August 17, 2020 | International, Aerospace, Naval, Land, C4ISR, Security
By: Fenella McGerty
The two Russian defense companies in this year's Top 100 list — air defense missile systems manufacturer Almaz-Antey and weapons developer Tactical Missiles Corporation JSC — have again fallen in rank.
Almaz-Antey has fallen to 17th place from 8th and 15th in 2018 and 2019 respectively. Similarly, Tactical Missiles Corporation JSC has fallen to 35th place from 25th and 32nd in 2018 and 2019 respectively.
The falling revenues of the companies this year reflect the difficult market conditions these enterprises are operating in as a result of the impact of COVID-19 on government budgets.
Even before the pandemic and the consequent contraction in economic output emerged, the outlook for Russian defense spending was already subdued in light of persistently low oil prices in 2019. Domestic spending was further constrained this year as the oil price fell below $20 per barrel in April, with the projected average price for the year reaching just $40 per barrel.
The International Monetary Fund forecasts a 6.6 percent contraction in Russia's real gross domestic product this year as lockdown measures to prevent the spread of COVID-19 subdued domestic and international economic activity, the latter further weakening global energy demand. The 4.1 percent growth projected for 2021 means the Russian economy will only return to pre-pandemic output in 2022.
Last month, as part of wider measures to offset the bleaker fiscal setting, the Russian Ministry of Finance proposed a 5 percent reduction in financing for the state armament program over the next three years. Under the new plans, the 20 trillion rouble (U.S. $271 billion), 10-year military appropriations program (known as GPV 2027) that runs to 2027 covering defense procurement, repairs, research and development, and infrastructure investment will be reduced by a total of 225 billion roubles between 2021 and 2023. Wider defense funding could be reduced by as much 323 billion roubles.
The previous state armament program (GPV 2020) saw significant increases enacted to defense investment between 2011 and 2016 as the country pursued ambitious modernization targets. As a proportion of GDP, the official Russian defense budget peaked in 2015 at 3.8 percent. If one includes wider defense spending items such as military pensions, social support and housing, total Russia expenditure accounted for as much at 4.8 percent of GDP that year. This period of significant defense investment helped to recover some lost ground from the previous two decades.
Progress was remarkable but by no means comprehensive, with strategic nuclear forces and defense aerospace surpassing modernization targets, while maritime and land forces fared less well. Pockets of advanced capability — e.g., air defense, weapons, combat aircraft — evolved alongside less efficient entities that failed to deliver against the ambitions of GPV 2020.
Nonetheless, as Russia approached the overarching target of 70 percent “modern” equipment within the armed forces inventory, defense spending increases slowed and the country moved from a period of dramatic capability buildup toward a sustainment phase — a move further presaged by wider economic constraints at the time
As such, GPV 2027 is less ambitious than GPV 2020, and annual defense budget allocations have reflected this. Russian defense spending has been stagnant in real terms since 2017, as sanctions impacted government finances, energy revenues remained subdued and modernization ambitions were deemed close to fulfillment.
Official projections of the budget for national defense saw slightly stronger growth in 2021 and 2022, although this was proposed in the months before the full economic ramifications of the pandemic were realized. Russian companies therefore face a tighter domestic market — as indeed will most countries in the wake of the pandemic — while the burden of debt has stifled investment in new technologies and R&D. This lack of funds to invest in research has created a further challenge for companies facing increasing political pressure domestically to diversify production efforts toward the civil market.
The reported moves to restructure defense industry debt will ease some of the stress on companies and provide some temporary bandwidth with which to focus on investment. However, such moves will further constrain domestic defense spending, as funds to absolve debt will inevitably squeeze investment elsewhere in the budget.
Perhaps on the positive side, the further weakening of the rouble against the dollar in 2020 has the potential to provide Russian defense equipment with an added price advantage in global defense markets and to facilitate exports. The comparatively cheaper kit will appeal to countries that find they have less investment funds at their disposal than a year ago. As competition in export markets intensifies and funding tightens, buyers may find they can demand greater industrial participation, partnership and technology transfer in moves to bolster self-sufficiency and resilience. Markets which have previously shown preference for Western equipment may find such capabilities are no longer affordable with Russia's relative willingness to offer favorable exchange rate agreements and flexible financing terms, offering a further advantage in constrained export markets.
Fenella McGerty is a senior fellow for defense economics at the International Institute for Strategic Studies.
