Press Release

 

Contact: Matthew Ritchie, Eurasia Defense Analyst

Phone: (203) 426-0800

Fax: (203) 426-4262

Web site: www.forecastinternational.com

E-mail: matthew.ritchie@forecast1.com

Forecast International, Inc.

22 Commerce Rd. Newtown, CT  06470 USA

FOR IMMEDIATE RELEASE

Russian Military Faces Growing Budget, Constrained Bandwidth

NEWTOWN, Conn. [May 5, 2008] — In 10 years, Russia's national defense spending has risen by more than 965 percent as its military renews strategic air patrols, reasserts its interests throughout the former Soviet space, and actively pushes back against competing security interests from the U.S. and Europe. Last year, Russian national defense spending surpassed $32 billion, compared with less than $3 billion in 1998. Looking forward, Russian defense spending is expected to trend upward; however, Moscow's strategic bandwidth may be constrained by a confluence of defense economic factors.

Forecast International projects that between 2008 and 2012, Russia will spend approximately $294 billion on national defense. This projection is rooted in Russia's amended three-year national defense budget, which allocates RUB959 billion ($37.5 billion) in 2008, RUB1.06 trillion ($41.5 billion) in 2009, and RUB1.92 billion ($46.6 billion) in 2010. In the outyears of 2011 and 2012, Russian defense spending is projected to reach $53 billion and $61 billion, respectively.

"Three major trends will define Russian defense spending between 2008 and 2012," notes Matt Ritchie, an analyst specializing in Eurasian defense economics, "increased procurement, increased funding for strategic arms, and a relative decline in research and development." These trends are already being manifested in the national defense budget for 2008 to 2010.  Procurement spending is set to increase from $27 billion to over $36 billion, funding for the strategic arsenal to expand from $675 million to $990 million, and allocations for applied research and development to decline from just over $5 billion to less than $4.9 billion.

The shifting trends in defense spending align with Russia's evolving strategic priorities. "Russia's quantitative military advantage has enabled it to push its interests throughout its perceived sphere of influence," suggests Ritchie. "The Kremlin is keen to consolidate these gains and its current level of geopolitical influence, an interest that is driving its acquisition of new military systems (conventional and strategic) in an effort to expand this capability with a qualitative edge."

However, with Russia's power projection capabilities increasingly linked to its national defense budget, a number of defense economic factors threatening the budget's efficacy may undercut Moscow's ability to leverage its influence. Between 2008 and 2010, the share of the national defense budget devoted to procurement is expected to increase from approximately 72 percent to 80 percent, thus placing greater importance on the Russian defense-industrial base to deliver systems at cost and on time – an unlikely probability.

"As Russia attempts to procure its next generation of military systems, it will run up against the same cost overrun and time delay obstacles faced by Western contractors. Moreover, these issues are likely to be exacerbated by the rate of decline in the high-tech sectors of the Russian defense-industrial base," says Ritchie. Similar conclusions have been drawn by officials in the Russian defense industry.

The paramount issue in Russian defense economics is the extent to which the procurement-driven defense budget expansion will offset long-term underinvestment in the defense-industrial base.  Ultimately how this dynamic influences Russia's ability to maintain its current level of strategic bandwidth will determine its geopolitical influence in the future.

Forecast International, Inc., is a leading provider of Market Intelligence and Analysis in the areas of aerospace, defense, power systems and military electronics.  Based in Newtown, Conn., USA, Forecast International specializes in long-range industry forecasts and market assessments used by strategic planners, marketing professionals, military organizations, and governments worldwide.  To arrange an interview with Forecast International’s editors, please contact Ray Peterson, Vice President, Research & Editorial Services (203-426-0800, ray.peterson@forecast1.com).