Defense industry of Russia

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About 700 of Russia's defense enterprises have to some degree been privatized although the government retains a significant if not controlling interest. By 1995 only 21 percent of the enterprises in the aviation industry were fully state owned; the armaments industry had 35 percent state ownership; the shipbuilding industry was 40 percent; 54 per cent in the missile-space industry, and 82 per cent in the munitions and special chemicals industry.

A government decree of 13 July 1996 approved a total number of 480 industries that would not be subject to privatization. Over 450 enterprises, mainly research institutes and design bureaus, were to remain government-owned. Of these, 45 were in the aviation industry, 60 in the missile-space industry, 60 in the armaments industry, 93 in the munitions and special chemicals industry, 54 in shipbuilding industry, and 168 in the communications and electronics industry.

Despite years of continuous reorganizations and upheavals since the colloapse of the Soviet Union, Russia’s defense industry remains a backward, crisis-ridden, unproductive sector and is acknowledged as such by high-ranking state officials, not just outside analysts. Its infrastructure and personnel are aging, and the former is increasingly dilapidated. Only 20 percent of Russian weapons are of contemporary quality, and this fact actually represents an improvement on earlier conditions.

Another problem is the aging of the equipment in the defense industry: its production lines and machine tools have long passed the 30-year limit. Many key technologies have been lost as have co-production links. The uncontrolled growth of energy costs is outstripping inflation and is well above the deflators provided by the Economic Development and Trade Ministry. It is obvious that the 2006-2015 government defense order will fall short in both the range and quality of products ordered.

Hence the significance of foreign arms sales, which are supposed to go a long way toward funding not only the preservation of valuable arms-producing firms, but also the entire defense industrial sector. In 2005 three goals were set for the defense industrial sector: guaranteeing conditions for serial production of weapons that have good prospect for use and sell.