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. Last Updated: 07/27/2016

Rocketing Up The Arms Sales Charts

With arms exports booming, Russia is looking to tap new markets to keep the ball rolling. We take a look at who is buying what and who may be in line.
Arms export officials are not known for being the biggest publicity-seekers around. But during the past couple of years, the nation has been piling weapon sales success upon success, and those officials have been getting louder.

Speaking on the sidelines of the Moscow Air Show in August last year, Andrei Belyaninov, chief of the state-owned arms sales agency Rosoboronexport, said that in 2000 Russia delivered $3.68 billion worth of weapons, generating $2.84 billion in revenues.

Rosoboronexport, which accounts for about 90 percent of all arms sales abroad, was itself responsible for $3.1 billion worth. Belyaninov, whose company's portfolio was over $13 billion, went on to promise that 2001 would show even better results.

In December, President Vladimir Putin put the final figure of arms exports revenues at $4.4 billion. In Russia's last bumper year, 1996, revenue stood at $3.6 billion.

Although the figure on deliveries of arms for the past year has yet to be made public, Russian media have reported that deliveries were on a par with 2000 and reached some $3.7 billion.

The whopping $700 million difference between deliveries and revenues data in 2001 and some $840 million in 2000 is due to the fact that payments on 2000 deliveries came through in 2001.

Then in December 2000, Russia made large deliveries to China, including 10 Su-30MKK and eight Su-27UBK fighter jets, and one Project 965 destroyer. During the same period, Greece took delivery of a Zubr military hovercraft.

It looks increasingly likely that this year will also yield impressive results. Alexander Denisov, first deputy head of the Committee for Military and Technical Cooperation with Foreign Countries, said in December that in addition to orders clinched by Rosoboronexport, arms producers with the right to sell independently of the state arms giant had over $2 billion worth of orders.

Among them, the Russian Aircraft Corporation MiG last year boosted its contracts almost tenfold to $1 billion.



Bronze Medal Contention



In 2000, market leader the United States exported $14.2 billion, while at No. 2, Britain exported $5.1 billion.

Since the break-up of the Soviet Union, Russia's arms exports have generally remained within the $2.5 billion to $3.5 billion range, dropping to $1.7 billion in 1994 and hitting $3.6 billion in 1996. But given the past two successful years in arms sales, Russia may well be at last rising from its traditional position as the world's No. 4 arms exporter, leaping over France into third place after the United States and Britain.

In January, France's Defense Ministry published a report on the results for arms production and exports. According to the report, France exported 2.7 billion euros ($2.38 billion) worth of arms in 2000, well behind official Russian figures for the same year.

Although there is still room for France to improve its performance, with its export deliveries fluctuating, it appears likely this outcome will be repeated in the 2001 figures. In recent years, France's average deliveries have hovered between $4 billion and $6 billion, with some exceptions. In 1997 to 1998, arms exports reached $7 billion, while in 1994 and 2000, they dropped below $3 billion.

French Defense Ministry officials described the 2000 results as the lowest in a decade, but the scope of contracts signed in 2000 point to the downturn being a temporary one. According to the ministry's defense procurement agency, Delegation Generale pour l'Armement, France signed some 6.86 billion euros ($6.04 billion) of arms contracts, which means Russia will have to seriously boost its number of contracts if it wants to hold onto third place.

While Russian officials generally shy away from attributing Russia any ranking, Ilya Klebanov, the former deputy prime minister in charge of the defense industry and arms trade, has said Russia could make it to No. 2.

Some in the West have, however, awarded Russia second place on the world arms market, albeit in the category of conventional arms sales to developing nations.

Richard Grimmet, a national defense specialist with the Congressional Research Service, an arm of the Library of Congress, wrote in his report, Conventional Arms Transfers to Developing Nations -- 1993-2000, published last August, that Russia ranked third in deliveries with $3.5 billion, behind the United States' $14.2 billion and Britain's $5.1 billion.

But Grimmet, whose figures often spark controversy among experts, puts Russia at No. 2 for the volume of contracts concluded. Grimmet reported that Russia had $7.7 billion worth of contracts in 2000, second only to the United States, which accounted for $18.6 billion out of the world total of $36.9 billion.

He placed France third with just $4.1 billion, trailed by Germany with $1.1 billion, and Britain with $600 million.

According to French statistics, however, France actually signed deals worth in excess of $6 billion.

