Import substitution in the Russian defense industry: challenges and achievements

The division of labor between the different republics of the Soviet Union, organized since the Stalin era, was intended to promote economic interdependence in order to consolidate a culturally and ethnically disparate political structure. With the breakup of the USSR and the massive deindustrialization of the 1990s, this interdependence did not completely disappear. Indeed, the military-industrial sector, mainly concentrated in the Slavic republics of the Union, continued to bind the former socialist republics. The emblematic example of this cooperation was the relationship between Ukrainian and Russian industries, particularly in the fields of space, aviation and shipbuilding[efn_note]Владимир Воронов, " Импортозамещение для Рогозина ", on Radio Liberty, , January 10, 2016[/efn_note]. 

However, the deterioration of relations between Kiev and Moscow following the annexation of Crimea and the Russian invasion of Donbass in 2014 will gradually contribute to the decline of this industrial proximity. Wanting to respond to Russian trade sanctions and unable to resist indefinitely the pressure of public opinion not understanding why Ukraine is providing military equipment to a country which is waging war on it, Kiev will resolve to ban exports to its destination. of the military-industrial sector of Russia. In response to Moscow's aggressive foreign policy, the European Union, and later the United States, also imposed sanctions by prohibiting the export of materials that could be used for both civilian and military purposes. 

Moscow's reaction is first of all reassuring, President Vladimir Putin and other official figures minimize the impact of the sanctions on the Russian economy and the defense sector. The Kremlin maintains that the sanctions are beneficial for Russia and will enable it to develop its economy by replacing imported goods with locally manufactured products. In order to facilitate this process, and above all to try to divide Westerners, the Russian government decided to introduce counter-sanctions, mainly hitting the food and agricultural sector of the European Union and the United States[efn_note]I. Korhonen, H. Simola and L. Solanko, Sanctions, counter-sanctions and Russia − Effects on economy, trade and finance, Bank of Finland, Institute for Economies in Transition, 2018[/efn_note]. In the military field, import substitution is a strategic priority for Moscow, which does not wish to be hampered in its foreign policy by dependence on a group of potentially hostile states. 

Historically, the desire to substitute imports in strategic areas is nothing new in Russia. During the Soviet era, the need to create an industrial and technological defense base would push the authorities to buy technologies and machine tools in the 1930s from ideological enemies such as fascist Italy, Nazi Germany, or again the United States. The objective of this military cooperation will be to copy and then appropriate foreign technologies in order to "catch up with and surpass" the great industrial powers. While in a majority of cases this approach proves successful and ultimately allows the Soviet Union to design its own technologies and devices, this success cannot be replicated in some advanced sectors such as electronics. After the breakup of the USSR, during the 1990s, some voices were raised in order to highlight the need to reduce the dependence of the Russian defense on industries now located within the new republics having obtained their independence. However, the control and influence exercised by Russia over these new states, and in particular over their defense industries, leads Moscow to leave the situation as it is. However, the economic, technological and developmental decline which followed the collapse of the Soviet system will cause substantial damage to Russia's scientific capacities and accentuate the endemic weaknesses of its military-industrial sector. Today, in view of the diplomatic context, dependence on highly technological products, especially manufactured within NATO countries, is a sovereignty problem for Russia.

Five years after the introduction of the first measures to reduce the dependence of Russian military industries on foreign products, the results are difficult to assess with precision, but global trends can be detected. While successes can be identified in areas of low technological complexity, the situation in the leading sectors remains unclear. In addition, since import substitution has clearly become a political credibility issue, perceiving the reality of its implementation in the defense sector is doubly complicated. 

I) Import substitution in the defense sector: a strategic and political issue

Statements by officials and experts about the implementation of the import substitution policy differ from year to year. In 2018, for example, the then Deputy Prime Minister, Dmitry Rogozin, affirmed that Russian military orders had not suffered any delay due to a lack of foreign components, the latter having been replaced by similar equipment. made in Russia. However, the recent announcement of the cancellation of the series production of GLONASS satellites (global navigation satellite system), essential for the country's anti-missile defense, due to the absence of Russian electronic components, shows a more mixed situation than do not want to admit the leaders. 