March 3, 2021 | International, Aerospace
A slew of countries have announced military drone swarm projects in the last few weeks. Here's a primer on what swarms are, how they work and the advantages they bring.
June 11, 2020 | International, Aerospace, Naval, Land, C4ISR, Security
The Army Futures commander is making a list of which of the service's 34 top-priority programs to sacrifice first – and which programs outside the top 34 he has to save. By SYDNEY J. FREEDBERG JR.on June 10, 2020 at 4:18 PM WASHINGTON: The Army Secretary and Chief of Staff approved a draft spending plan for 2022-2026 yesterday that funds all 34 of the service's top-priority programs, the Army's modernization chief said this morning. But with the ever-growing cost of COVID looming over the economy and the Pentagon alike, Gen. John “Mike” Murray says he's already made a mental list of which of the 34 the service might have to slow down or sacrifice and which ones it absolutely has to save. “I have a one-to-N list in my mind” of the 34 programs, Murray told an Association of the US Army webcast this morning. “That's only in my mind, right now,” he emphasized. “It's pre-decisional.” In other words, it's not final, it's not official, and it's not ready to share with the public. All that said, however, it's still a telling sign of uncertain budget times that the four-star chief of Army Futures Command not only has such a list, but is willing to say he has it. Meanwhile, Murray's chief civilian partner, Assistant Secretary for Acquisition Bruce Jette, has launched a long-term study of the Army's economic prospects. In effect, Jette's looking at the supply side, asking how tight the budget will be, and Murray is looking at the demand side, asking what the Army should prioritize within that tight budget. Beyond The 34: “Critical Enablers” Gen. Murray is also looking at the Army's 684 other programs, he said, to determine which of them can be cut – while some have been slashed already to free up funding for the 34, others are so far unscathed – and which are essential to the top-34's success. “We can come up with, you know, the most impressive Next Generation Combat Vehicle in the world,” Murray said. “If you can't get fuel to it, then you're wasting your time.” Fuel is just one, particularly knotty logistical problem. Ultimately, Murray wants to reduce Army fuel demands by moving to hybrid diesel-electric motors. While electric power by itself might work for civilian cars, he said, he's skeptical the Army can charge batteries in combat, or that any practical amount of batteries can store enough energy to move, say, a 70-ton main battle tank. Likewise, while civilian quadcopters can run off batteries, the Army's new scout helicopter, the Future Attack Reconnaissance Aircraft, requires a high-powered turbine. So for decades to come, the Army will need fuel trucks, storage bladders, pumps, drums, hoses, and so on. And that's just for the gas. Both current and future combat systems require a staggering array of spare parts, repair tools, maintenance facilities, and more. Logistics is historically a US strength, but it's not a major focus of the 34 priority programs, which range from hypersonic missiles to smart rifles, from tanks to aircraft to robots. Besides weapons, the 34 do include a lot of high-tech information-age infrastructure, both to train the troops in virtual and augmented reality, and to share tactical data like target locations across the battlefield. There has not, however, been nearly as much emphasis on supporting functions such as fuel, maintenance, and transport. Murray now aims to fix that. Starting with a study by the Combined Arms Center at Fort Leavenworth, he said, the Army has come up with a list of “18 key critical enablers that are getting funded,” Murray said, again without naming them. Murray's calling the 34 priority programs “Tier One” and the 18 enablers “Tier Two,” he said. “Then tier three is ammo,” he added. The general didn't elaborate, but certainly a high-tech tank or aircraft can't fight without ammunition, just as it can't move without fuel. The catch is that, in modern warfare, you're not just buying rifle bullets and cannon shells, but a host of precision-guided munitions that are much more expensive to stockpile in bulk for a major war. Even once the Army has figured out which weapons, support systems, and ammunition it can afford to buy, it still won't be able to buy enough of them to equip every unit at once. The service's recent AimPoint study, Murray said, focused on figuring out which units around the world need to be modernized first and which will have to wait. “The whole point behind AimPoint was an understanding that you can't modernize the entire army overnight, or in a year, or really even in a decade,” Murray said. As a young officer, he recalled, his unit had M60 tanks and M113 transports “while the rest of the Army was running around in M1s and Bradleys.” While he doesn't to return to the extreme disparities of the past, he said, “somebody has to be first and somebody has to be last.” https://breakingdefense.com/2020/06/army-ponders-what-to-cut-if-budget-drops-gen-murray/
July 2, 2024 | International, Security