20.08.2021
In 2020, due to the pandemic-related restrictions, for a number of foreign clients, the terms of delivery of military products and implementation of contracts for overhaul and maintenance of weapons and military and special equipment were put off and rescheduled.
The impossibility to ensure duly transfer of basic payment documents from customers led to delays in the currency earnings flow and in settlements with cooperation contractors and suppliers, which resulted in cash gaps. This was stated by the Deputy Minister of Defense of the Russian Federation Alexander Fomin at the end of December last year.
At the same time, it is claimed that Russia has fulfilled all its export responsibilities despite the intrinsic problems. For example, the CEO of the Rostec State Corporation Sergey Chemezov declared that “based on the results of 2020, we have practically reached the same delivery level as in 2019. We fulfilled all the previously signed contracts,” and the Director of the Federal Service for Military-Technical Cooperation (FSMTC) Dmitry Shugaev noted that “the year was successful.”
Objective and accurate evaluation of Russia’s military-technical cooperation (MTC) is not an easy task, made even more difficult by the fact that in 2016 President Vladimir Putin signed the decree No.614, expanding the list of information classified as the state secret to include “information about certain measures for the implementation of principal guidelines of the State policy in the sphere of military-technical cooperation.”
Military-Technical Cooperation in Numbers
By the end of 2020, Russia's exports of military products were estimated at about $13 billion, of the $7 billion was reached as early as August of that year. The portfolio of orders for Russian weapons remained at the level of $50–55 billion, and it is known that new contracts valued at $5 billion were signed by August, as the International Military-Technical Forum ‘Army-2020’ alone brought in export contracts for another $380 million.
In general, the impact of the pandemic on the arms market is still being assessed with great caution. It is assumed that the slowdown in the pace of global economic development will entail a reduction in defense budgets. According to some estimates, by 2022 global military expenditure will decline by 8% and global arms exports, by 4%. However, the latest data published by the Stockholm International Peace Research Institute (SIPRI) show an opposite trend: by the end of 2020, global defense expenditure as a whole increased by 2.6% compared to 2019, amounting to $1.981 trillion.
SIPRI assessment of armament exports for the first year of the pandemic is also ambiguous. On the one hand, they speak of a 16% decrease in the volume of deliveries compared to 2019. On the other hand, it is stated that the influence of the pandemic on this figure may be only partial – along with changes in demand and supply relating to national purchase cycles, interruptions in military product deliveries, as well as economic factors not related to the pandemic. Moreover, a number of countries showed growth rates; for instance, Australia imported more weapons in 2020 than in any other year between 2011–2019.
According to SIPRI’s estimates, Russian armament exports decreased considerably in 2019–2020. Experts believe that the drop is caused by a 53% decrease in India's imports of Russian weapons, but the contracts signed with India in 2020 can “straighten up” the figures. Besides, Russian experts have questioned SIPRI’s methodology, and often public officials deny the data provided by the Swedish Institute.
Traditionally, RosBiznesConsulting (RBC group) experts conduct an annual analysis of the data provided by the Federal Customs Service of Russia, paying special attention to exports coded SSSS in the reports (these include armaments, military equipment, aircraft, and certain nuclear materials). According to the Federal Customs Service of Russia (FCS), exports coded SSSS decreased by 15.6% in 2020, estimated at $11.48 billion. However, at this time, such a decrease is not to be considered critical, since a number of companies have announced that their deliveries planned for 2020 were rescheduled to 2021. For example, the Kalashnikov Concern moved 25% of its contracts – the company’s representatives explained that this was caused by shipment delays relating to the pandemic one way or other.
Algeria, China, India, and Egypt remained the largest importers of Russian products, according to FCS. Summarizing the last year’s results, the Minister of Defense of the Russian Federation Sergey Shoygu called these countries, among others, priority partners in the military-technical cooperation field, and his Deputy Alexander Fomin deplored that they appeared to be “among those countries that the pandemic hit the most.”