As for Russia, Grimmet's figures outstrip the official ones by $2 billion to $2.35 billion. The $800 million contract with India on 310 T-90C battle tanks, which Grimmet included in his report, was not actually signed until early 2001. Also in the report are a $1 billion contract to deliver four A-50E airborne early warning planes and a $650 million contract to retro-fit the aircraft carrier Admiral Gorshkov. Both contracts are yet to be signed, although the Times of India newspaper Friday quoted Defense Secretary Yogendra Narain as saying he expected the Gorshkov negotiations to be concluded in June.

Indeed, Klebanov's February visit to New Delhi failed to reach a breakthrough on the Admiral Gorshkov deal, which combined with a batch of MiG-29 fighters to be supplied as part of an overall package is expected to garner Russia $1.5 billion.

The actual value of contracts in 2000 is subsequently estimated at $5.5 billion to $5.7 billion.

The Leader ...



Rosoboronexport holds the leading position among Russia's six arms exporting companies.

Rosoboronexport exported $3.3 billion worth of weapons in 2001, a five-year record for the state arms colossus, according to Vedomosti. The results are up from $3.09 billion in 2000, of which $2.97 billion came from Rosvooruzheniye and $120 million from Promexport, the two agencies that were fused into Rosoboronexport in November 2000.

Among Rosoboronexport's largest deliveries was a 30-strong batch of multirole Su-30MKK Flanker jets to China, which were produced by the Komsomolsk-on-Amur Aviation Production Association. It was the fruit of a 1999 contract for the delivery of 40 Su-30MKKs at $1.5 billion, the first 10 of which had already been delivered in December 2000.

Last year, China also received 10 Su-27UBKs, made by the Irkutsk Aviation Production Association, as part of a 1999 contract to deliver 28 such fighters to help pay off Russia's state debt. The first eight jets were delivered in 2000, with the rest expected to follow this year.

Rosvooruzheniye, and then Rosoboronexport , which absorbed it, signed separate contracts in August 1999 and February 2001, respectively, to deliver nine Ka-31 helicopters to India. As part of the first contract, worth $92 million, the Kumertau aviation production association began work on four helicopters, delivery of which began in late 2001. The remaining five helicopters worth a total of $108 million are planned for delivery this year.

Also in 2001, India received 40 T-90C tanks made by Uralvagonzavod in Nizhny Tagil out of the 310 units contracted in February 2001. Under the terms of the contract, 124 tanks will be delivered and 186 more will be assembled under license in India.

Other transactions last year included a second Zubr hovercraft and an Mi-26 helicopter to Greece, while Algeria took delivery of 12 Su-24MKs as part of a $120 million contract for 22 of the aircraft.

Iran, meanwhile, got the 16 Mi-171 helicopters outstanding from a contract for 22, Nigeria received two Mi-34 helicopters last year and deliveries began to Angola of Su-24 MKs under the 1999 contract for 20 such jets.

And the Satellites



For the past three years, Concern Antei has been rated Russia's No.2 exporter. Last year, according to an unnamed source quoted in Vedomosti, it exported arms for $138 million, a significant drop from its 2000 figure of $393 million.

Last year, Antei exported six mobile missile launchers and two Ranjir command vehicles of Tor-M1 anti-aircraft surface-to-air missile systems of 10 contracted to Greece. Since 1999, Antei has delivered 27 of the missile systems to Greece. Antei's export volumes this year are likely to plummet from 2000's peak as the deliveries on Tor-M1 are completed, as there have been no new contracts signed yet with Greece any further Tor-M1s

Close behind, Tula-based Priborostroyeniye Design Bureau, or KBP, exported $107 million in 2001. KBP is currently working on a $720 million contract to deliver a Pantsir-S1 anti-aircraft missile system. KBP may also have completed delivery of anti-tank missile complexes for the United Arab Emirates as part of the contract from 1992 to 1994 for 600BMP-3 armored personnel vehicles.

Likewise, it may have also begun delivery of Vikhr-M anti-tank missile systems for the 40 Mi-17-1V combat helicopters delivered to India by the Kazan helicopter plant in 2000-01, but KBP is notoriously tight-lipped about its activities.

During Klebanov's recent visit to India, a contract was signed for the delivery of Krasnopol-M precision-guided munitions.

KBP's exports this year could be worth $120 million to $150 million, jumping to $240 million to $280 million over the next two years.

