-80% (by 2020) • R19,040 tn for MOD – R100 bn increase in procurement • R2.5 – R3.0 tn for other law – 6.5% raise in personnel pay enforcement agencies – R&D spending will drop – 1st time in last ten years defense • From 22% (2010) to 16% (2013) burden is greater than 3% – 70% to be spent by 2015 – R700 bn allocated for after 2015 Source: Centre for Analysis of Strategies and Technologies
  • 18. II. Budget Russian Military Expenditures ($US bn) 15.8 and Defense Burden (% of GDP) $700 16 14.2 14 $600 12.3 12 $500 10 $400 339 314 8 $300 266 5.9 5.5 5.3 6 4.4 4.5 4.4 4.3 $200 4.1 4.1 3.7 3.8 3.7 3.6 3.3 3.4 3.5 3.5 4 $100 66 58 57 53 58 61 53 2 37 39 41 44 48 34 30 33 22 30 33 21 $0 0 1994 1995 1996 1997 1998 2006 2007 2008 2009 2010 1988 1989 1990 1991 1992 1993 1999 2000 2001 2002 2003 2004 2005 Russian Military Expenditures $US bn (constant 2008) % of GDP Source: SIPRI Military Expenditure Database 2010
  • 19. II. Budget Russian Defense Burden (% of GDP) SIPRI, Rosefielde, IISS 18 15.8 16 14.2 14 12.3 12 10 8 5.9 5.5 5.3 6 4.4 4.5 4.4 4.3 4.1 4.1 3.8 3.4 3.7 3.7 3.6 3.5 3.5 4 3.3 4.7 4.4 4.4 4.6 2 3.0 3.1 2.9 2.6 2.6 2.4 2.5 2.5 2.5 2.5 2.5 2.4 2.1 2.5 2.3 2.0 0 1990 1992 1994 1996 1999 2001 2003 2006 2008 1988 1989 1991 1993 1995 1997 1998 2000 2002 2004 2005 2007 % of GDP (SIPRI) % of GDP (Rosefielde) % of GDP (IISS) Sources: SIPRI, Russia in the 21st Century (Rosefields), Military Balance 2010 (IISS)
  • 20. II. Budget in Billions Military Expenditure: Russia to Europe comparison (constant 2008) $800 80% 744 716 $700 70% 644 $600 60% $500 46% 50% 44% 41% 427 424 404 403 413 397 385 387 389 397 $400 368 381 40% 361 359 362 356 367 339 350 314 $300 266 30% $200 15% 14% 14% 20% 14% 13% 14% 11% 12% 9% 8% 9% 9% 10% 10% 10% 8% $100 66 6% 6% 61 10% 58 57 48 53 58 34 33 33 37 39 41 44 30 21 22 30 $0 0% 1988 1990 1993 1995 1997 1999 2002 2004 2006 2008 1989 1991 1992 1994 1996 1998 2000 2001 2003 2005 2007 2009 Europe Russia Russia as % of Eur Spending Source: SIPRI Military Expenditure Database 2010
  • 21. II. Budget • Kudrin & Serdyukov – 1.5% of GDP spent on army modernization, military pay, & other – Called for fair and honest elections to grant authorities • Federal Service Military- mandate for executing difficult Technical Cooperation economic reforms – Remains loyal to Putin (FSMTC) – Supported idea to purchase ships (Mistrals) vs. producing • Military-Industrial domestically Commission (MIC) – Has overseen four-fold increase of military industrial complex (Rosoboronzakaz)
  • 22. III. Procurement & SAP Source: Centre for Analysis of Strategies and Technologies
  • 23. III. Procurement & SAP • Navy: (100+ vessels) – Mistral assault ships – 20 submarines • (2 + 2) • 8 Borei-class ballistic – New Carrier missile submarines • Design (2011), start • Yasen-class nuclear attack (2015), completed (2020) submarines – Auxiliary ships • 3 Kilo-class submarines – Service craft – 35 corvettes – 15 frigates • Kashin-, Sovremennyi- • 3 Talwar-class class destroyers likely to be retired soon – Kirov- and Slava-class • Udaloy will become cruisers backbone
  • 24. III. Procurement & SAP • Air Force – 1994-2003 = 0 planes • Su-30s – 2004-2009 = 3 planes • Su-35s • Upgrade MiG-29 to MiG-29SMT Investigation into 2 crashes (‘08) • T-50 PAK-FA to be future – 200+ aircraft had fin corrosion – Ordered (2015), tested (2015) • Helicopters – 500 Mi-24 Hind gunships Under SAP 2011-2020 – Mi-8/Mi-17 transport – 600+ planes • Transport aircraft – 1,000+ helicopters – Il-112 – An-70 – Il-476 – An-124
  • 25. III. Procurement & SAP • Nuclear Forces: • Other Armaments – Procurement, upgrading, – Small batches of drones maintenance in combat • UAVs readiness will increase – Sniper rifles by 50% – Felin (French) infantry – 10 batteries of S-500 combat suits anti-missile and anti- – T-90s aircraft defense missiles – AN-94s – 56 batteries of S-400 defense missiles
  • 26. III. Procurement & SAP Active Troops (2009) 250,000 360,000 24% 35% 80,000 8% 35,000 160,000 142,000 3% 16% 14% Army Airborne Navy Air Strategic Deterrent Forces Command and Support Source: Military Balance 2010
  • 27. III. Procurement & SAP Production in defense – 45% of defense output volume is – UAC deal (Jan 2011) with dual-use MAG Industrial • Oil, gas, transport, energy, household appliances, electrical engineering sectors Automation Systems – 70% of scientific output is • MAG VIPER Fiber Placement System and 2 HyperMachTM defense Vertical profilers to support – Output up 13% while total went aircraft manufacturing down (PM Putin 4-21-2010) – Production declined 46% (1991- 2001) – Russian government wants to supply 5% of the world’s aircraft by 2015, 10% by 2025