Speaking of regional specifics, it should be added that Northern African and Middle Eastern countries traditionally accounted for the most part of military products exported from Russia and, as an average for the last five years, deliveries to those countries amounted to about $6 billion. This region also accounts for 40–50% of the total portfolio of Russia’s export orders. At the same time, African countries, including sub-Saharan states, signed contracts worth $1.5 billion in 2020. It was noted that cooperation with African countries has become significantly more active due to the Russia – Africa Economic Forum.
Changes in the System of MTC
The main international military-technical event of 2020 became the ‘Army’ Forum that was held at the end of August 2020. On the plenary session of the Forum, the Head of ROSOBORONEXPORT Alexander Mikheev stated that, as of today, the main task of the MTC system is to introduce new weapons and military and special equipment and to develop industrial partnership programs – not only selling licenses and technologies but also implementing joint R&D and establishing joint ventures.
The development of such forms of cooperation requires strengthening the protection of intellectual property rights in the process of implementing MTC. ROSOBORONEXPORT continued its work in this direction that was started in 2019. The company obtained a certificate of international registration for the ROSOBORONEXPORT trademark in 45 countries within the framework of the Madrid system and submitted applications to 13 countries outside the Madrid system, including the Persian Gulf states.
ROSOBORONEXPORT and the Vega Concern (part of the Ruselectronics Holding) signed a cooperation agreement in the field of protection of intellectual property rights and their commercialization in the course of MTC. Earlier, similar agreements were signed with United Shipbuilding Corporation (USC), Russian Helicopters Holding, the Almaz – Antey Concern, and Kalashnikov Concern.
The consulting group for intellectual property rights protection within the framework of MTC took measures to counteract counterfeit and unfair competition in the field of military-technical cooperation. For instance, in 2020 two Ukrainian companies, “Motor Sich” and “Aviakon”, were included in the list of aircraft overhaul companies carrying out illegitimate overhauls of Russian-made helicopters after it had became known that two helicopters Mi-17V-5 belonging to Afghanistan Air Force have been overhauled at the Ukrainian enterprises. In a similar case, Slovakia was nailed for an illegal overhaul of helicopters of the same type in 2019. In that same year, Ukraine stuck out; Russia received an order for the overhaul of MiG-29 fighters that had been upgraded by a Ukrainian enterprise that did not have up-to-date technical documentation.
Among other important developments there can be mentioned: approval of the Plan for the Implementation of the Strategy for Military-Technical Cooperation of the Russian Federation with Foreign States until 2025; the expansion of powers of the Head of the General Staff pertaining to approval of performance tactical and technical characteristics of weapons and military and special equipment set for export, as well as export configurations of such armaments, and R&D of military products.
Significant attention has been paid to optimizing work with foreign customers and eliminating unnecessary bureaucratic barriers. Efforts were mainly focused on enhancing the effectiveness of after-sales service programs and simplifying delivery procedures for weapons and military and special equipment from the inventory of the Ministry of Defense. Rostec has established a company for servicing exported aircraft – previously, after-sales services were provided by the United Aircraft Corporation (UAC), Russian Helicopters Holding, United Engine Corporation (UEC), and the Concern of Radio-Electronic Technologies (KRET). The President of the Russian Federation signed Decree No. 491, “On Introducing Amendments to Some Acts of the President of the Russian Federation Related to Military-Technical Cooperation between the Russian Federation and Foreign States,” expanding rights of developers and manufacturers of military products and management companies of integrated structures to carry out international economic activities. The Committee for the development of international economic activities relating to military products was established in the Union of Machine Builders of Russia (SoyuzMash) in order to handle legal, organizational, and financial matters in the process of implementing military-technical cooperation.
Other legislative initiatives in the area of developing Russia's military-industrial complex (MIC) and military-technical cooperation were prepared by ROSOBORONEXPORT, the Legal Department of the Russian Ministry of Defense, and the Institute of State and Law of the Russian Academy of Sciences. These initiatives were put forward on the sidelines of the conference held as part of the ‘Army-2020’ forum; relevant proposals were submitted to stakeholders among state authorities.
Following the results of collaboration between ROSOBORONEXPORT, SoyuzMash, and the Defense Enterprises Support League, a decision was taken to cooperate with regions to create a “library of offset projects” that would allow to promptly include Russian companies in the process of tenders for potential customers.
