Will domestic enterprises of the military-industrial complex suffer because of structural changes in the supply of military equipment?
The operation of the aerospace forces of Russia in Syria has increased interest in domestic technology in the global arms market. At the end of November it became known that China acquired Su-35С fighters (24 units totaling 2 billion dollars), in early December Indonesia bought similar aircraft (12 units for 1 billion dollars). The order book of Russia after the conclusion of transactions exceeded 53 billion dollars. However, there are serious concerns that in the coming years the situation will change for the worse. Some military analysts see conceptual changes in the market, which in the future may lead to a decrease in the attractiveness of the Russian weapons for potential importers. We are talking about this with Konstantin Makienko, Deputy General Director of the Center for Analysis of Strategies and Technologies.
Myth 1. Armored is gone
One of the most popular myths is the possible refusal of the majority of buying countries to purchase armored vehicles. If in 2003–2010 the share of this segment in the global arms market was 13,4%, in 2011–2014 it was only 8,8% (data from the Center for Analysis of World Arms Trade). Buyers increasingly refuse to purchase tanks and infantry fighting vehicles (BMP) in favor of the acquisition of aircraft and missile systems. Therefore, an opinion appeared in the expert community that the best times of the armored vehicles market remained in the XNUMXth century, and in the near future it was destined for sunset. If this scenario is realized, the Uralvagonzavod Corporation (UVZ, Nizhny Tagil) and the Kurganmashzavod (KMZ) will suffer the most. They are the only Russian manufacturers of tanks and infantry fighting vehicles, respectively.
Konstantin Makienko — Konstantin Vladimirovich, how far do these fears correspond to reality?
- In my opinion, they are completely unfounded. The situation in the global tank market in the last 15 years shows that the demand for this type of weaponry has been maintained, although it has decreased compared to 90 years. Its structure has undergone an interesting transformation. In 90, Western manufacturers dominated the market for new production tanks. For example, the US supplied Abrams OBT to Egypt, Kuwait and Saudi Arabia, France fulfilled the export contract for 388 combat and two Leclerc training tanks in the UAE, the United Kingdom manufactured 38 units for the Challenger 2 for Oman. In the 21st century, the situation has completely changed. The Russian UVZ became the absolute leader in this sector. The Americans and Germans went into the segment of deliveries from cash or storage bases, while the French and the British had no export contracts at all. At the moment, among Western countries, only Germany has an agreement to supply the new Leopard 2A7 to Qatar, concluded in the 2013 year.
- What is the reason for the surge in interest in Russian tanks?
- High demand for T-90C is the best indicator of their effectiveness and competitiveness. The critical statements that we have heard from some former leaders of the Ministry of Defense of the Russian Federation are absolutely groundless. In recent years, Uralvagonzavod has implemented at least three large projects for the supply of hundreds of T-90C to India, Algeria and Azerbaijan. Smaller contracts (for the export of dozens of tanks) were executed with Uganda and Turkmenistan. In addition to ready-made machines, technological kits for licensed production T-90С were sent to India.
- What other foreign tanks are in demand on the global arms market?
- Against the background of the departure of traditional Western manufacturers, new players are gradually emerging. In particular, Poland in recent years has performed the 48 RT-91М contract for Malaysia. China has entered into agreements to supply its tanks to Morocco, Myanmar and Bangladesh. Relatively recently, the first in stories Israel received an export contract - 50 tanks Merkava Mk4 transferred to Singapore. However, in quantitative terms, all these agreements are significantly inferior to the supply of Russian T-90C.
- Who can fill up the list of exporting countries in the coming years?
- South Korea, Turkey, India, Japan, Pakistan, Iran and even Jordan are now implementing their own national battle tank projects with varying degrees of success. However, it is too early to assess their export potential.
- What factors will determine the development of the global market for tank supplies?
- The key event will be the supply to the market of the Russian family of heavy vehicles based on the Armata platform. When this product reaches a state of commercial maturity, a real revolution will occur: the entire world fleet of tanks will immediately become obsolete. Historical analogy: thus, the appearance of dreadnoughts at one time devalued battleship fleets equipped with medium-caliber artillery.
Two opposing factors are now putting pressure on the market - the growth of geopolitical tensions is accompanied by low oil prices.
The key factor here is the cost control of this new offer. The cost of production will largely depend on seriality. With a large state defense order, the price of one unit should decrease - for both domestic and foreign consumers.
- Often there are opinions that tanks are a weapon of the last century, and buyers will soon stop updating the outdated fleet of vehicles. How justified are these concerns?
- The number of armed conflicts in the world is growing. There is a war in Syria, Iraq,
Yemen. At any time, the punitive operation of the Kiev regime in eastern Ukraine may resume. In all these conflicts, tanks along with artillery are one of the main tools for achieving success. Aviation, precision weapons, information technology - that's great. However, it is impossible to win a military victory without the participation of infantry, which must be covered with armor. “Thousands of armada”, “Guderian breakthroughs” and “Rommel raids” are probably forever in the past. However, the tanks will still serve as the military.
