Procurement: Merchants Of Death Struggle


January 4, 2015: While Russia has managed to increase their arms exports over the last three years the same cannot be said for the rest of the world. Sales of the 100 largest weapons and military services firms fell for the third year in a row in 2013 and the situation does not seem to be improving in 2014. While the Russian firms are doing very well and the American ones are holding on many European firms are losing ground. Then there’s all the new competition from firms in South Korea, Israel and China. Even the Japanese are changing their laws to allow their arms firms to export.

Russia had a record year for arms exports in 2013, moving $13.2 billion worth of weapons, military equipment and defense services. Russian officials admitted that they did not expect to increase weapons sales over the next few years, largely because arms sales worldwide, both for export and domestic consumption is shrinking. Currently about half of Russian sales are aircraft (jets and helicopters) and 25 percent are anti-aircraft systems. Russia still gets a lot of orders because their stuff is cheaper than Western equivalents and nearly as good. This is changing because of the Ukraine related sanctions and the declining price of oil (from $110 a barrel in 2013 to $55 in late 2014). Some 30 percent of the Russian government budgets comes from these oil sales. Worse, the Middle Eastern oil states have been major customers for weapons in the last decade and now they have a lot less money to spend on anything.

Another reason for Russian forecasts of flat arms sales is China, which is becoming a major competitor. In 2012 China became the fifth largest arms exporter on the planet. In 2008-2012 China exported $11.2 billion (in 2012 dollars) worth of weapons, 55 percent of it to Pakistan and another seven percent to Burma. China, like Russia before it, got sales by selling to outcast nations (Pakistan for developing nukes and supporting terrorism, Burma for being a brutal dictatorship for decades). Russia still does that but with higher quality second-rate stuff. Both Russia and China will tolerate bribe requests and all manner of bad behavior to get a sale. That often makes a difference in many countries. Another side effect of the Ukraine sanctions if Russia has had to get cozier with China and has agreed to provide China with more military tech and help in building Russian weapons. If that weren’t bad enough Russia is losing sales in India which was a major customer for decades but has developed a growing appetite for Western arms.

Britain was displaced from the top five in 2012, leaving the United States the largest exporter followed by Russia, Germany and France. Exports are even larger if you include support and training services, which are particularly lucrative with the more complex and effective Western weapons.

Currently the United States supplies a little over half of those exports (weapons and associated services). The next largest supplier was Russia, with 15 percent. In 2011, the U.S. accounted for 79 percent, mainly because most of the sales to the Arab oil-states were American. This American domination is largely a result of the collapse of the Soviet Union in 1991. The Soviets were the low-end supplier but no one wanted to buy from a loser and the Western nations, especially the U.S., picked up a lot of new business.

The U.S. has long had the most export sales, despite having the most expensive weapons. Notwithstanding the cost, the American stuff had a good reputation for effectiveness and reliability. American manufacturers provide excellent (and expensive) support. Most countries, if they could afford to buy American, did so. The others searched for someone offering cheap but effective weapons. The supplier has often been Russia and increasingly China (often with copies of Russian stuff). China has been moving into traditional Russian markets over the last two decades.

Russian arms sales rose sharply after 2001 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) have sent international arms sales from $29 billion in 2003 to over $70 billion today. Oil rich countries, particularly those in the Persian Gulf, are eager to buy more weapons with which to defend their assets from an increasingly aggressive Iran.

The stall in Russian sales 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.

Another factor in the sharp growth in arms exports was largely because, after 2001 global defense spending 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 in many parts of the world.


Article Archive

Procurement: Current 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 



Help Keep Us Soaring

We need your help! Our subscription base has slowly been dwindling. We need your help in reversing that trend. We would like to add 20 new subscribers this month.

Each month we count on your subscriptions or contributions. You can support us in the following ways:

  1. Make sure you spread the word about us. Two ways to do that are to like us on Facebook and follow us on Twitter.
  2. Subscribe to our daily newsletter. We’ll send the news to your email box, and you don’t have to come to the site unless you want to read columns or see photos.
  3. You can contribute to the health of StrategyPage. A contribution is not a donation that you can deduct at tax time, but a form of crowdfunding. We store none of your information when you contribute..
Subscribe   Contribute   Close