Significant work has been done in terms of marketing and preparation of the export modifications of weapons and military and special equipment. In 2020, export passports were issued to the unified combat platform Boomerang and an armored personnel carrier based on it, also, work started on the export variant of the Т-14 tank based on the Armata platform, and on the registration permits for the АК-19.
Likewise, a promotion campaign in the arms market was launched for the 59N6-ТЕ mobile three-range radar, the P-18-2 Prima high-mobility 2D surveillance, and acquisition radar, and security equipment for law-enforcement agencies. Showcases of products for foreign customers were presented, including showcasing of the heavy flamethrower system TOS-1А; self-propelled howitzer Msta-S modernized for NATO-standard 155-mm caliber; Kupol-PRO and Luch-PRO portable anti-drone systems; UAV detection and counteraction transportable systems Rubezh-Avtomatika and Bastion-Avtomatika, and the portable anti-UAV complex Pishal.
ROSOBORONEXPORT signed an agreement on the joint promotion of civilian products with USC; an agreement on cooperation for increasing export volumes and expanding the range of military, civilian, and dual-purpose unmanned systems with JSC Kronshtadt; and the program for promoting exports of aircraft simulators for 2020–2022 with JSC Technodinamika.
Contracts and Deliveries
ROSOBORONEXPORT, according to its Director General, Alexander Mikheev, started to return to its usual working mode as early as in August 2020, including business trips and “live” negotiations. However, even in the period of global self-isolation, the MTC system managed to adapt to the “new reality”: in order not to paralyze cooperation, alternative sources of supply were found out so as to replace imported components. Also, individual logistic solutions for the delivery of ready production were developed in a limited communication environment, and even marketing and presentations went online.
A significant role during this period was played by the possibility to expand project financing schemes and the provision of export credits. Not everything went successfully in the end, but a lot has been done.
The need to combat the pandemic has set new trends in the field of MTC: there was high demand in the global market for medical equipment for diagnostics, treatment, and localization of infections produced by the enterprises of the military-industrial complex. Thus, for example, KRET delivered lung ventilators to Serbia, Italy, Kazakhstan, Uzbekistan, Belarus, and Kyrgyzstan. Test batches of the Tiokraft air disinfection devices were supplied to Belgium, the United Kingdom, Germany, Serbia, Croatia, Hong Kong, and South Korea. Medical equipment made by Shvabe Holding was exported to nine countries in the CIS, Europe, and Southeast Asia regions. At the beginning of the pandemic, there was a great demand for fully-equipped field hospitals.
There was also another trend: the development of cooperation in the area of civilian products and services. KAMAZ transferred a batch of fire trucks to Uzbekistan, Serbia received UAZ Patriot cars, and URAL trucks were delivered to the Philippines. In Kazakhstan, construction of plants for the production of KAMAZ components commenced, an export contract for the supply of inspection and security systems was signed with an unnamed customer. The amphibious aircraft Be-200ES-E helped in extinguishing fires in Turkey – the UAC expects that this will stimulate Turkish partners to purchase these aircraft. As part of the test operation program, Mi-8АМТ helicopters took part in extinguishing fires in Indonesia. A batch of Genesis high-precision receivers and base stations was delivered to Kyrgyzstan. Optical sights and samples of sporting and hunting weapons were delivered to a number of countries.
New contracts for traditional weapon export items were signed. A contract was signed with Turkey for the supply of the second regiment of the S-400 air defense missile systems; another contract was signed with Belarus for the supply of four Mi-35М helicopters and two battalion sets of the BTR-82А. An agreement was signed with Armenia on the modernization of four Su-25 aircraft belonging to the Armenian Air Force. Besides, the licensed assembly of the АК-103 assault rifles was also launched in Armenia. A cooperation agreement was signed by ‘Natspromleasing’ and the Aircraft Repair Plant No. 405 (ARZ-405) in Kazakhstan: according to this agreement, the former will supply its partners with components for helicopter overhaul and other aviation equipment. In addition, the licensed assembly of the ‘Ansat’ and Mi-171А2 helicopters is discussed with Kazakhstan. The first export contract for the supply of multipurpose middle-class helicopters Mi-38Т was signed. It is rumored that a contract for the supply of the T-90MS tanks was signed with Egypt, but there was no official confirmation so far.