Myth 2. Glut phase
The second popular myth of the world arms market is its cyclical nature. Experts identify three main phases: an avalanche-like increase in sales, peak and glut. At the heart of this point of view is the assumption that the key purchaser countries eventually complete the re-equipment of their armies and make long pauses in procurement. Proponents of this concept argue that the last phase of glut occurred in the 90-e - the beginning of 2000-x. It was replaced by “avalanche-like” sales growth: in 2001, the global volume of the armament market was 27 billion, and in 2014, 64,5 billion. By 2015, the volume of purchases should reach a maximum level, and then begin to fall sharply, which could hit the prospects of all Ural military-industrial enterprises oriented to export.
- How realistic is this concept?
- In the arms market in the last 30 years, you can really see fluctuations in capacity. However, they are connected not with world cycles of army rearmament, but with the dynamics of conflict. Buyer countries do not modernize their armed forces at the same time, each with its own cycle. Moreover, the procurement of weapons in the oil monarchies of the Persian Gulf is ongoing. A similar situation is observed in India, which, after purchasing a large number of Russian heavy fighters, is now spending huge amounts of money on imports of American military transport aircraft, and is also preparing to buy multi-functional middle-class combat aircraft in the future. The rearmament process here does not stop, affecting all new segments.
- When was the historical maximum of arms purchases recorded on the world market? What was he connected with?
- The peak came in the middle of 1980's. During this period, an enormous demand was generated by the Iran-Iraq war. At the same time, the USSR helped regimes that fought against pro-Western or pro-Chinese rebels in Angola, Ethiopia, Cambodia, and Afghanistan. The end of the Iran-Iraq and the Cold War brought down the arms market to such an extent that some large exporters (for example, Brazil) practically completely lost their defense industry. From the beginning of the zero years, after the start of American operations in Yugoslavia, Afghanistan and Iraq, the market began to grow again.
- Does the capacity of the arms market depend solely on the dynamics of conflict?
- Not only. There is the concept of the French scientist Jean-Paul Hébert about the dependence of the arms market on the cost of oil. The high cost of hydrocarbons leads to an increase in purchases from the oil-exporting countries of the Middle East and North Africa. If you look at the dynamics, you can see that the period of low oil prices in 1990-s coincided with a drop in the capacity of the arms market. After the resumption of growth of quotations in the XXI century, the volume of purchases of military equipment began to increase again.
- In other words, two opposing factors are now putting pressure on the market?
- That's right. We are in a situation where the growth of geopolitical tensions is accompanied by low oil prices. It is extremely difficult to predict which of these factors will outweigh. I would bet that the growth in purchases of military equipment will continue in the coming years. The fact is that the fall in oil prices is not always a negative factor. For example, the solvency of Algeria and Iraq from this decreases, and India and Vietnam - is growing.
Myth 3. Transition to self-reliance
The third popular myth is the assertion that the main buyer countries are gradually withdrawing from the market due to the development of their own defense industry. Usually, China and South Korea, which were able to retrain from importers to arms exporters in a short period, are cited as an example. In addition, Singapore’s experience is indicative. The tiny state managed to develop its infantry fighting vehicle, heavy wheeled armored personnel carrier, artillery systems from scratch, to build a whole series of frigates and amphibious assault ships. If this example is followed by many other countries, then the main exporters represented by Russia and the United States risk losing a significant proportion of orders. Now the key weapon-buying countries have adopted programs for the development of their own military industry and are trying in every way to import substitution.
- How successful is this process? Which countries will soon be able to abandon imports?
- To the largest importers of weapons in the world are India and the oil monarchies of the Persian Gulf. So far there is no evidence that they will be able to meet the needs of their armed forces through their own production. In particular, the Arab monarchies do not make any serious efforts to develop their own military-industrial complex. The results of numerous projects of the defense industry of India do not cause delight among the local armed forces. The most significant achievements of this country are related to the organization of licensed production of certain types of Russian weapons, above all, Su-30MKI fighter jets and T-90С tanks. The joint Russian-Indian project of the BrahMos supersonic anti-ship missile is a brilliant success. At the same time, licensed production projects of Western systems (for example, French submarines Scorpene) are implemented with great difficulty.
- Which states have achieved the greatest success in import substitution?
- The only country that in the last decade has managed to replace imports in almost all key positions is China. Another successful example is South Korea. Despite the fact that this state is still dependent on American technology, it has managed to demonstrate outstanding success in developing its own defense industry. Now Korea has received several export contracts: four agreements for the supply of a T-50 light combat aircraft, as well as an order for the construction of three submarines for Indonesia. However, while these two countries are exceptions to the rule.
- At the expense of the organization of production, did the main buying countries begin to buy less final products and more components?
- I think that packers will always have a stable market share, however, they will not be able to prevail over manufacturers of final products. Now on the market there are other trends. We state an increase in the scale of licensed projects. Recently, all countries, except for the oil monarchies of the Persian Gulf, have raised the question of the transfer of licenses to them. Another trend is the development of international projects based on a risk-divided partnership.
- How does the slowdown in the global economy affect the market? Recently it became known that Brazil refused to purchase Russian PAN-A1 due to the difficult financial situation. Will other countries follow this example?
- In my opinion, the political situation affects the market much more than the economic one. Therefore, negative trends in the economy will not lead to a reduction in arms purchases. When the need arises, even the poorest countries are able to find resources to ensure their security.
Two opposing factors are now putting pressure on the market - the growth of geopolitical tensions is accompanied by low oil prices.