Russia's armsmakers operating on borrowed time

An expected slowdown in sales to China and India will slice into Russian exports.

Roaring back after a decade of decline, Russia's international weapons sales hit almost $5 billion last year, a post-Soviet record that some say signals a turnaround for the country's defense industry.

But some experts are warning that Russia's peak arms sales over the past three years may actually be a last hurrah for the scientific and industrial machine that once drove the USSR's superpower ambitions.

"Russia's defense industry has been living off accumulated Soviet fat for the past decade, and now the banquet is ending," says Vitaly Shlyikov, a former deputy defense minister of Russia and now an independent military expert. "Going by current trends, Russia will have no military industry within 10 years."

A narrow customer base, lack of innovation, reckless waste of resources, and a stubborn refusal to reform have doomed the former Soviet economy's crown jewel, observers suggest.

According to the Stockholm International Peace Research Institute (SIPRI), Russia was 2002's most prolific exporter of armaments - surpassing even the US - with 36 percent of all global deliveries. Rus- sian factories supplied advanced fighter planes, tanks, warships, and other equipment to 60 countries last year, including India, China, Iran, Greece, Syria, and Algeria. Although SIPRI's method of counting volume rather than value has been challenged, Russia's rising arms trade has made it, by any measure, one of the top three global arms vendors - along with the US and Britain.

"We have contracts worth more than $13 billion in hand. The future looks good," says a spokesman for the state-owned arms agency, Rosoboronexport, which handles about 90 percent of Russian weapons sales. At a press conference last week, President Vladimir Putin hailed Russia's "developed military-industrial complex" and pledged state support to continue its revival.

But a closer look reveals flaws in that optimistic picture. Normally, a country's own armed forces are Customer No. 1 for its defense firms. In the US, exports account for about 15 percent of arms -makers' profits. But Russia's military has procured almost no new equipment in the past decade, leaving its weapons builders to export or die. "More than 70 percent of the total income of Russian arms firms today is based on exports," says Sergei Kazyonnov, an expert with the Institute for National Security and Strategic Research in Moscow.

Consequently, critics say, Rus- sian manufacturers can no longer produce a range of military materiel; nowadays they churn out a few lucrative items for foreign clients. "We haven't produced any ammunition in over a decade," says Mr. Shlyikov, who spent 30 years as a top Soviet war planner. "All the little things that make a military machine go are no longer made in Russia."

Russia dominates Africa's arms bazaar, supplying several countries - including both sides in the Ethiopia-Eritrea war - with everything from Kalashnikov rifles to MiG fighters. But most of the hardware has been pulled directly from Soviet-era army warehouses, critics say. "The USSR had enormous stockpiles of every military component imaginable, and there's still quite a lot of it left," says Pavel Felgenhauer, an independent military expert. "But we will run out of the Soviet stores within a few years, then production costs will skyrocket. Russia will no longer be competitive in any markets."

More than 80 percent of all Russian arms contracts are with just two countries, China and India, the world's biggest importers of weaponry last year. More than half of Russia's total $4.8 billion in arms exports in 2002 came from sales of a single item: the Sukhoi Su-30 heavy fighter. "India and China want Soviet technology and expertise because they can't get it elsewhere," says Mr. Felgenhauer. "But these markets are becoming saturated. They will absorb what we have to offer, and then move on."

Former Soviet weapons' design bureaus, who kept their US counterparts scrambling through decades of cold-war rivalry, are running on empty. "The underlying truth is that Russia has produced no truly new items since the collapse of the USSR," says Maxim Pyadushkin, deputy director of the independent Center for Strategic and Technological Analysis and coauthor of a recently-released survey of 20 leading Russian arms manufacturers. "Our armsmakers have been selling slightly modernized versions of old Soviet weapons to our clients for years, and most have not been reinvesting the profits in new research and development."

In the case of the Su-30 - an update of the USSR's frontline Su-27 heavy fighter - the Indian government reportedly paid $200 million to develop the plane. In the deal, India won the right to produce its own Su-30MKI under license - meaning Russia will lose that export niche. India will also soon begin producing copies of the T-90 tank.

Experts say that Russian military leaders are wary of sharing technology with China, fearing its long-term strategic intentions. Yet Moscow has allowed Beijing to copy the Su-27, and is selling it submarines, warships, cruise missiles, and air-defense systems.

While a few small deals are being made elsewhere, "there will be no replacing India and China as customers," Pyadushkin says. The US, by far the world's major arms producer, holds most markets - including the USSR's former Eastern European clients.

Some pin hopes on Russia's own armed forces. This year, $3 billion was budgeted for military modernization. "The Kremlin promises that our armed services will begin procuring new weapons in quantity within three years, and let's hope they mean it," says Pyadushkin. "But we still have no comprehensive military reform. If we don't know what our Army is supposed to do, how can we know what weapons to build?"

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