Reforming Russia’s Military Industrial Complex

Under President Vladimir Putin, Russia has launched a comprehensive program to restructure its defense industry, which has shrunk dramatically since the Soviet era. This process has achieved some progress, but fundamental structural problems persist that lead Russia to export large quantities of advanced weapons to conflict-prone regions, placing the Kremlin at odds with Europe, the United States, and other countries.

Over the last six years, the Putin administration has encouraged the nationalization and consolidation of private-sector defense firms into large, vertically integrated, state-controlled holdings. In November 2000, Putin approved the creation of a single government-supervised arms exporting agency, Rosoboronexport, to end the self-destructive competition that had developed between the country’s major weapons-exporting enterprises. Earlier this year, the agency gained the exclusive right to sell Russian weapons to foreign countries.

At present, the government is promoting the creation of a similar institution in the aviation sector, the new United Aircraft Building Corporation (UABC), which includes major state and private manufacturers of fixed-wing aircraft. Proponents of the merger believe it will improve the efficiency of the Russian aircraft industry and, by lowering costs, make Russian planes more attractive to foreign buyers.

Under Putin, Russian military spending has also rebounded. This year, the Russian government will provide the Ministry of Defense almost 5 trillion rubles ($189 billion) under the 2007-2015 State Armaments Program. The percentage of the defense budget allocated to purchasing military equipment will rise from 44% in 2006 to 50% by 2011.