Thus, given the economic stagnation of Russia, or financial and structural difficulties facing its defense industries, it becomes easy to understand that the dialectic of the Kremlin hides a double objective. First of all, to empower its military production capacities in order to ensure its sovereignty in the field of defense, and moreover to convince the Russians that the strategy of import substitution is effectively implemented and is economically viable.

By launching a large-scale media campaign, the Russian government has indeed tried to prove to its population that the sanctions were in fact an opportunity for the Russian economy. As a result, the success of the quest for autonomy, imposed on the military-industrial sector by the Kremlin, is now a question of political credibility for the government, especially since the process of replacing imported products does not know a frank success [efn_note] СветланаСухова, ““Делатьто, чтоестьудругих,— путьвникуда””, Kommersant, April 8, 2019[/efn_note][efn_note]ЮЛИЯВЫМЯТНИНА, “ Недозамещение. Кчемупривелаполитиказамещенияимпорта », January 26, 2019[/efn_note][efn_note]ЛюдмилаПетухова, « Statistics ", on Forbes.ru, January 28, 2019[/efn_note]. The showcase that the defense industries constitute therefore allows Moscow decision-makers to justify their economic policy and the financial resources allocated to import substitution. As a reminder, in order to help Russian manufacturers to create products similar to those imported, Russia would have spent 637 billion rubles ($9,5 billion), of which 70 billion directly from state funds

However, in the context of reducing government orders to the Russian military-industrial sector, import substitution is also a means of keeping a financially bloodless industry afloat, as in a previous article, the debt of the Russian defense industry amounts to more than 36 billion. Aware of this problem, Moscow wants to push the logic of replacing imported products even further, since the President has announced that he intends to diversify into the military-industrial sector. Thus, by the time of 2030, 50% of the production of the industrialists of the defense must be intended for the civil sector. In other words, the objective is to encourage manufacturers to create goods for the civilian market just as their European, American or Chinese competitors do. Some industrialists denounce the lack of support from the authorities, which would be content with statements, the feasibility of this conversion is however difficult to evaluate since it depends mainly on the very nature of the activities of each industry. Experts on the subject stress that diversification is essential for the survival of the Russian military-industrial complex, but that the research and development needed to launch a civilian production will increase the debt of these companies. and aggravate an already systemic obstacle. In view of the structural problems of the Russian defense industry, such as its isolation from the civilian sector or its administrative burden, diversification is likely to be difficult, the coming years will shed more light on the feasibility of this ambition. . 

Thus, while the policy of diversification and substitution of imports is rooted in a strategic imperative, it is now also a political necessity for a power playing the card of economic patriotism. Five years after the launch of the import substitution program, it is already possible to measure the degree of success of the Russian defense industry in this area.

II) The unequal success of import substitution in the military sector

In 2014, when Ukraine cuts supplies to the Russian military-industrial complex, Moscow finds itself in a delicate situation. The Ukrainian industrialists were supplying essential equipment for Russian aircraft, the majority of helicopters manufacturers Mi et Kamov operating thanks to engines made by Ukrainian Motor Sich. The circumstances are homologous in the case of aircraft manufacturers Ilyushin, and Antonov, whose main and subsidiary motorization is produced by the same Ukrainian manufacturer. In the field of air armaments are air-to-air missiles P-73, used for close combat by Mig-29, Mig-31, Su-25, Su-27, Su-30 and 34, whose realization is compromised due to the absence of factory-made thermal infrared guiding heads Arsenal, located in Kiev. Russia's dependence on Ukrainian production is also substantial in the field of rockets. The Construction Office Yujnoe is thus the origin of systems such as RS-20 (SS-18), while Harton, located in Kharkiv, is the developer and supplier of intercontinental ballistic missile control systems and other electronic devices such as Topol-M missile targeting systems. In the naval field the company Zoria-Machproekt, is the main producer of gas turbines for the Russian Navy. Finally, Ukraine was the largest supplier of titanium to Russia, the latter having not inherited from the USSR production plants of this strategic metal

Another subject of concern mobilizing the attention of the Kremlin for several years: Russian industrialists do not have a catalog of their own production in 2014. When the government finally realized in 2015 that none of the leaders of the military-industrial complex was able to clearly explain who was producing what, substantial efforts had to be undertaken to clarify the links between the major groups and their subcontractors[efn_note]Mathieu Boulegue, “Of the Russian Military Industrial Complex – Russian Roulette Episode #33”, op. cit., p. 33[/efn_note].    

