Procurement: Russians Get Their Sales Mojo Back


November 4, 2010: Russia has regained some momentum in its arms exports, selling about $10 billion worth this year. The bump comes from selling more warplanes and warships to nations that cannot afford the Western models, but still want something good enough to match what neighbors have. Russia exported $9.3 billion worth of weapons last year, and about $8 billion the year before. Russian sales had been stalled for the last few years. Three years ago, there were hopes that sales might reach $10 billion in 2008. That didn't happen because there were problems with their two largest customers; India and China. Russian exports had been growing rapidly during the last decade. They were only $4.3 billion in 2003. In 2004, that increased to $5.6 billion, and that went to $6 billion in 2005, $7 billion in 2006 and then $8 billion in each of the next two years.

Russian arms sales rose sharply because the economies of their two biggest customers (India and China) were increasing rapidly. That, and the escalating price of oil (driven largely by increased demand from China and India), has sent international arms sales from $29 billion in 2003, to over $60 billion now. Oil rich countries, particularly those in the Persian Gulf, are eager to buy more weapons, with which to defend their assets.

The stall after 2007 arose from a special problem with China, one of its biggest customers. Over the last decade, about 40 percent of Russian arms exports went to China. That began to shrink as Russian manufacturers feuded with the Chinese over stolen technology. The Chinese have been quite brazen of late, as they copy Russian military equipment, and then produce their own versions without paying for the technology. Worse, the Chinese are now offering to export these copies. The Russians tried to work out licensing deals, without much success. Recently, China signed a technology agreement with Russia, that was supposed to halt the Chinese patent piracy. We will see. Other Western nations are also finding themselves victims of Chinese piracy and, like Russia, are getting more angry at the situation.

Meanwhile, the U.S. continues to be the leading arms exporter, followed by Britain and Russia. The sharp growth in arms exports is largely because, in the past decade, global defense spending had increased nearly 50 percent, to over $1.4 trillion. That's about 2.5 percent of global GDP. After the Cold War ended in 1991, defense spending declined for a few years, to under a trillion dollars a year. But by the end of the 1990s, it was on the rise again. The region with the greatest growth has been the Middle East, where spending has increased 62 percent in the last decade. The region with the lowest growth (six percent) was Western Europe. The current recession may get global defense spending stalled at, or maybe even a little below, $1.4 trillion for a year or two. But the spending growth has resumed now that the recession is over.





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