Russia's leaders are getting used to cutting budgets this year. As the country sinks deeper into recession unemployment, according to some estimates, is as high as 12% and the economy is predicted to shrink by about 4.5% in 2009 the government is slashing spending at most of its ministries. The Energy Ministry's budget is down by 33%, and that of the Transport Ministry by 30%. But there is one hugely expensive project on which President Dmitri Medvedev has vowed to actually increase spending: transforming Russia's creaking Soviet-era defense industry into a modern technological power, and turning the 1.1-million-man Russian army into a leaner but more effective fighting force.
To get there Medvedev has increased government military spending this year by nearly 26% to about $37 billion, and given military producers of strategic weapons like missile systems and aircraft an extra $1.9 billion in 2009. In late March, just days before flying to the G-20 summit in London, the President donned a military pilot's helmet and uniform at an air base near Moscow for a ride in the back of a Sukhoi-34 fighter bomber, one of Russia's most sophisticated and deadly pieces of hardware. Afterwards he told reporters that it was time to modernize the country's entire air-force fleet. "We have the momentum and people who want to serve their country," he said. "Much is yet to be done." (See pictures of Russia on Victory Day.)
That's an understatement. Russia's military is still largely a remnant of the Soviet days, when the Red Army's millions were spread across a vast swath of Eastern Europe and Central Asia. When the Soviet empire began collapsing in 1989, Russia lost the bulk of its foot soldiers, as well as several key defense-related industries, ranging from shipbuilding in Ukraine to nuclear enrichment in Kazakhstan, according to an analysis of Russia's military in February by Stratfor, a U.S. company. The upheaval also forced many of Russia's finest engineers to quit for better-paid jobs abroad. Defense factories across Russia lumbered through the 1990s, many of them barely seeing a splash of paint. Meanwhile the Russian army filled its ranks with reluctant conscripts; recent Russian newspaper and government reports have found physical abuse, drug addiction and alcoholism rampant among the poorly trained, disaffected soldiers.
The limitations of both equipment and men became obvious during Russia's five-day war with Georgia last August. Despite Russia's superior firepower and its bigger army, its ground offensive was not the overwhelming success it should have been. Moscow's military arsenal lacked anything to match Georgia's Israeli-made spy drones, according to Paul Holtom, senior researcher at the Stockholm International Peace Research Institute (SIPRI). Indeed, Russian troops operated with no modern surveillance or night-vision equipment at all, according to Russian Duma hearings last October. Says Vadim Kozyulin, head of the conventional-arms program at the Center for Policy Studies in Moscow: "Our army was modern at the end of the 1980s. Since then it has been allowed to stagnate."
But there is one area where Russia's military has boomed during the past few years: arms exports. Moscow earned a record $8.3 billion in arms sales in 2008, second in the world to the U.S., which accounts for more than 40% of global defense spending. Moscow has been particularly good at targeting buyers in the developing world. Between 2004 and 2007 Russia sold $37.9 billion worth of military equipment outstripping even the U.S. in that period to more than 80 developing nations on every populated continent. Russian arms manufacturers have cut deals for everything from helicopters to tanks and rifles. Among eager customers have been North Korea, Iran, China and Venezuela, which are barred from buying Western weaponry under various sanction regulations. The embargoes have had the effect of recruiting new clients for Moscow. "Venezuela's jets used to be [American] F-16s," says Richard Grimmett, who tracks global arms sales for the Congressional Research Service in Washington. "Well guess what? We ain't selling squat to Venezuela."
Russia's strategy is twofold. It wants to use the huge profits it makes selling arms around the world as a platform on which to relaunch its own defense forces. But the arms sales are not only about money. Moscow hopes that as Venezuela and other countries grow more dependent on Russian weapons, political and economic ties will also grow, increasing Russia's global heft. "The West sees it as saber-rattling, but for Russia it is about retaking what it sees as its rightful position in the world," says Guy Anderson, editor of Jane's World Defence Industry in London.
Russia has crafted its role by using its two most valuable assets vast energy resources and mountains of military hardware to cut a series of clever deals. In 2006, for example, then President Vladimir Putin flew a delegation of oil, gas and defense executives to Algeria. Putin negotiated to sell $7.5 billion worth of combat jets, missiles and tanks to the government, while Russian energy giants Gazprom and Lukoil secured key oil and gas concessions in the North African nation. And Putin offered an extra sweetener: he wrote off Algeria's near $5 billion Soviet-era debt. Then there was the deal Putin cut with Libya just before he stepped down from the presidency to become Prime Minister: that one involved an agreement to sell $2.5 billion worth of arms, while cancelling Libya's $4 billion Soviet debt. Or there was last October's agreement with Venezuela in which Medvedev gave Venezuelan President Hugo Chávez a $1.1 billion credit line so the country could add to its arsenal of Russian weapons.
Funds and Talent Needed
For Russia's arms-export boom to continue, its defense industries need a huge infusion of fresh funds and talent. Russia's defense department buys only 15% of the weaponry the country's factories produce, while old customers such as India and China have begun producing their own weapons in the past decade or so. Unless Russia modernizes its factories, Moscow could lose more clients, says the Stratfor analysis. If that happens, the report states, "the Russian defense industry will be hard-pressed to keep from becoming irrelevant."
That's why Russian officials from the President on down have made it clear in the past few months that more money and hence a modernization of defense-industry facilities is on its way. And why much of the money is heading to companies that produce prized exports such as the Sukhoi fighter jets. But finding enough talent to overhaul Russia's rusting production lines may prove tough. Defense companies did not recruit and train engineers during the recessionary 1990s, leaving the average age of a worker in the industry at about 60, according to Kozyulin.
And finding engineers may actually prove easier than getting enough good recruits to bolster the army. The Kremlin plans to retire about half the army's 300,000 aging officers over the next three to six years, and train hundreds of thousands of fresh, paid soldiers in modern warfare. But today's high school graduates were born when Russia's birth rate hit an all-time low in the early 1990s, and were raised during the disastrous Chechen war. Near the decrepit train station of Vladimir, a military town near Moscow, an army-recruiting center promises a life of adventure for those who sign up. THE ARMY OF RUSSIA AN ARMY OF PROFESSIONALS, says a billboard, showing a young man in a leather military helmet peering out of a tank scope. Not yet, it isn't. But money always helps.
With reporting by John Wendle / Moscow