Vladimir Shlyomin

Early in his presidency Vladimir Putin singled out the upgrading of the country’s military industrial complex as one of the state priorities. In line with the adopted strategy to develop the armed forces it was decided to considerably increase the state defense order and, thus, provide enterprises with more funds. Today, as the State Duma approved the country’s budget for 2003, it became obvious that for the time being no recovery of the defense industry may be expected. As chairman of the Duma’s committee on defense Andrei Nikolaev said, «the new budget does not solve problems of the military reform and qualitative improvement of the armed forces».

    The share of expenditures provided under the National Defense clause of the federal budget will remain at the level of past years and amount to 2.65 % (it equaled 2.5 % in 2002). In absolute figures the expenditures will reach 345.9 billion rubles or $ 10.8 billion (284.2 billion rubles or $9.5 billion in 2002). Only 302.5 million rubles ($9.5 million) are appropriated for «Guaranteeing activities of industries for the national defense».
Under the state defense order it is planned to spend about 45.5 billion rubles ($1.4 billion) on R&D and a little over 55 billion rubles ($1.7 billion) on procurement of weapons and equipment. As colonel-general Alexei Moskovsky, the commander of conventional arms of the Russian military, insists, in the nearest future it is planned to purchase just prototypes of the newest arms. By calculations of the Defense Ministry submitted to the Duma a year ago, a serious program of rearming the country’s army will need annual appropriations of approximately $16B. It is worth recalling that the market value of one modern T-90 tank amounts to about $2M and the value of one Ka-50 helicopter (Black shark) equals almost $10M.
«Utilization and liquidation of arms, including implementation of international treaties» is no less an important component of defense spending. The government proposed to maintain the volume of financing under this clause at the previous level of $3.4 billion. Actual utilization expenditures will depend on $20B, which countries of «The Big Eight» intended to allocate Russia during 10 years for destroying weapons of mass destruction.
By some data, from 2002 through 2005 an enormous number of Russian arms and military equipment will be put out of operation: 650 space vehicles, launch vehicles and booster engine complexes; 150 nuclear submarines; 90 diesel submarines; 600 surface ships and support vessels; 650 ballistic missiles of nuclear submarines; 5,000 sea cruise and anti-submarine missiles; 250,000 anti-submarine bombs, mines and torpedoes; 2,000 aircraft and helicopters; 1,500 radar stations and automated control systems; 8,000 tanks and combat armored cars; 10 billion antipersonnel and antitank mines; 1 billion rifles. These figures make clear the scale of impending expenses taking into account the complexity and high cost of liquidating many types of modern arms. For example, according to data provided by deputy chairman of the Russian Clearing House Alexander Piskunov, the utilization of one nuclear submarine is commensurable with the cost of its construction.
Meanwhile, considerable funds are needed for developing the defense industry, which for over ten years now has not received any large orders from the Ministry of Defense and has been experiencing extremely hard times.

Main battle tank T-90

On the eve of 2002 Russia’s Federal Service of Financial Recovery and Bankruptcies reported that only every tenth of sixty monitored defense enterprises is still solvent. Almost half of them fall under the so-called «first category of the insolvents», i.e. their debts match their earnings for the period of 3 to 12 months. The rest are among «insolvent structures of the second category», which need to work for creditors for over a year so as to settle debts. All in all, more than 100 strategically important enterprises are on the brink of bankruptcy.
Such estimates look as though they contradict the official data on industrial dynamics of the defense industry. In 2001 manufacturing and marketing products in this sector were growing faster than in the industry as a whole (7.6 % against 5.5 %). In 2002 volumes of production in the defense industry are predicted to increase 16 % more. As minister of industry Ilya Klebanov reported, the state defense order doubled.
However, not all is so simple. Some analysts believe that the growth of product output in sectors of the military industrial complex has been reached only due to extensive factors connected with utilization of obsolete capacities. The wear extent of the production base at enterprises of the defense industry is from 60 % (Rosaviakosmos) to 82 % (Russian Agency for Conventional Arms). The share of equipment older than 10 years amounts to 80 % to 96 % and rates of its renewal hardly reach 1 % a year.
The double increase of the state defense order mentioned by Ilya Klebanov does not permit to improve the situation. The matter is that the order’s standards (for example, rate of an average wage) do not secure profitability, which even at leading enterprises amounts – with adjustment for inflation – to only 5 %.

Helicopter KA-50-b "Black Shark"

In the words of general director of Rosaviakosmos Yuri Koptev, there is a widening gap between target programs, including the state arms program, and their technological support. The situation in electronics and high-precision mechanics is particularly troubling. Yuri Koptev is worried that in 3 to 4 years Russia will not be able to produce the whole range of items in accordance with engineering documents.
The insufficient financing of target programs is evident. For example, the federal program «National Technological Base in 2002 through 2006» assumes that in the course of these 5 years only $206M will be provided for this purpose. This amount will be distributed among 18 industrial sectors and it should ensure creation of 850,000 jobs. So, the specific figure is $305 a job. The other federal program «Reforming and developing the defense industry complex in 2002 through 2006» adds $250 more per one job at reformed enterprises. Today, however, investment of $10,000 per one job is recognized as minimal.
It is not surprising that the labor productivity at enterprises of the military industrial complex is constantly going down. If three years ago this index equaled $22,000 per one worker a year, nowadays it stands at $12,000. Against the background of technological breakthrough that is taking place in the West such a situation threatens the Russian defense industry with a total loss of competitiveness.
Recently, Alexei Shelunov, the first vice president of the Defense Enterprises Assistance League, stated: «There should be a primacy of state interests... I mean not a militarization of the national economy but an absolutely clear-cut policy. The defense of the state needs exactly as much as required but not as much as provided funds permit... Market relations and the state policy toward the defense industry complex are two diametrically opposite things».