Four years later, in September 2018, Deputy Prime Minister Yuri Borisov declared that Russia had succeeded in developing its own manufacture of gas turbines for its ships and therefore no longer needed Ukrainian industries. However, there is a significant delay in the launch of ships equipped with these Russian engines, now scheduled for 2021. Moscow has also managed to get rid of its dependence on Ukraine in the field of electronics, the official affirming that "the Russian industry did not have particular difficulties to replace these products". The statements of the leaders of the Ukrainian defense industry make it possible to verify the veracity of these allegations, thus the president of Motor SichViacheslav Boguslaev confirmed this trend. According to him Motor Sich would be losing the Russian market, orders being 10 times lower in 2018 compared to 2014. As a reminder, Russia had ordered 2011 1300 helicopter engines for 1,2 billion dollars to the Ukrainian industrial, however, following the introduction of sanctions in 2014 Motor Sich was unable to honor the part of the contract for the sale of engines for military helicopters. However, according to the director of the United Engine Construction Corporation (Rostec), its factories will be able to make enough engines for Russian helicopters from 2019.

Despite these successes that have allowed the Russian defense industry to reclaim large parts of the military production it is necessary to recall that Russia already had the necessary technologies for the manufacture of equipment previously provided by Ukraine. On the other hand, the situation is more complex when it comes to substituting imports of technologically advanced products, particularly those sold by NATO member countries. As we have mentioned, the decision to stop the serial production of GLONASS satellites demonstrates the inability of Russian manufacturers to design advanced electronics. The situation is similar in the field of the creation and production of machine tools. The Director General ofUralvagonzavod declared on this subject in 2015 that it would take well over five years to restore the skills necessary to set up a technological chain allowing the design of functional devices. Andrei Kolganov, researcher at the Faculty of Economics of Moscow State University, confirms this analysis by stressing that, on reading the official statistics for the year 2018, Russia is 90% dependent on foreigners. for the acquisition of machine tools. The academic says that in practice almost all CNC machines and almost all industrial robots are imported, moreover the last factory producing industrial robots in Russia would have closed several years ago. This fact, however, did not prevent the company Promoilto sell stamped machine tools Made in Russia, at least until the prosecutor seizes the case and realizes that it was Chinese machines ... As mentioned previously, the 30 July the Attorney General Yuri Chaika finally confessed that the military complex Russian industrialists continued to use imported equipment, even though equivalent products exist on the Russian market. Apart from the leading sectors, Russian metallurgy is also in difficulty. In fact, according to political scientist Ivan Lizan, the United States Department of Finance and US shareholders have used the sanctions to force Russian businessman Oleg Deripaska to give up control over the company. Roussal, the largest producer of aluminum in Russia]. Titanium of good quality is also missing as demonstrated by a large-scale scandal that broke out at the VASO aerospace factory, which is responsible for manufacturing planes for Russian leaders such as the president. Inspectors realized that the titanium used by the aircraft manufacturer was not of good quality and that the certificates had been falsified. 

Although mainly communicating about the success of the import substitution program, the Russian authorities seem to have become aware of the technological shortcomings facing the military industry. The decision to increase investment in research and development over the 2019-2021 period is therefore made by allocating 2,38 trillion rubles ($ 36 billion), of which 40% will be directly spent on military projects. However, overall spending on research remains very low in Russia, with the budget for basic research accounting for only 0,15% of GDP in 2018 (0,18% in 2021), which is substantially lower than countries such as Poland or Hungary. In total between 2015 and 2017 Moscow dedicated only 1,1% of its GDP for research which is far from the United States, China, Japan or even the world average of 2,2%. 

Thus, the import substitution policy in the Russian defense sector is both an issue of sovereignty and of domestic politics. It is even possible to wonder, given the generally poor results of import substitution in Russia, if the political stakes are not greater for the Kremlin.

Although successes can be made since Russia has succeeded to a large extent to replace imported military products up to that of Ukraine, in view of the historical shortcomings of the Russian industry it will take decades of Substantial investments to catch up in advanced areas such as electronics, industrial robotics and metallurgy. In view of this reality, some Russian commentators express their concern about Russia's growing dependence on China to become the only alternative supplier advanced equipment. 


Oleg Lypko - Russia and CIS analyst

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