Russian arms producers must adapt to growing competition in the global arms market and address issues within its domestic arms industry, or it will see its role within the global arms market lessen.
- Russia is the world’s second-largest arms exporter after the US, and is seeking to strengthen its position in new markets. Only the US possesses the same ability to be competitive across a wide range of weapons systems. Russia’s large portfolio of orders suggests that it will occupy an important market position in the years to come, and that it is likely to continue to be seen as a reliable source of weapons for countries that do not enjoy warm relations with the US.
- Asia is the most important foreign market for Russian arms producers, accounting for 70 per cent of their exports since 2000. India, China and Vietnam are the principal sources of demand for Russian weapons in the region, and Russia is the dominant supplier in a large proportion of Asian countries. The Middle East and North Africa is the second-most important market, but competition from other suppliers is much more intense there. Latin America and Africa are of relatively modest importance.
- Arms exports play an important role in Russia’s economy, accounting for a large proportion of manufactured and technology-intensive exports. This makes the armaments industry one of the leading sectors through which Russia is integrated with the global economy. Exports are not as important to the armaments industry as they were in the 1990s, but they help keep production lines in service and preserve a full spectrum of capabilities.
- Russia’s arms industry has benefited from the rapid growth in domestic defence procurement since 2011. However, it is not clear whether the government’s import-substitution plan will offset the reduced access to components of weapons systems caused by the sanctions imposed in the aftermath of the illegal annexation of Crimea in 2014. This could lead to shortages that impede production and, hence, export prospects.
- There are also broader weaknesses within the Russian defence industry that hamper innovation and could impair the ability of Russian firms to remain competitive in global markets. These include ageing physical capital, an ageing R&D workforce, and weak linkages between higher education and defence-industrial firms.