Russia’s defence industry still enjoying strong growth

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/18

Information collected from multiple sources indicates that Russia’s defence industry production rose about 13 % in 2012 and nearly 20 % a year in 2014 and 2015. While precise figures on how much the defence industry contributes to total Russian industrial output is unavailable, experts estimate defence industry accounts for around 5 % of total industrial output and about a third of Russian machine building. Defence ministry procurements also represent a large share in the production of transport vehicles and electrical devices.

The goal of Russia’s 2011–2020 state armament programme approved in 2010 was to substantially upgrade weaponry and capabilities of all branches of the military and special forces under the defence ministry. While programme details remain classified, a number of sources have put total planned spending on the programme at around 20 trillion rubles, or 2 trillion rubles a year. Media reports indicate the programme has been fully implemented in recent years, and defence spending has soared since 2011. Federal budget spending on defence in 2015 rose 28 % to around 3.1 trillion rubles (€46 billion, slightly over 4 % of GDP).

Russian industrial output contracted about 5 % last year. Without the demand spike from the military build-up, however, it appears industrial output would have already begun to fall in 2013. According to the approved federal budget, total defence spending will not grow this year. If the armament programme stays to schedule, large acquisitions still lie ahead in the 2016–2018 period, after which demand for government defence procurements goes flat. Defence contractors and suppliers have been encouraged to develop products for the civilian market and to seek new export markets abroad.

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