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Russia Defence and Security Report Q3 2011
Business Monitor International, May 2011, Pages: 98
The Russia Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Russia's defence and security industry.
On March 18 2011, defence minister Anatoly Serdyukov announced that the Defence Ministry will spend US$665bn on a new state arms procurement programme for 2011-2020. This will triple expenditure from the current rate of 0.5% of GDP (for the superseded 2007-2015 programme) to 1.5% from 2011. The first deputy defence minister said: ‘The main task is the modernisation of our armed forces.’
The programme will require the upgrade of up to 11% of military equipment annually, so that by 2020, 70% of the weaponry in Russia’s inventory will be classed as ‘modern.’ It will especially benefit Russia’s long under-funded navy.
The new spending priorities, as announced by the State Duma Defence Committee in October 2010, include the following: Ships: eight nuclear submarines with Bulava submarine-launched ballistic missiles, 35 corvettes and 15 frigates; Aircraft: Su-24 fighter aircraft, Su-35 long-range fighter aircraft, and Mi-26 transport and Mi-8 gunship helicopters; Other items: RS-24 intercontinental ballistic missiles and battlefield command-and-control systems. The backbone of Russia’s missile defences will be formed by 10 divisions equipped with the new S-500 anti-missile system.
On September 9 2010, Serdyukov said that the Defence Ministry does not plan to purchase large consignments of arms from overseas. He said that the Ministry is ‘trying to push our industry to develop and manufacture modern technical equipment at home.’
The defence force modernisation requires upgraded training and streamlining of defence force personnel. By 2020, up to 200,000 officer positions will be shed and nine out of every 10 army units will be disbanded. There are significant problems in training, managing and retaining professional armed service personnel. The great majority of soldiers are conscripts. Adequate professional training programmes for NCOs have yet to be fully developed.
Russian Helicopters is planning to list on the London Stock Exchange by the end of June 2011, and plans to raise US$500mn by an initial public offering (IPO) of shares in both London and Russia. The majority of Russian Helicopters’ shares is owned by state-owned Oboronprom. Russian Helicopters comprises all helicopter design and manufacturing companies in Russia, and is a leading player in the global helicopter industry.
Russia adopted a new defence policy and military doctrine – the State Programme of Armaments – in February 2010, superseding the 2000 version. The 2010 doctrine contains a more sophisticated approach to NATO. It also deals with advanced conventional precision guided weapons and ballistic missile defence systems, as well as the militarisation of space.
The US Senate’s ratification of the New START nuclear arms reduction treaty on December 22 2010 is a concrete milestone in improving relations between Russia and the United States. We expect the gradual warming of ties between the two countries to continue, as part of what we view as a wider push by the Kremlin to bolster ties with major Western and BRIC states, in order to attract greater foreign investment. While we are relatively positive on the prospects for enhanced ties with most states, we believe improving relations with the US, China and EU will remain prone to setbacks, while Russia’s role in the CIS will continue to cause friction in many countries.
The deadly bomb attack at Moscow’s Domodedovo airport on January 24 is likely to result in a hefty domestic crackdown, with Russian Prime Minister Vladimir Putin keen to protect his record of improving security ahead of parliamentary and presidential elections. On March 29 2011, the ‘warlord’ Doku Umarov and another militant were charged with organising the attack on Domodedovo airport. In the North Caucasus, the response is also likely to be hefty, with operations by the Russian army and special forces against militant groups in the restive regions of Chechnya, Ingushetia and Dagestan likely to be stepped up. On February 18, insurgents attacked a ski resort near Mount Elbrus, Kabardino-Balkaria Republic (KBR), killing three Muscovite tourists. The government has suspended development plans for the area, as concerns are mounting over security for the Winter Olympics to take place in Sochi in 2014.
We forecast the Russian economy to grow by 4.3% in 2011, slightly above consensus, driven by elevated oil prices, strong investment, government spending and a pick-up in consumption by the second half of the year. Over the long run, we continue to expect investment and consumption to become increasingly important drivers of growth.
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