Work is being continued on the contracts already sealed. There is information about the overhaul of Algerian Su-30MKI(А) in Russia – the engine replacement work is likely underway already. According to a 2019 contract, work on the Yak-130 for Vietnam has probably started. Overhaul of the Il-78 tanker aircraft supplied to China by Ukraine is being carried out. Furthermore, work is continued on the development of the high-thrust engine PD-35 for the Russian-Chinese long-range wide-body aircraft, and an agreement is being finalized regarding joint design of the Advanced Heavy Lifter (AHL) helicopter for the Chinese market.
In India, construction of the Russian project 11356 frigates has kicked off, the ships will be built with the support of Russian experts, and partial transfer of technology is planned. Two more frigates for the Indian Navy are being built at the Yantar Shipbuilding Plant. Additionally, works are continued on the Ка-226Т helicopter for the Indian Ministry of Defense; a set of design documentation has been completed according to requirements of potential customers and transferred to the plant.
It is expected that a contract for the supply of assembly sets of the Т-90S MB will be signed – in 2019, an agreement on licensed assembly of these tanks was extended until 2028 and their number was increased to 409 units. It is expected that a plant for overhauls of transport helicopter engines will be launched – the equipment for the center has already been delivered to India. A contract is also expected to be signed for the production of the АК-203 assault rifles in India. According to some sources, negotiations are underway for the purchase of light amphibious tank Sprut-SDM1 – the testing has not been completed yet but it is expected that the tanks can be transferred to India for a series of field tests. UEC-Klimov has signed the first life cycle contract for engine maintenance in India, for the five-year test period for the time being.
IEMZ KUPOL conducted work for two foreign customers. The company announced the upcoming work on the delivery of the Tor-М2E air defense missile system according to a new contract. TSNIITochMash informed about the supply of special small and underwater weapons to an Asian country, as well as about negotiations with a number of countries on the establishment of licensed production facilities and delivery of finished products.
Foundations have been laid down for the future as well: negotiations were held with Indonesia to validate the TV3-117 engine type certificate, and with Canada to validate the ‘Ansat’ helicopter type certificate. At a meeting with representatives of Peru, which is the largest operator of Russian helicopters in Latin America, the simplification of the procedure for validating equipment, including ‘Ansat’ and Mi-171A2, was discussed. The VK-2500PS-03 engine was certified by South Korea, also similar certifications have already been obtained in India, China, Brazil, and Columbia. Certificate validation in China resulted in a contract for delivery of almost 100 VK-2500PS-03 engines in 2021–2022. And last but not least, the Mi-171А2 helicopter was certified in South Korea. Interestingly enough, Russia came up with a proposal to deliver helicopters to South Korea as a repayment of the state debt.
Deliveries of aviation weapons, as well as other contracts for the delivery of finished product and service contracts, were discussed with the CSTO countries. Moreover, the CSTO announced plans for the joint production of weapons and military and special equipment. Preliminary agreements have been reached concerning the overhaul and maintenance of the Mi-171Е helicopters previously supplied to the Argentinian Air Forces. LLC Military-Industrial Company (VPK) planned to ink the first export contract for delivery of the VPK-Ural armored vehicles with a Middle Eastern country. Besides that, lifting the UN weapons embargo from Iran in October 2020 opened great opportunities for Russia's MTC with Iran.
It goes without saying that what has been mentioned is not all, but the most significant results of Russia's military-technical cooperation in 2020. The final results of MTC in 2020 will be announced after the report of the Committee for Military-Technical Cooperation with Foreign Sates is submitted to the President Vladimir Putin. The last meeting of the Committee took place on April 9, 2020. Probably, after the next meeting that will be held after more than a year break, figures of the Russian arms export for 2020 will be more elaborate.
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By Olesya Zagorskaya
©New Defence Order. Strategy №4 (69) 2021
