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. Last Updated: 07/27/2016

Russian Arms Sales Grow in Conflict and Crisis

Russia's arms sales will jump this year by at least $300 million thanks to the ruble devaluation, efficient management of exports and NATO's bombing campaign in Yugoslavia, industry insiders said.

Total sales are expected to ring in at no less than $3 billion in 1999 compared with $2.7 billion last year, said Konstantin Makiyenko, deputy head of the Moscow-based Center for Analysis of Strategies and Technologies.

The lion's share of those sales f $2.5 billion worth f is expected to be made through the country's chief arms exporter, Rosvooruzheniye, while smaller arms dealers such as Promexport and the defense factories themselves will account for the other half a billion, Makiyenko said in a telephone interview Tuesday.

Moscow-based Rosvooruzheniye is already well on its way toward reaching its goal.

The arms exporter said Tuesday that it has already raked up $1.08 billion in hard-currency revenues from foreign customers over the first five months of this year. That figure is a five-year high, the company said in a statement.

Promexport, Russia's second largest arms exporter, has signed deals for the sale of $670 million worth of arms from January last year to May 1999, company spokesman Alexander Uzhanov said Tuesday.

This Moscow-based company, which exports surplus weaponry, spare parts and ammunition from the Russian military, has already delivered $120 million worth of products since the beginning of 1998 and will supply the rest in the near future, Uzhanov said.

He said the company expects to sign contracts worth another $300 million in the near future.

At first glance, it might appear that the projected leap in revenues are inflated, since Rosvooruzheniye general director Grigory Rapota announced the forecast in an apparent attempt to keep his post amid rumors of a pending reshuffle in the country's defense exports establishment, said Dmitry Trenin, senior expert with the Moscow Carnegie Center.

Rapota told the Omsk International Exhibition of Land and Airborne Equipment held in Omsk, Siberia earlier this month that 1999 sales would rise to $2.5 billion from $2.3 billion in 1998.

No matter the reason for prompting Rapota to forecast this year's sales so early, his prediction will probably come true, Makiyenko said.

Chief among the factors boosting revenues is the long-lasting effect from the ruble devaluation in August 1998, experts said. Since then, the Russian currency has lost about 70 percent of its value.

The devaluation led to a mild revival in export-oriented branches of the Russian economy, including some sectors of the national defense industry such as aviation and air defense.

Also, NATO's bombing campaign in Yugoslavia has prompted some countries to inquire about Russian-made air defense systems and fighters, said Makiyenko and a Rosvooruzheniye official, who asked not to be identified.

"There has been a lot of talk about how Yugoslavia could have defended itself if it had had enough S-300 [air defense] systems," the Rosvooruzheniye official said.

Sales of aircraft have already come to account for 50 percent of Rosvooruzheniye's exports and will probably continue to grow, he added.

Another positive factor is the continuing economic recovery in Southeast Asia, Makiyenko said.

Once stricken by a severe economic crisis, those countries have recovered enough to start considering foreign-made arms again, Makiyenko said.

He identified Malaysia and Indonesia as being among the countries that may buy Russian-made weaponry.

Indonesia had announced a decision to buy Su-27 fighters, but then backed away due to the economic crisis.

Malaysia has already bought a batch of MiG-29s, but may be planning to acquire more of these fighters, Makiyenko said.

A source close to MiG manufacturer VPK MAPO said in a recent interview that Malaysia plans to buy some 20 advanced MiG-29 SMT fighters to reinforce its aging and relatively small fleet of warplanes.

Not the least among the reasons arms exports are booming is the efficient leadership of Rosvooruzheniye's Rapota, Makiyenko said.

"A head of such a company is required to ensure three main conditions: the normal management of the company, a normal corporate culture, and the protection of the company from political [infighting]," he said. "Rapota is doing this job better than his predecessors."

Rapota, a career intelligence officer, replaced Yevgeny Ananyev as head of Rosvooruzheniye last November.

The company's sales dwindled substantially under Ananyev, who was appointed head of the company in August 1997.

An increase in weapons sales could also mean a boost to Russia's dwindling share of the world arms export market.

By the end of 1997, Russia accounted for 14 percent of all sales, down from 17 percent the previous year, according to a report by the Stockholm International Peace Research Institute.

The report said Russia sold only $3.466 billion worth of arms in 1997 compared with $3.904 billion in 1996.

Makiyenko of the Center for Analysis of Strategies and Technologies blamed the slump on Ananyev as well as the stronger ruble and the then-raging economic crisis in Asia.

In 1990, the Soviet Union exported $15 billion worth of arms, although only $1 billion of the exports were made in cash.

Moscow supplied the rest as payments for debts or gave them as gifts to socialist allies, according to Rosvooruzheniye.

In the following two years, as the Soviet Union collapsed and Russia was born, arms exports plummeted some 85 percent, according to the Stockholm institute. Weapons sales fell to $7.1 billion in 1991 and to $2.3 billion in 1992.

In 1993, the government set up Rosvooruzheniye as an arms sales monopoly to coordinate exports, and sales started to slowly recover, peaking at $3.5 billion in 1996 under Alexander Kotyolkin.

Rosvooruzheniye's virtual monopoly began to diminish after President Boris Yeltsin signed a decree to establish Promexport in August 1997.

While $3 billion in expected 1999 sales looks remarkably healthy compared to previous years, Makiyenko said Russia is capable of doing even better: Up to $4 billion worth of weaponry could be sold every year if all of the country's arms exporters were strictly coordinated by the federal government or if the dealers better coordinated their sales.