  • 28. III. Procurement & SAP Source: Russian Defense-Industrial Base, CSIS
  • 29. III. Procurement & SAP Partnerships • Italy: Iveco joint • Bridge short- and enterprise medium-term gaps – Lynx light multi-purpose armored vehicles (LMVs) • Not cost free (about 1,000) • France: (STX & DNCS) • BTR-80 – Mistral amphibious assault • Tiger ships • 1st two to be built in France – 20%, 40% Russian-built – $1.9 bn est. • 2nd two to be built in Russia – 80%, 80% Russian-built
  • 30. III. Procurement & SAP Investment • 1/3rd of defense enterprises • Regulatory changes coming to are bankrupt, 1/3rd are improve climate, abolish unstable limitations, revise legal • 80% of production plants investment framework are obsolete – One of Putin’s last acts as • Investment is 10-20% it is in president was to sign the 50% developed countries acquisition law on strategic ventures • Defense is “locomotive” of • $50 bn worth of bonds to be sold entire economy • $10 bn worth of state assets to be • M&As are creating sold until at least 2014 “industrial kolkhozy”
  • 31. III. Procurement & SAP Research & Development Corruption • Share of worldwide Russian – 9,000+ corruption-related law research-related products has violations dropped from 6% (1990), to 1% • More than R870m in damage (2000), to 0.2% (2008) • 950 officials involved • Japan spends 4x, Germany 3x, – Almost 10:1 ratio Czech Republic 2x more than – Fraud increased by 50% Russia on scientific R&D – Most crimes committed by • Russia faced “stooping to the officials who have regulatory level of iron supplier” powers – ROE Director Isaykin – Mostly found in areas where • Russian “Silicon Valley” (Skolkovo) “hard cash” and material • Russian “DARPA” resources are being – Technological independence distributed
  • 32. IV. Exports • Worldwide leader in SIPRI Top 100 Arms- exports (#2) producing companies – USA, Russia, Germany, (2009) France, UK – 9 were Russian • Total sales (2009) were • Almaz-Antei (23) $8.5 bn (FSMTC) with a • United Aircraft Corp. (29) – Sukhoi 50% growth (2001-6) – Irkut Corp • Have played important – MiG role domestically • TRV Corp (67 • Vertolety Rossii (73) – Arrears, inflation • Uralvagonzavod (76) • “Lifeline” for industry • UEC (90)
  • 33. IV. Exports Source: Centre for Analysis of Strategies and Technologies
  • 34. IV. Exports • Exports • 4 others who can – Rosoboroneksport (ROE) export: • Rosoboronprom (ROP) – RSK-MiG • ROE created (2000) and given – Kolomna Design Bureau exclusive right to sell exports (March 2007) – NPO-Machine-Building – Sales (2009): $7.4 bn (10% increase – Tula Instrument Design from 2008) – Portfolio: $34 bn ($15 bn from 2009 (KBP) due to Saudi Arabia, Libya, Venezuela) – Works with 700+ enterprises and provides R3-4 bn/yr loan guarantees – Reports to MIC • ROP created (2005) to officially sign contracts
  • 35. IV. Exports (2009) • M&As Goals • S-300 SAM Systems (China) – eliminate problems with • 43 Su-30 fighters (Algeria, skilled personnel India, Malaysia) shortages • Missile weapons for fighters – technology losses (UAC) – obsolete production • 120 helicopters lines • About 100 T-90 tanks (India) – low labor productivity – product quality – duplicative development – excess capacity issues
  • 36. IV. Exports • China • India – PLA Commander in Chief – Uses about 70% Russian- (Gen Xu Qiliang) saw “at made equipment least five more years of • T-55s strong co-operation” • T-72s – Su-27s (J-11) • T-90s • J-11B • Submarines • MiGs – Su-33s (J15) • Sukhoi fighters
  • 37. IV. Exports • Algeria • Libya – 2006 deal ($4.7 bn) – 2010 deal ($1.8 bn) • 40 MiGs • Small arms (AKs) – 34 MiG-29s returned • Light weapons • 20 Su fighters • Complex weapons • 16 Yak trainers • Venezuela • 8 S-300s • 40 T-90s – 2010 deal ($5 bn) • 92 T-92 tanks – 2010 deal (about $1 bn) • S-300 • 16 Su-30s • Syria – Forgiven 75% of debt with purchases
  • 38. Conclusion • Key Questions still remain for Russia: – How will insufficient allocation distribution be addressed and who will assert this effort? – What role does inflation play in setting budget allocations? – Will civilian control ever come to pass? – What are the measureable steps to create a Russian version of “Silicon Valley” or “DARPA”? – How will the SAP 2011-2020 adapt to the changing nature of military threats?
  • 39. Conclusion • Glasnost (transparency) is needed – again • The nature of the military budget system assists in uncontrolled growth and should have civilian formulation and execution powers • The nature of oligopoly and secret cost information hurt production and allocation efficiencies • High Inflation, rampant waste, corruption, and bureaucratic interference have all affected the front- line soldier in detrimental ways