MiG, meanwhile, reportedly exported $97 million worth, with deliveries of Mig-29 fighter jets to Bangladesh, Yemen and Eritrea. After several lean years when annual sales failed to rise above $100 million, 2001 was something of a watershed, with MiG concluding contracts totaling a record $1 billion. Last December, MiG general director Nikolai Nikitin said that five contracts were signed for 36 fighter jets.

In June, MiG signed a contract with Myanmar for 10 MiG-29s at $130 million to $150 million. This was followed by a contract worth more than $400 million with Yemen for 14 MiG-29s. Contracts were also signed with Sudan and Nigeria. Spares were also delivered to India, Syria, Iran and Malaysia and several European countries.

The last time MiG enjoyed a similar level of success was in 1994 when it signed three contracts for delivering a total of 36 MiG-29s, with 10 to India for $240 million, eight to Slovakia for $150 million, and 18 to Malaysia for $560 million.

The Malaysian government, which last week signed a contract with Rosoboronexport for a $48 million missile defense system, is now contemplating the purchase of more aircraft, choosing between the Su-30MK and the Boeing F-18 Super Hornets. The two types are battling in a tender for the Malaysian Royal Air Force.

And on the subcontinent, MiG is aiming to sell India 22 to 50 MiG-29K/KUB naval jets under the yet-to-be concluded Admiral Gorshkov carrier deal.

Of the remaining exporters, Kolomna Machinebuilding Design Bureau, or KBM, reported $32 million arms deliveries last year, and Reutov Scientific Production Association, or NPO, claimed $31 million, Vedomosti reported.

KBM signed its first independent contract with India in December 2000 for several hundred shoulder-carried Igla air-defense systems, deliveries on which were completed last year.

NPO Mashinostroyeniya is also working with India, in this case in a joint venture, BrahMos, that manufactures PJ-10 missiles based Russian Yakhont anti-ship missiles. BrahMos' work has been described by Indian Defense Minister Fernandes as a watershed in Indian-Russian military cooperation.

Until recently, these five companies alone enjoyed the right to sell weapons independently of Rosoboronexport. But a decree in December by President Putin partially extended this right to a larger number of producers, but only for spare parts, support services and repairs on hardware already delivered.

The full list of firms is yet to be drawn up, but Committee on Military and Technical Cooperation with Foreign Countries deputy head Denisov said only companies in which the state has a controlling stake will qualify.

Putin's decree also calls for greater efficiency in the delivery of spare parts, an area that has drawn criticism in the past from buyers of Russian military equipment who have often been left in the lurch by slow deliveries.

Tapping Other Markets



Having subsisted in the past few years on orders from prime clients China and India, Russia is eager to broaden its clientele.

Klebanov said last year that Latin America is an essential target for Russian arms exporters. Africa, he added, could also make a good client.

Prime Minister Mikhail Kasyanov visited Brazil and Venezuela last December to promote Russian-built weapons. Venezuela -- which bought 18 Mi-17 helicopters in 1996 and 1997 -- showed interest in buying more Russian helicopters.

In Brazil, Russia is participating in the $700 million tender for 24 fighters with its Sukhoi and MiG jets. An announcement on the tender was originally slated for March but has been delayed.

In 1994, Brazil signed up for 118 Igla shoulder-carried anti-aircraft missile complexes, and in 1996, snapped up 10 Mi-34 light helicopters.

During the visit by Brazilian President Fernando Henrique Cardoso in January, an agreement was signed between Sukhoi and Brazil's Avibras Industria Aeroespacial for the supply of components for the Su-35 jet.

The agreement is the first step toward possible co-production of the Su-35 in Brazil, if it wins the tender.

There have been setbacks, however. The Su-35 was knocked out of the tender for a $4 billion South Korean project last Tuesday, prompting Rosoboronexport to protest that the process was political and biased towards U.S giant Boeing Co.

Soviet-era customers Cuba and Peru remain on the Russian arms traders' sales agenda. Peru, for example, bought three MiG-29s in 1998, in addition to dozens of Su-22s, Mi-8 and Mi-24 helicopters and hundreds of T-54/55 tanks.

Mexico has also been a regular customer, buying up helicopters for both its navy and its air force, while in Africa, it is estimated that some 70 percent of arms are Russia-supplied. Russia obviously stands a good chance of continuing success in this market, arms officials say.

But the most obvious market to tap, after long-time partners China and India, is Iran, a potential third big client that could be worth up to $400 million per year for Russia.

Moscow and Tehran signed an agreement on military and technical cooperation last October during a visit by Iranian Defense Minister Ali Shamkhani.

