8/7/2019 Key Factors of Russia's $705 Billion Military Modernization 2011-2020
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Press ReleaseContact: Rebecca Barrett
Phone: (203) 426-0800Fax: (203) 426-4262Web site: www.forecastinternational.comE-mail: [email protected] International, Inc.22 Commerce Rd. Newtown, CT 06470 USA
FOR IMMEDIATE RELEASE
Three Key Factors at Play for Russia's $705 Billion Military
Modernization
NEWTOWN, Conn. [April 11, 2011] — The Russian government is intent on reviving the nation's armsindustry while simultaneously modernizing the armed forces. To this end, the Kremlin has revised its StateArmaments Program (SAP) and is now calling for RUB20 trillion ($704.9 billion) to be spent on themilitary's modernization from 2011-2020. There are three key factors that will determine the extent towhich the SAP can be implemented.
First, in order to meet the funding goal of RUB20 trillion, approximately 4.5 percent of the nation's GDPmust be directed toward military funding. However, given Russia's current financial position, this may be abit ambitious.
According to Rebecca Barrett, Eurasian defense analyst at Forecast International, the recent globaleconomic crisis "exposed the structural faults of the Russian economy.” She noted, "While equity markets
have improved since mid-2009 and capital markets have re-opened, the repair of the financial system is far from complete."
The government is now hoping that the economy will reach pre-crisis levels by the end of 2012, at whichtime GDP should be on par with the levels achieved in 2008.
At the same time, the crisis has also exposed the financial weaknesses of the Russian aerospace and defenseindustry. Fortunately for Moscow, the timing could not have been better. The Kremlin leveraged thisexposure to consolidate the defense sector under government control and will now use the industry'scapabilities to complete the military's modernization plan. However, Barrett points out in the "MarketOverview" report on Russia that the government must invest in research and development programs for thedefense sector in order to stave off the pending industrial decline. Without the investment, the industry'sdefense technology base could become a major impediment to the SAP.
The third key factor is the defense budget. The MoD has begun transitioning funding streams to supportadditional arms procurements through two major reform processes. The first is a cost-saving reform whichcalls for the reduction of some 200,000 personnel by 2012. The second major reform is the adoption of anew budgetary framework. According to Barrett, "The process is designed to modernize the Kremlin'sfiscal practices and provide longer-term price and policy signals to the Russian defense industry."
In order for the SAP to be fully implemented, the government must continue to invest heavily in both themilitary and the nation's defense industry. Furthermore, because the SAP calls for 11 percent of existing
8/7/2019 Key Factors of Russia's $705 Billion Military Modernization 2011-2020
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military equipment to be upgraded and a full 70 percent to be replaced with modern weapons, the Russiandefense industry needs to stay afloat and the economy must continue to rebound at a steady rate.
Forecast International, Inc. (www.forecastinternational.com) is a leading provider of Market Intelligenceand Analysis in the areas of aerospace, defense, power systems and military electronics. Based inNewtown, Conn., USA, Forecast International specializes in long-range industry forecasts and marketassessments used by strategic planners, marketing professionals, military organizations, and governmentsworldwide. To arrange an interview with Forecast International’s editors, please contact Ray Peterson,Vice President, Research & Editorial Services (203) 426-0800, [email protected]. ProprietarySpecial Research is also available. Contact Jonathan Watson, Managing Director, The Forecast ConsultingGroup ([email protected]). Questions regarding sales may be directed to [email protected].