Iran -- described earlier this year as part of an "axis of evil" by U.S. President George W. Bush -- has a wide-ranging shopping list and is looking to buy fighter jets, helicopters, tanks, armored troop vehicles, patrol boats and air defense systems as part of a 25-year rearmament program adopted in 2000.

An Unclear Future



With Klebanov, the government's point man in the defense industry and arms trade, demoted from deputy prime minister in February, speculation has been rife as to who will oversee the lucrative export sector.

When he was appointed deputy prime minister back in June 1999, Klebanov took up the challenge of reforming the mammoth industry Russia inherited after the break-up of the Soviet Union. According to Klebanov, who retained the position of industry, science and technology minister, only one third of the approximately 1,700 existing defense enterprises will ultimately survive the reforms, and they will be amalgamated into integrated holding structures.

But the future remains unclear for the five agencies -- the Russian Aviation and Space Agency, the Russian Conventional Arms Agency, the Russian Control Systems Agency, the Russian Shipbuilding Agency and Russian Munitions Agency -- set up at Klebanov's instigation to oversee Russia's defense and aerospace industries. They were previously supervised by just two government bodies, the Economic Development and Trade Ministry and the Russian Space Agency.

Prime Minister Mikhail Kasyanov, on whose recommendation Klebanov was demoted Feb. 18, has since been in charge of the military and technical cooperation.

Kasyanov has so far reviewed a number of Klebanov's decisions, including recently re-awarding a $1.4 billion deal to build two destroyers for China; it had been held by St. Petersburg shipbuilder Baltiisky Zavod, and was given to rival firm Severnaya Verf, also in St. Petersburg.

The prime minister also switched the prime contractor on a $1.5 billion Chinese-Russian contract for Su-30MKK multipurpose fighters from Komsomolsk-on-Amur Aviation Production Plant to Sukhoi Firm.

There is also a plan to change the main contractor on a $400 million contract to deliver S-300PMU surface-to-air systems to China, switching from Almaz Scientific Production Association to Concern PVO.

Such sharp changes inside the military-industrial complex could negatively affect future relations with Russia's clients.

Emerging from a Cabinet meeting March 19 devoted to the military-industrial complex, Kasyanov was quoted by Prime-Tass as saying serious shortcomings were found in the work of the agencies and ordered a full inventory of documents relating to the agencies' activities in the sphere of arms exports, particularly in the way the agencies identify contractors on arms sales. Kasyanov emphasized the necessity for transparency in the selection criteria.

With Kasyanov ruling the arms exports in the interim, speculation has surfaced that the system of overlooking the military and technical cooperation with foreign countries may be brought back under full presidential control, as was the case from 1994-97 when Alexander Kotyolkin was head of Rosvooruzheniye.

The entire arms sales hierarchy was then headed by President Boris Yeltsin, represented by his aide, Boris Kuzyk, who now heads New Programs and Concepts, a holding that controls Severnaya Verf.

It is thought in some circles that the next such adviser might be Putin associate and former Promexport head Sergei Chemezov, the first deputy general director of Rosoboronexport. Chemezov was previously slated to become head of Rosvooruzheniye

But when his agency was fused with Rosvooruzheniye in November 2000, he became first deputy of the new company, Rosoboronexport, and his deputy Andrei Belyaninov became his boss.

Marat Kenzhetayev is an analyst at the Center for Arms Control in Moscow. Lyuba Pronina is a Staff Writer.

Volumes of arms deliveries in 1994-2001

(millions of USD)

Exporters/years19941995199619971998199920002001
Rosoboronexportxxxxxxx3,300
Rosvooruzheniye1,7002,8273,4272,4792,0462,8402,970x
Promexportxxx5-10240-250120120x
Concern Anteixxxxx228-236393-403138
Priborostroyeniye Design Bureauxxx18-2016072.272.8107
RSK MiGn/a2007525100758697
Machinebuilding Scientific Production Associationxxxxx16.73931
Machinebuilding Design Bureauxxxxxxx32
Othersn/a2015-1868-7350-6040xx
Total1,7183,0473,5202,6002,6053,3933,6813,705

Notes:
x -- either there were no arms exports by independent companies or export figures are too small and were included into the volumes of other exporters, usually Rosvooruzheniye.
n/a -- unavailable data

Sources: Committee of Military and Technical Cooperation With Foreign Countries, Center for Arms Control, Vedomosti, Expert magazine, Arms Markets magazine, "Russia on the World Arms Market" book, expert estimates.